TMI Blog2005 (12) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... racteristic of the asset had changed and the change cannot be ignored while examining the nature of the interest income. We, therefore, hold that the interest income is liable to be assessed as 'business income'. In the result, the grounds are allowed. Deduction u/s. 80HHC in respect of DEPB and DFRC - The DEPB is issued as an optional facility for exporters who do not wish to go through the licensing route. The objects of the DEPB scheme 'is to neutralize incidence of customs duty on the import content of the export product. The neutralization shall be provided by way of grant of duty credit, against the export product'. The credit is given as a percentage of the FOB value of exports made in freely convertible currency. The credit is available against export products and at such rates as may be specified by way of public notice, for import of raw material, intermediates, components, etc. The DEPB is freely transferable subject to the condition that it shall be for import at the port specified by the DEPB, which shall be the port from where exports have been made. The conditions of issue of DFRC and DEPB show that the immediate source of these two receipts is the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities, the assessee was obliged to place the fixed deposit receipts with the bank as margin money. The interest was derived from the fixed deposit receipt. In normal circumstances, the interest will have to be assessed only as 'Income from other sources' since the immediate source thereof is the investment in the fixed deposits. Once the fixed deposit receipts were utilized by the assessee for the purpose of its business by placing them with the bank as margin money for the purpose of availing of various credit facilities, the fixed deposit ceased to be a mere investment and became a commercial asset which was utilized for the purpose of the assessee's business. Such utilization affords nexus between the interest and the fixed deposit, and therefore, the interest becomes liable to be assessed under the head 'business'. The source of the interest no doubt continues to be the fixed deposit, but since the fixed deposit, which was either to be treated as pure investment, became converted into an asset utilization for the purpose of the business, which became a commercial asset, and therefore, the interest became taxable as 'business income'. It would be to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of 90 per cent of the aforesaid credit. A similar claim had also been made in respect of the DFRC receipt which means 'Duty Free Replenishment Certificate'. Both the AO as well as the CIT(A) took the view that the DEPB and DFRC schemes were to be treated as business receipts as per s. 28(iv) of the Act and they were covered by ss. 28(iiia), (iiib) and (iiic) of the Act. They have accordingly applied Expln. (baa) and excluded both the receipts from the profits of the business. They have also held that the amounts so excluded cannot be added back to the profits of the business under the proviso to sub-s. (3) of S. 80HHC since that proviso also permits the addition of only such receipts which are specifically mentioned in cls. (iiia), (iiib) and (iiic) of s. 28. In this view of the matter, both the receipts were held not entitled to the deduction under S. 80HHC of the Act. 9. The assessee's contention before us is that the issue is now fully covered in his favour by the order of the Delhi Bench of the Tribunal in the case of P G Enterprises (P) Ltd. vs. Dy. CIT (2005) 93 TTJ (Del) 788 : (2005) 93 ITD 138 (Del).It was pointed out that the import export policy an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f exports. On this reasoning, the Tribunal held that 90 per cent of DEPB receipts, which are assessed under s. 28(iv) of the Act, cannot be excluded from the profits of the business for the purpose of computing deduction under s. 80HHC. In the present case, the Departmental authorities have brought the DEPB receipt as well as the DFRC receipt of Rs. 7.79,946 to tax under s. 28(iv) of the Act and not under cls. (iiia) to (iiic) of s. 28. The facts of the controversy being identical with those in the cited order of the Tribunal, respectfully following the same, we direct the AO to allow the deduction under s. 80HHC in respect of DEPB and DFRC. 10. We must however, notice an argument advanced by the learned Departmental Representative based on the judgment of the Supreme Court in the case of Hindustan Lever Ltd. vs. CIT (1999) 157 CTR (SC) 506 : (1999) 239 ITR 297 (SC). In that case, the assessee made profits on sale of export entitlements and claimed deduction under s. 80HHC in respect of such profits. The Supreme Court held that the profits cannot be said to have been derived from the export of goods out of India as required by the section. It was held that the immediate source of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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