2022 (1) TMI 96 - HC - Income Tax

Exemption u/s 80IB(10) - HELD THAT - The assessee is a Government of West Bengal undertaking and is engaged in the development of housing projects which was initially done by the housing Department of the Government of West Bengal and in the year 1972 the respondent was established and projects were developed by the respondent by constructing LIG/MIG and HIG flats for sale to the general public. The CIT(A) on going through the facts found that the income of the respondent/assessee is only from sale of flats. CIT(A) also examined as to whether the observation of the assessing officer that the assessee did not make such a claim in the original return but only in the revised return was considered for its correctness as to whether the same could have been a ground to reject the revised return and deny the claim for exemption. CIT(A) noted that the earning of interest was not from the 'first degree source' and the same could not be shown by the assessee as 'income from other sources' in the original computation and hence revised computation was filed by the assessee during the course of assessment proceedings and that the reason for rejecting the same as assigned by the assessing officer was incorrect. CIT(A) rightly noted the decision in CIT vs. Calcutta National Bank Ltd. 1959 (4) TMI 2 - SUPREME COURT wherein held that business is a word of very wide connotation and applying the said decision to the facts of the case it was held that the income should be treated as business income. The tribunal on its part, examined the correctness of finding recorded by the CIT(A) and approved by same. More importantly, the tribunal noted that the assessing officer himself has allowed deduction under similar circumstances while completing the assessment for the assessment year 2006-07 u/s 143(3) of the Act - Tribunal was right in rejecting the revenue's appeal.

Summary

Issues Involved:
1. Interpretation of Section 80IB of the Income Tax Act, 1961 regarding deduction of interest income from fixed deposits as business income.
2. Correct application of the phrase "derived from" in Section 80IA of the Income Tax Act.

Analysis:

Issue 1: Interpretation of Section 80IB of the Income Tax Act
The appeal before the Calcutta High Court concerned the treatment of accrued interest as income from business under Section 80IB(10) of the Income Tax Act. The assessing officer initially denied the deduction claimed by the assessee, citing that it was not included in the original return but only in the revised return. However, the Commissioner of Income Tax (Appeals) allowed the appeal, emphasizing that the interest earned by the assessee accrued from fixed deposits made out of business income, with no other source of income identified. The High Court concurred with the CIT(A)'s decision, noting that the interest was derived from the business activities of the assessee, a government undertaking engaged in housing projects. The Court referenced the broad interpretation of "business" by the Supreme Court and upheld the CIT(A)'s findings, supported by the Tribunal's approval and the assessing officer's previous allowance of similar deductions in a prior assessment year.

Issue 2: Interpretation of the phrase "derived from" in Section 80IA
The second substantial question of law pertained to the correct interpretation of the phrase "derived from" in Section 80IA of the Income Tax Act, 1961. The Tribunal, after thorough examination, affirmed the CIT(A)'s decision, emphasizing that the interest income in question stemmed directly from the business activities of the assessee, primarily involved in the sale of flats. The Tribunal highlighted the assessing officer's previous acceptance of similar deductions in a prior assessment year, further supporting the assessee's claim that the interest income was indeed derived from its business operations. Consequently, the High Court upheld the Tribunal's decision, dismissing the revenue's appeal and affirming that the interest income qualified for exemption under Section 80IB(10) of the Income Tax Act.

In conclusion, the Calcutta High Court, through a detailed analysis of the issues raised, upheld the decisions of the lower authorities, emphasizing the direct correlation between the interest income and the business activities of the assessee. The Court's judgment clarified the application of relevant sections of the Income Tax Act and affirmed the eligibility of the assessee for the claimed deductions based on the income derived from its core business operations.