2003 (2) TMI 22 - HC - Income Tax

Assessment of Interest Income and Business Profit: High Court Decision

The High Court held that interest income on short-term deposits should be assessed under the head 'Other sources' and not as business income. The court ... Industrial undertaking - goods for export - interest income on short-term deposits will not partake the character of business income and the same has to be assessed only as income under other sources - benefit under section 80HH - in working out the profit derived in the industrial undertaking belonging to the assessee the profit earned from the sale of the kernels processed in the factories of third parties is to be included for the purpose of section 80HH because for the purpose of the benefit under section 80HH of the Act it is immaterial as to whether the raw cashew is processed for export in the factories of the assessee or in the factories belonging to third parties Issues:1. Assessment of interest income under the head 'Other sources'2. Assessment of interest income under different heads3. Inclusion of profit derived from processing in third-party factories for section 80HH benefitAnalysis:Issue 1: Assessment of interest income under the head 'Other sources'The appeal concerned the assessment of interest income received by an individual engaged in the export business of cashew kernels. The Assessing Officer had categorized the interest income from term deposits as income under the head 'Other sources' instead of as part of the business profit. The tribunal directed the Assessing Officer to reevaluate if the deposits were maintained for business purposes and to include interest as part of business profit if so. The High Court held, based on previous judgments, that interest income on short-term deposits should be assessed under the head 'Other sources,' not as business income. Therefore, the first two questions were answered against the assessee in favor of the Revenue.Issue 2: Assessment of interest income under different headsThe tribunal's direction to assess interest income under different heads was addressed in the judgment, relying on previous decisions that established interest income on short-term deposits should be assessed under 'Other sources.' The High Court upheld this view and answered the questions related to this issue against the assessee in favor of the Revenue.Issue 3: Inclusion of profit derived from processing in third-party factories for section 80HH benefitRegarding the inclusion of profit derived from processing cashew kernels in third-party factories for section 80HH benefit, the High Court referred to a previous judgment stating that processing for export in third-party factories also qualifies for the benefit. As a result, the question related to this issue was answered in favor of the assessee against the Revenue. Since the answer to the first sub-question was affirmative, the second sub-question did not require consideration.The High Court concluded that no further inquiry by the Assessing Officer was necessary, and the assessment needed modification based on the court's answers to the issues raised in the appeal. The judgment provided detailed reasons for the assessment of interest income under the head 'Other sources' and annexed a copy of the relevant judgment for reference. Ultimately, the income-tax appeal was disposed of accordingly.