Case Note & Summary
The appeal was filed by the Revenue under Section 260A of the Income Tax Act, 1961, against an order of the Tribunal dated 15 June 2009 for assessment year 2000-01. The assessee, M/s. Vidyut Corporation, was engaged in the business of manufacturing electrical fittings and appliances with a plant in Daman, an industrially backward area eligible for deduction under Section 80IB. The assessee sold its products to M/s. Bajaj Electrical Ltd. on immediate payment terms; if payment was not immediate, a promissory note was drawn by the purchaser for the amount of discounting charges. The assessee discounted the promissory note with its bankers, who deducted discounting charges, and the purchaser reimbursed the assessee by way of interest. The Assessing Officer held that the interest received could not be regarded as derived from the industrial undertaking for the purpose of Section 80IB. The Commissioner (Appeals), following the Gujarat High Court judgment in M/s. Mayank Electro Ltd. v. ITO, held that the profits of business could not be reduced to the extent of interest received for determining deduction under Section 80IB. The Tribunal confirmed this view. The Revenue appealed, raising two questions: (1) whether the Tribunal was right in upholding the order of CIT(A) directing the AO not to reduce the receipt of interest income by way of bill discounting at Rs.80,31,351/- and to allow deduction under Section 80IB on the said interest income without appreciating that said income is not derived from manufacturing; and (2) whether the Tribunal was right in upholding the order of CIT(A) that the AO cannot deduct the income under the head interest of Rs.4,36,372/- from the business income for the purposes of computation of deduction under Section 80IB. The court, after considering the submissions, held that the interest income from bill discounting was derived from the industrial undertaking and eligible for deduction under Section 80IB, and that the Assessing Officer could not deduct such interest income from business income for computing the deduction. The appeal was dismissed.
Headnote
A) Income Tax - Deduction under Section 80IB - Interest Income from Bill Discounting - Whether interest income from bill discounting is derived from industrial undertaking - The assessee, engaged in manufacturing, sold goods to a purchaser who drew promissory notes which were discounted by the assessee with its bankers; the purchaser reimbursed the discounting charges as interest. The court held that the interest income was derived from the industrial undertaking and eligible for deduction under Section 80IB, as it was intrinsically connected to the manufacturing business. (Paras 1-3) B) Income Tax - Deduction under Section 80IB - Computation - Interest Income - Whether interest income can be reduced from business income for computing deduction - The court held that the Assessing Officer cannot deduct interest income from business income for the purposes of computing deduction under Section 80IB, as the interest income forms part of the profits and gains derived from the eligible business. (Paras 1-3)
Issue of Consideration
Whether interest income from bill discounting is derived from the industrial undertaking for the purpose of deduction under Section 80IB of the Income Tax Act, 1961, and whether the Assessing Officer can deduct interest income from business income for computing deduction under Section 80IB.
Final Decision
The appeal is dismissed. The questions of law are answered in favor of the assessee and against the Revenue.
Law Points
- Interest income from bill discounting is derived from industrial undertaking
- Section 80IB deduction allowable on interest income
- Interest income cannot be reduced from business income for computing deduction under Section 80IB
