ITAT, HYDERABAD BENCH ‘B’, Computation of deductions under section 80HHC/80-IB of IT Act, 1961

Computation of deductions under section 80HHC/80-IB of IT Act, 1961 

Interest on margin money deposits cannot be considered as income derived from the business for the purpose of granting deduction under section 80-IB and section 80HHC.

ITAT, HYDERABAD BENCH ‘B’, HYDERABAD

Avanti Feeds Ltd.

v.

DCIT

ITA Nos. 1170 & 1153/Hyd./04

January 23, 2009

RELEVANT EXTRACTS:

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16. First grievance of the assessee in this behalf is that the CIT(A) erred in holding that interest on margin money deposit of Rs. 8,55,438 cannot be considered as ‘income derived from business’ for the purpose of granting deduction under section 80IB and deduction under section 80HHC of the Act. Learned Authorised Representative submitted that interest on margin money has to be considered as income derived from business, since deposits were made out of working capital loans, and the same is kept in the ordinary course of business as margin money for opening letter of credits. In the alternative, he submitted that the CIT(A) should have at least netted the interest receipts against the interest payments, and excluded the net interest receipts if any from the income derived from business. In support of these contentions, the learned counsel placed reliance on the following decision:

(a) Jamnadas G. hundalani vs. ACIT (2004) 87 TTJ (Mum.) 268

(b) ACIT vs. Sharda Gums & Chemicals (2001) 76 ITD 282 (JD)

(C) Pathi Designs vs. DCIT (@005) 2 SOT 408 (Bang.)

Reliance is also placed on the decision of this Tribunal in assessee’s own case (DCIT vs. M/s Avanti Feeds Ltd.) in ITA No. 417/Hyd./2003 for assessment year 1999-2000.

17. Learned Departmental Representative on the other hand, submitted that interest on margin money cannot be deemed as income from business. He objected to the alternative plea of the assessee for netting, on the ground that for netting of the interest, nexus has to be established between the interest receipts and interest payments. Assessee has not submitted any details in this regard, and as such netting is not permissible. He relied on the following decisions, in support of these contentions:-

(a) CIT vs. Liberty Footwear Company (2006) 287 ITR 339(P&H)

(b) CIT vs. Chinnapandi (2006) 282 ITR 389 (Mad.)

She also relied on the order of Hyderabad Bench ‘A’ of this Tribunal dated 30-11-2007 in the case of PVR Industries vs. ACIT (ITA No. 340/Hyd/2006 for assessment year 2000-01), inviting our specific attention to paras 11 to 18 thereof.

18. We have considered the rival submissions and perused the material available on record, in the light of the case law relied on by the parties. We find that on the question whether the interest received on margin money deposits could be treated as income derived from business, it has been consistently held by the Benches of this Tribunal as in the case of PVR Industries (supra), following various decisions on this issue, including the decision of the Apex Court in the case of Ravindranathan Nair vs. CIT (2004) 262 ITR 669 (SC), that interest income cannot be said to be income derived from business. Respectfully following the consistent view taken by this Tribunal in similar matters, we uphold the view taken by the CIT (A) that interest on margin money deposits cannot be considered as income derived from the business.

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