IN HIGH COURT OF DELHI AT NEW DELHI Decided on: 18.02.2019 ITA 785/2017 PRINCIPAL COMMISSIONER OF INCOME TAX-9..... Appellant Through : Sh. Zoheb Hossain, Sr. Standing Counsel. versus M/S. VODAFONE ESSAR GUJARAT LIMITED ..... Respondent Through : Sh. Sachit Jolly and Sh. Siddharth Joshi, Advocates. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE PRATEEK JALAN MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) Admit. 1. Revenue claims to be aggrieved by order of Income Tax Appellate Tribunal (ITAT) under Section 260-A of Income Tax Act, 1961 [hereafter Act ] and contends that it is not in consonance with order of this Court in CIT v. Shri Ram Honda Power Equipments 2007 (289) ITR 475 (Del). 2. facts necessary for this order is that respondent/assessee, telecommunications company had claimed benefit of Section 80-IA of Act. Apparently, it also reported loan transaction to its group company M/s. Hutchison Essar South Ltd. facts relating to this aspect are that assessee had borrowed sums towards its business undertaking; they were in turn loaned to said group company. amounts were borrowed from bank carrying interest rate of 7%. interest received by ITA 785/2017 Page 1 of 6 assessee from its sister concern was 9%. assessee had, in course of proceedings, claimed that this income was derived from tax deductable activity covered by Section 80-IA of Act. Assessing Officer (AO) held deduction claim to be unjustified and rejected it. assessee s further claims with respect to interest claim, netting etc. were disregarded. Ultimately, assessee approached ITAT which by earlier order dated 09.01.2009 (in ITA No.1369 & 2000/Ahd/2008) held as follows: 26. Before us, Ld. Counsel for assessee argued that assessee earned certain interest income which has been treated by assessee as well as by AO as income chargeable to tax under head Business . It being income derived from business by telecom undertaking, assessee claimed deduction u/s 80IA in respect of such interest income as well. AO has disallowed claim for such deduction relying upon decision of Supreme Court in case of Pandian Chemicals Ltd. (supra) to hold that interest income is not eligible for tax holiday. Ld. Counsel for assessees stated that decision of Supreme Court in case of Pandian Chemicals (supra) was rendered in context of provisions of Sec. 80HH whereas present case is concerned with provisions of Sec. 80IA. He stated that under Sec. 80HH: (1) tax holiday is available where gross total income of assessee includes any profits and gains derived from industrial undertaking. As against foregoing deduction under Sec 80IA is available when gross total income of assessee includes any profits and gains derived by undertaking or enterprise from any business refered to sub-section (4). Having regard to clear shift in language of provision intention of legislature is clear that all income derived from business of undertaking should be eligible for deduction. AO himself has taxed interest income as income under head business and not under head other sources . It was argued that decision of Supreme Court in Pandian Chemicals Ltd. (supra), which relates to Sec tion 80HH, cannot be applied to provision of ITA 785/2017 Page 2 of 6 Sec. 80IA which is differently worded. AO has also relied upon decision of Supreme Court in CIT v. Sterling Foods 1999 237 ITR 579 for disallowing interest. It is submitted that this decision was not concerning interest income but was pertaining to sale of import entitlements. Secondly, this decision was also rendered in context of Sec 80HH and not Sec 80IA. As observed in foregoing paragraph, relevant language of Sec 80HH and 80IA is materially different. While former requires direct nexus between income of undertaking itself, later requires nexus between income and business and, therefore, having regard to fact that interest income is taxed by AO himself as business income, application of foregoing decision by AO has been misplaced. Having regard to above, Ld. Counsel for assessee argued that interest income be held as income derived from business by telecom undertaking and hence eligible for deduction u/s 80IA. Ld. Counsel for assessee alternatively argued that if at all action of AO is confirmed then in that case, interest income ought to be adjusted against interest expense, as also expenses incurred for earning such interest income, and disallowance be restricted to net interest income only, if any. Ld. Counsel for assessee as regards interest on refund received from Department of Telecommunication stated that assessee made payments to Government of India Ministry of Communications, Department of Telecommunications (DOT) in earlier years as per demand raised from time to time towards license fee. Subsequently, DOT revised its calculation as result of which assessee is entitled to refund as well as interest on refund if there is any delay in making payment of refund to assessee. assessee has received refund from DOT as well as interest theron. said refund is received on excess demand recovered by DOT and, therefore, it has direct nexus with rendering telecommunication services. Therefore, such interest would qualify for deduction u/s 80IA of Act. Similar arguments were made by Ld. Counsel for assessee as regards to FDR interest as well as interest on refund received from Department of Telecommunication. ITA 785/2017 Page 3 of 6 Similar alternative claimed was also made as regards to netting of interest. On other hand Ld. DR relied on orders of lower authorities as well as case law of Hon ble Supreme Court in case of Pandian Chemicals Ltd. (supra). 27. We have heard rival contentions and gone through case records. It is seen that issues of interest on FDRs, loan given to Hutchison Essar South Ltd. and interest on refund of DOT are covered by decision of Hon ble Supreme Court in case of Pandian Chemicals Ltd. (supra). However, we are of view that assessee s alternative contention as regards to netting of interest has not been examined by lower authorities. None of authorities below have examined nexus between interest income earned on above deposits on loans vis-a-vis income earned from industrial undertaking. Accordingly, we set aside these issues to file of Assessing Officer to verify facts, whether there is any nexus between interest income and income from industrial undertaking and allow netting of interest in terms of decision of Hon ble Delhi High Court in case of CIT v. Shri Ram Honda Power Equip (2007) 289 ITR 475 (Del) and of Tribunal s decision of Delhi Special Bench in case of Lalsons Enterprises v. DCIT (2004) 82 TTJ 1048 (Del)(SB) wherein it is stated that if there is direct nexus between interest income and income of business, netting is to be allowed. Accordingly, we uphold order of CIT(A) as far claim of deduction u/s 80IA of Act on interest income but set aside issues to file of Assessing Officer to find out nexus and allow netting in view of above decisions cited. In result, these issues are partly allowed. 3. AO, in second round, after remission, disallowed claim altogether holding that amount received was not business income but income from other sources. CIT(A) deleted addition made. ITAT affirmed that order, stating as follows: ITA 785/2017 Page 4 of 6 Heard both parties reiterating their respective stand. There is no dispute that instant proceedings are consequential ones confined to nexus aspect only qua impugned interest expenses and interest income in question. It has already come on record that assessee availed loan @7% followed by same being advanced to its subsidiary @9%. This crucial fact goes unrebutted in course of hearing. Hon'ble jurisdictional high court in case of Nirma Ltd. (2014) 367 ITR 12 reiterates very netting principle. We accordingly see no reason to interfere in lower appellate findings under challenge. This first substantive ground is thus declined. 4. It is urged on behalf of Revenue that principle of netting could be permitted, if at all, if interest were received in course of business or in relation to business transaction. In present case, it was contended, therefore, that having regard to principles settled by this Court in Shri Ram Honda (supra), netting could not be permitted at all. 5. plain reading of paras 26 and 27 extracted previously of earlier order of ITAT makes it clear that AO had denied deduction under Section 80I-A but not altogether declined that income received was by way of business. Were it not so, question of considering alternate submission of assessee, i.e. for benefit of netting would not have been remitted by ITAT in its first order. It was open to Revenue to have questioned remand in first instance. Having not done so, it cannot now question findings of lower appellate authority with respect to working out of netting principle in facts of this case. 6. Consequently, no substantial question of law arises in this regard. 7. second question urged is with respect to miscellaneous income reported from sale of scrap, including cheque bouncing charges, late payment charges etc. and whether it could be treated as business income ITA 785/2017 Page 5 of 6 having regard to fact that assessee is telecommunications company. At outset, it is not disputed that this question has been decided against Revenue in Principal Commissioner of Income Tax-09 v. M/s. Vodafone Mobile Services Ltd. [ITA 782 & 784/2017, decided on 03.12.2018] by Division Bench of this Court. 8. In these circumstances, this question of law too does not arise. For above reasons, appeal has to fail; it is accordingly dismissed. S. RAVINDRA BHAT (JUDGE) PRATEEK JALAN (JUDGE) FEBRUARY 18, 2019 ITA 785/2017 Page 6 of 6 Principal Commissioner of Income-tax-9 v. Vodafone Essar Gujarat Limited