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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
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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”

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