2000 (1) TMI 152 - AT - Income Tax

Issues Involved:
1. Maintainability of the revenue's appeal in view of the certificate issued under the Kar Vivad Samadhan Scheme (KVSS).
2. Direction of the CIT(A) to allow deduction under sections 80HH and 80-I on the interest income.
3. Direction of the CIT(A) to allow deduction under section 80-I on the gross total income prior to deduction under section 80HH.

Issue-wise Detailed Analysis:

1. Maintainability of the Revenue's Appeal in View of the Certificate Issued under KVSS:
The primary issue raised was the maintainability of the revenue's appeal due to the certificate issued by the Commissioner of Income-tax under section 90(2) read with section 91 of the Finance Act, 1998, in respect of the Kar Vivad Samadhan Scheme (KVSS). The counsel for the assessee argued that the revenue's appeal should be deemed withdrawn as the assessee's appeal for the same assessment year was dismissed as withdrawn under the KVSS. The Departmental Representative opposed this, asserting that the appeals were distinct and the issues raised in the revenue's appeal were not covered by the assessee's appeal under KVSS.

The Tribunal examined the judgments of the Delhi High Court and the Andhra Pradesh High Court, which struck down the proviso to section 92 of the Finance Act, 1998, allowing assessees to avail the benefit of KVSS even if the revenue's appeal was pending. The Tribunal concluded that the disposal of the declaration in one appeal does not affect the other cross-appeal unless the issues are common. Since the issues in the cross-appeals were different, the Tribunal decided that the revenue's appeal was maintainable and could proceed on its merits.

2. Direction of the CIT(A) to Allow Deduction under Sections 80HH and 80-I on the Interest Income:
The revenue challenged the CIT(A)'s direction to the Assessing Officer to allow deductions under sections 80HH and 80-I on the interest income, which was initially disallowed by the Assessing Officer as income from other sources. The CIT(A) had treated the interest income as directly related to the business of the assessee.

The Tribunal referred to the judgments of the jurisdictional High Court and the Madras High Court, which held that interest income cannot be treated as income from industrial undertaking for deductions under sections 80HH and 80-I. The Tribunal agreed with the revenue that while the interest income could be treated as business income, it could not be treated as income from industrial undertaking. The Tribunal also noted that netting between interest paid and received should be allowed only if the nexus between the borrowings and the investment in FDRs is proven. The issue was set aside to the Assessing Officer to examine this nexus before allowing netting.

3. Direction of the CIT(A) to Allow Deduction under Section 80-I on the Gross Total Income Prior to Deduction under Section 80HH:
The revenue contested the CIT(A)'s direction to allow deduction under section 80-I on the gross total income before the deduction under section 80HH. The Tribunal noted that this issue was covered by the judgment of the Apex Court in J.P. Tobacco Products (P.) Ltd. v. CIT, which held that deduction under section 80-I is to be allowed on the gross total income and not the income reduced by deductions under section 80HH.

The Tribunal found the CIT(A)'s findings consistent with the Apex Court's judgment and upheld the CIT(A)'s direction.

Conclusion:
The Tribunal rejected the preliminary objection regarding the maintainability of the revenue's appeal and decided to proceed with the appeal on its merits. The appeal was partly allowed for statistical purposes, with specific directions to the Assessing Officer to examine the nexus between borrowings and investments in FDRs for netting interest income and to follow the Supreme Court's ruling on deductions under section 80-I.

← Previous Next →