Cit vs Kraft Land India
2007 Latest Caselaw 132 Del

ORDER

1. Notice was issued in this appeal on 18-7-2006 and the respondent has been served.

2. On going through the order of the assessing officer, the Commissioner (Appeals) and the impugned order of the ITAT, we admit this appeal and frame the following questions of law for consideration :

(a) Whether ITAT was correct in law in holding that assessed is entitled to reduce interest paid by it from the interest received by it while calculating deduction under Section 80HHC read with Explanation (baa) of the Income Tax Act?

(b) Whether interest earned by the assessed on fixed deposits with the bank is income from business or income from other sources?

(c) Whether ITAT was correct in law in holding that in the present case there is a net debit balance of interest and, therefore, nothing could be deducted from the profits of the business as per the provisions of Explanation (baa) to Section 80HHC?

3. In the present case, we find that the ITAT erred in not first determining whether interest income was business income. The ITAT proceeded to straightway examine the question of nexus between the interest paid and the interest earned for the purposes of netting. On the facts of the present case, and in light of the judgment dated 12-1-2007, we hold that the interest received on FDRs, pledged for obtaining shipping loan/depository loan was not business income. Question (b) is answered accordingly. Consequently questions (a) and (c) are answered in the negative, i.e., in favor of the revenue and against the assessed.

4. The impugned order of the ITAT is set aside. The matter be sent to the concerned assessing officer for recomputing the deductions in the event that the appeal effect has already been given to the impugned order of the ITAT. The appeal is accordingly allowed in the above terms.