AI Drafter 
TaxTMI 
TaxTMI 
2001 (10) TMI 266
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.... (i) Interest on deposit towards Bank Guarantee money in favour of Central Excise & Customs Department Rs. 6,484 (ii) Interest on deposit with APSEB Rs. 3,190 ------------- Total &n....
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.... words, if I may say so, every business or undertaking has a core and a penumbra. Core of the business signifies the fact that the business or undertaking is the direct or immediate source of the profit. When the profits and gains belong to penumbra, it means, it is peripheral and indirectly related. The question to decide, therefore, is whether a particular profit and gain relate to the penumbra or to the core. 13. Coming to the instant case, even if the amount deposited in the bank is a trade surplus from the export business, the interest earned thereon can at best be "attributable to" the business but cannot be treated to have been derived from the business since the export business is not the immediate or effective source of such interest income. Therefore, I am of the opinion that the Assessing Officer was justified in not allowing the exemption under section 10B on interest income. 14. As regards the decisions cited by the learned AR, these are mainly on the issue as to whether interest earned from bank under certain circumstances would be treated as business income or not. But as I have pointed out, it is not enough if merely an item relates to the business. To qualify....
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....rofits cannot be included in income for computing special deduction under section 80HH of the Income-tax Act. These two decisions were not referred to by the CIT (A) and these two authorities have to be considered along with other decisions relied upon by the CIT (A) to which we have referred to hereinabove. 5. The learned counsel for the assessee pleaded that the decision of the Hon'ble Madras High Court in Pandian Chemicals Ltd's case and also the decision of the Apex Court in Sterling Food's case were not rendered in the context of provisions of section 10B of the I.T. Act. According to him, the provisions of section 10B stand on different footing than the other provisions like section 80HH, section 80-I and section 80HHC of the Act. It is claimed that section 10B figures in Chapter-III, which grants complete exemptions to incomes of different nature, whereas the other sections noted above figure only in Chapter-VI of the Act, which do not grant such complete exemption. In his written submissions filed, the learned counsel for the assessee relied upon the decision of the Bombay High Court in CIT v. Puinit Commercial Ltd. [2000] 163 CTR (Bom.) 594; and of the Delhi Bench of th....
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.... from' is much narrower than the expression 'attributable to'. This distinction has to be maintained whether the expression 'derived from' occurs in section 10B or in other provisions of the Act like sections 80HH and 80-1. So, the question to be considered is whether the interest income in question aggregating to Rs.9,674 is derived from the industrial undertaking. Without an electrical connection, it appears, the assessee cannot conduct its manufacturing activity, and so, the deposit with the A.P.S.E.B. is a pre-requisite for the carrying on of its manufacturing activity by the assessee. In the light of this circumstance, it appears to me that the interest income is integrally related to the conduct of the business by the assessee, and it may have to be treated not simply as attributable to the business of the assessee, but derived from the business of the assessee. I may admit at the outset that this conclusion goes contrary to the decision of the Hon'ble Madras High Court in the case of Pandian Chemicals Ltd., wherein it has been held, in the context of relief claimed under section 80HH in relation to interest on deposits made with the Tamil Nadu Electricity Board, that the imm....
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.... "So far as the legal position is concerned, the Income-tax Officer would be bound by a decision of the Supreme Court as also by a decision of the High Court of the State within whose jurisdiction he is (functioning), irrespective of the pendency of any appeal or special leave application against that judgment. He would equally be bound by a decision of another High Court on the point, because not to follow that decision would be to cause grave prejudice to the assessee. Where there is a conflict between different High Courts, he must follow the decision of the High Court within whose jurisdiction he is (functioning), but if the conflict is between decisions of other High Courts, he must take the view which is in favour of the assessee and not against him. Similarly, if the Income-tax Appellate Tribunal has decided a point in favour of the assessee, he cannot ignore that decision and take a contrary view, because that would equally prejudice the assessee." 10. For the view I am taking in the matter, I also find support from the decision of the Apex Court in the case of CIT v. Karnal Co-operative Sugar Mills Ltd. [2000] 243 ITR 2, wherein it has been held as under-- "Held, th....
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....deposits made with the Bank cannot be placed on par with the Scheme of the Central Government whereunder export entitlements became available. Making of deposit for obtaining electricity connection is so integrally connected with the manufacturing activity that it cannot be regarded as a separate source from which any income by way of interest is derived. 12. I need not separately consider the decision of the Hon'ble Karnataka High Court in Sterling Foods, having considered the same in the context of the decision of the Apex Court in that very case in the preceding para. 13. In the case of Mrs. Bacha F. Guzdar, the Apex Court was considering dividend income received by a shareholder from a company, which derived income from agriculture, and held that the dividend received by the shareholder was not agricultural income, but income assessable under section 12 of the Indian Income-tax Act, 1922. It was held that the dividend received did not have any association with land, but arose from the contractual relation between the company and the shareholder. I am of the view that this decision has no bearing on the issue before me in this case. 14. In the case of Siddaganga Oil Ext....
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....se in the present case. Hence, I am of the view that the said decision of the Gauhati High Court does not apply to the present case. 17. At this stage, I may also refer to the decision of the Apex Court in the case of Cambay Electric Supply Industrial Co, Ltd., wherein it has been held as under-- "As regards the aspect emerging from the expression 'attributable to' occurring in the phrase 'profits and gains attributable to the business of' the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression 'attributable to' and not the expression 'derived from'. It cannot be disputed that the expression 'attributable to' is certainly wider in import than the expression 'derived from'. Had the expression 'derived from' been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and building cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the Legi....
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....s 'derived from', the industrial undertaking itself has to be the source of the profit, but the expression does not seem to rule out certain receipts, which are intimately and integrally connected to the conduct of the business. In the case of Karnal Co-operative Sugar Mills Ltd. the Apex Court held that the interest derived by the deposit of share capital which is lying idle is directly linked with the business of the assessee and the income earned on such deposits is incidental to the business of the assessee. I have already extracted the relevant portion of the above decision. I have also observed that what is directly linked to business has also to be regarded as 'derived from' it. In the case before me, the deposits made were not out of surplus funds or out of idle funds, but the deposits were a pre-condition for the conduct of the business. So, I am of the view that the assessee in the case on hand, is on a safer ground than the assessee considered by the Hon'ble Supreme Court in the case of Karnal Co-operative Sugar Mills Ltd. The only difference is that in that case, the assessee was in the pre-construction stage and in the case on hand, the assessee-undertaking is actually....