March 2010
Deduction u/s. 80-IA of I. T. Act, 1961: A. Y. 1997-98: Interest received from trade debtors is part of sale price: Is profit derived from industrial undertaking: Is eligible for deduction u/s. 80-IA
By K. B. Bhujle | Advocate
New Page 1
Reported
:
55 Deduction u/s. 80-IA of I. T. Act, 1961: A. Y. 1997-98:
Interest received from trade debtors is part of sale price: Is profit derived
from industrial undertaking: Is eligible for deduction u/s. 80-IA
[CIT Vs Advance Detergents Ltd.: 228 CTR 356 (Del)]
The assessee is an industrial undertaking which manufactured
and supplied goods to its customers. Some of these customers did not make
payments in time. The dues which were payable by those buyers attracted interest
on late payment charges. In this manner, ultimately, the payments which were
received by the assessee against the supply of goods also included interest on
overdue payments. The Tribunal allowed the assessee’s claim for deduction u/s.
80-IA of the Income-tax Act, 1961 in respect of the sale price including the
interest.
In appeal by the Revenue, before the Delhi High Court the
following question was raised:
“Whether the Tribunal was correct in law in holding that
the interest earned by the assessee on late payment received from the
customers is eligible for deduction u/s. 80-IA of the IT Act, 1961?”
The Delhi High Court considered the judgment of the Supreme
Court in Liberty India Vs. CIT; 317 ITR 218 (SC). The Court concurred with the
judgment of the Gujarat High Court in Nirma Industries Ltd. Vs. Dy. CIT; 283 ITR
402 (Guj) and upheld the decision of the Tribunal. The Court held as under:
“i) According to the Gujarat High Court, when interest is
paid on delayed payment, it can be treated as higher sale price which is the
converse situation to offering of cash discount because the transaction
remains the same and there is no distinction as to the source. Looking from
this angle, the interest becomes part of the higher sale price and is clearly
derived from the sales made and is not divorced therefrom. It is, thus, the
direct result of the sale of goods and the income is derived from the business
of the industrial undertaking.
ii) We answer this question in favour of the assessee and
against the Revenue”
