DHADDA EXPORTS vs. I T O JAIPUR

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ITA/62/2003HC RajasthanRJHC02030623200308 September 20166 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the interest received by the assessee was not business income. Consequently, the assessee was not entitled to the benefit under Section 80HHC. The Court found that the assessee had not established before the Assessing Officer (AO), CIT (Appeals), or the Tribunal that the interest was business income. Therefore, the discretion of the Division Bench, as sought by the appellant, was not applicable. The view taken by the Tribunal was upheld, and the issue was answered in favour of the Department and against the assessee. The High Court did not explicitly decide on the quantum of deduction under Section 80HHC as it first determined that the income itself was not eligible for such deduction.

What were the facts?

The assessee, Dhadda Exports, filed an appeal against the order of the Income Tax Appellate Tribunal (ITAT) which dismissed their appeal and reversed the finding of the CIT (Appeals). The appeal before the High Court concerned assessment year(s) not explicitly stated but implied to be related to the ITAT's order. The core dispute revolved around whether interest received was to be treated as income from other sources or as business income, and consequently, the eligible deduction under Section 80HHC of the Income Tax Act. The High Court noted that the assessee had not established before the lower authorities that the interest was business income.

What were the issues?

1. Whether the learned ITAT was right in law in holding that interest received is income from other sources when on the same facts, identical circumstances and order of even date the learned ITAT held in Asstt. Year 1993-94 that it is Income from Business. (Question of law) 2. Whether the learned ITAT was right in law in restricting the deduction u/s 80 HHC of the IT Act to Rs. 24,13,732/- against the claim at Rs. 25,16,509/-. (Question of mixed law and fact) Assessee's Contentions: Relied on the Supreme Court decision in ACG Associated Capsules Pvt Ltd. vs. Commissioner of Income Tax, Central IV, Mumbai, and the Gujarat High Court decision in Deputy Commissioner of Income Tax (Asstt.) vs. Gujrat Narmada Velley Fertilizers Co. Ltd., arguing that interest income should be treated as business income. The assessee also pointed to a co-ordinate bench's decision for Assessment Year 1993-94 where similar interest was held to be business income. Revenue's Contentions: Contended that the interest was surplus and not business income. Relied on their own contention and the co-ordinate bench decision in CIT Vs. Vimal Chand Surana, which framed a substantial question of law regarding entitlement to deduction under Section 80HHC in respect of interest earned by employing surplus funds locally.

Which sections of the Income-tax Act were involved?

Section 80HHC

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. D.B. Income Tax Appeal No. 62/2003 DATE OF ORDER ::: 08.09.2016 HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE Banwari Lal Sharma Mr. Siddarth Ranka for the appellant. Mr. Anuroop Singhi for the respondent.

1.

By way of this appeal, the assessee has assailed the judgment & order of the Income Tax Appellate Tribunal whereby the Tribunal has dismissed the appeal preferred by the assessee and reversed the finding of the CIT (Appeals).

2.

Counsel for the appellant has contended that question of law which has been framed by this Court by its order dated 23.4.2003 reads as under:- “1. Whether the learned ITAT was right in law in holding that interest received is income from other sources when on the same facts, identical circumstances and order of even date the learned ITAT held in Asstt. Year 1993-94 that it is Income from Business.

2.

Whether the learned ITAT was right in law in restricting the deduction u/s 80 HHC of the IT Act to Rs. 24,13,732/- against the claim at Rs. 25,16,509/-”

3.

In view of the decision of the Hon'ble Supreme reported in [2012] 18 taxmann.com 137 (SC); wherein the Supreme Court while considering Section 80HHC under paragraph 9, 10 & 11 held as under: “9.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 clause (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 of Profession”

in accordance

with provisions of Section 28 to 44D 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 Sections 30 to 44D 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).

10.

Under Clause (1) of Explanation (baa), ninety percent of any receipts by way of brokerage, commission, interest, rent, charges or any other

3 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 44D 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 percent 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 percent of the net amount 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 assessee under Explanation (baa) to Section 80HHC.

11.

For this interpretation

of Explanation (baa) to Section 80HHC of the Act, we rely on the judgment of the Constitution Bench of this Court in Distributors (Baroda) (P) Ltd. (supra). Section 80M of the Act

4 provided for deduction in respect of certain inter-corporate dividends and it provided in sub-section (1) of Section 80M that “where the gross total income of an assessee being a company includes any income by way of dividends received by it from a domestic company, there shall, in accordance with and subject to the provisions of this Section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends an amount equal to” a certain percentage of the income mentioned in this Section. The Constitution Bench held that the court must construe Section 80M on its own language and arrive at its true interpretation according to the plain natural meaning of the words used by the legislature and so construed the words “such income by way of dividends” in sub-section (1) of Section 80M must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. 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

5 part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) 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 percent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC.” 4. reported in [2015] 57 taxmann.com 250 (Gujrat) wherein it has been held that in view of discretion the income is required to be business income.

5.

Counsel for the department Mr. Anuroop Singhi has contended that in view of their own contention it was the surplus and is not a business income. The co-ordinate Bench of this Court in CIT Vs. Vimal Chand Surana, D.B. Income Tax Reference No. 4/2003 decided on 11.9.2015 framed the following substantial question of law: “Whether

on the facts

and circumstances of the case, the Tribunal was right in holding that the assessee was entitled to deduction under Secdtion 80HHC(1) in respect of interest of Rs. 3,62,342/- earned by employing surplus funds locally,

notwithstanding

the provisions of sub-section 2(a) of 6 section 80HHC?”

6.

The Court yielded in favour of revenue and against the assessee.

7.

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

8.

From the record, as interest is not the business income, in that view of the matter, the discretion of the Division Bench which was sought by counsel for the appellant is not applicable to the facts of the present case.

9.

The appellant was not in position to establish that before AO or CIT (Appeals) or Tribunal he has attempted to show this as business income.

10.

Counsel for the appellant has taken us through the finding recorded by AO and CIT (A) as well as oral and documentary evidence on record on the point of interest and business income. The income involved is not a business income, therefore, naturally they will not be entitled to benefit under Section 80HHC and view taken by the Tribunal is required to be upheld and for the same, the issue is answered in favour of Department and against the assessee.

(Banwari Lal Sharma), J. (K.S. Jhaveri), J. A.Sharma/15

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