COMMISSIONER OF INCOME TAX vs. M/S.VENUS ELECTRICALS

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ITR/66/1997HC GujaratGJHC24020230199710 March 2008Bench: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MR. JUSTICE Z.K.SAIYED7 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court answered the first question in the affirmative, in favour of the assessee and against the revenue, based on the High Court's decision in CIT vs. Amod Stamping and the Apex Court's confirmation in A.M. Moosa vs. CIT. For the second question, the Court found it impossible to answer due to the state of facts recorded in the lower authorities' orders, particularly regarding the income from the insurance company, where no finding was recorded. The Court noted the revenue's reliance on the Apex Court decision in Pandian Chemicals Ltd. vs. CIT. Consequently, the second question was left unanswered, with liberty to the Tribunal to adjust its decision in accordance with the law enunciated by the Apex Court, if applicable. The reference was disposed of to this extent.

What were the facts?

The assessee, M/s. Venus Electricals, a registered firm, claimed deductions under Sections 80HH and 80I of the Income Tax Act, 1961, for Assessment Year 1989-90. The Assessing Officer computed the Section 80I deduction after deducting the Section 80HH relief. The assessee's appeal to the Commissioner (Appeals) was unsuccessful, but the Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal on this point. The ITAT also confirmed the CIT(A)'s view that interest received from a bank on margin money deposit against Letters of Credit should be considered business income for computing Section 80HH deduction. The Assessing Officer had disallowed deduction on interest income of Rs. 3,19,850/- from a bank and Rs. 19,007/- from an insurance company.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in holding that the assessee is entitled to relief u/s. 80-I of the rate of 20% of the profit without allowing deduction u/s. 80HH? - Assessee's contention: The Tribunal allowed the appeal, implying the assessee's position that Section 80HH deduction should not be reduced from profits before calculating Section 80I deduction. - Revenue's contention: The Assessing Officer's method of first computing Section 80HH and then deducting it from profits for Section 80I calculation was challenged. 2. Whether the Appellate Tribunal is right in law and on facts in confirming the view taken by the CIT(A) holding that interest received from bank, insurance etc. should be considered as a part of business income for computing the deduction u/s. 80HH of the Act? - Assessee's contention: The CIT(A) and Tribunal held that interest from bank on margin money deposit against Letters of Credit is business income eligible for Section 80HH deduction. - Revenue's contention: The Assessing Officer argued that interest from bank on fixed deposits is not profits derived from an industrial undertaking and thus not eligible for Section 80HH deduction. The revenue also contended that the Tribunal's finding on both interest items is unsustainable in light of the Apex Court decision in Pandian Chemicals Ltd.

Which sections of the Income-tax Act were involved?

Section 80HH,Section 80I,Section 256(1)

AI-generated summary — verify with the full judgment below

ITR/66/1997 1/7 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No.66 of 1997 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- HONOURABLE MR.JUSTICE Z.K.SAIYED Sd/- =================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the

interpretation

the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO =================================================== COMMISSIONER OF INCOME TAX - Applicant(s) Versus M/S.VENUS ELECTRICALS - Respondent(s) =================================================== Appearance : MR MANISH R BHATT for Applicant(s) : 1, SERVED BY RPAD - (N) for Respondent(s) : 1, =================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE Z.K.SAIYED Date : 10/03/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) (1) The Income-tax Appellate Tribunal, Ahmedabad Bench 'A' has referred the following two

ITR/66/1997 2/7 JUDGMENT questions under Section 256(1) of the Income- tax Act, 1961, at the instance of the Revenue: “1. RA No.572/Ahd/1996 A.Y. 1989-90: “Whether the Appellate Tribunal is right in law and on facts in holding that the assessee is entitled to relief u/s. 80-I of the rate of 20% of the profit without allowing deduction u/s. 80HH ?” “2. RA No.573/Ahd/1996 A.Y. 1989-90: “Whether the Appellate Tribunal is right in law and on facts in confirming the view taken by the CIT(A) holding that interest received from bank, insurance etc. should be considered as a part of business income for computing the deduction u/s. 80HH of the Act?” (2) The two questions, though relatable to the same Assessment Year i.e. 1989-90, arise out of two cross appeals before the Tribunal which were decided by the Tribunal vide common order dated 23.08.1996. (3) The relevant accounting period for the Assessment Year in question is Financial Year

ITR/66/1997 3/7 JUDGMENT ended on 31.03.1989. The assessee, a registered firm, claimed deduction under Sections 80HH and 80I of the Act on gross total income of Rs.62,44,000/-. The Assessing Officer partially disallowed the relief under Section 80I of the Act by first of all computing deduction under Section 80HH of the Act and deducting the same from the figure of profits for the purposes of computing the relief under Section 80I of the Act. The assessee did not succeed in its appeal before Commissioner (Appeals) and hence, preferred second appeal before the Tribunal. The Tribunal allowed the appeal of the assessee on this count. (4) Mr. M.R.Bhatt, learned Senior Standing Counsel appearing for the applicant-revenue, has been heard. Though served there is no appearance on behalf of the respondent-assessee. Hence, at the request of the Court, Mr.Bhatt has very fairly invited attention to the decision of

ITR/66/1997 4/7 JUDGMENT this Court rendered in case of Commissioner of Income-tax Vs. Amod Stamping, [2005] 274 ITR 176 (Guj.) which view has since been confirmed by the Apex Court for different reasons in the case of A.M. Moosa Vs. Commissioner of Income- tax, [2007] 294 ITR 1 (S.C.). (5) Hence, it is not necessary to set out the facts and contentions in detail. For the reasons stated in the judgment rendered on 28.01.2004 in the case of Commissioner of Income-tax Vs. Amod Stamping (supra) as well as in case of Commissioner of Income-tax Vs. Sidhpur Isabgul Processing Co. Ltd., [2001] 252 ITR 777 (Guj.), question No.1 referred in relation to relief under Section 80I of the Act, is answered in the affirmative i.e. in favour of the assessee and against the revenue. (6) In relation to question No.2, the question itself shows that there are two types of interests stated to have been received from

ITR/66/1997 5/7 JUDGMENT bank and insurance company. The Assessing Officer has stated that the interest income of Rs.3,19,850/- is interest received from the bank on investment by way of fixed deposits and the character of such receipts cannot undergo change. Therefore, the said income cannot be stated to be profits derived from Industrial Undertaking so as to become eligible for computing deduction under Section 80HH of the Act. In the first appeal, Commissioner (Appeals) has recorded that the interest receipt was on account of margin money deposit against Letters of Credit in favour of foreign supplies. Thereafter, Commissioner (Appeals) has granted relief by holding that the amount of Rs.3,19,850/- is liable to be included in the net profits for the purposes of deduction under Section 80HH of the Act. This finding of Commissioner (Appeals) has been confirmed by the Tribunal. (7) In so far as income received by the assessee from the insurance company is concerned, the

ITR/66/1997 6/7 JUDGMENT Assessing Officer has merely said that the assessee is not eligible for deduction under Sections 80HH and 80I of the Act on the income of Rs.19,007/-. In relation to this sum there is no finding either by Commissioner (Appeals) or the Tribunal. (8) Mr.M.R.Bhatt has contended that the finding of the Tribunal in relation to both the items cannot be sustained in law in light of the ratio of the Apex Court decision in case of Pandian Chemicals Ltd. Vs. Commissioner of Income-tax, [2003] 262 ITR 278 (S.C.). (9) Considering the state of facts recorded in the orders of the Assessing Officer, Commissioner (Appeals) and the Tribunal, it is not possible to answer the question even by applying the ratio of the Apex Court decision in case of Pandian Chemicals Ltd. Vs. Commissioner of Income-tax (supra). In the result, the second question is left unanswered, leaving it open to the Tribunal to adjust its decision in

ITR/66/1997 7/7 JUDGMENT accordance with law enunciated by the Apex Court, if applicable on facts of the case. (10) Accordingly, the reference stands disposed of to the aforesaid extent. There shall be no order as to costs. Sd/- [ D.A. MEHTA, J ] Sd/- [Z.K. SAIYED, J ] *** Bhavesh*

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