TaxTMI 
TaxTMI 
2009 (10) TMI 48
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.... (hereinafter referred to as the "Act"). The assessee is a 100% manufacturer/exporter of readymade garments. While framing the assessment, the Assessing Officer (AO) found that the assessee also had interest income on the fixed deposit receipts and the assessee had claimed deduction under Section 80HHC of the Act on this interest income as well treating the same as business income. He also found that the profit from business, after deducting 90% of duty drawbacks, were determined at negative figure. The AO worked out the deduction under Section 80HHC by adopting negative figure and computed the figure accordingly, thereby making a deduction of Rs.28,88,993/-. In doing so, the AO relied upon the judgment of the Supreme Court in the case of M/s. Tuticorin Alkali Chemicals & Fertilizers Ltd. v. Commissioner of Income Tax, 227 ITR 172 as well as orders of the Madras Bench of the Tribunal. 4. In appeal preferred by the assessee, the Commissioner of Income Tax (Appeal), vide orders dated 16.2.2004, enhanced the income of the assessee holding that the assessee was not entitled to any deduction under Section 80HHC as profits of the business were in the negative and, thus, dismissed the ap....
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....red by the subsequent judgment of this Court in Commissioner of Income Tax v. Bharat Rasayan Ltd., 172 Taxman 338. 7. We have considered the submissions of learned counsel for the parties. 8. We may point out at the outset that merely because the assessee is engaged in a business would not ipso facto mean that all incomes earned, irrespective of the source of income, would be business incomes. Scheme of the Act, in this behalf, is very clear. Section 14 of the Act provides distinct heads under which the income of an assessee can be classified. In respect of each income received by an assessee, the AO has to under which particular head it falls, having regard to the source of income from where it is derived. It is the manner in which the income is derived that is relevant and not merely the fact that the person is engaged in a business or a profession. 9. In the present case, the interest income is derived from fixed deposit receipts. Therefore, the question which arises is as to whether it is to be treated as business income or "income from other sources". As noted above, the assessee is having export business and is, thus, claiming benefit of Section 80HHC of the Act. The money....
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.... determined by applying accounting standards as well as the provisions contained in the Act, the assessed would be permitted to, in terms of Section 37 of the Act, claim as deduction, expenditure laid out for the purposes of earning such business income. (vii) In the second stage, the AO will deduct from the profits of the business computed under the head profits and gains of business or profession the following sums in order to arrive at the 'profits of the business' for the purposes of Section 80HHC(3): (a) 90% of any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28 i.e. export incentives; (b) 90% of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (c) profits of any branch, office, warehouse or any other establishment of the assessed situate outside India (viii) The word 'interest' in Clause (baa) of the Explanationn connotes 'net interest' and not 'gross interest'. thereforee, in deducting such interest, the AO will take into account the net interest i.e. gross interest as reduced by expenditure incurred for earning such interest. The decision of the Special Bench ....
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.... words "derived from" had to be given restricted meaning and income could be said to be derived from an activity only if the said activity was the immediate minimum and effective sources of the income. Profits and gains are well understood to mean only the business income and not any other income. So long as the assessee has no business of lending money and the interest is not earned from the export business, it cannot be business income but income under other sources. (See - Tuticorin Alkali Chemicals & Fertilizers (supra)). 13. In a recent judgment given in the case of Commissioner of Income Tax - XIII v. M/s. S.B. Jain Publishers Overseas, (ITA No. 642/2006 decided on 21.8.2009), the assessee had received interest income of Rs.3,50,000/- from M/s. CBS Publishers, to whom it had made certain advance. This advance was given against the supply of books. Said M/s. CBS Publishers delayed the supply and for the period the publishers kept the advance, they paid interest to the assessee. Since the advance was given for the business purpose, it was held that interest earned thereupon would inextricably treated as business income and not income from other sources. However, on the basis o....
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....the Ld Accountant Member was a party to the judgment after analyzing the ratio of the principle laid down by the Apex Court in IPCA Laboratories case has held that while computing profit not only the results of two activities is to be netted but the same are to be further netted by the export incentives. Otherwise full meaning cannot be given to the Apex Court judgment. The parties to the present appeal were confronted with the said decision of the Tribunal and have clearly conceded that the issue in their case is squarely covered by the decision of the Tribunal. The decision taken by the Tribunal vide paras 6 & 7 are reproduced as under :- "6. We have given our thoughtful consideration to the pleas raised with reference to record before us. At the time when Special Bench of the Tribunal rendered its decision on 25.2.2004, the Apex Court decision in IPCA Laboratory had not been pronounced. The Supreme Court rendered the said decision on 11.3.2004. In the said decision Apex Court has decided that being incentive provision such provision needs to be liberally interpreted but liberal interpretation has to be as per the working of the section 80 HHC of the Act. As per the wordings of ....