M/S. R.k. Textiles (India v. The Asst. Commissioner Ofincome Tax,Business Range – Iv,Chennai – 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS Date:- 12.12.2007 Coram The Honourable Mr. Justice K. RAVIRAJA PANDIAN and The Honourable Mrs. Justice CHITRA VENKATARAMAN Tax Case(Appeal) No.1179 of 2007 M/s. R.K. Textiles (India) ... Appellant ..vs.. The Asst. Commissioner ofIncome Tax,Business Range – IV,Chennai – 600 034. ... Respondent Appeal against the order of the Income-tax Appellate Tribunal"B" Bench, Chennai dated 27.7.2006 passed in I.T.A. No.1791/Mds/2003 forassessment year 2001-02. As against the order of the Commissioner ofIncome Tax VIII Chennai ITA 17/03-04, Chennai- 34. and as against theorder of the Income Tax Officer Ward IV(4) Chennai in P.A.N/GIR No.AAAFR5429F/GIR No.1134R For Appellant : Mr. Philip George For Respondent : Mr. J. Naresh Kumar Standing Counsel for I.T. JUDGMENT (Judgment was delivered by K. RAVIRAJA PANDIAN, J.) The appeal is against the order dated 27.7.2006 of the Income-tax Appellate Tribunal, 'B' Bench made in I.T.A. No.1791/Mds/2003. Therelevant assessment year is 2001-2002. 2. The facts culled out from the statement of facts stated inthe Memorandum of Appeal are as follows:- https://hcservices.ecourts.gov.in/hcservices/ (i) The appellant is engaged in the business of manufacture andexport of garments and also carrying on money lending business. For theassessment year 2001-2002, the appellant filed its return of income on31.10.2001, admitting a total income of Rs.7,929/- after claimingdeduction under Section 80 HHC to the tune of Rs.27,77,87,215/- andrestricted the same to the extent of business income of Rs.2,25,49,119/-.While doing so, the appellant has shown interest income of Rs.8,66,033/-in the profit and loss account as part of its business income, since thesame was received from finance debtors and on Certificate of Deposit andFixed Deposits in the course of money lending business. While computingthe deduction under Section 80HHC, the assessing officer reduced 90% ofthe interest income from the business income as per the explanation (baa)to section 80HHC to arrive at "profit of the busines5s". (ii) The return was processed under Section 143(1) on 31.10.2002and subsequently taken up for scrutiny and assessment was competed underSection 143(3) on 28.2.2003 by the assessing Officer by holding that theinterest income will not qualify for deduction under Section 80HHC for thereason that it cannot be considered to be profit from export and thereforetreated the same as income from other sources. (iii) Aggrieved by the said order, the appellant filed an appealbefore the Commissioner of Income Tax (Appeals), who, after consideringall the facts and the issue of interest income and after considering thesubmissions made on such facts and law, allowed the appeal on the premisethat the interest income received by the appellant was business income,since as per the guidelines of Reserve Bank of India, nobody can have theamount in foreign currency except for business purpose and only businesspeople are entitled to maintain EEFC account and interest income earnedwere out of export business funds, which were invested in variouscategories and there was nexus between business carried out by theappellant and the interest earned. (iii) Aggrieved by the said order, the appellant filed an appealbefore the Commissioner of Income Tax (Appeals), who, after consideringall the facts and the issue of interest income and after considering thesubmissions made on such facts and law, allowed the appeal on the premisethat the interest income received by the appellant was business income,since as per the guidelines of Reserve Bank of India, nobody can have theamount in foreign currency except for business purpose and only businesspeople are entitled to maintain EEFC account and interest income earnedwere out of export business funds, which were invested in variouscategories and there was nexus between business carried out by theappellant and the interest earned. (iv) The Department, feeling aggrieved by the opinion arrived atby the Commissioner of Income-tax(Appeals) , carried the matter on appealbefore the Income Tax Appellate Tribunal, who, by the reasoned order,remitted the issued to the files of the Assessing Officer to give afinding on facts of the case as to whether the interest income of theappellant could be considered to be his business income by giving reasonto the effect that in the order of the Authorities below, there was nofinding as to whether interest income of the appellant could be consideredto be his business income on the facts and circumstances of the case.While the Assessing Officer has gone on the premise that interest incomecould not be export income, whereas the Commissioner of Income Tax(Appeals) has dealt with on the premise that the interest could bebusiness income. 3. The said order is now canvassed before this Court, by framingthe following questions of law:- "(1) Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal was right inlaw in not deciding the issue on merits in respect of theinterest income by remitting back the issue to the file ofthe Assessing Officer? 2. Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal was right inlaw in remitting back the issue of interest income toAssessing Officer by basing its decision on wrongpresumption and premises, without considering thecategorical findings of the Commissioner of Income Tax(Appeals), which was based on materials, reasoning andsupportive case law on the issue? 3. Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal was right inlaw in not holding that the interest income derived by theappellant forms part of its "Business income", since theAssess is also engaged in the business of money lending?" 4. We heard the learned counsel appearing for both sides andperused the material on record, including the reasoning given by theIncome Tax Appellate Tribunal for passing the impugned order. 5. The Tribunal, after hearing the parties, has stated that theterm of the interest income is settled by a decision of this Court in thecase of C.I.T. v. CHINNAPANDIAN ((2006) 282 ITR 389), wherein this Courtheld that for the purpose of 80HHC, 90% of the interest income has to bededucted as per the provision of Explanation (baa) to Section 80HHC of theIncome Tax Act for the purpose of computation of profit of the business.In case the interest income is assessable under the head "Other Sources",the entire income would have to be excluded from the computation underSection 80HHC. 4. We heard the learned counsel appearing for both sides andperused the material on record, including the reasoning given by theIncome Tax Appellate Tribunal for passing the impugned order. 5. The Tribunal, after hearing the parties, has stated that theterm of the interest income is settled by a decision of this Court in thecase of C.I.T. v. CHINNAPANDIAN ((2006) 282 ITR 389), wherein this Courtheld that for the purpose of 80HHC, 90% of the interest income has to bededucted as per the provision of Explanation (baa) to Section 80HHC of theIncome Tax Act for the purpose of computation of profit of the business.In case the interest income is assessable under the head "Other Sources",the entire income would have to be excluded from the computation underSection 80HHC. 6. From the order of the Authorities below, the Tribunal was notin a position to cull out the categorical finding, whether the interestincome of the appellant could be considered to be business income on thefacts and circumstances of the case, as the Assessing Authority has heldthat the interest income could not be export income. On the other hand,the Commissioner of Income-Tax has dealt with the case that the interestcould be the business income. In those circumstances of the case, theTribunal, after pointing out the decision of this Court as to how theinterest income has to be treated, in order to have a factual finding,remitted the matter back to the Assessing Authority to consider whetherthe interest income has to be considered as business income or not, inaccordance with law laid down by this Court and to proceed further. 7. We do not find any illegality or irregularity to interferewith the order passed by the Income-Tax Appellate Tribunal and hence thetax case appeal is dismissed. sd/-Asst.Registrar/true copy/Sub Asst.Registrarssa.To 1. The Assistant Registrar, Income Tax Appellate Tribunal, Rajaji Bhavan, III Floor, Besant Nagar, Chennai-902. The Commissioner of Income Tax (Appeal)VIII, 121, Mahatma Gandhi Road, Chennai-34.3. The Asst. Commissioner of Income Tax, Business Range – IV, Chennai – 600 034.4. The Income Tax Officer, Ward IV (4), Chennai.+ one cc to Mr. Philip George, SR.73383. KS(CO)RP 28.12.2007. T.C.(A) No.1179 of 2007