2006 (1) TMI 63 - HC - Income Tax

Deduction in respect of interest income under sections 80HHC and 80-I - It is fairly submitted by learned counsel for the Revenue that the issue raised in the question is covered against the Revenue by the decision of this court in CIT v. N.S.C. Shoes wherein it is held that the interest income is also eligible for deduction provided it is included in the computation of profits and gains of the business. Applying the ratio laid down by this court in the decision cited supra we hold that the interest income is also eligible for deduction provided it is included in the computation of profits and gains of the business - hold that the Tribunal was right in holding that the claim of the assessee could not be disallowed in a proceeding under section 154 especially when the interest income was included in the profit of the business. Hence there is no error in the order of the Tribunal and no substantial question of law arises for consideration for this court

Summary

Issues:
Appeal under section 260A of the Income-tax Act, 1961 against the order of the Income-tax Appellate Tribunal, Madras, for the assessment year 1993-94 regarding deduction under sections 80HHC and 80-I of the Income-tax Act.

Analysis:
The judgment delivered by P.P.S. Janarthana Raja J. concerns an appeal filed by the Revenue under section 260A of the Income-tax Act, 1961, against the order of the Income-tax Appellate Tribunal, Madras, for the assessment year 1993-94. The substantial question of law raised in this case was whether the assessee is entitled to deduction in respect of interest income under sections 80HHC and 80-I of the Income-tax Act. The assessee, a manufacturer and seller of HP Monoblock pumps, had their claim for deduction disallowed under section 154 of the Act. The Commissioner of Income-tax (Appeals) allowed the appeal filed by the assessee, leading to the Revenue's appeal before the High Court.

The High Court noted that the Appellate Tribunal dismissed the Revenue's appeal on the grounds that the issue for consideration fell outside the purview of section 154 of the Act, and thus, the claim could not be disallowed in a proceeding under that section. The Revenue contended that the interest income should not be eligible for deduction, citing a previous decision of the court in CIT v. N.S.C. Shoes [2002] 258 ITR 749. However, the High Court applied the ratio laid down in the cited case and held that the Tribunal was correct in its decision. The High Court emphasized that the interest income being included in the profit of the business made the assessee eligible for the deduction, and therefore, no error existed in the Tribunal's order. Consequently, the High Court dismissed the appeal, stating that no substantial question of law arose for consideration.

In conclusion, the High Court's judgment affirmed the Tribunal's decision, emphasizing that the interest income's inclusion in the business profit made the assessee eligible for the deduction under sections 80HHC and 80-I of the Income-tax Act. The court's decision was based on the precedent set by a previous case and highlighted that the claim could not be disallowed under section 154 of the Act. As a result, the appeal by the Revenue was dismissed, and no costs were awarded.