TaxTMI 
TaxTMI 
2005 (12) TMI 221
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...."Income from other sources". The assessee received the aforesaid interest in respect of fixed deposit receipts placed as margin money with the bank for the purpose of availing various credit facilities such as packing credit, etc. The assessee contended before the IT authorities that the interest income must be assessed under the head 'business' and consequently, the deduction under s. 80HHC should also be correspondingly allowed. The contention was rejected by the IT authorities who took the view that the interest has to be assessed under the head 'Income from other sources'. They further held that the interest income was not derived from the export activities and was, therefore, eligible for deduction under s. 80HHC. The c....
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.... continues to be the fixed deposit, but since the fixed deposit, which was either to be treated as pure investment, became converted into an asset utilization for the purpose of the business, which became a commercial asset, and therefore, the interest became taxable as 'business income'. It would be too simplistic a view, to tell that even after the conversion of the fixed deposit (investment) into a commercial asset which was put to use for the purpose of facilitating the assessee's business, the source of the interest still continues to be the investment and not the commercial asset. The characteristic of the asset had changed and the change cannot be ignored while examining the nature of the interest income. We, therefore, h....
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....e, use of the aforesaid vehicles for personal purposes cannot be ruled out. We therefore, uphold the disallowance in principle but reduce the disallowance to 10 per cent of the total expenditure and allow the ground in part. 8. Ground No.6 relates to the deduction under s. 80HHC. While completing the assessment, the AO noted that the assessee had credited Rs. 60,89,183 as DEPB (Duty Entitlement Pass Book Scheme) and that the assessee had claimed deduction under s. 80HHC in respect of 90 per cent of the aforesaid credit. A similar claim had also been made in respect of the DFRC receipt which means 'Duty Free Replenishment Certificate'. Both the AO as well as the CIT(A) took the view that the DEPB and DFRC schemes were to be treate....
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....ze the incidence of customs duty on the import content of the export product. The neutralization shall be provided by way of grant of duty credit against the export product. The issue whether DEPB credit is eligible for deduction under s. 80HHC has been considered by the Delhi Bench of the Tribunal in the above order. In that case, there was no dispute that the DEPB receipt was in the nature of business receipt chargeable to tax under s. 28(iv) of the Act and consequently, would form part of the profits of the business. The Tribunal proceeded to examine the question whether the 90 per cent of DEPB receipt can be excluded from the profits of the business in view of the Expln. (baa) to s. 80HHC. It was held that it cannot be excluded because ....
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.... to (iiic) of s. 28. The facts of the controversy being identical with those in the cited order of the Tribunal, respectfully following the same, we direct the AO to allow the deduction under s. 80HHC in respect of DEPB and DFRC. 10. We must however, notice an argument advanced by the learned Departmental Representative based on the judgment of the Supreme Court in the case of Hindustan Lever Ltd. vs. CIT (1999) 157 CTR (SC) 506 : (1999) 239 ITR 297 (SC). In that case, the assessee made profits on sale of export entitlements and claimed deduction under s. 80HHC in respect of such profits. The Supreme Court held that the profits cannot be said to have been derived from the export of goods out of India as required by the section. It was he....
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....provided by way of grant of duty credit, against the export product'. The credit is given as a percentage of the FOB value of exports made in freely convertible currency. The credit is available against export products and at such rates as may be specified by way of public notice, for import of raw material, intermediates, components, etc. The DEPB is freely transferable subject to the condition that it shall be for import at the port specified by the DEPB, which shall be the port from where exports have been made. 11. The above conditions of issue of DFRC and DEPB show that the immediate source of these two receipts is the actual exports of goods out of the country. No person other than an exporter would be eligible for these two re....