COMMISSIONER OF INCOME TAX vs. MGM METALLISERS LTD.

Facts

The assessee, MGM Metallisers Ltd., filed its return for Assessment Year 2000-01. The Assessing Officer passed an assessment order under Section 143(3) on September 27, 2002, determining the total income at Rs. 9,86,381/-. During the assessment, the Assessing Officer disallowed the assessee's claim for deduction under Section 80IA, treating the interest income as 'other income'. The Commissioner of Income Tax (Appeals) upheld this decision. The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'C', in its order dated February 4, 2005, partly allowed the assessee's appeal, directing the Assessing Officer to allow the benefit of netting of interest income, referencing its own order for Assessment Year 1999-2000. The Revenue has filed the present Tax Appeal against the ITAT's order.

Held

The High Court held that the issue was no longer res integra in light of the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. vs. CIT. The Supreme Court had held that for the purpose of Section 80HHC, only the net interest or net rent, which had been included in the profits of the business of the assessee as computed under the head 'Profits and gains of business or profession', was to be deducted. Applying this principle to Section 80IA, the High Court concluded that the netting of interest income should be allowed. The question was answered in the affirmative, meaning in favour of the assessee and against the revenue. The impugned judgment and order of the Tribunal were confirmed. No issue was expressly left undecided.

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 80IA of the I.T. Act, 1961? Assessee's Contentions: The judgment does not record specific contentions made by the assessee before the High Court. However, the ITAT's decision, which the High Court is considering, directed the Assessing Officer to allow the benefit of netting of interest income. Revenue's Contentions: The Revenue's primary contention, as reflected in the substantial question of law, is that interest income should be treated as income from other sources and not netted for the purpose of computing deduction under Section 80IA. The Revenue's advocate was not in a position to dispute the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. vs. CIT.