COMMISSIONER OF INCOME TAX vs. NIRMA LIMITED

Facts

The assessee, Nirma Limited, engaged in manufacturing detergent powders and soaps, paid royalty for the "Nirma" trademark to Nirma Chemical Works. The assessee filed its return for Assessment Year 1992-93, declaring a total income of Rs. 76,82,520. The Assessing Officer (AO) passed an assessment order under Section 143(3) on March 31, 1995. The Commissioner (Appeals) partly allowed the assessee's appeal. The Revenue then appealed to the Income Tax Appellate Tribunal (ITAT), which partly allowed the Revenue's appeal for statistical purposes through its order dated March 13, 2003. The Revenue has now filed this appeal before the High Court against the ITAT's order.

Held

The High Court held that the Appellate Tribunal was right in law in allowing the netting of interest income without considering that interest income should be assessed as income from other sources while computing deductions under Sections 80HH and 80I. The Court relied on the Apex Court's decision in ACG Associated Capsules P. Ltd. v. Commissioner of Income-tax, which held that ninety percent of the net interest (not gross interest) included in the profits of business computed under the head "Profits and gains of business or profession" was to be deducted under clause (1) of Explanation (baa) to Section 80HHC. The Court found the facts of the present case to be identical to the cited precedent. Therefore, the question of law was answered in the affirmative in favour of the assessee and against the Revenue. The appeal was disposed of.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that netting of interest income should be allowed without considering that interest income should be assessed as income from other sources while computing deduction under Section 80HH and 80I of the Income Tax Act, 1961? Assessee's Contentions: The assessee argued that the controversy regarding the allowance of claim under Section 80-I without reducing the claim under Section 80HH was covered in its favour by various decisions, including a decision in its own case for AY 1991-92. The assessee also relied on decisions of the ITAT Ahmedabad Bench and jurisdictional High Courts. Revenue's Contentions: The Revenue contended that interest income should be assessed as income from other sources and not netted against business income when computing deductions under Sections 80HH and 80I. The Revenue's appeal to the Tribunal was partly allowed for statistical purposes.