TMI Blog1998 (7) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deduction under s. 80HHC of the IT Act on the business income inclusive of the interest on the deposits. For the asst. yr. 1992-93 the assessee filed the return admitting a total income of Rs. 1,50,52,370. During this year there was receipt of Rs. 82,19,050 as interest on deposits. The assessee had declared the sum of Rs. 82,19,050 in the income under the head 'business' and claimed the deductions under s. 80HHC on that basis. The AO was of the view that the interest on deposits with banks and other institutions was not to be considered as income from business and that it was assessable separately as income under the head 'other sources'. For the asst. yr. 1992-93 he found that a sum of Rs. 34,164 collected as interest on the debit balance in the suppliers and customers could be considered as part of the business income. But regarding the balance amount for both years, the decision taken by the AO was that the interest on bank deposits, etc. was assessable as income from 'other sources'. The deductions allowable under ss. 80HHC and 80-I were computed on that basis. The assessee was not successful in the first appeal before the CIT(A). Aggrieved with the order of the firm Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est on deposits. 4. On behalf of the Revenue, Shri Amba Sankar Dev, the Departmental Representative, supported the order of the CIT(A) and submitted that in the earlier years the assessee had been offering interest on bank deposits as income under the head 'other sources' and for the years under consideration for the first time the assessee changed the method and included the interest in the business income with the view to claim the benefit of s. 80HHC. He stated that the case law referred to by the learned counsel were distinguishable on facts and so not applicable in deciding the issue in these appeals. 5. We have considered the rival submissions and gone through the facts of the case as brought out in the assessment order and the order of the CIT(A). For the asst. yr. 1991-92 the total sum of Rs. 23,42,492, the assessee earned as interest, was on the following deposits: Rs. IDBI interest 10,313 Securities 9,120 Deposits with banks 18,19,288 Interest from Concert Investments as security 1,33,113 Interest from Batilwala Karani 3,70,658 23,42,492 For the asst. yr. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness. From the facts of the case, we find that it was the excess funds generated as profits of the business that had gone into the deposits, on which interest was earned. When the assessee was able to get interest of nearly Rs. 24 lakhs for the first year and Rs. 83 lakhs in the second year, it is difficult to accept the plea that the huge deposits earning such income were not the surplus funds available with the assessee. 6. The question to be considered is whether interest on the deposits earned with the surplus funds is to be assessed as business income of the assessee, or to be treated as income under the head 'other sources'. In the case of Collis Line (P) Ltd. vs. ITO (1982) 29 CTR (Ker) 135 : (1982) 135 ITR 390 (Ker), the Kerala High Court upheld the assessment of the interest on bank deposits as income under the head "other sources". In that case, the assessee, a shipping company, had deposited in the bank account the money that was lying idle and not immediately required for the purpose of the business. The High Court upheld the finding of the Tribunal that interest earned on the deposit could not be said to be received in the course of the business so as to make it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits with banks and other financial institutions. Sec. 80HHC as applicable for the asst. yrs. 1991-92 and 1992-93 providing for the deduction in respect of the profits returned for export business read as under: "Sec. 80HHC.— (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 of the profits derived by the assessee from the export of such goods or merchandise." It can be seen from the above that the deduction is allowable only on the profits derived by the assessee from the export of such goods or merchandise, as mentioned in s. 80HHC. Can it be said that interest accrued on the deposits with banks is profit derived from the export of goods or merchandise to qualify for the deduction under s. 80HHC ? In this connection, we may refer to the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncements noted above, it cannot be said that interest earned by the assessee by investing the surplus funds in term deposits qualified as profit derived from the export of goods or merchandise to make it eligible for the deduction under s. 80HHC. 9. The learned counsel for the assessee has sought the support of the decision of this Tribunal in the case of General Supplies Agencies to contend that the assessee is entitled to the deduction under s. 80HHC on the interest earned from the fixed deposits with banks. In that case the assessee, as an exporter, was getting cash assistance from the Government on its export and part of it was converted into deposits under a reinvestment plan of the banks. The Tribunal held that as the Department had been treating the income by way of interest as business income in the earlier years, and facts not being different, for the years under consideration, the Revenue should not have departed from its previous stand that interest was assessable under the head "business". The reverse in the position in the present case. It was the assessee who is changing the stand in the current years after offering the interest on bank deposits as 'other sources' ..... 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