2019 (7) TMI 1370 - HC - Income Tax

Deduction u/s 80HHC - exclude 90 % of net' interest income excess of interest received or paid provided there is direct nexus between interest earned and paid after establishing the fact that all the interest income except the interest on income tax is forming part of the profits of the business and not income from other sources - HELD THAT - The learned Counsel for the parties agree that these substantial questions of law be taken up for consideration together. Both the learned Counsel have further agreed and jointly submit that this issue stands covered by the Judgment of the Apex Court in the case of ACG Associated Capsules Pvt. Ltd. v/s. The CIT 2012 (2) TMI 101 - Supreme Court in favour of the Respondent-Assessee and against the Revenue. Therefore, the substantial questions of law at (I), (II), (V), (VII) and (VIII) are answered against the Revenue and in favour of the Respondent-Assessee. Taxability of interest income - Interest on bank deposits, inter-corporate deposits, debentures, from sister concerns and other interest' is forming the part of the head Profits and gains of business or profession - HELD THAT - This question stands answered in favour of the Assessee and against the Revenue in the decision of a Division Bench of this Court in assessee own case 2014 (9) TMI 1195 - BOMBAY HIGH COURT wherein it was held that the money of the company was used for making investment in the bank deposits or call money market or inter-corporate deposits with the objective for availing short term loans or for keeping deposits for the purpose of LC's and said money had always retained its character as business assets. In our opinion, the surplus money, unless and until it is pulled out totally from the business and having absolutely no nexus with the amount or ancillary business activity and thereby the same is deposited with the bank only and solely with a view of earning interest by keeping the said funds idle, then it can be treated as non- business income or income from the other sources Computation of sec 80HHC deduction - Receipts on account of professional services' and proceeds from electronic data processing' - whether are not income falling within the exclusionary provisions of clause (baa) of Explanation to section 80HHC, is right in law? - HELD THAT - The question of law has, in fact, been answered in favour of the Revenue in the case of Sesa Goa Ltd. vs. The CIT 2015 (5) TMI 621 - BOMBAY HIGH COURT TDS u/s 195 - applying the provision of Section 172 in holding that section 40(a)(i), is not applicable - HELD THAT - There is no dispute that the issue stands covered by the ruling of the Full Bench of this Court in assessee own case 2016 (2) TMI 308 - BOMBAY HIGH COURT .This substantial question of law is, therefore, to be answered in favour of the Assessee and against the Revenue.

Summary

Issues:
1. Interpretation of substantial questions of law related to ITAT findings on interest income.
2. Application of legal principles to determine the validity of ITAT findings on interest income exclusion.
3. Analysis of ITAT findings on specific types of income and their classification under the Income Tax Act.
4. Determination of the applicability of exclusionary provisions under section 80HHC to certain income types.
5. Examination of the ITAT's application of Section 172 in relation to tax levy and recovery.
6. Assessment of ITAT findings on the exclusion of net income from various business activities for computing profits under section 80HHC.
7. Evaluation of ITAT's decision on excluding lease hire charges for computing business profits under section 80HHC.

Interpretation of Substantial Questions of Law:
The judgment addressed several substantial questions of law, mainly focusing on the interpretation of ITAT findings regarding the exclusion of 90% of net income from specific business activities for computing profits under section 80HHC. The court considered past rulings, including the ACG Associated Capsules Pvt. Ltd. case, to support the Respondent-Assessee's position against the Revenue.

Validity of ITAT Findings on Interest Income:
The court analyzed the ITAT's decision on interest income exclusion and agreed with the Respondent-Assessee, citing the case law precedent and the direct nexus between interest income and business activities. The judgment highlighted the importance of consistency in treating interest income as business income unless there is a substantial change justifying a different view.

Classification of Specific Income Types:
The judgment referenced the Division Bench's decision in the Commissioner of Income Tax vs. V.S. Dempo & Co. Ltd. case to support the Assessee's position regarding the classification of interest income earned from business activities. It emphasized the direct relationship between interest income and business operations, leading to the conclusion that such income should be treated as business income.

Applicability of Exclusionary Provisions under Section 80HHC:
The court examined the application of exclusionary provisions under section 80HHC to various income types, including professional services, electronic data processing, and proceeds from specific business activities. It upheld the ITAT's decision based on factual findings, even when answering one substantial question of law in favor of the Revenue.

Assessment of ITAT Findings on Various Business Activities:
The judgment evaluated the ITAT's findings on excluding net income from different business activities, such as the transfer of vessels, barge freight, and lease hire charges, for computing business profits under section 80HHC. It considered both legal principles and factual circumstances to reach a decision in favor of the Assessee.

Application of Section 172 and Exclusion of Lease Hire Charges:
The court addressed the ITAT's application of Section 172 concerning tax levy and recovery in the context of specific business activities. It also analyzed the exclusion of lease hire charges for computing business profits under section 80HHC, ultimately ruling in favor of the Assessee based on legal interpretations and factual considerations.

Conclusion:
In conclusion, the judgment resolved the substantial questions of law by favoring the Respondent-Assessee on most issues related to interest income exclusion and the application of exclusionary provisions under section 80HHC. It also clarified the impact of answering one substantial question in favor of the Revenue while maintaining the overall decision in favor of the Assessee. The judgment provided a comprehensive analysis of each issue involved, considering legal precedents, factual findings, and relevant provisions of the Income Tax Act.