2010 (6) TMI 588 - HC - Income Tax

Deduction u/s 80HH & 80-I - interest earned from the fixed deposits. - Held that - the words derived from an industrial undertaking would mean that the income has been derived from industrial activity which the industry is undertaking and it does not mean any industrial activity undertaken by the assessee it has been held that loans are advanced by an undertaking to a third party and earning interest therefrom cannot be said to be an industrial activity of the assessee so as to entitle it for benefit u/s 80HH and 80-I. - Decided against Assessee.

Summary

Issues Involved:
1. Applicability of monetary limits for filing appeals as per CBDT instructions.
2. Deduction under sections 80HH and 80-I on interest earned from fixed deposits.

Detailed Analysis:

1. Applicability of Monetary Limits for Filing Appeals:

Arguments and References:
- The assessee argued that the tax effect involved is less than Rs. 4 lakhs, below the monetary limit set by the Central Board of Direct Taxes (CBDT) as per Instruction No. 5 of 2008.
- The Revenue cited Instruction No. 5 of 2008, which states that the monetary limits apply prospectively from May 15, 2008, and not to appeals filed before this date.

Court's Observations:
- The court reviewed various circulars issued by the CBDT, including Instruction No. 1979 (March 27, 2000), Instruction No. 1985 (June 29, 2000), and Instruction No. 5 of 2008.
- The court noted that the Instruction No. 5 of 2008 explicitly states it applies to appeals filed on or after May 15, 2008.
- The court examined multiple judgments from different High Courts, including CIT v. Madhukar K. Inamdar (HUF) [2009] and CIT v. Polycott Corporation [2009], which discussed the applicability of such instructions to pending cases.

Conclusion:
- The court concluded that the maintainability of appeals/references should be considered based on the circulars/instructions prevailing at the time the appeal/reference was made.
- The court held that Instruction No. 5 of 2008 is prospective and does not apply to proceedings initiated before May 15, 2008.

2. Deduction Under Sections 80HH and 80-I on Interest Earned from Fixed Deposits:

Facts and Arguments:
- The assessee claimed deductions under sections 80HH and 80-I on the interest earned from fixed deposits.
- The Assessing Officer disallowed the deduction, stating that the interest earned does not qualify for such deductions.
- The Commissioner of Income-tax (Appeals) and the Tribunal ruled in favor of the assessee, allowing the deductions.

Court's Observations:
- The court referred to the precedent set in CIT v. Paras Oil Extraction Ltd. [1998], which interpreted the phrase "derived from an industrial undertaking."
- According to this precedent, income must be directly derived from the industrial activity of the undertaking to qualify for deductions under sections 80HH and 80-I.
- The court noted that interest earned from fixed deposits does not constitute income derived from the industrial activity of the assessee.

Conclusion:
- The court held that the Tribunal was not justified in allowing deductions under sections 80HH and 80-I on the interest earned from fixed deposits.
- The reference was answered in the negative, denying the deductions claimed by the assessee.

Final Judgment:
- The court ruled that the Tribunal's decision to allow deductions under sections 80HH and 80-I on interest earned from fixed deposits was incorrect and not justified in law.