TMI Blog1998 (1) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under section 80HHC. The Assessing Officer was of the view that interest on bank deposit was to be considered separately as income under the head 'Other sources' and that it was also not eligible for the relief under section 80HHC. Accordingly, he made the computation of the total income including interest of Rs. 2,31,596, as income under the head 'Other Sources' in the first appeal, the Commissioner (Appeals) confirmed the action of the Assessing Officer to treat the interest as income from other sources and not as part of the business income. Aggrieved with the order of the CIT(A), the assessee is in second appeal before the Tribunal. 3. Before us, the assessee's counsel, Shri M.K. Kesavan, submitted that the CIT(A) was not correct in confirming the assessment of the interest on bank deposit as income from other sources without considering the fact that it was the business income that had gone into the bank deposit. The learned counsel stated that it was the practice of the assessee-firm to keep in F.D. Account the surplus money which was not immediately needed for business purposes and earn some income and that interest on such deposits was being credited in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sources. His claim was that the assessee had paid interest of Rs. 30,230 on the borrowings and so only the net amount was sustainable as income from other sources. In short, the learned counsel submitted that the Assessing Officer as also the CIT(A) was not justified in denying the relief under section 80HHC on the entire sum of Rs. 2,31,596. 4. On behalf of the Revenue, Shri Kurivilla, departmental representative, supported the order of the CIT(A) and submitted that the immediate source of the interest income for the assessee was the fixed deposit with the bank and not the export business and so the interest income would not qualify as profit derived from the export of goods or merchandise to which section 80HHC applied. According to him, it was not of much relevance as to whether the bank deposit was made from the surplus funds from the business or not and what was relevant was the source of the interest and that was the long-term deposit made by the assessee with the Vijaya Bank. The learned departmental representative also drew our attention to a certificate dated 6-4-1990 which the assessee had furnished before the Assessing Officer to show that interest of Rs. 2,31,596 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investments in Vijaya Cash Certificates were in the course of the assessee's export business or for the purposes of that business and so the assessee was rightly denied the relief under section 80HHC. 5. The sum of Rs. 2,31,596 accrued as interest on two cash certificates which the assessee had taken from Vijaya Bank. The certificate issued by the bank on 6-4-1990 gives the details of accrued interest as under: VCC No. Amount Accrued interest 124/89 Rs. 20,00,000 Rs. 2,05,402 126/89 3,00,000 26,194 Total 23,00,000 2,31,596 The fixed deposit A/c. with Vijaya Bank, copy of which was included in the paper book filed by the departmental representative, shows that the cash certificates had been taken for a period of two years on interest at 10%. The question to be considered is whether interest accrued on two years term deposits known as 'Vijaya Cash Certificate' could be considered as income from business. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the money in the cash certificate as a wise or safe deposit. We do not think that the fact that it was the money lying idle and not immediately required for other purpose that was put in the bank, was the reason why the interest accruing on the deposit became assessable as income under the head 'Other sources'. The decision of the High Court as appearing on page 393 in Collis Line (P.) Ltd.'s case is as under: "The assessee is not a banking company. Money was not deposited by it by way of money-lending as a business. That was not its object. The interest arose from amounts deposited in bank otherwise than by way of business. The amount was deposited because money was lying idle and it was safer and wiser to put it in the bank. The interest thereby earned was incidental to the main purpose of the deposit, which was safe keeping and not earning profits. Such income is rightly found to be income from other sources." In the present case the surplus amount available out of the profit from the assessee's business was invested in two years Cash Certificates of Vijaya Bank. Interest accrued on such investments cannot be viewed as income from business. There is no direct nexus between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that once interest on the bank deposit was treated as business receipt for the purpose of section 44AB, it was assessable as business income only. In the case of Madras Refineries Ltd. the deposit made by the assessee in the bank was treated as part of the capital of the new industrial undertaking for working out the relief under section 80J. The High Court held that any income earned by the capital employed would automatically become the business income of the assessee and it is not to be treated as income from other sources. In the present case it is true that a notice was issued by the Assessing Officer under section 271B of the Income-tax Act on 24-12-1991 calling for the assessee's explanation as to why their accounts had not been audited in accordance with the provisions of section 44AB. In reply the assessee wrote to the Assessing Officer on 16-1-1992 that in the turnover of the business he had wrongly included certain receipts. Interest of Rs. 2,31,596 on the bank deposit was one of the items which the assessee had claimed as not includible in the turnover or gross receipt of the business for the purpose of section 44AB. Though a notice under section 271B had been issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of goods or merchandise to qualify for the relief under section 80HHC? In this connection, we may refer to the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 to understand the meaning of the expression 'derived from' as appearing in sub-section (1) of section 80HHC, the Supreme Court in that case observed on page 93 as under: "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 of 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 the case of Sterling Foods v. CIT [1984] 150 ITR 292/[1985] 20 Taxman 55, the Karnataka High Court made the following observation in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making or earning such income. There is nothing to show that interest of Rs. 30,230 was paid on borrowings which had been utilised for the purpose of making the investment in Vijaya Cash Certificates. From the details furnished earlier it can be seen that the assessee made the deposit of Rs. 20 lakhs and Rs. 3 lakhs in two certificates with the surplus funds available with it. No evidence has been furnished to show that the liability towards interest arose on any funds borrowed for the purpose of investment in the cash certificates. The paper book filed before us by the departmental representative contains a copy of the assessee's letter dated 17-12-1991 in which the clarification was given as under: "No loans have been taken during the year 1989-90. We also submit that no loans have been taken in respect of the fixed deposit of Rs. 25 lakhs outstanding as on 31-3-1989." In the circumstances of this case, we hold that the interest payment of Rs. 30,230 is not adjustable against the interest earned on the deposit with the bank. The result is that the entire sum of Rs. 2,31,596 was rightly excluded in working out the deduction under section 80HHC. 12. In the result, this appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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