TaxTMI 
TaxTMI 
2016 (8) TMI 1380
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....ction, under Section 80HHC of the Act, in respect of interest income of Rs. 20,58,049/-, which the appellant treated, as business income. 3. The assessing officer issued notice, under Section 148 of the Act, followed by notices, under Sections 142(1) and 143(2) of the Act and after considering the material on record, and the submissions of the appellant's representative, passed an order, dated 13.01.2004, under Section 143(3) of the Act, determining the taxable income at Rs. 21,78,049/- and allowed deduction, under Section 80HHC of the Act, to an extent of Rs. 4,93,188/- only. While arriving at the taxable income, the assessing officer subjected to tax, interest income of Rs. 20,58,049/-, under the head, "Other Sources", and also denied the benefit of deduction, under Section 80HHC, on the said sum. 4. Being aggrieved by the same, the appellant/assessee filed an appeal, in I.T.A.No.28/2004-05, before the Commissioner of Income-Tax (Appeal), Chennai. Contention has been made that the appellant was enjoying credit facilities towards working capital, from State Bank of India, for which, the appellant had to make certain deposits, out of realisation of sale procee....
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....he appellant, it is clear that the Special Bench decision of the ITAT, Delhi relied upon by the appellant will not be applicable to his case. It may also be of significance to cite the Madras High Court decision in the case of K.S.Subbiah Pillai & Co., (India) Pvt. Ltd., v. CIT (260 ITR 304), wherein, it has been clearly held that interest paid and claimed as deduction in computing business income cannot be set off against interest receipt and computed as income from 'Other Sources'. In view of the categorical finding given by the Madras High Court also, it has to be held that the Special Bench decision relied upon by the appellant will not be applicable to his case. 8. Thus, the assessing officer's action of assessing the interest income from Fixed Deposits under the head, 'Other Sources' is upheld and therefore that interest income would not be eligible for any deduction, u/s. 80HHC. In the result, the appeal is dismissed." 8. Being aggrieved by the order, the assessee has filed an appeal in I.T.A.No.3094/Mds/2004, before the Income-Tax Appellate Tribunal, 'A' Bench, Chennai, contending inter alia, that both the assessing officer, ....
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....see before us and we reject the same." 11. Aggrieved by the said decision, instant tax case appeal has been filed and record of proceedings shows that appeal has been admitted on 08.08.2007, on the following substantial question of law, "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in not holding that the interest from fixed deposits formed out of compulsory retention and transfer of export realisation is income from business liable for inclusion as business profit for computation of deduction under Section 80HHC of the Income Tax Act?" 12. Assailing the correctness of the order of the Tribunal and seeking for an answer, in favour of the assessee/appellant, on the above substantial question of law, Ms.Sushma Harini, learned counsel appearing for the appellant reiterated the submissions. Added further, she submitted that the decision rendered in CIT v. Nizar Ahmed & Co., reported in 259 ITR 244, has been misapplied by the appellate authority and that the Tribunal has also committed a mistake, in rejecting the case of the appellant/assessee, by relying on the decision of this Court in CIT vs. Chinnapandi reported in (2006) 282....
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....L.P.(C) No.9557 of 2003. Decision of this Court in Dollar Apparels v. Income Tax Officer reported in 2007 (294) ITR 484 (Mad.), was also pressed into service by the Revenue, which considered the decision in CIT v. Nizar Ahmed & Co., reported in 259 ITR 244. 16. Referring to Section 80HHC of the Income Tax Act, 1961, learned standing counsel for the Income Tax Department submitted that if the Company is engaged in the business of export, income earned out of exports of any goods or merchandise, deduction to the extent of profits, referred to in sub-Section (1B) alone would be allowed, if only the income is derived by the assessee, from the export of such goods or merchandise, and not from any other source. He further submitted that on the facts and circumstances of the case, interest income has been derived, not from the export of goods or merchandise, but derived from the deposits made by the appellant and therefore, interest income, earned by the assessee, cannot be treated as "business income", liable for deduction. According to him, interest income earned from the deposits, should be treated only as "other source" and therefore, both the appellate authority, as well as the Tr....
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.... bank, at the time of sanctioning of facilities, whereas, in the case on hand, when the assessee had produced a letter from the State Bank of India, stating that for extention of credit facility, deposit had to be made and when such deposit was made, from the business profits, interest income earned from such deposit, cannot be excluded from "business income" and be termed as income from "other sources". She reiterated that there is certainly a nexus between the export earning deposit a requirement for the credit facility and thus, interest income, has to be necessarily treated as "business income" and not from "other source". Decision in Premier Enterprises v. Deputy Commissioner of Income-Tax reported in 2015 (370) ITR 465 (MAD.), rendered in favour of the assessee therein, on the facts that case, wherein, the assessee therein had deposited amounts for the purpose of availing credit facilities, has also been pressed into service. Heard the learned counsel appearing for the parties and perused the materials available on record. 21. Before adverting to the rival submissions, let us have a cursory look at the provisions in the Income Tax Act, 1961. Section 28 of th....
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....it on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ; (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ; (v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of Section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ; (va) any sum, whether received or receivable, in cash or kind, under an agreement for (a) not carrying out any activity in relation to any business [or profession]; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or infor....
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....iness (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business.' 22. Section 80HHC of the Income Tax Act, deals with deduction in respect of profits retained for export business and the same is extracted hereunder: "(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 to the extent of profits, referred to in sub-section (1B), derived by the assessee from the export of such goods or merchandise : Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a ....
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....orce for regulating payments and dealings in foreign exchange. (b) This section does not apply to the following goods or merchandise, namely : (i) mineral oil ; and (ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule). Explanation 1. The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Explanation 2. For the removal of doubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch, office, warehouse or any other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch, office, warehouse or establishment, then, such transfer shall be deemed to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in sub-section (1) of section 50 of the Customs Act, 1962 (52 of 1962), shall, for the p....
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....ss carried on by the assessee : Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, (a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme : Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after givin....
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....eans costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover ; (f) "trading goods" means goods which are not manufactured or processed by the assessee. (3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be, (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the business ; (b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the profits of the business the same proportion as the turnover in respect of sale to the respective Export House or Trading House bears to the total turnover of the business carried on by the assessee. (4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountan....
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....e purposes of this section, (a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder ; (aa) "export out of India" shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962) ; (b) "export turnover" means the sale proceeds, received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962); (ba) "total turnover" shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Cust....
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....s derived by the assessee from the export of goods. In otherwords, there should be a direct nexus between profits on one hand and the export activity, on the other hand." 25. In Commissioner of Income Tax v. Ravi Ratna Exports (P) Ltd., reported in 2000 (246) ITR 443 (Bom), the Bombay High Court has held as follows: "In this matter, the assessing officer has recorded a finding of fact that interest income was taxable as income from other sources. In the circumstances, such income cannot fall under the head "Profits and gains of business". Hence, such income cannot be included in business profits in the above formula. Therefore, on both counts, the appeal stands allowed. Even if it is held that interest income was a business income, the same was not includible in business profits in the above formula. On the other hand, as stated above, the assessing officer has held that the interest income was income from other sources. If that be the case, then such an income cannot come within the ambit of Section 28 to 44D of the Income-tax Act. It cannot come under profits and gains of business." 26. In Nanji Topanbhai v. Assistant Commissioner of Income Tax reported in 2003 (24....
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....as negatived by both the assessing officer, as well as the Commissioner, but upheld by the Tribunal. Substantial question of law raised by way of appeal by the Revenue, to this Court was, "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the interest income should not be excluded for the purpose of calculating the deduction under Section 80HHC of the Income Tax Act, 1961?" 30. In Nizar Ahmed's case (cited supra), the Tribunal took the view that the letter from the bank was the sufficient basis, to hold that the making of such deposit and the facilities enjoyed from the bank were inextricably linked and thus, the interest received on those deposits was required to be treated as part of the income from the business for computing the relief under Section 80HHC. The Revenue was aggrieved over the said decision and accepting the contention of the revenue, the question referred to above, was answered against the assessee and in favour of the Revenue. 31. Though Ms.Sushma Harini, learned counsel for the appellant attempted to distinguish the above judgment, we are not inclined to accept the same, in view of the categori....
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.... Nair v. Deputy Commissioner of Income-Tax (Assessment) reported in 2003 (262) ITR 669 (Ker.), the question that came up for consideration, before the Kerala High Court, was whether, interest income derived by the appellant from the deposit made with the bank for opening letter of credit and other formalities to enable the appellant to export goods to various countries is eligible for the relief under Section 80HHC of the IT Act, 1961. When the appellant therein, claimed relief under Section 80HHC, the assessing officer treated the interest received on short term deposit, as income from other sources. The assessing officer also noticed that the appellant therein got a cash credit loan account with the bank for availing loan facilities for purchase of raw cashewnuts and that when imports were completed, during the loan season, the sale proceeds of the exports were deposited to the account from which interest was earned. The appellant therein contended that there is a nexus between the amount received on export sales and that there was deposit in short-term deposits and hence, the deposit was from business earnings and consequently, the interest earned was income from business. The A....
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....n 80HHC of the Income Tax Act, 1961, under the net interest, ie., Rs. 6,59,946/- [Rs.9,24,967/- (-) Rs. 2,65,019/-]. While computing deduction, under Section 80HHC, the assessing officer deducted 90% of the gross interest, without taking into account the interest paid by the assessee. On appeal, the Commissioner of Income Tax (Appeals), confirmed the order of the assessing officer. The Tribunal allowed the assessee's claim and held that the assessee was entitled to deduction, under Section 80HHC, without restricting the amounts, received by way of interest. On further appeal, the question which came up for consideration, was, "Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee is eligible for full deduction under Section 80HHC, without restricting to the amount received by way of interest were incidental to the export business as fixed deposits is valid in law?" After considering the decisions in K.S.Subbiah Pillai's case (cited supra) and Rani Paliwal v. CIT [(2003) 185 CTR P H 333 = 2004 268 ITR 220 P&H], this Court, at Paragraphs 6 and 7, held as follows: "6. The above two judgments support the case of ....
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....of Income-Tax (Appeals) confirmed the same. On further appeal by the assessee therein, the Tribunal held that there was no mutual agreement between the bank and the assessee and that the income derived from the export business alone is eligible for deduction under Section 80HHC and not the incidental income from export proceeds. The Tribunal, while holding that the deposits made with the Bank are for the convenience and benefit of the assessee with a view to derive higher income, concluded that the assessee is not entitled to deduction under Section 80HHC on the interest income. In the above said circumstances, the assessee approached this Court, raising the following substantial questions of law, "(1) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in overlooking the concept of mutuality ? (2) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in overlooking the fact that in the absence of any "real income" is it permissible to contend that the interest credited is to be set off against interest paid, what is contemplated in Explanation (baa) is, "any other interest/....
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....xport business. 37. On the contention of the learned counsel for the appellant that the decision in Dollar Apparel's case, is only an obiter dicta, let us consider what, "obiter dicta" means. Rupert Cross and J.W.Harris in Precedent in English Law (4th Edition - page 41) say thus:- "There are undoubtedly good grounds for the importance attached to the distinction between ratio decidendi and obiter dictum. In this context an obiter dictum means a statement by the way, and the probabilities are that such a statement has received less serious consideration than that devoted to a proposition of law put forward as a reason for the decision. It is not even every proposition of this nature that forms part of the ratio decidendi." 38. Distinction between an obiter dictum and a ratio decidendi has been explained by the Supreme Court in Director of Settlements, A.P. v. M.R.Apparao reported in AIR 2002 SC 1598, "So far as the first question is concerned. Article 141 of the Constitution unequivocally indicates that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. The aforesaid Article empowers the Suprem....
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....cquires jurisdiction, all material questions are open for its decision; it may properly decided all questions so involved, even though it is not absolutely essential to the result that all should be decided. It may, for instance, determine the question of the constitutionality of a statute, although it is not absolutely necessary to the disposition of the case, if the issue of constitutionality is involved in the suit and its settlement is of public importance. An expression in an opinion which is not necessary to support the decision reached by the court is dictum or obiter dictum. "Dictum" or "obiter dictum: is distinguished from the "holding of the court in that the so- called "law of the case" does not extend to mere dicta, and mere dicta are not binding under the doctrine of stare decisis, As applied to a particular opinion, the question of whether or not a certain part thereof is or is not a mere dictum is sometimes a matter of argument. And while the terms "dictum" and "obiter dictum" are generally used synonymously with regard to expressions in an opinion which are not necessary to support the decision, in connection with the doctrine of stare decisis, a distinctio....
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....ch do not embody the resolution or determination of the court, and made without argument or full consideration of the point, are not the professed deliberate determinations of the judge himself; obiter dicta are opinions uttered by the way, not upon the point or question pending, as if turning aside for the time from the main topic of the case to collateral subjects; It is mere observation by a judge on a legal question suggested by the case before him, but not arising in such a manner as to require decision by him; "Obiter dictum" is made as argument or illustration, as pertinent to other cases as to the one on hand, and which may enlighten or convince, but which in no sense are a part of the judgment in the particular issue, not binding as a precedent, but entitled to receive the respect due to the opinion of the judge who utters them; Discussion in an opinion of principles of law which are not pertinent, relevant, or essential to determination of issues before court is "obiter dictum". 26. The concept of "Dicta" has also been considered in Corpus Juris Secundum, Vol. 21, at pg. 309-12 as thus: "190. Dicta a. In General A Dictum is an opinion expressed by a cour....
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....cutory observations by members of a court during argument, while of persuasive weight, are not judicial pronouncements and do not decide anything." 28. In Municipal Corporation of Delhi v. Gurnam Kaur, (1989) 1 SCC 101 and Divisional Controller, KSRTC v. Mahadeva Shetty, (2003) 7 SCC 197, this Court has observed that, "Mere casual expressions carry no weight at all. Not every passing expression of a judge, however eminent, can be treated as an ex cathedra statement, having the weight of authority." 29. In State of Haryana v. Ranbir, (2006) 5 SCC 167, this Court has discussed the concept of the obiter dictum thus: "A decision, it is well settled, is an authority for what it decides and not what can logically be deduced therefrom. The distinction between a dicta and obiter is well known. Obiter dicta is more or less presumably unnecessary to the decision. It may be an expression of a viewpoint or sentiments which has no binding effect. See ADM, Jabalpur v. Shivakant Shukla. It is also well settled that the statements which are not part of the ratio decidendi constitute obiter dicta and are not authoritative. (See Divisional Controller, KSRTC v. Mahadeva She....