Commissioner of Income Tax vs Polaris Software Lab Ltd.

P.P.S. Janarthana Raja, J.—This appeal is filed u/s 260A of the Income Tax Act, 1961 by the Revenue against the order of the Income Tax Appellate Tribunal, Madras, ''B'' Bench dated 28.04.2006 passed in in I.T.A. No. 1417/Mds/2002, raising the following substantial questions of law:

Whether in the facts and circumstances of the case, the Tribunal was right in remitting back the matter to the lower authority to find out the nature of income when there is a clear cut finding about the same by the lower authority after a detailed scrutiny?

Whether in the facts and circumstances of the case, the Tribunal was right in directing the lower authority to decide the issue in accordance with the ratio of the decisions which were rendered in the context of Section 80HHC, when the assessee in question is not at all claiming benefit of that section?

The facts leading to the above questions of law are as under:

The assessee is a Private Limited Company and is engaged in the business of software technology. The relevant assessment year is 1998-99 and the corresponding accounting year ended on 31.03.1998. The assessee filed Return of income on 27.11.1998 admitting income of Rs. 5,51,780/-. The said Return was processed u/s 143(1) of the Income Tax Act (hereinafter referred to as the "Act"). Later, notice u/s 143(2) of the Act was issued by the Assessing Officer. Subsequently, assessment was completed on a total income of Rs. 30,47,010/-. While computing the assessment, the Assessing Officer treated the interest receipts as "income from other sources" and not as "business income", as claimed by the assessee. Aggrieved by the order, the assessee filed an appeal to the Commissioner of Income Tax (Appeals). The C.I.T.(A) dismissed the appeal and upheld the order of the Assessing Officer. Aggrieved, the assessee filed an appeal to the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal"). The Tribunal allowed the appeal for statistical purpose by remanding the matter back to the Assessing Officer to find out the true nature of the income and assess the same accordingly.

Learned Standing Counsel appearing for the Revenue submitted that the Tribunal has erred in remitting back the matter to the Assessing Officer to find out the nature of the income, when the Assessing Officer had already scrutinised the same in detail, and contended that it should be assessed only under "income from other sources".

Heard the counsel. The Tribunal had remanded the matter and held as follows:

After going through the records, it is observed that the answer to this question would depend on the nature of income, whether such income is income from business or income from other sources. It is not clear from the records whether the interest income is from business income or income from other sources. Accordingly, the issue is set aside to the file of the Assessing Officer to decide the issue afresh after giving reasonable opportunity of being heard to the Assessee. The Assessing Officer is directed to find out the nature of the income, whether it is income from other sources or income from business. If it is income from other sources, then netting is not allowed in view of the decision of the Hon''ble Jurisdictional High Court in the case of K.S. Subbiah Pillai and Co. (India) Pvt. Ltd. Vs. Commissioner of Income Tax, . If it is business income then the Assessing Officer will find out the nexus between the interest earned and the interest paid and decide the issue in accordance with the ratio of the decision of the Special Bench of this Tribunal in the case of Lalsons Enterprises v. DCIT 89 ITD 25 or Commissioner of Income Tax Vs. S.S.C. Shoes Ltd., . Accordingly, the appeal of the Assessee is allowed for statistical purposes.

The direction in the remand order is to find out the nature of the income and depending upon the nature of the income, the Assessing Officer should consider the contentions of the assessee in accordance with the judgment, cited supra, in the remand order. The said remand order, in no way, affects the interest of the Revenue and the Revenue also is not in a position to produce any material or evidence to show that the interest of the Revenue is affected, by this remand order.

In view of the foregoing reasons, we find no error or legal infirmity in the order of the Tribunal and the same does not require interference. Hence, we find no merit in this appeal and accordingly, no substantial questions of law arise for consideration of this Court and the tax case is dismissed. No costs.