M/S Eastman Industries vs Commissioner Of Income Tax (Central), Ludhiana And Another

Avneesh Jhingan, J

The assessee is in appeal under Section 260A of the Income Tax Act, 1961 (for short, 'the 1961 Act') against the order dated 25.7.2000 passed by the

Income Tax Appellate Tribunal, Chandigarh Bench (for short, 'the Tribunal') partly allowing the appeal of the assessee. Following substantial questions

of law have been claimed in the appeal:

“(a) Whether in the facts and circumstances of the case, the order Annexures P-1, P-2 and P-3 are legally sustainable ?

(b) Whether in the facts and circumstances of the case, the addition of Rs. 2,17,546/- made to be total turnover declared is legally sustainable. The

same being based on mere presumptions and conjectures which cannot form the basis for adjudication?

(c) Whether in the facts and circumstances of the case, the addition of Rs. 2,17,546/- to the total turnover declared is legally sustainable in as much as

the income allegedly liable to be included could have been Rs. 3,36,067/-, the same having not been verified.

(d) Whether in the facts and circumstances of the case, the interest income of Rs.21,97,071/- and lease income of Rs.52,532/- having being put within

the domain of income from other sources is legally sustainable as the said had been derived on advance and deposit made.â€​

The relevant facts are that the assessee filed income tax return for the year 1991-92 declaring income of 24,20,000/-. The assessee was trader and

dealing in export of cycle parts. The assessment was finalised on 16.3.1993 under Section 143(3) of the Act. Certain additions were made and the

income earned from leasing and interest on loans and advances given to sister concerns were considered as income under the head 'income from

other sources'. The appeal was dismissed by the Appellate Authority vide order dated 31.3.1994. In appeal before the Tribunal, partial relief was given

on 25.7.2000, however, the claim of deduction of lease income and interest income under Section 80HHC of the Act was rejected, hence the present

appeal.

Learned counsel for the appellant did not press questions (a) to (c). As regards question (d), learned counsel for the appellant conceded that the lease

income and interest income from loans and advances to the sister concerns will come in the domain of 'income from other sources'. However, it is

argued that the assessee had paid interest on certain loans availed, hence there should be setting off/adjustment of interest received and paid, it is

thereafter that net amount be considered for deduction under Section 80HHC of the Act. Reliance is placed on decision of the Supreme Court inM /s

ACG Associated Capsules (P) Ltd. v. Commissioner of Income Tax, (2013) 343 ITR 89.

The contention raised though is not directly covered by the question framed but as the same has been dealt with by the Tribunal and is therefore being

adjudicated.

The contention lacks merit.

Once it is accepted that the income from lease and interest income is income from other sources, there is no question of it being eligible under Section

80HHC of the Act. The provision deals with deductions in respect of profits retained for export business. The income earned from interest and lease

money is not income under the head 'profits and gains of business or profession'.

In the facts of the present case, there is no question of setting off/adjusting the interest on debit side and on the credit side of the profit and loss

account. The interest paid by the assessee is directly linked with the business and would be dealt with while calculating the income from business or

profession. The lease money and interest income is not income from the business, rather it is income from application of money which might have

been earned from business or profession. In such circumstances, there would be no question of netting/setting off the interest paid vis-Ã -vis the

interest received. The Tribunal rightly rejected the contention of the assessee.

Reliance on M/s ACG Associated Capsules (P) Ltd.'s case (supra) does not enhance the case of the appellant. The Apex Court was dealing with

Clause (baa) of Explanation to Section 80HHC of the Act and it was in that context it was held that the expression “included in such profits†in

Clause (1) of the Explanation (baa) would include receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are

included in the profits of business as computed under the head “profits and gains of business or professionâ€. Further, that if such type of receipts

are allowed as expenses and not included in the profits of business, ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of

Explanation (baa) to Section 80HHC of the Act. In the present case, the interest received and the lease money is not even includable in the profits and

gains determined under the head “profits and gains of business or professionâ€​.

The appeal is dismissed.