SHRI KAUSHAL KISHORE AGARWAL vs. THE INCOME TAX OFFICER AND ORS

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ITA/124/2006HC RajasthanRJHC02025543200609 November 20166 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the view taken by the Tribunal was just and proper and no interference was required. The Court agreed with the Tribunal's decision, particularly in light of the three cited decisions. The Tribunal, in its reasoning, noted that the principle of netting was pressed into service not on the basis of the theory of real income but on computation provisions relating to business income. The Tribunal observed that if interest received has a nexus with the business, it still remains to be excluded from business profits by virtue of Explanation (baa)(1) to Section 80HHC. However, the claim for netting off the quantum of interest income must be determined in accordance with computation provisions relating to business income by allowing expenditure by way of interest that bears a nexus with the interest receipt. The Tribunal further found that the assessee had failed to establish beyond doubt that the interest earned on deposit or advance was income from the export business. Therefore, extending the benefit of deduction as per the computation provided in Clause (baa) to Explanation to Section 80HHC could not be made available. The issue was decided with the finding that unless an assessee establishes that the profit has been earned from the export business, it cannot be included for computation of deduction as per the procedure laid down under sub-clause (1) to clause (baa) to Explanation to Section 80HHC. Consequently, the question of law was answered in favour of the Department and against the assessee.

What were the facts?

This appeal by the assessee, Shri Kaushal Kishore Agarwal, challenges the order of the Income Tax Appellate Tribunal (ITAT). The ITAT had dismissed the appeals filed by both the assessee and the department, thereby confirming the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had partly allowed the assessee's appeal. The core dispute revolves around the deduction claimed by the assessee under Section 80HHC of the Income Tax Act, 1961, specifically concerning interest income of Rs. 6,18,208/-. The High Court reframed the question of law for consideration.

What were the issues?

1. Whether, on the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in confirming the disallowance of the deduction claimed under Section 80HHC relating to the interest income of Rs. 6,18,208/-? Assessee's Contention: The assessee argued that netting of the benefit is required, relying on the Supreme Court decision in ACG Associated Capsules (P) Ltd. vs. CIT and the Punjab & Haryana High Court decision in Vishal Tools Industries vs. CIT. The assessee also relied on the Delhi High Court decision in CIT vs. High Polymer Labs Ltd., asserting entitlement to the benefit under Section 80HHC. The assessee specifically pointed to Explanation (baa) to Section 80HHC and contended that 90% of the gross receipts of interest should be considered for deduction. Revenue's Contention: The revenue contended that there was a concurrent finding and, in view of this Court's decisions in CIT & Ors. vs. Vimal Chand Surana & Ors. and Reliance Trading Corporation & Ors. vs. The ITO, Jaipur & Ors., the Tribunal's order should be confirmed.

Which sections of the Income-tax Act were involved?

Section 80HHC

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
-1- IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR DB Income Tax Appeal No. 124/2006 APPELLANT-ASSESSEE Shri Kaushal Kishore Agarwal Prop. M/s Kunnj Kaushal Narnoli Jewellers, 401, Narnoli Mension, Sanganeri Gate, Jaipur. VERSUS RESPONDENTS 1. The Income Tax Officer, Ward 3(9), Jaipur. 2. The Commissioner of Income Tax-III, Jaipur.

Date of order : 09.11.2016. HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE GOVERDHAN BARDHAR Mr. Mahendra Gargieya with Ms. Manisha Surana for the appellant. Mr. Nikhil Simlote for Mr. R.B. Mathur for the respondents. BY THE COURT (Per Hon'ble Jhaveri, J.)

1.

By way of this appeal, the assessee- appellant has assailed the judgment & order of the Tribunal whereby the Tribunal has dismissed the appeal preferred by the assessee as well as department and confirmed the order of CIT(A) which has partly allowed the appeal preferred by the assessee.

2.

Though the question of law was framed but this Court vide order dated 10/10/2007 has reframed the question of law which reads as under:- “Whether on facts and circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in confirming the disallowance of the deduction claimed under Section 80HCC relating to the interest income of Rs. 6,18,208/-?” 3. -2- granted since for this issue, the question of law was framed as question No.3 which reads as under:- “Whether on facts and circumstances of the case and on a true interpretation of the Explanation (baa) to Sec. 80 HHC of the Act, the ld. ITAT was justified in holding that 90% of the entire gross receipts of interest of Rs. 6,18,208/- were rightly reduced by the Respondent No.1 i.e. Assessing Officer.?

4.

He has also relied upon the decision of Punjab & that in view of the decision of Punjab & Haryana High under 80 HHC and paragraph 7, 8 & 9 reads as under:- “7. There is no doubt that the two incomes Central-IV, Mumbai (2012) 3 SCC 321. Relied. In this decision, it has been held:- “12.Explanation (baa) extracted above states that “profits of the business” means the profits of the business as computed under the head “Profits and Gains of Business or Profession” as reduced by the receipts of the nature mentioned in clauses (1) and (2) of the Explanation (baa). Thus, profits of the business of an assessee will have to be first computed under the head “Profits and Gains of Business or Profession” in accordance with provisions of Section 28 to 44-D of the Act. In the computation of such profits of business, all receipts of income which are chargeable as profits and gains of business under Section 28 of the Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under -3- Sections 30 to 44-D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the assessee computed under the head “Profits and Gains of Business or Profession” from which deductions are to made under clauses (1) and (2) of Explanation (baa). 13.Under Clause(1) of Explanation {baa}, ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head “Profits and Gains of Business or Profession”. The expression “included any such profits” in clause (1) of the Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head” Profits and Gains of Business or Profession”. Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent ,charges or any other receipt of a similar nature is allowed as expenses under Sections 30 to 44-D of the Act and is not included in the profits of business as computed under the head “Profits and Gains of Business or Profession”, ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In Other words, only ninety per cent of the net amout of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining “profits of the business” of the assessess under Explanation (baa) to Section 80-HHC”. 8. and 17 as follows:

“16. Similarly, Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation(baa), the words” receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits” will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head” Profits and Gains of Business or Profession” referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa)

-4- has not been included in the profits of business of an assessee as computed under the head “Profits and Gains of Business or Profession”, ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80- HHC.

17.

If we now apply Explanation(baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under Section 28 of the Acts, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with Sections 30 to 44-D of the Act and is not to be included in the profits of the business of the assessee as computed under the head “Profits and Gains of Business of Profession”, ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80-HHC. In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head “Profits and Gains of Business or Profession” is to be deducted under clause (1) of Explanation (baa) to Section 80-HHC, for determining the profits of the business.

9.

In view of the aforesaid position, the questions of law mentioned above are answered in affirmative, in favour of the assessee and against the Revenue. The appeal is disposed of. No order as to costs.”

5.

Counsel for the respondents contended that there is concurrent finding and in view of decision of this Court in case of CIT & Ors. vs. Vimal Chand Surana & Ors. decided on 11/9/2015 and another decision in case of Reliance Trading Corporation & Ors. vs. The ITO, Jaipur & Ors. decided on 1/5/2015, the order of the Tribunal is required to be confirmed.

6.

We have heard counsel for the appellant and counsel for the respondents.

7.

In view of the decision of the jurisdictional Court and in view of the fact that the Court has admitted only one point, we are in complete agreement with the view taken by the Tribunal in regard to 80 HHC and the -5- decision of the Tribunal in para 2.7 which reads as under:- “2.7 In this case before the Special Bench, there was apparently no specific dispute as to the interest income in question was from the business or not. An observation in this regard has been made by the Special Bench as under:- “In the present case, however, the principle of netting is pressed into service not on the basis of the theory of real income (we did not hear any of the learned counsel or learned representatives

for the assessee/intereveners raise the plea) but on the basis of the computation provisions relating to the business income. If the interest received is found to have a nexus with the business, still it remains to be excluded from the profits of the business by virtu of Explanation (baa) (1), but the claim is that the quantum of such interest income to be excluded must be determined in accordance

with the computation provisions relating to business by allowing expenditure by way of interest which bears a nexus with the interest receipt.” It is also evident from the observation of the Special Bench in para NO. 48 of the decision, which reads as: “The controversy before us has arisen only in the background of the fact that the assessee is engaged in the business of exports and such business has been carried on during the relevant previous year. Obviously, the question of applying section 80HHC and the manner of computing the “profits of the business” of exports

in accordance

with Explanation (baa) will come in for consideration only if the export business has been carried on during the previous year.” This decision of the Special Bench in the case of Lalsons Enterprises (supra) is also not helpful to the assessee because the assessees, in our view, in present matters, have thoroughly failed to establish beyond doubt that the interest earned on the deposit or advance was income from the export business. Hence, extending the benefit of deduction as per computation provided in Clause (baa) to Explanation to section 80HHC cannot be made available to the assessees. The issue No. (2) is thus, decided with this finding that unless an assessee establishes that the profit has been earned from the export business, the same cannot be included

-6- for computation of deduction as per the procedure laid down under sub-clause (1) to clause (baa) to Explanation to Section 80HHC of the Act.”

8.

In our opinion, the view taken by the Tribunal is just and proper, no interference is required more particularly in view of the aforesaid three decisions.

9.

Consequently, the question is required to be answered in favour of Department and against the assessee.

10.

The appeal is dismissed. Stay application is also dismissed. (GOVERDHAN BARDHAR), J. (K.S. JHAVERI), J. A.Sharma/102

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