M/s. Paridhan Exports v. The Asst. Commissioner of Income-tax, Chennai–IV, Chennai
[Citation -2015-LL-0318-38]

Citation 2015-LL-0318-38
Appellant Name M/s. Paridhan Exports
Respondent Name The Asst. Commissioner of Income-tax, Chennai–IV, Chennai
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 18/03/2015
Judgment View Judgment
Keyword Tags deduction under section 80hhc • export of garments • business activity • original return • export business • interest earned • interest income • money lending
Bot Summary: The details as to whether the interest received on income would fall under the head 'Business Income' or 'Income from other sources' was considered by the Assessing Officer in the following manner :- 2. Iii) In the case of 240 ITR, the Madras High Court has held that : The fact that a person carries on business does not lead to the inference that all income received by such a person is business income. The Courts have said that if an assessee is not engaged in the business of advancing money for earning interest the income so earned will be treated as ' 6 Income from Other Sources'. My predecessor in the case of M/s.P.S.Apparels in ITA No.5/2001- 2002 dated 24.1.2002 has held that the interest income earned by the appellant's firm constituted the business income. While the Assessing Officer has gone on the premise that interest income cannot be export income, the learned Commissioner of Income Tax has dealt with the premise that interest can be business income. Learned counsel for the appellant/assessee vehemently contended that the Tribunal has grossly erred in holding that no finding has been given 8 by the authorities below as to whether the interest income could be treated as business income or not. A cursory glance at the order of assessment as also the order of the CIT reveals that the Assessing Officer has taken a view that the interest earned from money lending business is 'income from other sources', whereas the CIT has taken it under the head 'Business Income'.


IN HIGH COURT OF JUDICATURE AT MADRAS DATE : 18.03.2015 CORAM HONOURABLE MR. JUSTICE R.SUDHAKAR AND HONOURABLE MR. JUSTICE R.KARUPPIAH T.C.A. NO. 1182 OF 2007 M/s.Paridhan Exports No.15, Race Course Road Guindy, Chennai 600 032 Appellant - Vs - Asst. Commissioner of Income Tax, Chennai IV Chennai. .. Respondent Appeal filed under Section 260A of Income Tax Act against order dated 27.07.06 passed by Income Tax Appellate Tribunal, 'B' Bench, Chennai, made in ITA No.505/Mds/2003. For Appellant : Mr. Philip George For Respondents : Mr. T.R.Senthil Kumar JUDGMENT (DELIVERED BY R.SUDHAKAR, J.) Mr. T.R.Senthil Kumar, learned standing counsel for respondent/Department is directed to take notice for respondent/Department. 2 2. Aggrieved by order of Tribunal in partly allowing appeal filed by assessee/appellant, appellant/assessee is before this Court by filing present appeal. This Court, vide order dated 17.12.07, while admitting appeal, framed following substantial questions of law for consideration :- 1) Whether on facts and in circumstances of case, Income Tax Appellate Tribunal was right in law in not deciding issue on merits in respect of interest income by remitting back issue to file of Assessing Officer? 2) Whether on facts and in circumstances of case, Income Tax Appellate Tribunal was right in law in remitting back issue of interest income to Assessing Officer by basing its decision on wrong presumption and premises, without considering categorical findings of Commissioner of Income Tax (Appeals), which was based on materials, reasoning and supportive case law on issue? 3) Whether on facts and in circumstances of case, Income Tax Appellate Tribunal was right in law in not holding that interest income derived by appellant forms part of its 'Business Income' since assessee is also engaged in business of money lending? 3. facts, in nutshell, are as hereunder :- appellant/assessee is engaged in business of manufacture and export of garments and is also carrying on business of money lending. For assessment year 1998-1999, appellant/assessee filed return of income on 2.11.98 declaring total income as 'NIL'. return of income 3 was processed under Section 143 (1) of Income Tax Act on 14.8.00. Notice under Section 148 of Act was issued on 24.8.00 and assessment was reopened. appellant/assessee, by letter dated 4.10.00, requested respondent/Department to treat original return of income filed in response to notice under Section 148. details as to whether interest received on income would fall under head 'Business Income' or 'Income from other sources' was considered by Assessing Officer in following manner :- 2. assessee firm showed interest income of Rs.94,39,517/= in P&L A/c. firm deducted 90% of interest income from profit for purpose of claiming 80HHC deduction. firm was asked to explain why interest income shown by assessee in P&L A/c should not be treated as income from other sources and why benefit u/s 80HHC should not be disallowed on interest income as interest income is not derived from export business. authorised representative of assessee stated that money lending is one of business activity of firm. firm received interest from various banks on deposits and also interest from various parties. Therefore he stated that this should be treated as business income. explanation of authorised representative is considered. Here question whether interest income received by assessee is profit from export business or not for purpose of 80HHC. explanation of authorised representative is not acceptable in view of following decisions :- 1) ITAT "A" Bench, Madras decision in ITA No.2680/Mds/94 dated 7.11.2000 for assessment year 1991-92. 2) Madras High Court decision in case of CIT - Vs - 4 Pandian Chemicals Limited (233 ITR 497). 3) Kerala High Court decision in case of Nanji Topanbhai & Co. - Vs - Asst. Commissioner of Income Tax (243 ITR 192). 4) Madras High Court decision in case of South India Shipping Corporation Ltd. - Vs - CIT (240 ITR 24). 5) Kerala High Court decision dated 13.11.2001 in case of CIT - Vs - Parekh Brothers (253 ITR 43). 6) Kerala High Court decision dated Nov., 20, 2001 in case of CIT - Vs - Jose Thomas reported in 253 ITR 553. ii) in case of CIT - Vs - Pandian Chemicals Limited expression 'derived from' has been explained to give narrower meaning than term 'attributable to'. In case of 243 ITR 192 it has been held as under :- Under section 80HHC of Income-tax Act, 1961, assessee who is engaged in export business is allowed, in computing total income, deduction out of income derived from export of such goods. Unless assessee is able to show that income received by way of interest from fixed deposit is derived from export business, it will not be entitled to claim deduction under section 80HHC in respect of it. iii) In case of 240 ITR, Madras High Court has held that : "The fact that person carries on business does not lead to inference that all income received by such person is business income. same assessee can have income which may require to be classified under more than one head. It is manner in which income is derived that is relevant and not merely fact that person is engaged in business or in profession. Interest received by company which carries on business, from bank deposits and loans could only be taxable as 'Income 5 from other sources' and not as 'business income'." 4. To arrive at substantive finding, Assessing Officer primarily placed reliance on decision reported in CIT Vs Pandian Chemicals Ltd. (233 ITR 497) and decision of Kerala High Court in Nanji Topanbhai & Co. - Vs Asst. Commissioner of Income Tax (243 ITR 192) and rendered definite finding against assessee, treating interest received from money lending business as 'Income from other sources' against which assessee filed appeal to CIT (Appeals). 5. CIT (Appeals) considered issue as to whether appellant is carrying on business of money lending or not and if it is found that he is also engaged in business of money lending, whether assessee will be entitled to deduction as claimed by him. CIT (Appeals) relied upon decision of Supreme Court in Commissioner of Income Tax Vs - Sun Engineering Works (P) Ltd. (1992 (198) ITR 297) and held in favour of appellant/assessee. relevant portion of order of CIT (Appeals) is quoted hereinbelow for better clarity :- Therefore, adopting approach enunciated by decision of Sun Engineering Work (P) Ltd. - Vs - CIT (198 ITR 297) it can be stated that decisions relied upon by assessing officer has to be read in context of what is stated just prior thereto. Courts have said that if assessee is not engaged in business of advancing money for earning interest income so earned will be treated as ' 6 Income from Other Sources'. Whereas if assessee is engaged in business of advancing money interest so received will be assessable as "Business Income" only. It is also fact that in business of money lending money is stock in trade and exploitation of stock in trade in any manner, if results in any income will be "Business Income". This view is supported by decision of Supreme Court in case of C.E.P.T. - Vs - Lakshmi Silk Mills Ltd. (20 ITR 451). During course of appellate proceedings, assessing officer has brought to my notice that during year under consideration, appellant has advanced money only to two depositors and therefore it cannot be said that appellant is carrying on business of money lending. It is well known fact that turnover of business cannot be whole criteria in deciding issue. for last several years appellant is advancing money to several persons and department has also accepted that appellant's interest income as 'Business Income'. It will not be proper to treat income from interest received as 'Other Sources Income'. My predecessor in case of M/s.P.S.Apparels in ITA No.5/2001- 2002 dated 24.1.2002 has held that interest income earned by appellant's firm constituted business income. Under circumstances assessing officer is directed to treat interest income as 'Business Income' and compute and allow deduction u/s 80HHC accordingly. This ground of appeal is therefore allowed." 6. Aggrieved by said order of CIT (Appeals), Department pursued matter before Tribunal. Tribunal, it is seen, without understanding scope of order of Assessing Officer or that of 7 CIT (Appeals), came to hold that authorities below did not give any definite finding as to whether income earned by way of interest from money lending business could be construed to be business income or otherwise. For better clarity, relevant portion of order of Tribunal is extracted hereinbelow :- 8. We find that in orders of authorities below, no finding has been given as to whether interest income of assessee can be construed to be business income on facts and circumstances of case. While Assessing Officer has gone on premise that interest income cannot be export income, learned Commissioner of Income Tax (Appeals) has dealt with premise that interest can be business income. 9. However, in our opinion, this has to be ascertained from facts and records of case. Hence, in interest of justice, we remit this issue to files of Assessing Officer to give finding on facts of case as to whether interest income of assessee can be considered to be his business income. If that be so, 90% of interest will have to be reduced for computation of deduction u/s 80HHC in accordance with provisions of Explanation (baa) to Section 80HHC. assessee should be given adequate opportunity or being heard. Aggrieved by order of Tribunal, assessee/appellant is before this Court by filing present appeal. 7. Learned counsel for appellant/assessee vehemently contended that Tribunal has grossly erred in holding that no finding has been given 8 by authorities below as to whether interest income could be treated as business income or not. It is pointed out by learned counsel for appellant/assessee that there is clear finding by CIT (Appeals) that interest earned by assessee is business income, as it is evident from record that assessee is in business of money lending for several years and same has also been accepted by department. Further, it is urged that activity of advancing money for earning interest constitutes business income and all ingredients for treating interest earned from money lending business as business income are satisfied in this case. Further, assessee had been carrying on business of money lending for past several years, and all along department has accepted said income under head 'Business'. Therefore, for first time, Department cannot now take stand and say that interest earned from money lending business should be treated under head 'Income from other sources'. It is therefore submitted that CIT (Appeals), taking into consideration all materials placed before him has come to right conclusion that interest earned from money lending business should be assessed under head 'Business Income' and finding of Tribunal that there is no finding on said aspect by authorities below is liable to be interfered with. 8. Heard Mr.Philip George, learned counsel appearing for appellant/assessee and Mr.T.R.Senthil Kumar, learned counsel appearing for 9 respondent/Department and perused materials available on record as also decisions relied on by learned counsel for appellant/assessee. 9. cursory glance at order of assessment as also order of CIT (Appeals) reveals that Assessing Officer has taken view that interest earned from money lending business is 'income from other sources', whereas CIT (Appeals) has taken it under head 'Business Income'. Both authorities, as is evident from their orders, have given their finding for treating said income under relevant heads. However, Tribunal has lost sight of said findings recorded by authorities below, and in its order has stated that no finding has been rendered on this issue on facts by authorities below, which is factually incorrect. 10. In such view of matter, this Court is not inclined to decide issue at this point of time on questions of law raised above, since we find that Tribunal had failed to go into relevant portion of orders of Assessing Officer and CIT (Appeals) and come to definite finding as to which view, i.e., whether view of Assessing Officer or view of CIT (Appeals), in regard to bringing interest income earned from money lending business under appropriate head, is right on facts of present case. 10 11. For reasons afore-stated, we hold that Tribunal has not decided issue on facts and, therefore, no question of law arises for this Court to consider at this juncture. Accordingly, this Court remands matter back to Tribunal to decide issue afresh on basis of materials available on record. 12. In result, appeal is disposed by way of remand back to Tribunal to decide issue afresh on basis of materials available on record. However, in circumstances of case, there shall be no order as to costs. (R.S.J.) (R.K.J.) 18.03.2015 Index : Yes/No Internet : Yes/No GLN To 1. Asst. Commissioner of Income Tax, Chennai IV Chennai. 2. Income Tax Appellate Tribunal 'B' Bench, Chennai. 11 R.SUDHAKAR, J. AND R.KARUPPIAH, J. GLN T.C.A. NO. 1182 OF 2007 18.03.2015 M/s. Paridhan Exports v. Asst. Commissioner of Income-tax, ChennaiIV, Chennai
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