COMMISSIONER OF INCOME TAX vs. KAJAL EXPORTS

Facts

The assessee, Kajal Exports, filed its return for assessment year 1995-96 showing a total income of Rs. 28,400/-. The return was initially processed under Section 143(A). The assessee appealed to the Commissioner of Income Tax (Appeals), who partly allowed the appeal. The Revenue then appealed to the Income Tax Appellate Tribunal (ITAT), which also partly allowed the appeal. The Revenue has filed the present Tax Appeal before the High Court of Gujarat against the ITAT's order dated 12.5.2005, which was passed in ITA No. 2429/Ahd/1998. The High Court admitted the appeal and framed a substantial question of law.

Held

The High Court held that the appellate Tribunal was correct in its decision. The Court referred to the Apex Court's decision in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income Tax, (2012) 343 ITR 89. This decision clarified that ninety percent of not the gross rent or gross interest, but only the net interest or net rent, which had been included in the profit of the business, was to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profit of the business. Therefore, the issue was answered against the Revenue and in favour of the assessee. The High Court found that the issue was concluded by the Apex Court's decision and did not assign elaborate reasons. The appeal was accordingly dismissed.

Key Issues

1. Whether the appellate Tribunal is right in law and on facts in holding that net interest is to be excluded while working out deduction under Section 80IB of the Act instead of gross income required to be excluded? Assessee's Contention: The judgment does not record any specific contentions made by the assessee. However, the High Court's decision implies that the assessee would have argued for the exclusion of net interest. Revenue's Contention: The Revenue argued that gross income, not net interest, should be excluded when working out the deduction under Section 80IB. The Revenue relied on the Supreme Court decision in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income Tax, (2012) 343 ITR 89.