2004 (9) TMI 307 - AT - Income Tax

Deduction u/s 80IA - Profits and gains derived from an industrial undertaking - Whether interest income received from fixed deposits should be considered as part of business income or income from other sources for the purpose of claiming deduction u/s 80-IA - HELD THAT - It is true that the expression printed in the headnotes of the decision reported in Pandian Chemicals Ltd. vs. CIT 2003 (4) TMI 3 - SUPREME COURT reads not 'derived from' business of undertaking . But if we go through the body of the judgment, the Hon'ble Court has not mentioned the expression business of undertaking anywhere in the judgment. The expression used throughout in the judgment is an industrial undertaking . The addition of the term business found in the headnote of the report is, therefore, either a mistake of editing or a mistake of printing. Therefore, as far as the impugned asst. yr. 1997-98 is concerned, the distinction pointed out by the learned chartered accountant very much exists. It is to be seen that provisions of s. 80-IA have been amended subsequently for the purpose of deleting the expression business . This is a point in support of the contention advanced by the learned chartered accountant. The Court has made it very clear that in the case of a 100 per cent exempted unit, its entire income need to be treated as nothing but its business income. We are of the considered view that the present case is squarely covered by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Punit Commercial Ltd. 2000 (8) TMI 71 - BOMBAY HIGH COURT . Thus, we direct the AO to treat the interest on fixed deposits as forming part of assessee's business income. In the result, this appeal is allowed.

Summary

Issues Involved:
The judgment involves the issue of whether interest income received by the assessee from fixed deposits should be considered as part of business income or income from other sources for the purpose of claiming deduction under section 80-IA of the Income Tax Act, 1961.

Comprehensive Details:
The appeal was filed by the assessee against the order of the CIT(A)-XXXIX, Mumbai, concerning the assessment completed under section 143(3) of the IT Act, 1961 for the assessment year 1997-98. The assessee, a perfumery business in Silvassa, claimed 100% deduction of its profit under section 80-IA as it was situated in a notified area.

The main issue raised in the appeal was the treatment of interest income of Rs. 32,64,044 from fixed deposits as "income from other sources" by the assessing officer, leading to the denial of the benefit under section 80-IA. The assessee contended that the interest amount should be considered part of its business income and not as income from other sources.

The learned chartered accountant representing the assessee argued that the interest income arose from the business of an industrial undertaking and should be construed as business income. He cited relevant case laws to support the contention that interest income related to the business activities should be treated as business income.

On the other hand, the Departmental Representative contended that the interest income should not be considered as profits or gains derived from the industrial undertaking itself, citing a Supreme Court decision in Pandian Chemicals Ltd. case. However, upon detailed consideration, the Tribunal found that the distinction between "business of an industrial undertaking" and "profits and gains derived by an undertaking" was crucial, especially in the context of the relevant assessment year.

Considering the assessee's status as a 100% exempted unit under section 80-IA and relying on a Bombay High Court decision, the Tribunal directed the assessing officer to treat the interest income from fixed deposits as part of the assessee's business income. As a result, the appeal was allowed in favor of the assessee.