SUZLON ENERGY LIMITED vs. DEPUTY COMMISSIONER OF INCOME TAX

Facts

The assessee, Suzlon Energy Limited, filed an appeal against the Income Tax Appellate Tribunal's (ITAT) order dated February 28, 2007, for Assessment Year 1998-99. The Assessing Officer had rejected the assessee's claim for deduction under Section 80IA, treating interest income as 'other income'. The CIT(Appeals) allowed the claim, directing modification of the deduction based on interest on fixed deposits held as margin money for Letters of Credit (LCs) used for importing Wind Turbine Generators (WTGs). The revenue appealed to the ITAT, which reversed the CIT(Appeals)'s order. The present appeal challenges the ITAT's decision to disallow 'netting off' of interest income against interest expenditure.

Held

The High Court held that the Income Tax Appellate Tribunal was not right in law in not allowing the 'Netting Off' of interest income against interest expenditure. The Court relied on the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. vs. CIT, which held that for the purpose of Section 80HHC, only net interest, after considering interest expenditure, should be considered for deduction. The Court reasoned that the principle laid down by the Supreme Court applies to the present case, implying that net interest income, after deducting interest expenditure, should be considered for the purpose of deductions. Consequently, the impugned judgment and order of the Tribunal were quashed and set aside, and the order of the CIT(Appeals) was restored. The Court also noted that this Court had previously answered a similar question of law in favour of the assessee in the case of the same assessee, Suzlon Energy Ltd., in Tax Appeal No. 1437 of 2005.

Key Issues

1. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not allowing the 'Netting Off' of interest income against interest expenditure? (Question of law) Assessee's Contention: The assessee argued that netting off of interest income against interest expenditure should be allowed. The judgment does not explicitly record the assessee's specific arguments beyond this general point. Revenue's Contention: The revenue did not dispute the assessee's position and could not point out any contrary decision. The judgment notes that the learned advocate for the revenue was not in a position to dispute the issue.