TaxTMI 
TaxTMI 
TaxTMI 
2015 (5) TMI 689
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....dment in section 80 HHC, by way of insertion of sub-section (4B) excluding interest income for the purpose of deduction under section 80 HHC will affect the deduction of interest income under section 80 HHC for the period prior to amendment? (3) In case the assessee is not earning income in convertible foreign exchange by way of an interest on the money advanced, even then, whether the assessee is eligible for deduction under section 80 HHC of the Act?" 2. For the purpose of deciding the questions of law, referred to above, we are referring to the facts of D.B. Income Tax Appeal No.13/2002. 3. The Income Tax Appeal was filed against the order dated 25.09.2001, passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur in Income Tax Appeal No.1642/JP/93, for Assessment Year 1989- 90. 4. The return of the income was filed by the assessee-firm declaring the total income at Rs. NIL in the status of R.F. along with audit report under Section 44AB of the Income Tax Act, 1961 (in short 'the Act'), and report under Section 80HHC(4) of the Act on 27.10.1989, for 15 months. A notice under Section 143(2) of the Act was served ,and in compliance thereof, a representative of ....
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....n under Section 80HHC, because the basic requirements of the section were not satisfied. The interest income was not even its business income. It was the income which could be charged to tax only under the head "income from other sources". In Murli Investment Co. Vs. CIT, (1987) 167 ITR 368, it was held that where the assessee had some surplus funds after purchasing a property, and invested the surplus funds instead of keeping them idle, and the money used for making alterations in the property, and for making repayment to the creditors, was withdrawn by the assessee, the Tribunal was justified in holding that the interest earned by the assessee was assessable under Sections 56 and 57 of the Act, as income from other sources, and not his business income. 8. The Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (in short, 'the ITAT'), dismissed the appeal with the findings as follows:- "After careful consideration of the above situation and position as well as the entire connected matters and precedents relied upon by both the parties, we find that there is no dispute to the fact that the surplus funds have emerged with the appellant out of export business carried on by ....
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....goods bears to the total export turn over of the assessee. The provisions of Section 80HHC of the Act, were amended by the Finance Act, 1992, with effect from 01.04.1992. 10. In this case, we are concerned with the assessment of the Assessment Year 1989-90, and thus, the provisions of Section 80HHC of the Act, before its amendment by the Finance Act, 1992 w.e.f. 01.04.1992, will be applicable. 11. It is submitted that sub-section (3) of Section 80HHC of the Act further provides that for the purposes of sub-section (a), where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. Sub-Section 3(b), provides that where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export, and sub-section (c), provides that where the export out of India is of g....
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....n Commissioner of Income-Tax Vs. Nagpur Engineering Co. Ltd.(supra), the Bombay High Court held that the Tribunal was justified in directing the Assessing Officer to treat the interest income from fixed deposits, as eligible profits of the business while computing the deduction under Section 80HHC and Section 80-I of the Act. 15. In Commissioner of Income-Tax Vs. Paramount Premises (P.) Ltd.(supra), a Division Bench of the Bombay High Court held, that the assessee received deposits in installments from prospective purchasers while the work of construction was in progress. If the purchasers failed to make deposits by stipulated dates, they had to pay interest. The authorized capital of the assessee was small but the amounts received as deposits were large. Idle amounts were deposited with the bank or given on temporary loans until such time as they were required for construction, and thus, the interest was earned on these amounts. There is nothing in the judgment, which may relate to the deductions under Section 80HHC of the Act. 16. In Commissioner of Income-Tax Vs. Tamil Nadu Dairy Development Corporation Ltd.(supra), the matter did not relate to deduction of the profits under S....
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....ment in Section 80HHC by way of insertion of sub-section (4B), excluding interest income for the purpose of deduction under Section 80HHC, will not affect the deductions of interest income, claimed under Section 80HHC, for the period prior to the amendment. He has relied on Commissioner of Income-Tax Vs. Sharda Gum And Chemicals, (2007) 288 ITR 116(Raj.) and Alfa Laval India Ltd. Vs. Deputy Commissioner of Income-Tax, 266 ITR 418(Bom). 21. In Commissioner of Income-Tax Vs. Sharda Gum And Chemicals(supra), this Court held that where export of goods and merchandise is not the exclusive business of the assessee, but he has some other business also, sub-section (3) leaves no room for doubt that where an assessee is engaged in more than one business and is not exclusively engaged in the business of export, his income from such exclusive business of export out of India of goods and merchandise is not to be separately computed, but is to be carved out in proportion from his total business income computed in accordance with the provisions of the Act. The Assessing Officer had fallen into an error by delving into something which was not germane for the purpose of arriving at the income fro....
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....ad "Profits and gains of business or profession" and the whole of it would be eligible for exemption under Clause (a) of Sub-section (3) of Section 80HHC. When such commission could be regarded as profit derived from export for the purpose of Clause (a), how can the same be excluded for the purpose of Clause (b) unless it amounted to discrimination. The interpretation of Clauses (a) and (b) must be harmonious and not discriminatory, cutting against each other. What is sauce for the goose is also sauce for the gander. Secondly, we have just mentioned that this profit is profit derived from export and export is the basis or the foundation or the nexus. The argument of Shri B, B. Ahuja and all his effort to show to us that it has no reference to the export is, therefore, unacceptable to us. In our opinion, the argument advanced by Shri Ahuja overlooks the fact that the commission would not have come to the assessee had he not been engaged in the export business. He sought to justify his argument by referring to subsequent amendments made from April 1, 1992, whereunder as we have pointed out above by adding Clause (baa) to the Explanation at the end of Sub-section (4A) with effect from....
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....x, Gujarat-II, Ahmedabad, [1978] 113 ITR 84(SC). 27. In Tuticorin Alkali Chemicals & Fertilizers Ltd., Madras Vs. Commissioner of Income Tax, Madras(supra), the Supreme Court held, while discussing the classification of income under Sections 4, 14, 56 and 57 of the Act, that interest income is always of revenue nature unless received by way of damages or compensation. Where interest is earned by assessee on investment of share capital, it can be assessed separately under the head "income from other sources". The income attracts tax as soon as it accrues. 28. In Commissioner of Income Tax Vs. Swani Spice Mills P. Ltd.(supra), the Bombay High Court, after discussing several judgments, held in paragraph 20, that the income of an assessee which is chargeable to tax under Section 4, is required for the purposes of computation to be classified under various heads of income specified in Section 14. Section 56, which deals with income from other sources is attracted where the income does not belong to a category which is specified in any of the other heads elucidated in Section 14. The income earned by an assessee, which utilizes its surplus funds in order to earn interest cannot be clas....
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....ctions must be attributable to the profits and gains of the business. In paragraph 8, the Supreme Court held as follows:- "8. 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 buildings cannot be regarded -as profits and gains derived from the conduct of the business or generation and distribution of electricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression "derived from", as for instance in Section 80J. In....
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....ioner of Income-Tax(supra). 34. There is distinction between the words "attributable to" and "derived from". In sub-section (3) of Section 80HHC of the Act, the words used in clause (a), are "profits derived from such export shall be the amount which bears to the profits of the business". 35. In Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad(supra), it was held as follows; "In our view, since the expression or wider import, namely 'attributable to', has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity". 36. The Supreme Court in Vellore Electric Corporation Ltd. Vs. CIT, [1997] 227 ITR 557(SC), held in the context of Section 80-I, which uses the words "profits and gains attributable to any priority industry", answering the question in affirmative, that the income earned by way of interest on the investment in securities of the amounts appropriated to the contingencies reserve, which was mandatorily required to be maintained by it in terms of the Electricity(Supply) Act, 1948. It was held that the condition stat....
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....and the context. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result, which could not have been intended, the Court must avoid such interpretations. 40. In Commissioner of Income-Tax Vs. Shri Ram Honda Power Equip(supra), the Delhi High Court held that the word "interest" in clause (baa) of the Explanation to Section 80HHC of the Act, is indicative of net interest i.e. gross interest as reduced by expenditure incurred by the assessee in earning such interest. 41. While applying the direct and proximate nexus test, we are of the view that where the interest earned does not have direct and proximate nexus, with the income from the business of export, the interest cannot be deducted as income from export under Section 80HHC (3)(a) of the Act, and has to be given the same treatment for tax, as "income from other sources" under Section 56 of the Act. 42. The question No.1 is, thus, answered in favour of the Revenue, and against the assessee. 43. So far as question No.2 is concerned, on the aforesaid discussion, we are also of the view that the amendment in Section 80HHC, by way of insertion of sub-section (4B), excluding interest incom....