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TMI Blog2013 (11) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial undertaking belonging to the respondent assessee. The very source of interest so received is as per terms of contract of sale of goods manufactured in the industrial undertaking. Hence, it is inseparable part of contract of sale. Consequently it forms part of income of the assessee from the industrial undertaking and is thus eligible for deduction under Section 80HH & 80I of the Act – Decided against the Revenue. - Income Tax Appeal No. - 131 of 2001 - - - Dated:- 14-11-2013 - Hon'ble Sunil Ambwani And Hon'ble Surya Prakash Kesarwani,JJ. For the Appellant : A. N. Mahajan (S.C.),A. Kumar,A. N. Mahajan,B. J. Agarwal, D. Awasthi, G. Krishna,R. K. Upadhyay, S. Chopra For the Respondent : R. S. Agarwal ORDER (Delivered by Hon'ble Surya Prakash Kesarwani,J.) 1. This income tax appeal filed under Section 260 A of the Income Tax Act 1961(In short the Act) arises out of the order dated 8.2.2001 passed by the Income Tax Appellate Tribunal, Delhi Bench 'C', New Delhi in I.T.A. No. 2718/DEL/94 for the assessment year 1992-93 wherein the following substantial question of law has been raised : " Whether on the facts and circumstances of the case the ITAT was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s : (i)CIT v. Malwa Cotton Spinning Mills Ltd. (P H) [2008] 302 ITR 53 (P H). (ii) CIT v. Vishakha Industries Ltd. (A.P.) [2001] 251 ITR 471 (iii) CIT v. K.T. Kunjumon [2001] 276 ITR 479 (Mad.) (iv) CIT v. Alpine Solvex Ltd. [2004] 276 ITR 92 (MP.) (v) CIT v. Govinda Choudhury Sons: [1993] 203 ITR 881 (vi) CIT v. Paras Oil Extraction Ltd. [1998] 230 ITR 266 (MP.) (vii) Totgar's Co-operative Sale Society Ltd. [2010] 322 ITR 283 (SC) 4. Per contra Sri Bhupesh Jain submits that interest received on delayed payment against credit sales is part of the contract of sale and thus part of sale consideration of the products manufactured in the industrial undertaking. The income so received is the income from industrial undertaking. He submits that the interest so received is covered under the provision of Section 80HH of the Act inasmuch as it is the part of the profit and gains derived from the industrial undertaking. In support of his submission he relied on the following judgments : (i)CIT v. Govinda Choudhury Sons: [1994] 74 TAXMAN 331 SC, para 6. (ii) CIT v. Vidyut Corporation :[2010] 324 ITR 221 (Bom.), para 6. (iii) CIT v. Poddar Pigments Ltd. : ITA 347/2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 HH. While allowing deduction u/s 80 I, the A.O. deducted the amount of allowance u/s 80 HH from the gross total income and circulated allowance on the remainder holding that it was in accordance with Sub Section 8 of Section 80 HH. The ld. A.R. of the appellant submitted that the A.O. misrepresented the provision of Section 80 HH (9) and restriction of allowance u/s 80 I was not according to the provision of law. The appellant relied on the decision of ITAT, Jaipur Bench in appeal no. ITA 653/JP/85 for A.Y.83-84 and Ramnath Exports Pvt. Ltd. Vs. IAC (Delhi) in ITA No. 14 (I) /Del/88 for A.Y.84-85 of ITAT Delhi Bench considering the above decision and provision of Section 80 HH (9), it is sent that the A.O. has misrepresented the provisions of calculation for purpose of allowing deduction u/s 80 I has to be done on the whole amount of gross total income and not on the remainder after giving allowance u/s 80 HH. The A.O. is, therefore, directed to allow deduction u/s 80 I on gross total income of the appellant." 7. Aggrieved with the order of the CIT(A) the Appellant department preferred an appeal before the ITAT. The ITAT considered the facts and provisions in detail in paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the head "Income from other sources "only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In our view, the interest payable to him certainly partakes of the same character as the receipts for the payment of which he was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts granted to the assessee under the award and treated as "income from other sources". The second question is, therefore, answered in favour of the assessee and against the revenue." 9. In the case of CIT v. Poddar Pigments Ltd. (supra),the Delhi High Court has considered the admissability of deduction under Section 80 IB of the Act with respect to interest received from trade debtors and held in paragraphs 4 and 5 as under : "4. The court also considered the decision of the Supreme Court in the case of Liberty India V. Commissioner of Income-tax : 317 ITR 218 (SC) and came to the conclusion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said judgment ." 11. In the case of CIT v. Advance Detergents Ltd. (supra), while considering the provisions of Section 80 IA of the Act, the Delhi High Court again took the view that an assessee is entitled to deduction under Section 80 IA on interest received from trade debtors and observed in paragraphs no. 11, 12, 13, 14, 15 and 16 as under : "11. The respondent assessee, which is an industrial undertaking, had supplied goods to its various customers which had been manufactured by it. Some of these customers did not make payment in time. The dues which were payable by those buyers attracted interest on late payment charges. In this manner, ultimately, the payments which were received by the assessee against the supply of goods also included interest on overdue payments. 12.precisely, this very issue came up for consideration before the Gujarat High Court in the case of Nirma Industries Ltd. V. Dy. CIT [2006] 283 ITR 402. That was also a case where interest was received by the assessee from the debtors for late payment of the sale proceeds and the question was as to whether this interest can be treated as the income derived from the business for the purpose of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the additional sale proceeds as interest in case of contract as per illustration, (a) above, such payment would not be profits derived from industrial undertaking, but in case of illustration(b) above, if the payment is described as sale price it would be profits derived from the industrial undertaking. This can never be, because in sum and substance these are only two modes of realising sale consideration, the object being to realise sale proceeds at the earliest and without delay. Purchaser pays higher sale price if it delays payment of sale proceeds. In other words, this is a converse situation to offering of cash discount. Thus, in principle, in reality, the transaction remains the same and there is no distinction as to the source. It is incorrect to state that the source for interest is the outstanding sale proceeds. 14.Thus, according to the Gujarat High Court, when interest is paid on delayed payment, it can be treated as higher sale price which is converse situation to offering of cash discount because the transaction remains the same and there is no distinction as to the source. Looking from this angle, the interest becomes part of the hire sale price and is clearly der ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Ltd. v. DCIT (supra), the Gujarat High Court while considering the admissibility of deduction under Section 80 I of the Act took the similar view. 16. The judgment relied by Sri Shambhu Chopra, in the case of CIT v. Malwa Cotton Spinning Mills Ltd. (supra) relates to special deduction under Section 80 HHC of the Act in which the Punjab and Haryana High court has held as under : " What has been held in Govinda Choudhury and Sons' case [1993] 203 ITR 881 (SC) is that in the case of a contractor, interest received on delayed payment is a business income and not income from other sources. The same view was taken by the Hon'ble Supreme Court in CIT v. B.N. Agarwala and Co. [2003] 259 ITR 754. in the present case also, interest received by the assessee on delayed payment by the customers has been assessed as the business income. It is at the time of determination of profits of business or the purpose of clause (baa), as referred to above, that the interest component added therein is to be excluded to give effect to the provisions in its true letter and spirit." The findings recorded by Punjab and Haryana High Court in the afore noted judgment does not support the case of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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