M/S.centwin370, Kamaraj Roadtirupur – 641 604 v. The Assistant Commissioner Of Income Taxcircle I, Tirupur

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 11.01.2022 CORAM THE HON'BLE MR.JUSTICE R. MAHADEVANANDTHE HON'BLE MR.JUSTICE MOHAMMED SHAFFIQ TAX CASE (APPEAL) NO.647 OF 2009 M/s.Centwin370, Kamaraj RoadTirupur – 641 604. ...AppellantPAN : AABFC8440M Versus The Assistant Commissioner of Income TaxCircle I, Tirupur ...Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order dated 21.10.2008 passed by theIncome Tax Appellate Tribunal, “D” Bench, Chennai, in I.T.A.No.2491/Mds/2006 and against the Order of the Commissioner ofIncome Tax (Appeals)-II, Coimbatore dated 11.10.2006 made in ITANo.177/06-07 and the Assessment order of the AssistantCommissioner of Income Tax, Circle-I, Tirupur dated 31.03.2006made in PAN/GIR No. for the Assessment year 2003-04. For Appellant:Mr.R.SivaramanFor Respondent:Mr.M.SwaminathanSenior Standing Counsel JUDGMENT (Judgment of the Court was delivered by R. MAHADEVAN, J.) This tax case appeal has been filed by the appellant /assessee, calling in question the correctness of the order dated21.10.2008 passed by the Income Tax Appellate Tribunal, 'D'Bench, Chennai, in I.T.A.No.2491/Mds/2006 relating to theassessment year 2003-04. 2. The appellant is a firm engaged in the business ofmanufacture and exporter of hosiery garments. For the assessmentyear 2003-04, the appellant had filed a return of income on12.02.2004 admitting a total income of Rs.1,25,02,827/-, whichwas processed under Section 143(1) of the Income Tax Act, 1961(in short 'the Act'). The assessee had admitted a sum of https://hcservices.ecourts.gov.in/hcservices/ Rs.93,82,884/- being the gross interest received from the fixeddeposits as income from business, on the premise that theinterest income on fixed deposits is closely linked with thebusiness of the assessee; and there was interest payment also tothe Bank on borrowed capital and the interest received thoughnot considered, subsequently as profits derived from exports,but netted against the interest payment on borrowed capital andthereby claimed as profits derived from export eligible fordeduction under section 80HHC. The Assessing officer by orderdated 31.03.2006, held that since the interest income isassessed under the head 'other sources', interest paid onborrowed capital and debited in the profit and loss account isnot allowable against the interest received and accordingly,reduced the deduction under section 80HHC. 3. Aggrieved by the said order of assessment, the appellantpreferred appeal before the Commissioner of Income-tax(Appeals), who by order dated 11.10.2006 held that the interestincome on fixed deposits is assessable under the head 'othersources' and not under the head 'business'. The CIT(A) alsorejected the alternative plea of proportionate interest undersection 57(iii) of the Act. Challenging the same, the appellantwent on further appeal before the Income Tax Appellate Tribunal.By order dated 21.10.2008, the Tribunal without going into thefactual finding and the submissions made thereunder, dismissedthe appeal by relying upon the judgment of this Court in thecase of Dollar Apparels reported in 294 ITR 484. Therefore, thepresent tax case appeal by the assessee. 4. By order dated 28.07.2009, this tax case appeal wasadmitted on the following substantial questions of law :- “1. Whether on the facts and circumstances of thecase, the Income Tax Appellate Tribunal was rightin holding that the interest income earned out ofdeposits made from the business funds includingborrowed funds in the course of running thebusiness of the appellant is to be assessed asincome from other sources and not income frombusiness? 4. By order dated 28.07.2009, this tax case appeal wasadmitted on the following substantial questions of law :- “1. Whether on the facts and circumstances of thecase, the Income Tax Appellate Tribunal was rightin holding that the interest income earned out ofdeposits made from the business funds includingborrowed funds in the course of running thebusiness of the appellant is to be assessed asincome from other sources and not income frombusiness? 2. Whether on the facts and circumstances of thecase, the Appellate Tribunal is right in holdingthat the interest income be assessed under thehead 'Income from other sources' when in fact perse, it has a direct nexus to the business of theappellant? 3. Whether on the facts and circumstances of thecase, the Appellate Tribunal is right in law in holding that interest on borrowed capital cannotbe set off against the interest earned on Fixeddeposits? 4. Whether on the facts and circumstances of thecase, the Appellate Tribunal should have remittedthe matter back for a finding whether the interestincome is to be assessed as business income orincome from other sources and whether borrowedfunds were utilized for making the deposits ? 5. Whether on the facts and circumstances of thecase, the Appellate Tribunal is right in law innot entertaining the alternative submission thatproportionate interest paid on the borrowedcapital should be under Section 57(iii) of theAct? 6. Whether on the facts and circumstances of thecase, the Appellate Tribunal was right in notdealing with the principle of mutuality whereinthe transactions with the same banker split intoor spread over to two or more accounts shall notby itself may any difference if the substance ofthe transaction is the same. ” 5. When the matter was taken up for consideration, thelearned counsel appearing for both sides jointly submitted thatthe substantial questions of law 1 and 2 are squarely covered infavour of the assessee and against the Revenue, in the light ofthe decision of this Court in JVS Exports v. AssistantCommissioner of Income-tax, Circle-I, Madurai in T.C. (Appeal)No. 2079 of 2008 dated 23.07.2019. 6. For better appreciation, the relevant paragraphs of theaforesaid decision are extracted below: “28.As pointed out by us earlier, the facts of thecase are vividly clear and the Fixed Deposits havebeen created by the bank themselves by carving outa portion of the export sale proceeds onrealisation and retaining them as Fixed Depositsin the name of the assessee to be retained by thebank as additional security for the loan availedby the assessee for their export business. 29.As mentioned earlier, the conversion of aportion of the sale proceeds as Fixed Deposits wasdone by the bank themselves and not on thevolition of the assessee. Therefore, we are fully convinced that the transaction was connected andclosely linked with the assessee's businessactivity.30.Thus, we hold that the Tribunal erred indismissing the assessee's appeal. 31.For the above reasons, the appeal filed by theassessee is allowed and the substantial questionof law is answered in favour of the assessee. Nocosts.” 7. Following the decision of this Court as cited supra,which is applicable to the facts of the present case, thesubstantial questions of law 1 and 2 are answered in favour ofthe assessee and against the Revenue. The other substantialquestions of law are left open to the parties for determinationin an appropriate case. 8. Accordingly, the tax case (appeal) is disposed of. Nocosts. Maya Sd/-Assistant Registrar(CS-II) Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Madras “D” Bench, Chennai. Madras “D” Bench, Chennai. 2.The Assistant Commissioner of Income Tax Circle I, Tirupur. 3.The Commissioner of Income Tax (Appeals)-II, Coimbatore. Coimbatore. 7. Following the decision of this Court as cited supra,which is applicable to the facts of the present case, thesubstantial questions of law 1 and 2 are answered in favour ofthe assessee and against the Revenue. The other substantialquestions of law are left open to the parties for determinationin an appropriate case. 8. Accordingly, the tax case (appeal) is disposed of. Nocosts. Maya Sd/-Assistant Registrar(CS-II) Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Madras “D” Bench, Chennai. Madras “D” Bench, Chennai. 2.The Assistant Commissioner of Income Tax Circle I, Tirupur. 3.The Commissioner of Income Tax (Appeals)-II, Coimbatore. Coimbatore. 4.The Assistant, Income Tax Appellate Tribunal, Rajaji Bhavan, III[rd] Floor, Besant Nagar, Chennai – 600090. +1cc to Mr.M.Swaminathan, Advocate Sr.No.2615 GPL(CO)RVM(08/02/2022) T.C.(A) No.647 of 2009 https://hcservices.ecourts.gov.in/hcservices/