M/s. Akoi Saab (Hotel Imperial), New Delhi V. Add CIT, New Delhi

ITA 5173/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0366 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-01-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 22-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANUSHKA KHURANA
• Assessee Lawyers: A K S BHATIA
• Keywords: Business income
• Section: 80HHC; 56

Judgement Text

I.T.A. NO. 5173, 5174 /DEL/2010 1/1 IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI, BENCH A NEW DELHI, BENCH A NEW DELHI, BENCH A NEW DELHI, BENCH A BEFORE SHRI R. P. TOLANI, JUDICIAL MEMBER AND SHRI A K GARODIA, ACCOUTANT MEMBER ITA NO.5173, 5174/DEL/2010 (ASSESSMENT YEAR 2007-08 ) M/S. AKOI SAAB VS. ACIT, RANGE 31, (HOTEL IMPERIAL) NEW DELHI JANPATH, NEW DELHI. (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAGFA8742F APPELLANT BY: SHRI A. K. S. BHATIA, AR RESPONDENT BY: SHRI ANUSHKA KHURANA, SR. DR ORDER ORDER ORDER ORDER PER A. K. GARODIA, AM: PER A. K. GARODIA, AM: PER A. K. GARODIA, AM: PER A. K. GARODIA, AM: 1. THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAIN ST TWO SEPARATE ORDERS OF LD. CIT(A) XXVI, NEW DELHI BOTH DATED 04.10.2010 FOR THE ASSESSMENT YEARS 2007-08 & 2008- 09. FOR THE SAKE OF CONVENIENCE, BOTH THESE APPEALS ARE BEING D ISPOSED OF BY THIS COMMON ORDER. THE GROUNDS RAISED BY THE ASSES SEE IN BOTH THESE APPEALS ARE IDENTICAL AND HENCE WE REPRODUCE THE GROUNDS OF APPEAL FOR THE ASSESSMENT YEAR 2007-08 I.E. I.T.A. NO. 5173/DEL/2010: IN LAW AND ON FACTS OF THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) XXVI, NEW DELHI ERRED IN UPHOLDING THE ORDER OF THE ADDITIONAL CIT, RANGE 31, OF TREATING THE INTEREST INCOME FROM SHORT TERM BANK DEPOSIT AS INCOME FROM OTHER SOURC ES, IN THE LIGHTS OF THE FACT THAT THE ISSUE HAS BEEN DECI DED IN FAVOUR OF THE APPELLANT BY THE HONBLE ITAT IN APPEAL NO.3 964 AND 3965/DEL/2006 FOR THE ASSESSMENT YEAR 2002-2003 AND 2005- 06 VIDE ORDER DATED 16.1.07. I.T.A. NO. 5173, 5174 /DEL/2010 2/2 2. THE BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE A.O. IN THE ASSESSMENT ORDER THAT ON PERUSAL OF P & L ACCOU NT, IT IS REVEALED THAT THE ASSESSEE HAD CLAIMED INTERESTS INCOME OF ` 1,22,20,523/- IN ASSESSMENT YEAR 2007-08 AND SIMILARLY ` 1,51,12,045 /- IN ASSESSMENT YEAR 2008-09 AS PART OF BUSINESS INCOME. IT IS FURTHER NOTED BY THE A.O. THAT IT HAS BEEN SUBMITTED BY THE LD. A.R. THAT INTEREST INCOME HAS BEEN EARNED ON SHORT-TERM DEPOS IT OUT OF SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE FIRM. AF TER CONSIDERING THE SUBMISSION OF THE ASSESSEE, IT WAS HELD BY THE A.O. THAT THE INTEREST INCOME IS LIABLE TO BE TAXED AS INCOME FRO M OTHER SOURCES AND ACCORDINGLY HE EXCLUDED THE SAME FROM BUSINESS INCOME AND TAXED THE SAME AS INCOME FROM OTHER SOURCES IN BOTH THE YEARS. BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APP EAL BEFORE LD. CIT(A) BUT WITHOUT SUCCESS AND NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US IN BOTH THE YEARS. 3. IT WAS SUBMITTED BY THE LD. A.R. THAT THIS ISSUE REGARDING TAXABILITY OF INTEREST INCOME AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL DECISION RENDERED IN THE ASSESSEES OWN CASE FOR TH E ASSESSMENT YEARS 2003-04 & 2004-05 IN I.T.A. NO. 3964 AND 3965 /DEL/2006 DATED 31.07.2007. HE SUBMITTED A COPY OF THIS TRIB UNAL DECISION. IT IS ALSO SUBMITTED THAT THE TRIBUNAL HAS DULY CONSID ERED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT RENDERED IN TH E CASE OF SHRIRAM HONDA POWER EQUIPMENTS AS REPORTED IN 289 ITR 475. AS AGAINST THIS, IT IS SUBMITTED BY THE LD. D.R. THAT THE APPE AL OF THE REVENUE AGAINST THIS TRIBUNAL ORDER HAS BEEN ADMITTED BY TH E HON'BLE HIGH COURT OF DELHI AS HAS BEEN NOTED BY THE LD .CIT(A) IN PARA 7 OF HIS ORDER. IT IS ALSO SUBMITTED THAT THE REVENUES APP EAL AGAINST THE EARLIER TRIBUNAL ORDER IN ASSESSMENT YEAR 2000-01, 2001-02 AND 2003-04 HAS ALSO BEEN ADMITTED BY HONBLE JURISDICT IONAL HIGH COURT ON 01.12.2006 BUT IT HAS BEEN NOTED BY THE TRIBUNAL IN ITS ORDER DATED 31.07.2007 THAT NOTHING WAS BROUGHT ON RECORD TO INDICATE I.T.A. NO. 5173, 5174 /DEL/2010 3/3 ANY APPEAL HAVING BEEN FILED AGAINST THE ORDER OF T HE TRIBUNAL BEFORE THE HON'BLE HIGH COURT. IT IS SUBMITTED THAT AT TH E TIME OF HEARING OF THIS APPEAL, THE LD. D.R. WAS NOT AWARE ABOUT THE A DMISSION OF THE APPEAL OF THE REVENUE IN EARLIER YEAR BY HON'BLE HI GH COURT OF DELHI AND HENCE THIS FACT HAS TO BE CONSIDERED NOW. REGA RDING THE JUDGEMENT OF HON'BLE HIGH COURT OF DELHI RENDERED I N THE CASE OF SHRIRAM HONDA POWER EQUIPMENTS (SUPRA), IT IS SUBMI TTED BY THE LD. D.R. THAT THE SAME WAS DISTINGUISHED BY THE TRIBUNA L IN ITS ORDER- DATED 31.07.2007 ON A DIFFERENT BASIS, WHICH IS NOT RELEVANT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. FIRST, WE REPRODUCE PARA 9 OF THE TRIBUNAL ORDER DATED 31.07.2007 IN ASSESSEES OWN CASE FOR THE ASSESSMEN T YEARS 2003- 04 & 2004-05: 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREF ULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOU ND FROM THE RECORD THAT THE ASSESSEE IS RUNNING, OF HOTEL I MPERIAL, JANPATH, NEW DELHI. THE HOTEL EARNS INCOME FROM SE RVICES PROVIDE TO FOREIGN TOURISTS, THE RECEIPTS IN RELATI ON TO WHICH ARE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE UNDER SECT ION 80HHD OF THE I. T. ACT. ASSESSEE WAS ENTITLED TO CLAIM D EDUCTION IN RESPECT OF CERTAIN PER CENT OF PROFITS DERIVED FROM SPECIFIED SERVICES UNDER SUB-CLAUSE (A) AND UNDER SUB-CLAUSE (B) OF SECTION 80HHD (I) OF THE I. T. ACT. COMPUTATION OF DEDUCTION UNDER SUB-SECTION (3) OF SECTION 80HHD OF THE ACT W AS MADE ON THE BASIS THAT INTEREST INCOME FORMED A PART OF THE SUM ASSESSABLE UNDER THE HEAD PROFIT AND GAINS OF BUSI NESS OR PROFESSION. THE HISTORY OF THE ASSESSEE SINCE IN CEPTION SHOWS THAT CLAIM OF DEDUCTION IN RESPECT OF INTERES T INCOME HAS BEEN EITHER ALLOWED BY THE A.O. HIMSELF OR WAS DECIDED IN ITS FAVOUR BY THE LD. CIT(A) / TRIBUNAL. EVEN IN T HE ASSESSMENT YEAR 2000-01, WHERE THE LD .CIT(A) HAS CONFIRMED TH E ACTION OF THE A.O. FOR NOT ALLOWING DEDUCTION ON INTEREST INCOME UNDER SECTION 80HHD, TRIBUNAL HAS DECIDED THE ISSUE IN ITS FAVOUR BY FOLLOWING THE DECISION OF TRIBUNAL IN EAR LIER YEARS ON THE VERY SAME ISSUE. THE DECISION IN SRI RAM HONDA EQUIPMENT (SUPRA) HAS CITED BY THE LD/. DR RELATES TO THE DEDUCTION UNDER SECTION 80HHC AND MORE PARTICULARLY WITH REGARD TO THE EXPLANATION (BAA) FOUND BELOW SECTION 80HHC (4C) OF THE I. T. ACT. IN THE INSTANT CASE, THE AS SESSEES CLAIM IS UNDER SECTION 80HHD AND NOT UNDER SECTION 80HHC. I.T.A. NO. 5173, 5174 /DEL/2010 4/4 NOTHING WAS BROUGHT ON REGARD TO INDICATE NAY APPEA L HAVING BEEN FILED AGAINST THE ORDER OF TRIBUNAL, BEFORE TH E HON'BLE HIGH COURT NOR ANY JUDGEMENT WAS CITED BEFORE US WH ICH RELATE DIRECTLY TO THE DEDUCTION U/S 80HHD HAVING D ECIDED AGAINST HT ASSESSEE WITH RESPECT TO THE INTEREST IN COME. ONCE AN ISSUE HAVING TAKEN A PARTICULAR VIEW BY THE HON BLE TRIBUNAL, APPARENTLY THERE IS NOTHING ON RECORD TO SHOW THAT VIEW CONSISTENTLY TAKEN BY THE TRIBUNAL HAVE BEEN R EVERSED OR CHALLENGED BEFORE THE HIGHER FORUM, THE SAME NEED N OT BE RACKED UP TIME AND AGAIN FOR PROTRACTING THAT LITIG ATION AS WAS HELD BY THE HON'BLE SUPREME COURT IN CASE OF UNION OF INDIA & ORS VS KUMUDINI NARAYAN DALAL & ANR. 249 ITR 219, S ATISH PANALAL SHAH, 249 ITR 221 AND BERGER PAINTS INDIA L TD., 266 ITR 99. IN ALL THESE CASES HON'BLE SUPREME COURT H AVE HELD THAT HON'BLE HIGH COURT HAVING RENDERED ITS DECISIO N FOLLOWING AN EARLIER DECISION OF THE SAME COURT WHICH WAS NOT CHALLENGED BY THE REVENUE IN APPEAL, IT WAS NOT OPE N TO THE REVENUE TO CHALLENGE BEFORE THE HON'BLE SUPREME COU RT THE CORRECTNESS OF THE LATER DECISION OF THE HON'BLE HI GH COURT. THE JUDICIAL CONSISTENCY DEMANDS A CONSISTENCY 9IN THE DECISION AND RESPECT FOR ANOTHER COORDINATE BENCH A S WAS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF MATADOR FORM AND ORS. 4 RC 142 (2005). 5. IN THE ABOVE PARA OF THIS ORDER OF THE TRIBUNAL WE FIND THAT THE JUDGEMENT OF HON'BLE HIGH COURT OF DELHI RENDERED I N THE CASE OF SRI RAM HONDA POWER EQUIPMENTS (SUPRA) HAS BEEN DISTING UISHED BY THE TRIBUNAL ON THIS BASIS THAT THIS JUDGMENT IS WI TH REGARD TO EXPLANATION (BAA) BELOW SECTION 80HHC(4C) OF THE I. T. ACT WHEREAS IN THE PRESENT CASE, THE ASSESSEES CLAIM IS U/S 80 HHD AND NOT U/S 80HHC. IN THIS REGARD, WE FEEL IT RELEVANT TO NOTE THE RATIO DECIDENDI OF THIS JUDGMENT OF HON'BLE HIGH COURT OF DELHI REN DERED IN THE CASE OF SRI RAM HONDA POWER EQUIPMENTS (SUPRA). IN OUR HUMBLE OPINION, RATIO DECIDENDI OF THIS JUDGEMENT OF HONBLE DELHI HIGH COURT IS THIS, THAT FOR THE PURPOSE OF EXCLUSION FORM BUSINESS PRO FITS UNDER EXPLANATION (BAA), NET INTEREST HAS TO BE CONSIDERE D AND NOT GROSS INTEREST. IT WAS ALSO HELD BY THE HON'BLE HIGH COU RT OF DELHI IN THAT CASE THAT IF INTEREST INCOME IS EARNED ON PARKING O F SURPLUS FUNDS, THE SAME HAS TO BE ASSESSED AS INCOME FROM OTHER SO URCES. IT IS ALSO HELD BY THE HON'BLE HIGH COURT OF DELHI THAT I F FOR EARNING SUCH I.T.A. NO. 5173, 5174 /DEL/2010 5/5 INTEREST INCOME, ANY INTEREST EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE THEN SUCH INTEREST EXPENSES ID ALSO TO BE EXCLUDED FORM DEBIT SIDE OG P & L ACCOUNT TO WORK OUT THE BUSINES S PROFIT OF THE ASSESSEE COMPANY. THE RELEVANT PARA OF THIS JUDGME NT OF HON'BLE HIGH COURT OF DELHI IS PARA 35 WHICH IS REPRODUCED BELOW FOR READY REFERENCE: TURNING TO THE SUBMISSIONS IN THE PRESENT CASES, A S REGARDS THE FIST OF THE CATEGORIES, VIZ., THE PARKING OF SU RPLUS FUNDS, THERE SHOULD BE NO DIFFICULTY AT ALL. IN VIEW OF T HE LARGE NUMBER OF THE DECISIONS OF THE HON'BLE SUPREME COUR T IN THE CONTEXT OF SECTION 56 AND SECTION 57 AND THOSE OF T HE KERALA HIGH COURT IN THE CONTEXT OF SECTION 80HHC ITSELF, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSEES BA SED ON SNAM PROGHETTI (1981) 132 ITR 70 (DEL.) THAT INTERE ST EARNED ON PARKED SURPLUS FUNDS SHOULD QUALIFY AS BUSINESS INCOME. CLEARLY, SNAM PROGHETTI (1981) 132 ITR 70 (DEL.) WA S NOT RENDERED IN THE CONTEXT OF SECTION 80HHC AND CANNOT BUT BE CONFINED TO THE FACTS OF THAT CASE. CIRCULAR NO.56 4, DATED JULY 5, 1990 (SEE (1990) 184 ITR (ST.) 137), CAN ALSO NO T HELP IN INTERPRETING SECTION 80HHC, WHICH IS A STAND ALONE PROVISION. WE ARE, THEREFORE, OF THE VIEW THAT WHERE SURPLUS F UNDS ARE PARKED WITH THE BANK AND INTEREST IS EARNED THEREON IT CAN ONLY BE CATEGORIZED AS INCOME FROM OTHER SOURCES. THIS RECEIPT MERITS SEPARATE TREATMENT UNDER SECTION 56 OF THE ACT, WHICH IS OUTSIDE THE RING OF PROFIT AND GAINS FROM BUSINESS AND PROFESSION. IT GOES ENTIRELY OUT OF THE RECKONING FOR THE PURPOSES OF SECTION 80HHC. TO GIVE EFFECT TO THIS POSITION, THE A.O. WHILE COMPUTING PROFITS OF THE EXPORT BUSINESS WILL HAVE TO REMOVE FROM THE DEBIT SIDE OF THE PROFIT AND LOS S ACCOUNT THE CORRESPONDING INTEREST EXPENDITURE THAT HAS BEE N LAID OUT TO EARN SUCH INCOME FORM OTHER SOURCES. OTHER WISE THIS WILL DEPRESS THE PROFITS BY AN AMOUNT, WHICH IS OUT OF THE RECKONING OF SECTION 80HHC, A CONSEQUENCE NOT INTEN DED TO BE BROUGHT ABOUT. 6. FROM THE ABOVE PARA OF JUDGEMENT OF HON'BLE HIGH COURT OF DELHI RENDERED IN THE CASE OF CIT VS SRI RAM HONDA POWER EQUIPMENTS (SUPRA), IT IS CRYSTAL CLEAR THAT IF THE INTEREST INCOME OF THE ASSESSEE IS OUT OF PARKING OF SURPLUS FUNDS, TH EN THE SAME HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND EVEN I F SOME INTEREST EXPENSES HAVE BEEN INCURRED FOR EARNING SUCH INTERE ST INCOME THEN SUCH INTEREST EXPENSES HAS TO BE CONSIDERED FOR COM PUTATION OF I.T.A. NO. 5173, 5174 /DEL/2010 6/6 INCOME FROM OTHER SOURCES AND ACCORDINGLY, THE SAME SHOULD NOT BE CONSIDERED FOR COMPUTATION OF INCOME FROM BUSINESS AND IN THIS MANNER, NETTING OF INTEREST HAS BEEN APPROVED BY TH E HON'BLE HIGH COURT OF DELHI FOR THE PURPOSE OF EXCLUSION OF 90% OF NET INTEREST INCOME AS PER EXPLANATION (BAA) TO SECTION 80HHC. HENCE, THIS IS NOT A CASE WHERE HON'BLE HIGH COURT OF DELHI HAS HE LD THAT INTEREST INCOME HAS NOT TO BE CONSIDERED FOR ALLOWING DEDUCT ION U/S 80HHC BECAUSE OF SOME SEPARATE MANDATE OF THIS SECTION I. E. SECTION 80HHC. THE DECISION OF HON'BLE HIGH COURT OF DELHI ABOVE IS THIS THE INTEREST INCOME FORM PARKING OF SURPLUS FUNDS IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND EVEN IF SOME INTEREST EXPENSES HAS BEEN INCURRED FOR EARNING SUCH INTERESTS INCOME THE N THE NET INTERESTS INCOME SHOULD BE EXCLUDED FROM BUSINESS I NCOME AND NOT THE GROSS INTEREST INCOME. IN THE PRESENT CASE, TH IS IS THE ADMITTED POSITION THAT INTEREST INCOME HAS BEEN EARNED BY TH E ASSESSEE IN THESE TWO YEARS OUT OF PARKING OF SURPLUS FUNDS AND HENCE, THIS JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT REND ERED IN THE CASE OF SRI RAM HONDA POWER EQUIPMENTS (SUPRA) IS DIRECT LY APPLICABLE. REGARDING TRIBUNAL DECISION IN THE ASSESSEES OWN C ASE, FOR ASSESSMENT YEARS 2003-04 & 2004-05, WE WOULD LIKE T O OBSERVE THAT WHEN THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH CO URT IS DIRECTLY APPLICABLE, WE ARE BOUND BY THAT JUDGEMENT AND WE H AVE TO FOLLOW THIS JUDGEMENT IRRESPECTIVE OF ANY TRIBUNAL DECISIO N. WE ALSO FIND THAT ONE OF THE REASONS GIVEN IN THIS TRIBUNAL ORDE R DATED 31.07.2007 IS THIS THAT EARLIER TRIBUNAL DECISION HAS NOT BEEN CHALLENGED BY THE REVENUE BEFORE THE HON'BLE HIGH COURT OF DELHI BUT THE FACTS IS THIS AS NOTED BY LD. CIT(A) THAT THE APPEAL OF THE REVEN UE HAD BEEN ADMITTED BY THE HON'BLE HIGH COURT OF DELHI IN EARL IER YEARS. IT IS ALSO OBSERVED BY THE LD. CIT(A) THAT THE APPEAL OF THE REVENUE A AGAINST THIS ORDER OF THE TRIBUNAL DATED 31.07.2007 HAS ALSO BEEN ADMITTED BY THE HON'BLE HIGH COURT OF DELHI. HENCE , NO TRIBUNAL DECISION OF ANY EARLIER YEAR IS LYING UNCHALLENGED. THE ISSUE I.T.A. NO. 5173, 5174 /DEL/2010 7/7 INVOLVED IS COVERED AGAINST THE ASSESSEE BY THE DIR ECT DECISION OF HON'BLE HIGH COURT OF DELHI, WHICH IS BINDING UPON US. WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD .CIT(A) ON T HIS ISSUE IN BOTH THE YEAS BY RESPECTFULLY FOLLOWING THIS JUDGEMENT OF HO NBLE DELHI HIGH COURT. WE, THEREFORE, UPHOLD THE SAME BY RESPECTFU LLY FOLLOWING THIS JUDGMENT OF HON'BLE HIGH COURT OF DELHI RENDERED IN THE CASE OF SRI RAM HONDA POWER EQUIPMENTS (SUPRA). 7. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. 8. PRONOUNCED IN THE OPEN COURT ON 11 TH FEB., 2011. SD./- SD./ (R. P. TOLANI) (A K GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:11 TH FEB., 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI