HPSIDC. vs. COMMR.(IT)

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ITA/8/2005HC Himachal PradeshHPHC01001158200517 March 2010Bench: HONOURABLE MR. JUSTICE DEEPAK GUPTA,HONOURABLE MR. JUSTICE SANJAY KAROL2 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the substantial question of law was already decided by the same court in previous appeals between the same parties (ITA Nos. 1 & 2 of 2002 and 9 & 10 of 2004) decided on December 3, 2008. The court referred to paragraph 16 of that earlier judgment, which cited a Division Bench decision of the Kerala High Court. This Kerala High Court judgment, after considering the Industrial Development Bank of India Refinance Scheme, held that the amount of interest represented the aspect of rediscounting and therefore could not form part of the interest income chargeable under the Income Tax Act. The Kerala High Court had answered the question in favour of the assessee and against the revenue. The present High Court noted that the revenue had not contended that the terms and conditions of refinance in the present case were different from those considered in the earlier judgments. Consequently, the question of law was decided in favour of the assessee and against the revenue, following the precedent. The appeal was disposed of accordingly.

What were the facts?

The appellant, H.P.S.I.D.C., filed an appeal before the High Court of Himachal Pradesh against an order of the Income Tax Appellate Tribunal (ITAT). The appeal pertains to the assessment year(s) not explicitly stated but implied to be related to previous appeals between the same parties. The core issue revolves around the taxability of interest earned by the assessee on refinance operations. The assessee argued that this interest, paid to financial institutions like IDBI, ICICI, IFCI, and UTI, should be excluded from taxable income because these institutions have an overriding title, and the refinance and lending process is an integral transaction. The procedural history indicates that an identical question of law was previously decided by the same High Court on December 3, 2008, in other appeals between the same parties.

What were the issues?

1. Whether, in the facts and circumstances of the case, the Tribunal was justified in not granting any relief concerning interest earned on refinance operations, considering that this interest was payable to various financial institutions (IDBI, ICICI, IFCI, UTI) which hold an overriding title, and the refinance and lending are integral transactions, thus requiring exclusion from taxable interest? Assessee's contention: The interest earned on refinance operations should be excluded from taxable income. This is because the financial institutions providing the refinance have an overriding title, and the entire process of refinancing and lending to constituents is an integral part of the assessee's operations. The assessee relies on the principle that such interest is not truly income of the assessee but rather a pass-through or a cost associated with the core business activity. Revenue's contention: The judgment does not record any specific contention from the revenue regarding this issue. However, the fact that the Tribunal did not grant relief suggests the revenue's position was likely that the interest was taxable income of the assessee.

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

ITA No.8 of 2005.

Date of decision:17.3.2010.

H.P.S.I.D.C.

..Appellant

Versus

Commissioner of Income Tax

..Respondent

Coram The Hon’ble Mr. Justice Deepak Gupta, Judge. The Hon’ble Mr. Justice Sanjay Karol, Judge. Whether approved for reporting?1 For the Appellant(s).: M/s.Vishal Mohan & Y.K. Thakur, Advocates.

For the Respondent: Mr.Vinay Kuthiala, Advocate.

Deepak Gupta, J.(oral)

This appeal was admitted on the following substantial question of law:

“1.Whether in the facts and circumstances of the case the Tribunal was justified by not giving any relief in respect of interest earned on refinance operations and the said interest being payable to various financial institutions like IDBI, ICICI, IFCI, UTI and apex financial institutions where in the said institutions have an over riding title as getting refinance and lending of money to its constituents are integral transaction and interest payable to such said institutions need to be excluded from the taxable interest?”

The parties do not dispute that an identical question of law has already been decided by this court in other proceedings between the same parties but relating to different assessment years on 3.12.2008 delivered in ITA Nos.1 & 2 of 2002 and 9&10 of 2004. This question

1 Whether the reporters of the local papers may be allowed to see the Judgment? yes

2 has been answered in para 16 of the said judgment which reads as follows:

“16. A Division Bench of Kerala High Court after noticing Industrial Development Bank of India Refinance Scheme has held that amount of interest represents the aspect of rediscounting and, therefore, cannot form part of the interest income of the assessee as chargeable under the provisions of the Act and answered the above question in affirmative against the revenue and in favour of the assessee. The revenue has not taken the stand that in the present case terms and conditions of refinance of the assessee by the financial institutions during the relevant period were different from the terms and conditions noticed in ITR 228 (1997) 40, hence judgment of Kerala High Court is fully applicable in the present case and substantial question or law No.2 in IT Appeal Nos.1 and 2 of 2002 and substantial question of law No.1 in IT Appeal Nos.9 and 10 of 2004 are decided in favour of the assessee and against the revenue.”

In the present case also the question is answered in the same terms. The appeal is disposed of accordingly.

( Deepak Gupta ), J.

March 17, 2010 ( Sanjay Karol ), J.

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