COMMISSIONER OF INCOME TAX Vs. HYCRON INDIA LTD.

JUDGEMENT

(1.) THESE two appeals filed by the Revenue Involve common question of law, and are therefore, being decided by this common order. Both the appeals have been admitted by different orders dt. 30th July, 2007 and 19th April, 2006, but by framing the same substantial question of law. It is different story, that the question as framed in appeal No. 45/2006, as such, does not arise in appeal No. 111/2007, inasmuch as appeal No. 45/2006 arises out of appeal of the assessee filed before the Tribunal, against invoking of the powers under Section 263 of the IT Act, while appeal No. 111/2007 arises out of the regular appeal, filed by the assessee, with respect to the different year. But then the central question, about the entitlement of the assessee, to claim exemption under Section 10B. on the interest income, earned from M/s Wolkem India Ltd. is involved in both the appeals, and therefore, these two appeals are involving common question of law.

(2.) BEREFT of unnecessary details, the necessary facts of appeal No. 45/2006 are, that the assessee and Wolkem India Ltd. admittedly are sister concerns. The assessee purchased the goods from Wolkem India Ltd., and for such purchase, amount is paid in advance to the seller, and that advance amount yields interest income to the assessee. It is with respect to this income of interest, that the assessee claimed exemption under Section 10B, which was allowed by the AO, holding that this income is attributable to the business of the undertaking, and was thus exempt under Section 10B. Against that order, powers under Section 263, being revisional powers were invoked, and vide order dt. 12th Feb., 1996, the order of AO was set aside, and the matter was restored back to the AO, for holding enquiries, and passing a fresh order. The revisional authority found, that there is nothing on record to show, that Wolkem India Ltd. had desired to deposit of any specific amount of advance prior to its agreeing to supply raw material to its own sister -concern, nor there is anything to indicate that AO examined the case from this angle, before allowing exemption under Section 10B. Likewise, it was also considered, that even if there is a business practice, where supplier of certain goods do require advance for future purchase, the transactions of the assessee with its own sister concern is to be considered on different footing. Thus, it was found, that AO could not be said to be right in taking the view, that interest received by the assessee, from Wolkem India Ltd. was materially different in nature, from the interest in respect of other parties, without due enquiries. Reliance was placed on judgment of this Court in Murli Investment Company v. CIT (1987) 65 CTR (Raj) 5 : (1987) 167 ITR 368 , wherein the income derived from surplus fund was not considered to be business income. With these findings, it was concluded, that while considering the total taxability in respect of the different items, erroneous view was taken, without due enquiry regarding income of Wolkem India Ltd., and it is prejudicial to the interest of revenue.

(3.) THEN regarding asst. yr. 1994 -95, learned CIT relying upon the order of Tribunal dt. 14th July, 2003, allowed the exemption, which was affirmed by the learned Tribunal, and is under challenge in appeal No. 111/2007.