2018 (7) TMI 1627 - HC - Income Tax

Entitled to deduction under Section 80IA - interest on fixed deposits in the bank - Held that - In view of the difference in language of the two Sections, this Court held that interest on fixed deposits in the bank would be profits and gains derived from any business of an industrial undertaking. The same reasoning would apply to extend deductions under Section 80IA of the Act for the compensation received for non supply of spare parts. Thus, the issue stands concluded in favour of the appellant assessee by the decision of this Court in Jagdishprasad M. Joshi (2008 (11) TMI 326 - BOMBAY HIGH COURT). - Decided in favour of assessee

Summary

Issues:
1. Interpretation of Section 80IA of the Income Tax Act, 1961 regarding deduction eligibility for interest income and compensation income.
2. Application of legal precedent in determining deduction eligibility under Section 80IA.

Analysis:
1. The appeal under Section 260A of the Income Tax Act was admitted based on substantial questions of law related to the denial of benefits under Section 80IA for interest income and compensation income. The Tribunal disallowed the deduction under Section 80IA for interest earned on fixed deposits and compensation received due to non-supply of spare parts for the industrial undertaking.

2. The Tribunal's decision was based on the interpretation that income must have a direct and immediate nexus with the industrial undertaking to qualify for deduction under Section 80IA. Citing the decision in Commissioner of Income Tax Vs. Pandian Chemicals Ltd., it held that the words 'derived from' imply a direct connection with the industrial undertaking, leading to the disallowance of deductions for interest and compensation income.

3. The appellant argued that the decision in Pandian Chemicals Ltd. was rendered in the context of Section 80HH, whereas the present case pertains to Section 80IA. Highlighting the wording disparity between the sections, the appellant relied on the decision in Commissioner of Income Tax Vs. Jagdish prasad M. Joshi, which concluded that profits and gains derived from any business of an industrial undertaking are eligible for deduction under Section 80IA.

4. In the case of Jagdishprasad M. Joshi, the Court allowed deductions under Section 80IA for interest income earned on fixed deposits, emphasizing the difference in language between sections 80IB and 80HH. The Court held that interest on fixed deposits can be considered profits and gains derived from any business of an industrial undertaking, extending the same reasoning to compensation income for non-supply of spare parts.

5. The Court, in the present case, found the decision in Jagdishprasad M. Joshi applicable and concluded that both interest and compensation income are eligible for deduction under Section 80IA. The Revenue's counsel failed to provide reasons why the precedent in Jagdishprasad M. Joshi should not apply to the current scenario.

6. Consequently, both questions of law were answered in favor of the appellant, and the appeal was allowed, granting the appellant the benefit of deductions under Section 80IA for interest and compensation income.