Commissioner of Income Tax vs Mahavir Spinning Mills Ltd.

Adarsh Kumar Goel, J.—Delay in refiling the appeal is condoned.

The Revenue has preferred this appeal u/s 260A of the Income Tax Act, 1961 (for short "the Act"), against the order of the Income Tax Appellate Tribunal, Chandigarh Bench "A", Chandigarh, passed in I.T.A. No. 522/Chandi/2004, dated October 31, 2006, for the assessment year 1997-98, proposing to raise the following substantial questions of law:

(i) Whether, on the facts and law, the hon''ble Income Tax Appellate Tribunal was justified in holding that 90 per cent. of interest of Rs. 384.27 lakhs received from customers on belated payments could not be reduced from ''profits and gains of business'' under Clause (baa) of the Explanation below Section 80HHC(4B) of the Income Tax Act when the same issue has been decided in favour of the Revenue in the case of Commissioner of Income Tax-III Vs. Malwa Cotton Spinning Mills Ltd.,

(ii) Whether, on the facts and law, the hon''ble Income Tax Appellate Tribunal was correct in holding that the sales tax and excise duty were not includible in total turnover for computing deduction u/s 80HHC of the Income Tax Act, when the sales tax and excise duty were realised as a part of sale proceeds of the goods manufactured by the respondent ?

(iii) Whether, on the facts and law, the hon''ble Income Tax Appellate Tribunal was justified in holding that deduction u/s 80M was to be allowed without allocating personal and administrative and financial expenses proportionately for computing the net dividend income referred to in Section 80AA of the Income Tax Act?

The assessee claimed deduction u/s 80HHC. The amount of deduction was worked out after reducing 90 per cent. interest income under Clause (baa) of the Explanation below Section 80HHC(4B) of the Act. The assessee did not take into account the interest received on account of belated payments on the ground that such income was from business and not from interest. The Assessing Officer disallowed the plea. The Assessing Officer also added sales tax and excise duty to the total turnover. Deduction u/s 80M of the Act was also reduced after apportioning interest and personal and administrative expenses attributable to earning of dividend. The Commissioner of Income Tax (Appeals) upheld the claim of the assessee, which view has been affirmed by the Tribunal.

On July 29, 2008, following order was passed:

Present : Mr. Rajesh Sethi, advocate for the appellant.

Learned Counsel for the appellant contends that only questions Nos. 1 and 3 are surviving for consideration of this Court and as far as question No. 2 is concerned, the same has already been answered against the Revenue by this Court in the case of Commissioner of Income Tax Vs. Vardhman Polytex Ltd., .

Notice of motion on the aforesaid two questions for November 4, 2008.

We have heard learned Counsel for the parties.

With regard to question No. (i) learned Counsel for the Revenue has relied upon the judgment of this Court in Commissioner of Income Tax-III Vs. Malwa Cotton Spinning Mills Ltd., . With regard question No. (iii) learned Counsel for the Revenue has relied upon the judgments of the hon''ble apex court in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, and Commissioner of Income Tax Vs. United General Trust Ltd., .

Learned Counsel for the assessee is unable to distinguish the above judgments.

In view of the judgment of this Court in Commissioner of Income Tax-III Vs. Malwa Cotton Spinning Mills Ltd., , question No. (i) has to be answered in favour of the Revenue.

In view of the judgments of the hon''ble Supreme Court in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, and Commissioner of Income Tax Vs. United General Trust Ltd., question No. (iii) has to be answered in the favour of the Revenue.

This appeal is partly allowed in above terms.