TMI Blog2001 (1) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... following amounts: (i) Income from bank interest Rs. 0.57 lakhs (ii) Other income (interest on income-tax refund) Rs. 11.75 lakhs (iii) Dividend from investments Rs. 64.53 lakhs --------------- Rs. 76.85 lakhs --------------- In the assessment for grant of deduction under s. 80HHC, the AO excluded the above income, on the premise that it was "other sources" income and hence not eligible for deduction under s. 80HHC. Consequently, the deduction under s. 80HHC stood reduced to Rs. 12,04,575. In appeal, the learned CIT(A) upheld the action of the AO. 4. Before us, the learned counsel for the assessee admitted that the interest income of Rs. 57,000 related to short-term deposit of surplus funds. It was however contended that the same was earned during the course of business and should, therefore, be taken into account while calculating deduction under s. 80HHC of the Act. Relying on the decision of the Hon'ble Delhi High Court in the case of Snam Progetti SPA vs. Addl. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was opposed on the strength of apex Court decision in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC). 6. We have carefully considered the facts and circumstances of the case and the rival submissions. At the outset, we would like to point out that about the nature of interest income on short-term deposits and eligibility for deduction under s. 80HHC, there is a cleavage of judicial opinion. Sec. 80HHC provides for deduction out of profits "derived from the export of goods or merchandise". In the case of Cambay Electric Supply Industrial Company Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC) the Hon'ble Supreme Court has held that the expression, "derived from" should be given a restricted meaning. The above decision was followed by the apex Court in the case of Ashok Leyland Ltd. vs. CIT (1997) 138 CTR (SC) 287 : (1997) 224 ITR 122 (SC). The ratio of various judicial decisions is that income can be said to be "derived from" an activity if the said activity is the immediate and effective source of the said income. Income cannot be said to be derived from an activity merely by reason of the fact that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange fluctuations resulting from the payments of foreign currency loans during the year to Hongkong Shanghai Banking Corporation by invoking the provisions of s. 43A of the IT Act, 1961." 9. The facts concerning the matter, to be stated succinctly, are thus. In December, 1981, the assessee had entered into a management service agreement with M/s EicherGermany, who were engaged in the manufacture of tractors, diesel engines, etc. for a very long time. The agreement was to continue for a period of 5 years. As per this agreement which was approved by the Ministry of Finance vide their letter dt.27th March, 1982, the assessee was to manage the affairs of EicherGermany. Vide their letter dt.28th Dec, 1983, the Ministry of Commerce granted approval for participation of the assessee in the joint venture inWest Germanyby way of entering in the management service agreement with EicherGermanyfor carrying out its business of manufacture and marketing of tractors, diesel engines, etc. The assessee was allowed to contribute 5 million DM in the German company towards its equity and the approval stipulated raising a foreign exchange loan of equivalent amount. The assessee-company obtained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lower authorities and the Tribunal held in asst. yr. 1985-86 that the claim for business loss was "premature" in that year. It was stressed that thereafter the loss was allowed by the AO in asst. yr. 1986-87. In this connection, our attention was invited to the statement of computation of total income for the asst. yr. 1986-87, in which such loss was claimed, copy placed at pp. 138 to 140 of the paper book, and to the copy of the assessment order for that year, copy placed at pp. 145-46 of the paper book. It was pleaded that this clearly showed that the investment in EicherGermanywas regarded as a business asset. He further submitted that till asst. yr. 1988-89, the exchange rate difference on repayment of the loan instalments was allowed as revenue loss. Further, due to change in the method of accounting in asst. yr. 1989-90, from cash to accrual, the assessee had provided for an aggregate amount of Rs. 152.78 lakhs as loss on account of foreign exchange fluctuation our of which Rs. 110.87 lakhs related to earlier years. It was submitted that the AO accepted the change and allowed the entire debit of Rs. 152.78 lakhs while computing the income under the normal provisions of IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set or a trading asset. It is held that if the loan is taken in connection with obtaining a trading asset, as was the position in the assessee's case, then the loss arising on account of fluctuation is a revenue loss. The apex Court decision in the case of Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 55 : (1979) 116 ITR 1 (SC) was referred to. It was stressed that it has been accepted by the Department that the shares in Eicher Company were held as business asset and if that was so, the exchange loss in respect of loans taken to finance the acquisition of such business asset cannot be said as being in the nature of anything other than the revenue expenditure. The apex Court decision in the case of Radhasoami Satsang vs. CIT (1991) 100 CTR (SC) 267 : (1992) 193 ITR 321 (SC) was referred to for the proposition that if there is no change in the facts a different conclusion was not warranted. 12. We have given our utmost consideration to the whole gamut of facts and circumstances of the case, the material to which our attention was invited and the rival submissions. At the outset, we would like to record that the facts stated by the assessee have not been disputed by the learned De ..... X X X X Extracts X X X X X X X X Extracts X X X X
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