Rasbihari Tabocco Processors Ltd. V. Dy. C.I.T. (Asstt.)

TAXAP/91/2002

AI Insights

The case involves Rasbihari Tobacco Processors Ltd., the appellant, who appealed against the decision of the Income Tax Appellate Tribunal (ITAT) which denied them deductions under sections 80HH and 80I of the Income Tax Act on certain interest incomes. The ITAT had excluded interest income from deposits with IDBI and banks used for obtaining bank guarantees, stating these incomes were not derived from the industrial undertaking of the appellant. The High Court of Gujarat at Ahmedabad, after considering precedents and arguments, upheld the ITAT's decision regarding the first question but allowed the second question in favor of the appellant, permitting the set off of interest expenditure against the interest income for deduction purposes.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 805824 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 10-10-2014
• Assessment Year: misc
• Other Referred Cases: Liberty India vs. Commissioner of Income Tax, Commissioner of Income Tax, Ahmedabad vs. Nirma Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: K M PARIKH
• Assessee Lawyers: SWATI SOPARKAR
• Keywords: Bank deposits; CIT(Appeals); Deduction; Industrial Undertaking; Interest income; ITAT
• Section: 80HH; 80I; 32AB

Judgement Text

"O/TAXAP/91/2002 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 91 of 2002 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ RASBIHARI TABOCCO PROCESSORS LTD.....Appellant(s) Versus DY. C.I.T. (ASSTT.)....Opponent(s) ================================================================ Appearance: MRS SWATI SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 5 O/TAXAP/91/2002 JUDGMENT Date : 10/10/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. The assessee is in appeal against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as ITAT) dated 20.07.2001 in ITA No. 2708/Ahd/95 for the Assessment Year 1991-92 raising following questions for our consideration: (1)Whether, in the facts and circumstances of the case the ITAT was right in law in holding that the interest income amounting to Rs. 1,90,034/= on the deposit with IDBI as required u/s. 32AB of the Act as well as interest income amounting to Rs. 1,09,490/= on deposits placed with banks for getting bank guarantees in favour of the Forest departments for the purchases of Tendu leaves made by the appellant cannot be said to be income derived from industrial undertaking and the same be excluded for the purpose of calculating deduction u/s. 80HH and 80I of the Act? (2) Whether, in the facts and circumstances of the case, the ITAT was right in law in holding that for the purpose of calculating deduction u/s. 80HH and 80I of the Act, gross interest income without reducing therefrom the interest expenditure, is required to be excluded?\" 2. The assessee firm is engaged in the business of processing Page 2 of 5 O/TAXAP/91/2002 JUDGMENT tobacco. During the year under consideration, the assessee claimed deduction u/s 80HH and 80-I. The appellant was denied deduction under sections 80HH and 80I of the Act on the interest amounting to Rs. 190034/- on the deposit with IDBI as required u/s 32AB of the Act as well as interest amounting to Rs. 109490/- on deposits placed with banks for getting bank guarantees in favour of the Forest Departments for the purchases of Tendu leaves made by the appellant. On appeal the CIT (Appeals) partly allowed the said appeal vide order dated 08.03.1995 and held that the interest income do form part of profit and gain of the industrial undertaking of the appellant and therefore the appellant is eligible to claim deduction u/s 80HH and 80I of the Act on the interest from IDBI Bank. 2.1 On appeal before the ITAT by the revenue, by impugned judgment and order, ITAT has set aside the decision of CIT (Appeals) and held that the interest income from IDBI and banks cannot be said to be derived from the industrial undertaking of the appellant and therefore the appellant cannot claim deduction u/s 80HH and 80I of the Act. The appellant also raised an alternate contention before the ITAT that as the appellant had paid substantial amount of interest on borrowings for business, such interest expenditure should be set off against the impugned interest income and only the net amount so arrived at may be excluded for the purpose of computing deduction u/s 80HH and 80I of the Act. The ITAT rejected this alternate plea of the appellant as well. 2.2 Being aggrieved and dissatisfied with the impugned judgment and order passed by the ITAT, the assessee has Page 3 of 5 O/TAXAP/91/2002 JUDGMENT preferred the present Tax Appeal for consideration of the aforesaid substantial question of law. 3. The tribunal while passing the impugned order has relied on the decisions of the Apex Court and observed that whatever the purpose of making the fixed deposit, the basisc fact remains that interest has been derived from the bank and not from the industrial undertaking and that such interest income does not have a direct nexus with the undertaking. The Tribunal observed that both the amounts of interest have been rightly excluded for the purposes of computation of deduction u/s 80H and 80-I. 4. The issues involved in the present appeals are squarely covered by the decisions of the Apex Court and this Court. Mr. Soparkar has drawn our attention to the unreported decision of this Court in the case of Commissioner of Income Tax, Ahmedabad vs. Nirma Ltd. passed in Tax Appeal No. 811 of 2013 on 27.01.2014. Mr. K.M. Parikh, learned advocate appearing for the respondent – revenue has relied on the decision of the Apex Court in the case of Liberty India vs. Commissioner of Income Tax reported in (2009) 317 ITR 218 (SC) so far as question no. 1 is concerned. 5. Having heard learned advocates for both the sides and having considered the questions posed for consideration before us reproduced hereinabove and considering the decision of the Honble the Supreme Court in the case of Liberty India (supra), question no. 1 raised in the present appeal is required to be answered in favour of the Department Page 4 of 5 O/TAXAP/91/2002 JUDGMENT and against the assessee. 5.1 So far as question no. 2 is conerned, in view of the decision in the case of Nirma Ltd. (supra), the same is required to be answered in favour of the assessee and against the revenue. In view of the above, Question no. 1 is answered in the negative whereas question no. 2 is answered in the affirmative. 6. In the result, Tax Appeal is partly allowed. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 5 of 5 "