Tribunal: Interest income as business income, depreciation enforceable against assessee's wish

The Tribunal ruled in favor of the assessee regarding interest income from fixed deposits, considering it as business income under section 80HHC due to its integral role in the business. However, the Tribunal sided with the Department on the issue of depreciation enforcement, allowing depreciation to be enforced against the assessee's wish based on the Bombay High Court's ruling in Indian Rayon Corpn. Ltd. v. CIT.

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Issues:
1. Whether interest from fixed deposits is considered business income under section 80HHC.
2. Whether depreciation can be enforced on an assessee against their wish.

Analysis:

Interest Income as Business Income:
The Department contended that interest income from fixed deposits cannot be classified as business income under Explanation (baa) of section 80HHC. However, the Tribunal found that the investments in fixed deposits and earnest money deposits were made due to business constraints, not for earning interest. The deposits were maintained to secure "sales quotas" as required in the garment export business. The interest received was offset against interest paid on overdrafts, which was deducted from business profits. The Tribunal concluded that since the deposits were integral to the business and any income or expenses arising from them were part of business profits, the interest income was deemed as business income. Therefore, the first issue was decided in favor of the assessee.

Depreciation Enforcement:
Regarding the claim of depreciation on gala, the Assessing Officer had enforced depreciation despite the assessee not claiming it. The CIT(A) withdrew the depreciation, citing the Supreme Court's decision that depreciation cannot be enforced against the assessee's wish. The Department argued that depreciation should be allowed as per the Bombay High Court's ruling in Indian Rayon Corpn. Ltd. v. CIT. The High Court distinguished Mahindra Mill's case, emphasizing that depreciation cannot be disclaimed when computing profits under Chapter VI-A. The Tribunal upheld the Department's argument, accepting the decision in Indian Rayon Corpn. Ltd. and allowing the enforcement of depreciation against the assessee's wish. Therefore, the fourth issue was decided in favor of the Department.

In conclusion, the Tribunal partially allowed the appeal, ruling in favor of the assessee on the interest income issue but in favor of the Department on the depreciation enforcement matter.

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