R.K. Textiles (India) vs The Asst. Commissioner of Income Tax, Business Range - IV

K. Raviraja Pandian, J.—The appeal is against the order dated 27.7.2006 of the Income Tax Appellate Tribunal, ''B'' Bench made in I.T.A.

No. 1791/Mds/2003. The relevant assessment year is 2001-2002.

The facts culled out from the statement of facts stated in the Memorandum of Appeal are as follows:

(i) The appellant is engaged in the business of manufacture and export of garments and also carrying on money lending business. For the

assessment year 2001-2002, the appellant filed its return of income on 31.10.2001, admitting a total income of Rs. 7,929/- after claiming

deduction u/s 80 HHC to the tune of Rs. 27,77,87,215/- and restricted the same to the extent of business income of Rs. 2,25,49,119/-. While

doing so, the appellant has shown interest income of Rs. 8,66,033/- in the profit and loss account as part of its business income, since the same

was received from finance debtors and on Certificate of Deposit and Fixed Deposits in the course of money lending business. While computing the

deduction u/s 80HHC, the assessing officer reduced 90% of the interest income from the business income as per the explanation (baa) to Section

80HHC to arrive at ""profit of the busines5s"".

(ii) The return was processed u/s 143(1) on 31.10.2002 and subsequently taken up for scrutiny and assessment was competed u/s 143(3) on

28.2.2003 by the assessing Officer by holding that the interest income will not qualify for deduction u/s 80HHC for the reason that it cannot be

considered to be profit from export and therefore treated the same as income from other sources.

(iii) Aggrieved by the said order, the appellant filed an appeal before the Commissioner of Income Tax (Appeals), who, after considering all the

facts and the issue of interest income and after considering the submissions made on such facts and law, allowed the appeal on the premise that the

interest income received by the appellant was business income, since as per the guidelines of Reserve Bank of India, nobody can have the amount

in foreign currency except for business purpose and only business people are entitled to maintain EEFC account and interest income earned were

out of export business funds, which were invested in various categories and there was nexus between business carried out by the appellant and the

interest earned.

(iv) The Department, feeling aggrieved by the opinion arrived at by the Commissioner of income tax(Appeals) , carried the matter on appeal before

the Income Tax Appellate Tribunal, who, by the reasoned order, remitted the issued to the files of the Assessing Officer to give a finding on facts

of the case as to whether the interest income of the appellant could be considered to be his business income by giving reason to the effect that in

the order of the Authorities below, there was no finding as to whether interest income of the appellant could be considered to be his business

income on the facts and circumstances of the case. While the Assessing Officer has gone on the premise that interest income could not be export

income, whereas the Commissioner of Income Tax (Appeals) has dealt with on the premise that the interest could be business income.

The said order is now canvassed before this Court, by framing the following questions of law:

(1) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in not deciding the issue on

merits in respect of the interest income by remitting back the issue to the file of the Assessing Officer?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in remitting back the issue of

interest income to Assessing Officer by basing its decision on wrong presumption and premises, without considering the categorical findings of the

Commissioner of Income Tax (Appeals), which was based on materials, reasoning and supportive case law on the issue?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in not holding that the interest

income derived by the appellant forms part of its ""Business income"", since the Assess is also engaged in the business of money lending?

We heard the learned Counsel appearing for both sides and perused the material on record, including the reasoning given by the Income Tax

Appellate Tribunal for passing the impugned order.

The Tribunal, after hearing the parties, has stated that the term of the interest income is settled by a decision of this Court in the case of

Commissioner of Income Tax Vs. V. Chinnapandi, wherein this Court held that for the purpose of 80HHC, 90% of the interest income has to be

deducted as per the provision of Explanation (baa) to Section 80HHC of the Income Tax Act for the purpose of computation of profit of the

business. In case the interest income is assessable under the head ""Other Sources"", the entire income would have to be excluded from the

computation u/s 80HHC.

From the order of the Authorities below, the Tribunal was not in a position to cull out the categorical finding, whether the interest income of the

appellant could be considered to be business income on the facts and circumstances of the case, as the Assessing Authority has held that the

interest income could not be export income. On the other hand, the Commissioner of Income Tax has dealt with the case that the interest could be

the business income. In those circumstances of the case, the Tribunal, after pointing out the decision of this Court as to how the interest income has

to be treated, in order to have a factual finding, remitted the matter back to the Assessing Authority to consider whether the interest income has to

be considered as business income or not, in accordance with law laid down by this Court and to proceed further.

We do not find any illegality or irregularity to interfere with the order passed by the Income Tax Appellate Tribunal and hence the tax case

appeal is dismissed.