2005 (3) TMI 85 - HC - Income Tax

Court rules interest from fixed deposits, machinery sales commission not business income for deduction under section 80HHC.

The court dismissed all appeals, ruling that interest from fixed deposits and commission from machinery sales are not considered business income. ... Interest received by the assessee from fixed deposit, commission received on sale of machinery - Deduction under section 80HHC – computation - Whether, there were materials to hold that interest income and commission received (from sale of machinery) by the appellant cannot be taken into account for section 80HHC deduction? - Whether, Tribunal was correct in its interpretation of section 80HHC for the assessment year in question especially by relying on sub-sections (3)(a) and (b) of the Income-tax Act?' - Held that interest received by the assessee from fixed deposit, commission received on sale of machinery, etc., are not business income and consequently, the assessee is not entitled to computation of eligible deduction under section 80HHC of the Act by including those receipts under business income – questions are answered in favour of the Revenue Issues Involved:1. Eligibility of interest received for computation of section 80HHC relief.2. Entitlement to deduction under section 80HHC on commission receipts from the sale of machinery.3. Consideration of interest income and commission for section 80HHC deduction.4. Interpretation of section 80HHC for the assessment year in question.Detailed Analysis:1. Eligibility of Interest Received for Computation of Section 80HHC Relief:The assessee included bank interest and interest on income-tax refunds under the head 'Business' while claiming deduction under section 80HHC. The assessing authority assessed these items under 'Other sources,' which was upheld by the Commissioner of Income-tax (Appeals) and the Appellate Tribunal. The court referred to the statutory provision of section 80HHC, emphasizing that deduction is allowable only on profits derived from the export of goods or merchandise. The term 'derived from' was interpreted narrowly, as established in Cambay Electric Supply Industrial Co. Ltd. v. CIT and other cases. The court concluded that interest accrued on bank deposits is not profit derived from the export business, as the immediate source of interest is the deposit itself, not the business.2. Entitlement to Deduction Under Section 80HHC on Commission Receipts from the Sale of Machinery:The assessee claimed that commission received on the sale of machinery and cotton canvassing was part of the business income. The Commissioner accepted this view, but the Tribunal reversed it, holding that such commission does not qualify for deduction under section 80HHC. The court reiterated that deduction under section 80HHC is allowable only on profits derived from the export of specified goods or merchandise. Since the assessee did not account for any turnover of the sale of machinery for which the commission was received, the commission could not be considered part of business income. Thus, the assessee was not entitled to deduction under section 80HHC for such income.3. Consideration of Interest Income and Commission for Section 80HHC Deduction:The court examined whether interest income and commission could be included in the computation of eligible deduction under section 80HHC. It concluded that interest accrued on bank deposits and commission received on the sale of machinery are not business income. Therefore, these receipts cannot be included under business income for the purpose of section 80HHC deduction.4. Interpretation of Section 80HHC for the Assessment Year in Question:The court analyzed the interpretation of section 80HHC, particularly subsections (3)(a) and (b), and concluded that the deduction is only allowable on profits derived from the export of goods or merchandise. The court emphasized that the term 'derived from' has a restricted meaning, and not all business receipts qualify for the deduction. The court held that the assessee's interest income and commission receipts do not meet the criteria for business income under section 80HHC.Conclusion:The court dismissed all the appeals, holding that the interest received by the assessee from fixed deposits and commission received on the sale of machinery are not business income. Consequently, the assessee is not entitled to computation of eligible deduction under section 80HHC by including those receipts under business income. The court answered all the questions in favor of the Revenue.