TMI Blog2004 (11) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... laneous income comprising of following items: - ------------------------------------------------------- (Rs.) ------------------------------------------------------- (i) Interest on Margin Money deposited 7,91,813 with bank (ii) Duty Drawback received 8,31,232 (iii)Sale of Export Quota 97,64,554 (iv) Sales tax reimbursement 4,04,602 (v) Exchange fluctuations 6,58,316 (vi) Insurance claim 60,526 (vii)Commission 8,668 ------------ 1,25,19,711 ------------------------------------------------------- 3. Out of the above, the Assessing Officer did not allow the deduction under section 10A in respect of interest on margin money and oil sale of export quota. The Assessing Officer also did not allow the impugned deduction on sale of scrap. With regard to sale of scrap, the Assessing Officer denied the deduction by observing that it was not a profit or gain from export of article or thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad of the income. 6. We have duly considered the rival contentions and the material on record. It needs to be appreciated that the assessee needed funds to run the industrial undertaking. The bank provided the funds on the condition of depositing sufficient margin money with the bank in the form of fixed deposit. The assessee earned interest on the said fixed deposit. Under such a situation can it be said that the assessee had placed the fixed deposit only to earn interest therefrom? In our opinion, the reply to this question has to be in the negative. The placing of the fixed deposit was a precondition and a precursor to the running of the industrial undertaking and earning of interest therefrom was merely incidental. Therefore, the interest income, in our considered view, has a direct nexus with the running of the industrial income. According to as the fixed deposit at best can be considered to be a foster mother for the interest income, but the real mother is the industrial undertaking itself, more so, when the funds for the deposit have also come from the credit facilities provided by the bank. The decision in the case of Dr. V.P. Gopinathan was in a different context. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Thus, the argument was that since section 80HHC was not mentioned in the said prohibitory provision, it was implicit that the assessee could get the deduction under section 80-HHC. The learned Counsel placed reliance on the judgment of the Bombay High Court in the case of CIT v. Shirke Construction Equipments Ltd. [2000] 246 ITR 429 and on the decision of the Delhi Bench of the Tribunal in the case of Jindal Exports (P.) Ltd. v. Asstt. CIT [1989]31 ITD 217. 8. The main contention of the learned DR was that deduction under section 80HHC was available only with regard to the export of goods and merchandise whereas here the deduction was being claimed on an item which is neither. He supported the order of the CIT(A) on this issue. 9. We have given our due consideration to the alternative contention of the learned counsel. Let us first consider the decision in the case of Shirke Construction Equipments Ltd. In that case, one of the issues before the High Court was whether section 80AB was applicable to section 80HHC or not. The High Court had held that section 80AB did not control section 80HHC. The Supreme Court held in the case of IPCA Laboratories Ltd. v. Dy. CIT [2004] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nger applicable. 11. For another reason also the decision in the case of Jindal Exports (P.) Ltd. is not applicable. As noted earlier, the said decision pertains to assessment year 1985-86. In that year deduction under section 80HHC was available as a percentage of export turnover. It was not at all income based. Therefore, the Tribunal had rightly remarked that if the undertaking had incurred a loss, then the benefit of section 10A was illusory, and in that case why should the assessee be denied deduction under section 80HHC which was turnover-based. On the other hand, for the year under consideration, deduction under section 80HHC is profit based. In other words, for the year under consideration, exemption under section 10A is of the profits of the undertaking and deduction under section 80HHC is also in respect of the profits earned by the assessee. Therefore, as per the provisions of section 10A and section 80HHC, as they stood for the assessment year in question, there is no question of allowing deduction under section 80HHC in respect of the profits which are exempt under section 10A and which do not form part of the total income of the assessee. Thus, on the face of it, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concessions. It may be argued that the above sub-section is applicable only to the actual profits of the undertaking to which section 10A applies and not to other income to which the benefit of section 10A may not be available. But then the assessee never intended so before filing the return. The assessee filed its return claiming exemption under section 10A on its entire income including that which was not derived from the industrial undertaking. If as per law, exemption under section 10A was not available on such income, the assessee now cannot claim the benefit of general tax concessions by way of a back-door entry. 13. Assuming that sub-section (7) of section 10A is not applicable, even then, in our view, the assessee cannot be granted deduction under section 80HHC. The proviso to section 80HHC(3) under which the deduction is claimed, can come into play only when deduction is claimed under the main provision of sub-section (3) of section 80HHC. The relevant proviso reads as follows: "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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------- Business income as computed by the Assessing Officer 2,39,65,131 Less: Deduction u/s 10A as allowed by Assessing Officer CIT(A) 1,42,00,577 ------------- Gross Total Income 97,64,554 Less: Deduction u/s 80HHC, Rs. 2,39,65,131 but restricted to Gross Total Income 97,64,554 ------------- Total income Nil ---------------------------------------------------------- 14. The above computation is contrary to the provisions of sub-section (3) of section 10A which provides that the profits and gains of the industrial undertaking shall not be included in the total income of the assessee. Upto assessment year 2000-01 i.e., upto the year under consideration, section 10A contemplated total exemption of the profits of the industrial undertaking which meant that the profits would not enter the computation at all. It is only from assessment year 2001-02 that deduction under section 10A is contemplated in place of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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