TaxTMI 
TaxTMI 
1998 (1) TMI 102
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....come from business to be included for the purpose of computing the deduction under section 80HHC. The Assessing Officer was of the view that interest on bank deposit was to be considered separately as income under the head 'Other sources' and that it was also not eligible for the relief under section 80HHC. Accordingly, he made the computation of the total income including interest of Rs. 2,31,596, as income under the head 'Other Sources' in the first appeal, the Commissioner (Appeals) confirmed the action of the Assessing Officer to treat the interest as income from other sources and not as part of the business income. Aggrieved with the order of the CIT(A), the assessee is in second appeal before the Tribunal. 3. Before us, the assessee's counsel, Shri M.K. Kesavan, submitted that the CIT(A) was not correct in confirming the assessment of the interest on bank deposit as income from other sources without considering the fact that it was the business income that had gone into the bank deposit. The learned counsel stated that it was the practice of the assessee-firm to keep in F.D. Account the surplus money which was not immediately needed for business purposes and earn some inco....
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.... interest income of Rs. 2,31,596 was not sustainable as income from other sources. His claim was that the assessee had paid interest of Rs. 30,230 on the borrowings and so only the net amount was sustainable as income from other sources. In short, the learned counsel submitted that the Assessing Officer as also the CIT(A) was not justified in denying the relief under section 80HHC on the entire sum of Rs. 2,31,596. 4. On behalf of the Revenue, Shri Kurivilla, departmental representative, supported the order of the CIT(A) and submitted that the immediate source of the interest income for the assessee was the fixed deposit with the bank and not the export business and so the interest income would not qualify as profit derived from the export of goods or merchandise to which section 80HHC applied. According to him, it was not of much relevance as to whether the bank deposit was made from the surplus funds from the business or not and what was relevant was the source of the interest and that was the long-term deposit made by the assessee with the Vijaya Bank. The learned departmental representative also drew our attention to a certificate dated 6-4-1990 which the assessee had furnis....
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....12-1991. It was strongly contended that there was nothing to show that the investments in Vijaya Cash Certificates were in the course of the assessee's export business or for the purposes of that business and so the assessee was rightly denied the relief under section 80HHC. 5. The sum of Rs. 2,31,596 accrued as interest on two cash certificates which the assessee had taken from Vijaya Bank. The certificate issued by the bank on 6-4-1990 gives the details of accrued interest as under: VCC No. Amount Accrued interest 124/89 Rs. 20,00,000 &....
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....e interest amount in the business account or that they were taking credit for the amount in the profit & loss account for the export business, would not necessarily make it business income or for that matter income from the export business. The nomenclature given to an amount in the assessee's books of account is not determinative of the real nature of that income. It is our considered view that the Assessing Officer was fully justified in considering the nature of the income accrued during the previous year to decide whether it is assessable as business income or as income under the head 'Other sources'. 6. In the case of Collis Lines (P.) Ltd. decided by the Kerala High Court, a shipping company deposited in the bank account the money that was lying idle, on finding that it was safer and wiser to put it in a bank. The High Court upheld the finding of the Tribunal that interest earned on the deposit could not be said to be received in the course of the business so as to make it part of the profits and gains of the assessee's business. The assessment under the head 'Income from other sources' in that case was upheld. The learned counsel for the assessee wanted to distinguish tha....
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....e High Court held that the amounts received as interest were receipts from other sources and not profits and gains attributable to the business of the assessee as a priority industry. In that case it was held as under: "Profits and gains are well understood to mean only the business income, and not any other income. So long as the company has no business of lending money, and so long as the admitted case of the company is that the income derived is only on account of the peculiar situation arising from the time schedule for repayment of the loans, it cannot be stated that the income yielded by the deposits or investments was received in the course of the company's business so as to be treated as a business profit." 8. The learned counsel for the assessee has referred to the fact that in this case the Assessing Officer had treated the interest amount of Rs. 2,31,596 as part of the gross receipts from business for the purpose of section 44AB of the IT Act and also initiated action under section 271B on the assessee. It was contended that after treating the interest amount as part of the gross receipts of the business, the Assessing Officer was not correct in turning round to ho....
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....e of Madras Refineries Ltd. is not applicable. 9. In the above circumstances, we find that the Assessing Officer has rightly treated the interest accrued on the Vijaya Cash Certificate as income under the head 'other sources' and so the upholding of the assessment by the CIT(A) was in order. 10. Before concluding, we may make it clear that the main issue in this appeal is whether the assessee is eligible for the relief under section 80HHC on the interest accrued on Vijaya Cash Certificates. Section 80HHC as applicable for the assessment year 1990-91 providing for deduction in respect of the profits retained for export business reads as under: "Section 80HHC: (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise." It can be seen from the above that the deduction is allowable only on th....
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....fit or gain. Income, profit or gain cannot be said to have been derived from an activity merely by reason of the fact that the activity may have helped to earn the income or profit in an indirect or remote manner. The profit earned by the assessee by the sale of the import entitlements could not be regarded as profits or gains derived from the export of goods." In the light of the judicial pronouncements noted above, it cannot be said that interest earned by the assessee by invest in the surplus funds on long term deposits in Vijaya Cash Certificates qualified as profit derived from the export of goods or merchandise to make it eligible for the deduction under section 80HHC. 11. We also find it necessary to deal with the alternative claim of the learned counsel for the assessee that as the assessee had paid interest of Rs. 30,230 on the borrowings only the net amount after adjusting the interest payment could be in any case treated as income under the head 'other sources'. The contention raised before us by Shri Kesavan was that when the interest income was to be excluded in working out the relief under section 80HHC, only the net amount after adjusting the interest payment a....