The Commissioner Of Income Tax – 3, Mumbai v. M/S.spice Islands Apparels Limited, Mumbai

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.2327 OF 2009 The Commissioner of Income Tax – 3, Mumbai Versus M/s.Spice Islands Apparels Limited, Mumbai ..Appellant. ..Respondent. Mr.Vimal Gupta for the appellant. Mr.Jitendra Jain with Mr.Akshay Vani and Mr.Nitin Parkhe for the respondent. CORAM : Dr.D.Y. Chandrachud & J.P. Devadhar, JJ. DATE : 8 June, 2010. P.C. : 1.Leave to amend to correct the name of the assessee in the memo of Appeal. Amendment may be carried out forthwith. 2.The appeal by the Revenue pertains to an order passed by the Income Tax Appellate Tribunal on 23 September 2008 for assessment year 2001-2002. The following three questions of law have been formulated in the appeal. a)Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that interest income of Rs.84,867/- directly related to export business and includible in business income for the purpose of deduction under Section 80HHC.law, the ITAT was justified in holding that interest income of Rs.84,867/- directly related to export business and includible in business income for the purpose of deduction under Section 80HHC. b)Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that the issue of exclusion of 90% of gross interest income of Rs.6618377/- from business income in order to compute the profit of business for the purpose of deduction under Section 80HHC is covered by the decision of the Supreme Court in the case of Hero Exports Vs. CIT 295 ITR 454.law, the ITAT was justified in holding that the issue of exclusion of 90% of gross interest income of Rs.6618377/- from business income in order to compute the profit of business for the purpose of deduction under Section 80HHC is covered by the decision of the Supreme Court in the case of Hero Exports Vs. CIT 295 ITR 454. c)Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that sales tax refund amounting to Rs.4,36,124/- be assessed as part of business profits under the head Profit and Gains of Business or Profession could not be excluded while calculating deduction under Section 80HHC ?law, the ITAT was justified in holding that sales tax refund amounting to Rs.4,36,124/- be assessed as part of business profits under the head Profit and Gains of Business or Profession could not be excluded while calculating deduction under Section 80HHC ? 3.During the course of the hearing, the learned Counsel appearing on behalf of the assessee has stated before the Court that the claim of the assessee with reference to the interest income of Rs.84,867/- which is covered by question (a) above is given up on instructions and is not pressed. In view of the statement which has been made on behalf of the assessee, the aforesaid claim shall stand deleted from the order of the Tribunal and shall not be includible in the business income for the purpose of deduction under Section 80HHC. 4.In so far as question (b) is concerned, the Assessing Officer held that the interest on inter-corporate deposits amounting to Rs.66,18,377/- would have to be assessed under the head income from other sources and not 3.During the course of the hearing, the learned Counsel appearing on behalf of the assessee has stated before the Court that the claim of the assessee with reference to the interest income of Rs.84,867/- which is covered by question (a) above is given up on instructions and is not pressed. In view of the statement which has been made on behalf of the assessee, the aforesaid claim shall stand deleted from the order of the Tribunal and shall not be includible in the business income for the purpose of deduction under Section 80HHC. 4.In so far as question (b) is concerned, the Assessing Officer held that the interest on inter-corporate deposits amounting to Rs.66,18,377/- would have to be assessed under the head income from other sources and not profits and gains of business. In appeal, the Commissioner (Appeals) held that the assessee has been regularly carrying on the business of advancing moneys to earn interest income and that the interest income of the assessee on inter-corporate deposits has been treated as business income for assessment years 1995-1996, 1996-1997 and 1997-1998. In this view, the interest income was treated as business income. Alternatively, the Commissioner (Appeals) held that even if the interest income was treated as income from other sources, the Assessing Officer could not treat the gross amount of interest received as income from other sources since the assessee would have incurred some expenses for the purpose of earning income and hence, an ad-hoc deduction of 10% was allowed to the assessee. In view of this, the Assessing Officer was directed to exclude 90% of the gross interest income of the assessee from the business income in order to compute the profits of business for the purposes of deduction under Section 80HHC. 5.In the appeal filed by the Revenue before the Tribunal, there was no challenge to the alternative finding which was arrived at by the Commissioner (Appeals). The ground of appeal was to the following effect. “On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in directing the Assessing Officer to exclude 90% of gross interest income of Rs.66,18,377/- from the business income in order to compute the profit of business for the purpose of deduction under Section 80HHC of the Income-tax Act, 1961.” 6.Since the Revenue did not challenge the alternative finding of the Commissioner (Appeals) before the Tribunal, there was no occasion for the Tribunal to arrive at any determination thereon. Consequently, the correctness of the alternative finding does not arise in these proceedings under Section 260A and we do not express any opinion on the correctness or otherwise thereof. The ground of appeal formulated before the Tribunal proceeds on the basis that the interest income constitutes business income of which 90% had been directed to be excluded by the Commissioner (Appeals) for computing the deduction under Section 80HHC. The Revenue, as the ground of appeal would show, did not contest the question as to whether the interest income was or was not required to be treated as business income. In this view of the matter, the finding of the Tribunal cannot be faulted on these facts. The second question, therefore, would not give rise to any substantial question of law. 7.In so far as the third question is concerned, both the learned Counsel appearing on behalf of the assessee and the learned Counsel appearing on behalf of the Revenue are agreed in stating before the Court that the proceedings may be remanded back to the Tribunal to determine the issue in relation to the sales tax refund. 8.In order to facilitate a fresh determination of the third question on remand, we set aside the order of the Tribunal by consent, to the aforesaid extent. The third question shall stand restored to the file of the Tribunal for a fresh decision. The Appeal is accordingly disposed of. There shall be no order as to costs. (J.P. Devadhar, J.) (Dr.D.Y. Chandrachud, J.)