2019 (3) TMI 17 - HC - Income Tax

Deduction u/s 80-IA - netting of interest allowed in first round of litigation - Order not challenged by revenue - interest were received in the course of business or in relation to business transaction - HELD THAT - AO had denied deduction u/s 80I-A but not altogether declined that the income received was by way of business. Were it not so, the question of considering the alternate submission of assessee, i.e. for the benefit of netting would not have been remitted by the ITAT in its first order. It was open to the Revenue to have questioned the remand in the first instance. Having not done so, it cannot now question the findings of the lower appellate authority with respect to the working out of the netting principle in the facts of this case. No substantial question of law arises in this regard. Miscellaneous income reported from sale of scrap, including cheque bouncing charges, late payment charges etc. - whether it could be treated as business income having regard to the fact that the assessee is a telecommunications company - HELD THAT - It is not disputed that this question has been decided against the Revenue in Principal Commissioner of Income Tax-09 v. M/s. Vodafone Mobile Services Ltd. 2019 (1) TMI 472 - DELHI HIGH COURT by a Division Bench of this Court.

Summary

Issues:
1. Disagreement with ITAT order under Section 260-A of the Income Tax Act, 1961.
2. Claim of benefit under Section 80-IA of the Act and interest income treatment.
3. Disallowance of deduction claim by AO and subsequent proceedings.
4. Principle of netting in relation to interest income.
5. Treatment of miscellaneous income from sale of scrap as business income.

Analysis:

Issue 1:
The Revenue contested the ITAT order under Section 260-A of the Income Tax Act, claiming it did not align with a previous court ruling.

Issue 2:
The respondent, a telecommunications company, claimed benefit under Section 80-IA of the Act for interest income derived from a loan transaction with its group company. The AO initially disallowed the deduction claim, which was later partially allowed by the ITAT, emphasizing the nexus between interest income and the business undertaking.

Issue 3:
After remission, the AO disallowed the claim entirely, categorizing the income as not from business but other sources. However, the CIT(A) overturned this decision, which was upheld by the ITAT, emphasizing the importance of the nexus aspect regarding interest expenses and income.

Issue 4:
The Revenue argued against permitting netting of interest income, citing the principles established in a previous court ruling. However, the court noted that the AO had not denied the income as business income, allowing for consideration of the netting principle.

Issue 5:
Regarding miscellaneous income from the sale of scrap, the court referred to a previous Division Bench decision against the Revenue, concluding that such income could be treated as business income for a telecommunications company.

In conclusion, the court dismissed the appeal, finding no substantial question of law in the issues raised, and upheld the decisions of the lower authorities regarding the treatment of interest income and miscellaneous income.