TMI Blog2016 (8) TMI 1380X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, as well as the Tribunal, have rightly decided the issue, in favour of the Revenue. Legislature has engrafted the provisions, as to how, the Company engaged in the business of export, out of India, of any goods or merchandise, can be allowed, to compute the total income of the assessee, deduction to the extent of profits, referred to, in sub-Section (1B), derived by the assessee, from such export of goods or merchandise, meaning thereby, that such income from the said proceeds of the goods or merchandise, should be earned in convertible foreign exchange or in otherwords, and not income generated within the country, from other sources. - Decided in favour of revenue. - T.C.A. No. 1121 of 2007 - - - Dated:- 30-8-2016 - S. Manikumar And D. Krishna Kumar, JJ. For the Appellant : Ms.Sushma Harini for Ms.Dr.Anita Sumanth For the Respondent : Mr. J. Narayanasamy, Standing Counsel for Income-Tax Dept. ORDER ( Order of the Court was made by S. Manikumar, J. ) Tax Case Appeal is directed against the order made in I.T.A.No.3094/Mds/2004, dated 21.09.2006, on the file of the Income Tax Appellate Tribunal, 'A' Bench, Chennai, for the assessment year 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted that the assessing officer ought to have treated interest income, on the deposits as business income, because credit facility could not have been extended to the appellant, without maintenance of such deposits, with the said Bank. 6. The appellant has further contended that a distinction has to be made between the interest earned on such deposit and interest earned on other deposits, with the bankers, which represented surplus deposits, and therefore, it has been contended that the interest income of ₹ 20,58,049/-, should be added as business income only and not other sources . To substantiate that the State Bank of India has extended credit facility of ₹ 1.70 Crores, a letter has been produced. 7. After considering the rival submissions and taking note of the decision of this Court in CIT v. Nizar Ahmed Co., reported in 259 ITR 244 and rejecting the decision of the Special Bench (Delhi) of the ITAT in Lalsons Enterprises v. DCIT (89 ITD 25), relied on by the appellant, vide order, dated 20.08.2004, in I.T.A.No.28/2004-05, the Commissioner of Income Tax (Appeals)-XII, Chennai, dismissed the appeal as hereunder: Further, Their Lordships have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtion of the export earning, over the years and such withholding was an integral part of the terms of sanction, for the credit facilities to them, by the bankers. Contention has also been made that reliance on the decision of CIT v. Nizar Ahmed Co., reported in 259 ITR 244, was misplaced. 10. After hearing both parties, vide order, dated 21.09.2006, in I.T.A.No.3094/Mds/2004, the Income Tax Appellate Tribunal, 'A' Bench, Chennai, at Paragraphs 3 and 4, held as follows: 3. Before us also the assessee's counsel reiterated the same arguments. He further replying on the decision of the Hon'ble Delhi High Court in the case of CIT v. Koshika Telecom Ltd., (2006) 203 CTR 99, vehemently argued that this interest income accrued on margin money deposit with the bank which was inextricably linked to the furnishing of bank guarantee by the assessee and hence, it is to be treated as business income and should have been included in the business profits which will qualify for deduction u/s. 80HHC. On the other hand, the ld. DR supported the orders of the authorities below and further relied on the recent decision of the Hon'ble Madras High Court in the case of CIT vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Kerala High Court in Ravindranathan Nair v. Deputy Commissioner of Income-Tax (Assessment) reported in 2003 (262) ITR 669 (Ker.), wherein, the Kerala High Court held that, As already noted, the interest from short-term deposits received by the appellant therein is not the direct result of any export of any goods or merchandise. The fixed deposit was made only for the purpose of opening letter of credit and for getting other benefits which are necessary requirements to enable the appellant to make the export. From the above it is clear that the interest income received on the short-term deposits though it can be attributed to the export business cannot be treated as income which is derived from the export business. In the above circumstances, even assuming that the bank had insisted for making short-term deposits for opening letter of credit and for other facilities, it cannot be said that the income is derived from the export business. That apart, the very question as to whether the income derived from deposits made with the bank is entitled to the relief under Section 80HHC was considered by this Court in Nanji Topanbhai Co. v. Asstt. CIT and Ors. [(2000) 243 ITR 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions, does not warrant interference. 18. Learned standing counsel appearing for Income-Tax Department submitted that one of the conditions for allowing deduction is that the sale proceeds should be in a convertible foreign exchange and in such circumstances only, deduction can be allowed. Whereas, the assessee is trying to enlarge the scope of the Section, by bringing in interest income, earned out of deposits. He further submitted that there is no illegality or irregularity, in the order of the Tribunal, warranting interference, and for the abovesaid reasons, prayed for dismissal of the appeal. 19. By way of reply, Ms.Sushma Harini, learned counsel appearing for the appellant submitted that the question of law framed in Chinnapandi's case (cited supra), and the answer of this Court, is not related to deduction under Section 80HHC of the Act, on other sources and therefore, the said decision, cannot be made applicable to the case on hand. At this juncture, this Court deems it fit to extract the substantial question of law, raised in Chinnapandi's case (cited supra), Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto ; (c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto ; (d) any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business ; (iii) income derived by a trade, professional or similar association from specific services performed for its members ; (iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947) ; (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India ; (iiic) any duty of customs or excise re-paid or re-payable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) whether or not such arrangement, understanding or action is formal or in writing; or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings; (ii) service means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging; (vi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. Explanation. For the purposes of this clause, the expression Keyman insurance policy shall have the meaning assigned to it in clause (10D) of Section 10; (vii) any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House. (1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of the profits shall be an amount equal to (i) eighty per cent thereof for an assessment year beginning on the 1st day of April, 2001; (ii) seventy per cent thereof for an assessment year beginning on the 1st day of April, 2002; (iii) fifty per cent thereof for an assessment year beginning on the 1st day of April, 2003; (iv) thirty per cent thereof for an assessment year beginning on the 1st day of April, 2004, and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year. (2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee (other than the supporting manufacturer) in convertible foreign exchange, within a period of six months from the end of the previous year or, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocessed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee : Provided further that in the case of an assessee having export turnover not 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 increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent of (a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or (b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation. For the purposes of this sub-section, (a) adjusted export turnover means the export turnover as reduced by the export turnover in respect of trading goods ; (b) adjusted profits of the business means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause (b) of sub-section (3) ; (c) adjusted total turnover means the total turnover of the business as reduced by the export turnover in respect of trading goods ; (d) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erchandise to the Export House or Trading House; and (b) a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section : Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts of the Export House or Trading House under the provisions of this Act or under any other law. (4B) For the purposes of computing the total income under sub-section (1) or sub-section (1A), any income not charged to tax under this Act shall be excluded. (4C) The provisions of this section shall apply to an assessee- (a) for an assessment year beginning after the 31st day of March, 2004 and ending before the 1st day of April, 2005; (b) who owns any undertaking which manufactures or produces goods or merchandise anywhere in India (outside any special economic zone) and sells the same to any undertaking situated in a special economic zone which is eligible for deduction under Section 10A and such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er means a person being an Indian company or a person (other than a company) resident in India, manufacturing (including processing) goods or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export; (e) special economic zone shall have the meaning assigned to it in clause (viii) of the Explanation 2 to section 10A. 23. From the bare reading of the Section, it could be deduced that the Legislature has engrafted the provisions, as to how, the Company engaged in the business of export, out of India, of any goods or merchandise, can be allowed, to compute the total income of the assessee, deduction to the extent of profits, referred to, in sub-Section (1B), derived by the assessee, from such export of goods or merchandise, meaning thereby, that such income from the said proceeds of the goods or merchandise, should be earned in convertible foreign exchange or in otherwords, and not income generated within the country, from other sources. 24. In Commissioner of Income Tax v. K.K.Doshi reported in 2001 (112) TAXMAN 503 (Bom), the Bombay High Court has held that, Section 80HHC clearly states that in computing the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amounts already included in that computation which are now to be reduced to the extent of 90 per cent., if those items are included in Sub-clause (1) of that definition. 7. Interest paid and claimed as deduction in the computation of profits and gains for business, cannot be set off against interest received and computed under income from other sources . What has been said about interest is equally applicable to rent and commission included in the computation under the head Profits and gains of business or profession . The first question is answered against the assessee and in favour of the Revenue. 28. Now Let us consider the decisions relied on by the learned counsel appearing for both sides. 29. In CIT v. Nizar Ahmed Co., reported in (2003) 259 ITR 244, the asssessee therein, was a firm doing business in export of tanned and finished leather. It obtained credit facilities from the overseas branch of the State Bank of India, Madras. The assessee therein, in the same bank, made deposits to the tune of ₹ 139.14 lakhs, on which, it received interest, at the rate of 10%. The assessee's claimed that the interest received by it, on those deposits should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vantageous to borrow money from the bank and have those borrowed funds used in the business. The interest income that the assessee received on its own funds kept in deposit with the bank, therefore, did not have any direct link with the business that was being carried on with the funds made available to the assessee by the bank by way of loans on which the assessee was required to pay less interest. 5. The interest paid by the assessee to the bank was, no doubt, an item of expenditure in the computation of its business income. That, however, would not justify taking the income that the assessee received by way of interest on the deposits that it had with the bank, as part of its business income when in reality it was not. The deposit made with the bank was for the convenience and benefit of the assessee with a view to derive higher interest income. It was not a deposit made pursuant to any requirement imposed by the bank at the time of sanctioning of the facilities. The bank's decision to extend the facilities was linked more to the business prospects of the assessee and the confidence the bank had in the integrity and entrepreneurial capacity of the partners of the firm w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibuted to the export business cannot be treated as income which is derived from the export business. In the above circumstances, even assuming that the bank had insisted for making short-term deposits for opening letter of credit and for other facilities, it cannot be said that the income is derived from the export business. That apart, the very question as to whether the income derived from deposits made with the bank is entitled to the relief under Section 80HHC was considered by this Court in Nanji Topanbhai Co. v. Asstt. CIT and Ors. (supra), CIT v. Jose Thomas (supra) and also in Abad Enterprise v. CTT (supra) where it was categorically held that such interest income is not entitled to the relief under Section 80HHC of the Act. For all these reasons we answer the two questions on which notice is issued against the appellant and in favour of the Revenue. Appeal is accordingly dismissed. 33. In CIT vs. Chinnapandi reported in (2006) 282 ITR 389, the assessee therein was engaged in the business of export of finished leather. During the assessment year 1995-96, the assessee received interest of ₹ 2,65,019/- and paid interest of ₹ 9,24,967/-. The assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that 90 per cent of the interest that is deductible for the claim under Section 80HHC of the Act is from the gross interest received by the assessee and that the amount of interest paid by the assessee should not be deducted therefrom and hence, we answer the above question in favour of the Revenue and against the assessee and allow the tax case filed by the Revenue, No costs. 34. Though the learned counsel for the appellant submitted that Chinnapandi's case (cited supra), is inapposite to the facts of this case, reading of the same shows that the latter part of the substantial question of law framed and answered, has relevance to the case on hand. 35. In Dollar Apparels v. Income Tax Officer reported in 2007 (294) ITR 484 (Mad.), the assessee therein made deposits with a Bank, out of export proceeds received from outside India. According to the assessee, the amounts deposited were not made out of surplus funds and the interest income earned from the funds has direct nexus with the export business and hence, should be treated as income from business. However, as against the claim of the assessee, the assessing officer has treated the income earned from the depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the deposits were made as a pre-condition of the bank for sanctioning the limit, it cannot be considered as income from export earnings, as there is no nexus between export earnings and interest income and the interest income was earned from the deposits and not from the export business. Hence, following the ratio laid down by this Court in K.S.Subbiah Pillai Co., (India) Pvt. Ltd., v. CIT [(2003) 260 I.T.R. 304] and in CIT v. Nizar Ahmed Co., [(2003) 259 I.T.R. 244], we hold that the Tribunal was justified in deciding the issues in favour of the Revenue and we do not see any reason to interfere with the findings rendered by the Tribunal with regard to the issues raised in the questions of law referred to above earlier. 36. Though Ms.Sushma Harini, learned counsel appearing for the appellant, submitted that the ultimate conclusion of this Court in Dollar Apparels' case (cited supra), can only be considered, as obiter dicta and not a ratio decdenti, this Court is not inclined to accept the said contention, for the reason that this Court has held that even if deposits were made as a pre-condition for the Bank for sanctioning credit facility, it cannot be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bind effect as a precedent, but it cannot be denied that it is of considerable weight. The law which will be binding under Article 141 would, therefore, extend to all observations of points raised and decided by the Court in a given case. So far as constitutional matters are concerned, it is a practice of the Court not to make any pronouncement on points not directly raised for its decision. The decision in a judgment of the Supreme Court cannot be assailed on the ground that certain aspects were not considered or the relevant provisions were not brought to the notice of the Court (See AIR 1970 SC 1002 and AIR 1973 SC 794). When Supreme Court decides a principle it would be the duty of the High Court or a subordinate Court to follow the decision of the Supreme Court. 39. In Arun Kumar Aggarwal v. State of Madhya Pradesh reported in AIR 2011 SC 3056, the Supreme Court explained obiter dicta , as follows: 21. ......The expression obiter dicta or dicta has been discussed in American Jurisprudence 2d, Vol. 20, at pg. 437 as thus: 74. -Dicta Ordinarily, a court will decide only the questions necessary for determining the particular case presented. But once a court acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, but not necessary to its decision, and therefore of no binding effect; often called as obiter dictum, ; a remark by the way. 24. The Blacks Law Dictionary, (9th ed, 2009) defines term obiter dictum' as a judicial comment made while delivering a judicial opinion, but one that is unnecessary to the decision in the case and therefore not precedential (although it may be considered persuasive). -- Often shortened to dictum or, less commonly, obiter. Strictly speaking an obiter dictum is a remark made or opinion expressed by a judge, in his decision upon a cause, `by the way' -- that is, incidentally or collaterally, and not directly upon the question before the court; or it is any statement of law enunciated by the judge or court merely by way of illustration, argument, analogy, or suggestion.... In the common speech of lawyers, all such extrajudicial expressions of legal opinion are referred to as `dicta,' or `obiter dicta,' these two terms being used interchangeably. 25. The Word and Phrases, Permanent Edition, Vol. 29 defines the expression obiter dicta or dicta thus: Dicta are opinions of a judge which do not embody the resolution or de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a question which the court expressly states that it does not decide; or where it is contrary to statute and would produce an inequitable result. It has also been held that a dictum is not the law of the case, nor res judicata. 27. The concept of Dicta has been discussed in Halsbury's Laws of England, Fourth Edition (Reissue), Vol. 26, para. 574 as thus: 574. Dicta. Statements which are not necessary to the decision, which go beyond the occasion and lay down a rule that it is unnecessary for the purpose in hand are generally termed dicta . They have no binding authority on another court, although they may have some persuasive efficacy. Mere passing remarks of a judge are known as obiter dicta , whilst considered enunciations of the judge's opinion on a point not arising for decision, and so not part of the ratio decidendi, have been termed judicial dicta . A third type of dictum may consist in a statement by a judge as to what has been done in other cases which have not been reported. ... Practice notes, being directions given without argument, do not have binding judicial effect. Interlocutory observations by members of a court during argument, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of the above discussion and decisions, we are not inclined to accept the contention of the learned counsel for the appellant that Dollar Apparels' case (cited supra), is only an obiter dicta. 41. Reliance has been made by the learned counsel for the appellant in Premier Enterprises v. Deputy Commissioner of Income-Tax reported in 2015 (370) ITR 465 (MAD.), to contend that there was absolute necessity for the appellant/assessee to make term deposit, for the purpose of availing credit facility and that the same was for business purpose and taking note of the same, this Court in Premier Enterprises' case (cited supra), directed the Tribunal to consider the same and in such circumstances, the said decision can be made applicable to the case on hand. 42. Rebutting the said contention, Mr.J.Narayanasamy, learned standing counsel for the Income-Tax Department submitted that in Premier Enterprises' case (cited supra), the assessing officer treated the interest income, under the head, income from other sources . The Commissioner of Income Tax (Appeals), allowed the appeal of the assessee, by treating the interest component as, business income . The Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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