MS CHORIDIA TRADING CORP V. INCOME TAX OFFICER JAIPUR

ITA/329/2005

AI Insights

The case involves M/s. Chordia Trading Corporation, an exporter of precious stones, who appealed against the decision of the Income Tax Tribunal. The Tribunal had partly allowed the assessee's appeal regarding the assessment of interest income. The primary contention was whether the interest income earned by the assessee should be classified under 'income from business' or 'income from other sources', and whether it qualifies for deduction under Section 80HHC of the Income Tax Act, 1961. The High Court of Rajasthan examined the applicability of Section 80HHC in the context of the interest income and the deductions permissible thereunder.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 684904 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 23-11-2016
• Assessment Year: misc
• Other Referred Cases: CIT Vs. Rejasthan Land Development Corp., 211 ITR 597 (Raj.), ACG Associated Capsules (P) Ltd. vs. Commissioner of Income Tax, Central-IV, Mumbai (2012) 343 ITR 89, Kushal Kishore Agarwal vs. The Income Tax Officer & Ors. in DB Income Tax Appeal No.124/20026, Dhadda Exports vs. I.T.O. Jaipur in DB Income Tax Appeal No.62/2003
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: ANUROOP SINGHI
• Assessee Lawyers: SIDDHARTH RANKA
• Keywords: Business income; Exporters; Income from other sources; Interest assessment; Net income under Section 80HHC
• Section: 234B; 80HHC; 244A; 234C

Judgement Text

"1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. DB INCOME TAX APPEAL NO.329/2005 M/s. Chordia Trading Corporation Chordia Bhawan, Sonthli Walon Ka Rasta, SMS Highway, Jaipur in the State of Rajasthan through Shri Rajmal Chordia, Partner. Versus The Income Tax Officer, Ward-1(2), Jaipur Earlier Known as Income Tax Officer Ward-2(2), Jaipur Having its Office At New Central Revenue Building, Statue Circle, Bhagwandas Raod, Jaipur. DATE OF ORDER ::: 23.11.2016. HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE MAHENDRA MAHESHWARI Mr. Siddharth Ranka, for the appellant. Mr. Anuroop Singhi, for the respondent. 1. By way of this appeal, the assessee has challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal filed by the assessee. 2. The brief facts of the case are that the assessee is an exporter of precious stones. During the year, the assessee earned gross interest of Rs.5,12,574/- and also made payment of interest of Rs.5,00,395/-. The AO and the ld. CIT(A) held that there is no nexus between the business income and income from the interest. Therefore, they held that interest is to be assessed under head income from the sources. The ld. CIT(A) observed at page 2 of her order that the assessee did not borrow any money for business purposes during the year under consideration and the interest outgoings relate to the borrowings 2 made in the earlier years. The loans given during the year are out of the surplus income generated out of the export sales. There is no organized activities of borrowing and lending money. The ld. CIT (A) placed reliance on the case of CIT Vs. Rejasthan Land Development Corp., 211 ITR 597 (Raj.). 3. This court while admitting the matter on 14.12.2005 framed the following substantial questions of law: “1. Whether on the facts and in the circumstances of the case, the ld. Tribunal was justified in holding that interest received at Rs.5,21,574/- is not income from business and it is income from other sources and that lending of funds of assessee's business is not part of its business activity and therefore not eligible for deduction under Section 80HHC of the I.T. Act 1961 on such amount of interest?” “2. Whether on the facts and in the circumstances of the case, the ld. Tribunal was justified in not allowing/netting of interest paid at Rs.500396/- and is not considering only Rs.21,179/- and in taxing the entire amount at Rs.521574/-?” “3. Whether on the facts and in the circumstances of the case, the ld. Tribunal erred in holding that interest earned from any source is income from other source and the assessee who earned interest on money lending was not part of profits and gains of business and not eligible for deduction under Section 80HHC of the I.T. Act?” “4. Whether on the facts and in the circumstances of the case, the ld. Tribunal was justified in not deleting the interest under Section 234B and interest u/s.234C of the I.T. Act when there was no specific direction to charge interest in the assessment order dated 27.11.1996?” “5. Whether on the facts and in the circumstances of the case, the ld. Tribunal 3 was right in observing that interest u/s.244A cannot be withdrawn but in directing to rectify under Section 154 of the I.T. Act?” 4. Counsel for the appellant contended that the issues No.1 to 3 are required to be decided together in view of the provisions Section 80HHC of the Income Tax Act, in explanation (baa) which reads as under: “profits of the business” means the profits of the business as computed under the head “Profits and gains of business or profession” as reduced by- (i) ninety per cent of any sum referred to in clauses (iiia), (iiib) [(iiic), (iid) and (iiie)] of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (ii) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India;]” 5. Counsel for the appellant contended that in view of the decision of Supreme Court in case of ACG Associated Capsules (P) Ltd. vs. Commissioner of Income Tax, Central-IV, Mumbai reported in (2012) 343 ITR 89 where in respect of quantum, the Supreme Court held as under: “1. Section 80HHC of the Income Tax Act, 1961- Deduction-Exporters-Assessment year 2003-04- Whether expression “included any such profit” in clause (baa) to section 80HHC would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in profits of business as computed under head 'profit and gains of business or profession'- Held, yes- Whether therefore, if any quantum of receipt of nature mentioned in clause (1) of Explanation (baa) is allowed as expenses under sections 30 to 44D and is 4 not included in profits of business as computed under head 'Profits and Gains of Business or Profession”, ninety per cent of such quantum of receipts cannot be reduced under clause (1) Explanation (baa) from profits of business -Held, yes- Whether therefore, ninety per cent of net gross rent of gross interest but only net interest or net rent, which has been included in profits of business of assessee as computed under head 'Profit and Gains of Business of Profession', is to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining profits of business- Held, yes [In favour of assessee] 2. Section 80HHC, read with sections 28(iiid), of the Income Tax Act,1961- Deductions -Exporters- Assessment year 2003-04- Whether not entire amount received by assessee on sale of DEPB by assessee under section 28(iiid) for purpose of Explanation (baa) to section 80HHC- held, yes [In favour of assessee].” 6. Counsel for the department has relied on decision of this Court in case of Kushal Kishore Agarwal vs. The Income Tax Officer & Ors. in DB Income Tax Appeal No.124/20026, decided on 09.11.2016 and in case of Dhadda Exports vs. I.T.O. Jaipur in DB Income Tax Appeal No.62/2003, decided on 08.09.2016. 7. Counsel for the appellant contended that in this case since there is business income under Section 80HHC, these judgments will not apply. 8. We have heard counsel for both the sides. 9. Taking into consideration the contention which has been raised and the finding of the AO, we are of the opinion that in view of clause (baa) of Section 80 HHC, the assessee is entitled to get net income under Section 80 HHC. In that view of the 5 matter, the issues No.1 to 3 all are answered in favour of the assessee and against the department. Since issues are No.1 to 3 are decided in favour of assessee, issues No. 4 and 5 being consequential, the counsel for the parties do not press these issues and issues No.4 & 5 are not pressed. 10. In that view of the matter, the issues are answered in favour of the assessee and against the department. 11. The appeal is accordingly allowed. (MAHENDRA MAHESHWARI), J. (K.S. JHAVERI), J. Asheesh Kr. Yadav 112 "