Madras High Court
M/S. Centwin vs The Assistant Commissioner Of ... on 11 January, 2022
T.C. (A) No. 647 of 2009
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 11.01.2022
CORAM
THE HON'BLE MR. JUSTICE R. MAHADEVAN
and
THE HON'BLE MR. JUSTICE MOHAMMED SHAFFIQ
Tax Case (Appeal) No. 647 of 2009
M/s. Centwin
370, Kamaraj Road
Tirupur – 641 604. ... Appellant
PAN: AABFC8440M
Versus
The Assistant Commissioner of Income Tax
Circle I
Tirupur .. Respondent
Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961
against the order dated 21.10.2008 passed by the Income Tax Appellate
Tribunal, “D” Bench, Chennai, in I.T.A.No. 2491/Mds/2006.
For Appellant : Mr. R.Sivaraman
For Respondent : Mr.M.Swaminathan
Senior Standing Counsel
JUDGMENT
(Judgment of the Court was delivered by R. MAHADEVAN, J.)
This tax case appeal has been filed by the appellant / assessee, calling in
question the correctness of the order dated 21.10.2008 passed by the Income
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T.C. (A) No. 647 of 2009
Tax Appellate Tribunal, 'D' Bench, Chennai, in I.T.A.No.2491/Mds/2006
relating to the assessment year 2003-04.
2. The appellant is a firm engaged in the business of manufacture and
exporter of hosiery garments. For the assessment year 2003-04, the appellant
had filed a return of income on 12.02.2004 admitting a total income of
Rs.1,25,02,827/-, which was processed under Section 143(1) of the Income
Tax Act, 1961 (in short 'the Act'). The assessee had admitted a sum of
Rs.93,82,884/- being the gross interest received from the fixed deposits as
income from business, on the premise that the interest income on fixed deposits
is closely linked with the business of the assessee; and there was interest
payment also to the Bank on borrowed capital and the interest received though
not considered, subsequently as profits derived from exports, but netted against
the interest payment on borrowed capital and thereby claimed as profits
derived from export eligible for deduction under section 80HHC. The
Assessing officer by order dated 31.03.2006, held that since the interest
income is assessed under the head 'other sources', interest paid on borrowed
capital and debited in the profit and loss account is not allowable against the
interest received and accordingly, reduced the deduction under section 80HHC.
3. Aggrieved by the said order of assessment, the appellant preferred
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T.C. (A) No. 647 of 2009
appeal before the Commissioner of Income-tax (Appeals), who by order dated
11.10.2006 held that the interest income on fixed deposits is assessable under
the head 'other sources' and not under the head 'business'. The CIT(A) also
rejected the alternative plea of proportionate interest under section 57(iii) of the
Act. Challenging the same, the appellant went on further appeal before the
Income Tax Appellate Tribunal. By order dated 21.10.2008, the Tribunal
without going into the factual finding and the submissions made thereunder,
dismissed the appeal by relying upon the judgment of this Court in the case of
Dollar Apparels reported in 294 ITR 484. Therefore, the present tax case
appeal by the assessee.
4. By order dated 28.07.2009, this tax case appeal was admitted on the
following substantial questions of law :-
“1. Whether on the facts and circumstances of the case, the
Income Tax Appellate Tribunal was right in holding that
the interest income earned out of deposits made from the
business funds including borrowed funds in the course of
running the business of the appellant is to be assessed as
income from other sources and not income from business ?
2. Whether on the facts and circumstances of the case, the
Appellate Tribunal is right in holding that the interest
income be assessed under the head 'Income from other
sources' when in fact per se, it has a direct nexus to the
business of the appellant ?
3. Whether on the facts and circumstances of the case, the
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T.C. (A) No. 647 of 2009
Appellate Tribunal is right in law in holding that interest
on borrowed capital cannot be set off against the interest
earned on Fixed deposits ?
4. Whether on the facts and circumstances of the case, the
Appellate Tribunal should have remitted the matter back
for a finding whether the interest income is to be assessed
as business income or income from other sources and
whether borrowed funds were utilized for making the
deposits ?
5. Whether on the facts and circumstances of the case, the
Appellate Tribunal is right in law in not entertaining the
alternative submission that proportionate interest paid on
the borrowed capital should be under Section 57(iii) of the
Act ?
6. Whether on the facts and circumstances of the case, the
Appellate Tribunal was right in not dealing with the
principle of mutuality wherein the transactions with the
same banker split into or spread over to two or more
accounts shall not by itself may any difference if the
substance of the transaction is the same. ”
5. When the matter was taken up for consideration, the learned counsel
appearing for both sides jointly submitted that the substantial questions of law
1 and 2 are squarely covered in favour of the assessee and against the Revenue,
in the light of the decision of this Court in JVS Exports v. Assistant
Commissioner of Income-tax, Circle-I, Madurai in T.C. (Appeal) No. 2079 of
2008 dated 23.07.2019.
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T.C. (A) No. 647 of 2009
6. For better appreciation, the relevant paragraphs of the aforesaid
decision are extracted below:
“28.As pointed out by us earlier, the facts of the case are
vividly clear and the Fixed Deposits have been created by
the bank themselves by carving out a portion of the export
sale proceeds on realisation and retaining them as Fixed
Deposits in the name of the assessee to be retained by the
bank as additional security for the loan availed by the
assessee for their export business.
29.As mentioned earlier, the conversion of a portion of the
sale proceeds as Fixed Deposits was done by the bank
themselves and not on the volition of the assessee.
Therefore, we are fully convinced that the transaction was
connected and closely linked with the assessee's business
activity.
30.Thus, we hold that the Tribunal erred in dismissing the
assessee's appeal.
31.For the above reasons, the appeal filed by the assessee
is allowed and the substantial question of law is answered
in favour of the assessee. No costs.”
7. Following the decision of this Court as cited supra, which is
applicable to the facts of the present case, the substantial questions of law 1
and 2 are answered in favour of the assessee and against the Revenue. The
other substantial questions of law are left open to the parties for determination
in an appropriate case.
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T.C. (A) No. 647 of 2009
8. Accordingly, the tax case (appeal) is disposed of. No costs.
[R.M.D,J.] [M.S.Q,
J.]
11.01.2022
Internet : Yes
Index : Yes / No
Maya
To
1. The Income Tax Appellate Tribunal,
Madras “D” Bench.
2. The Assistant Commissioner of Income Tax
Circle I
Tirupur.
https://www.mhc.tn.gov.in/judis
T.C. (A) No. 647 of 2009
R. MAHADEVAN, J.
and
MOHAMMED SHAFFIQ, J.
Maya
T.C.(A) No. 647 of 2009
11.01.2022
https://www.mhc.tn.gov.in/judis
