2009 (5) TMI 34 - HC - Income Tax

Chief Commissioner dismissing the respondent s petition for waiver of interest u/s 234-B AO did not accept the claim of the assessee that the interest income from bank deposits should be assessed under the head business - petitioner contend that respondent declined to exercise his power of discretion to grant waiver of interest arbitrarily by applying an irrelevant decision - notification 400/234/IT(B) dated 23.05.1996 issued by the CBDT u/s 119 empowers the Board to issue instructions and directions with regard to waiver of interest as claimed by assessee there is no scope of interference in the order of the respondent in respect of assessment years 1993-94 1994-95 and 1995-96 but for A.Y. 1996-97 order of respondent is set aside

Summary

Issues Involved:
1. Assessment of interest income under the head 'business' or 'income from other sources'.
2. Waiver of interest levied under Section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Assessment of Interest Income:
The core issue revolves around whether the interest income from bank deposits should be assessed under the head 'business' or 'income from other sources'. The petitioner, a company engaged in the manufacture and export of garments, filed returns for the assessment years 1993-94 to 1996-97, claiming deductions under Sections 80HHC and 80IA. The Assessing Officer, however, assessed the interest income under 'other sources' and disallowed the deductions, leading to a reassessment and imposition of interest under Section 234B.

The petitioner argued that the interest income should be considered as 'business income' based on precedents set by this court in cases like CIT vs. Tamil Nadu Dairy Development Corporation Ltd. (216 ITR 535) and CIT vs. Madras Refineries Ltd. (228 ITR 354). These cases held that interest income from short-term deposits made out of business funds should be treated as business income. However, the respondent contended that these rulings were not applicable as they were rendered after the relevant assessment years, and the Supreme Court's decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. (227 ITR 172) impliedly overruled these precedents, asserting that interest income should be assessed under 'other sources'.

2. Waiver of Interest under Section 234B:
The petitioner sought a waiver of interest levied under Section 234B, arguing that they had a bona fide belief that the interest income was assessable under 'business' and hence, not chargeable to tax. The respondent, however, rejected the waiver petition, stating that the conditions specified in Clause 2(d) of the CBDT notification dated 23.05.1996 (225 ITR ST 101) were not met. This clause allows for waiver if the income was not chargeable based on a High Court order, and subsequently, due to a retrospective amendment or a Supreme Court decision, it became chargeable.

The court held that the decisions in Tamil Nadu Dairy Development Corporation's case and Madras Refineries case were not applicable for the assessment years 1993-94 to 1995-96 as the assessments were completed before these rulings. Therefore, the interest levied for these years was upheld, and there was no provision for waiver under the existing legal framework. However, for the assessment year 1996-97, the case was remitted back to the Chief Commissioner for fresh consideration in light of the Supreme Court's ruling, which could potentially impact the assessment of interest income.

Conclusion:
The court dismissed the writ petitions for the assessment years 1993-94 to 1995-96, upholding the respondent's orders. For the assessment year 1996-97, the court set aside the respondent's order and remitted the case back to the Chief Commissioner for fresh consideration, allowing the petitioner to benefit from relevant judicial precedents.