TaxTMI 
TaxTMI 
1997 (11) TMI 145
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....sp; Rs. 2,41,278 2. Interest on IDBI Deposits Rs. 50,000 3. Interest on deposit with private parties Rs. 2,98,198 ------------ Total &nbs....
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....f the Tribunal in the case of Patni Computer Systems (P.) Ltd. [IT Appeal Nos. 1045 and 1212 (Pune) of 1991, dated 18-2-1992]. It was held by him that the receipt of interest income was incidental to the business as it had arisen out of nucleus of profit and gains of the industrial undertaking. Accordingly he directed the Assessing Officer to allow the relief. Aggrieved by the same, the appeal has been preferred by the revenue. 4. During the assessment year 1993-94, the assessee earned interest income of Rs. 17,83,743 on deposits with the private parties. The assessee claimed before the Assessing Officer that this income should be treated as profit and gains derived from industrial undertaking for the purpose of computing of relief under section 80HHA which was rejected by the Assessing Officer after following the following decisions: 1. Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC); 2. CIT v. Cochin Refineries Ltd. [1982] 135 ITR 278 (Ker.); 3. Addl. CIT v. Vellore Electric Corpn. Ltd. [1979] 119 ITR 523 (Mad.); 4. Industrial Gases Ltd. v. CIT [1965] 58 ITR 317 (Cal.); 5. Indian Aluminium Co. Ltd. v. CIT [1980] 122 ITR 660 (Cal.); 6.....
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....ired for the purpose of business. However, in the present case, the question for consideration is entirely different, i.e., whether the interest income earned on fixed deposits made out of surplus funds can be treated as profits & gains derived from an industrial undertaking eligible for deduction under sections 80HHA and 80-I. Thirdly, there was relevant material/evidence in that case, in the form of director's report to the effect that monies were accumulated for the future expansion of the business. But, in the present case, no such evidence has been brought on record either before the lower authorities or before us despite specific request from the Bench. Hence, in our view, the decision of Hon'ble Bombay High Court is distinguishable. 7. The next contention of Mr. Khandelwal is that the interest income on the deposits was incidental to the main business of the assessee company and therefore, it should be treated as business income and consequently deductions under sections 80HHA and 80-I be allowed on such income. In this connection, he relied on the decision of this Bench in the case of Patni Computers System (P.) Ltd. . Proceeding further, it was also contended by him tha....
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....v. ITO [1996] 58 ITD 417 wherein it has been held that interest income on bank deposit could not be treated as profit & gains derived from an industrial undertaking. He also drew attention to the decision of the Tribunal of Jabalpur Bench in the case of Dy. CIT v. Vindhya Telelinks Ltd. [1997] 58 TTJ (Jab.) 450 for the proposition that interest on short-term deposits also could not be treated as business income. 10. Rival contentions of the parties as well as the case law referred to by them have been considered carefully. The controversy before us centres around the interpretation of the words 'derive from' used by the Legislature in sections 80HHA and 80-I. The Hon'ble Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. has held that the words "derived from" are much narrower in its scope than the words "attributable to". According to the Court, whenever the Legislature intended to give narrower meaning, it had used the words "derived from". The words "derived from" were the subject matter of consideration before the Hon'ble Privy Council in the case of CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325. The question before the Court was where....
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....ains derived from a small-scale industrial undertaking to which the section applies. Sub-section (1) of section 80-I provides similar deduction in respect of profits and gains derived from an industrial undertaking or a ship or business of a hotel, etc., to which the section applies. Sub-section (2) of both the aforesaid sections prescribes various conditions which are to be fulfilled for claiming deduction. One of the condition is that the industrial undertaking must manufacture or produce articles after a particular specified date. The only difference is that in case of deduction under section 80-I, the manufacture or production of a article or a thing should not be that which is specified in the list in the 11th Schedule. The combined reading of both the sub-sections clearly shows that deduction is available in respect of the profits and gains which are derived from an industrial undertaking which is engaged in the activity of manufacture or production. Applying the tests laid down in the decisions of Privy Council and the Hon'ble Supreme Court to which we have already referred to, we are of the view that deduction under sections 80HHA and 80-I is available only in respect of su....
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.... banks or with IDBI, etc., cannot be said to be arisen out of running of industrial under-taking so as to be included in computing the profits and gains of industrial undertaking under section 80-I or 80HHA. Similar view has also been taken by Madras Bench of the Tribunal in the case of Ponds Exports Ltd. case . This Bench was concerned with the interpretation of the words "derived from an industrial undertaking" as used by the Legislature in section 10A. It was held therein that interest on bank deposits could not be considered as profits & gains derived from an industrial undertaking. 14. In view of the aforesaid discussion, we agree with the submission of the learned senior D.R. that interest income accruing to the assessee on the deposits made by the assessee with the banks or with the private parties out of the surplus or idle funds cannot be treated as profits and gains derived from an industrial undertaking even assuming that such income may be considered remotely as business income. An income may be attributable to the industrial undertaking yet may not be an income by way of profits and gains derived from an industrial undertaking. This is clear from the observations....
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....aid decision is Vellore Electric Corpn. Ltd. v. CIT [1997] 227 ITR 557/93 Taxman 401. In that case, the assessee was engaged in the business of generation and distribution of electricity and it was required by law to deposit certain sum by way of investment in securities in accordance with the provisions of Electricity Supply Act, 1948. The issue before the court was whether the assessee was entitled to relief under section 80-1 in respect of income derived by it from investment in securities. It was held "what is required is that the activity from which the income is earned must have a direct and proximate connection with the priority industry of generation and distribution of electricity". Since the business of assessee could not be carried on without making such investment in securities it was held that there was a direct and proximate connection between the income derived by way of interest and the activity of carrying on business by the assessee. Though in that case, the court was concerned with the expression "attributable to" yet it is an authority for proposition that where the investment has been made in the course of actual carrying on the business and income accrues on s....