TMI Blog2002 (2) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... verifies whether accompanying documents are received or not and if not a memo is issued calling for the papers which are also required to be attached to appeal memo. But at no stage usually the scrutiny is made on points whether the appeal memo and contents really conform to various appellate Tribunal Rules or as it a legally valid appeal under section 253 of the Act. These points, if arising, can be considered only at a time of hearing and that is why the rule prescribes that mere issue of notice does not mean the appeal is admitted. This, according to us, is the significance of rule 19(2)". 4. In this appeal filed by the Revenue the defect is that the Memorandum of appeal is not accompanied with two copies of grounds of appeal before the first appellate authority and two copies of statement of facts, if any, filed before the said first appellate authority in violation of rule 9(1) of the ITAT Rules, 1963, which is mandatory. In the similar facts and circumstances, in I.T.A. No. 316 (Gau.) of 1993 in the case of Dy. CIT v. Lohit Co-operative General Stores Ltd. we dismiss the appeal of the Revenue for not filing the documents mandatorily required under rule 9(1) of the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same is allowable. 10. The learned Departmental Representative argued in favour of the Assessing Officer. 11. We would like to cite the decision of the Rajasthan High Court in the case of CIT v. Chanda Diesels [1995] 216 ITR 639 that section 80HH is an intended to encourage setting up of new industrial enterprises and hence will have to be construed liberally in a broad commercial sense keeping its object in view. The Hon'ble Madras Bench of the Tribunal in the case of Pondicheri Distilleries Ltd. v. ITO [1984] 8 ITD 39 has held that section 80HH" speaks of deduction in respect of any profits and gains derived from newly established industrial undertaking. The term 'undertaking' has not been defined in the Act and has to be given the normal meaning. It envisages not only the activity of manufacture or production of goods or articles but the entire set up including all paraphernalia, the various aspects and liabilities, i.e., the entire set up with which the business of manufacture or production of goods is carried on. Even the interest income cannot be strictly referable to the business activity of manufacture of goods dealt by the assessee, it can still be regarded as prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resented recovery of expenditure and really reduced the expenditure of the assessee's claim for deduction under section 80HH and section 80-I in respect of such receipts was to be allowed. Keeping the above decision in mind and as in the instant case no material has been brought on record in contrary to the findings of the CIT(A). We are of the considered view that interest received went to reduce the interest expenditure of the industrial undertaking and thus, there was no positive interest income left with the assessee whose taxability as non-business income would be considered. Hence, interference with the order of the CIT(A) is not called for. 12. In the result, the appeal filed by the Revenue is dismissed. Per Shri N.B.S. Ganesan, Judicial Member .--I have the benefit of going through the draft order prepared by my learned brother, the Accountant Member. I am fully agree with the reasoning and conclusion arrived by my learned brother in respect of ground No. 1 of the appeal. However, I am not able to convince myself to agree with the reasoning and conclusion arrived by learned Accountant Member in respect of ground No. 2. Hence I am passing a separate and dissenting order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest earned by the assessee by way of deposit of surplus fund cannot be deducted from the interest payable by the assessee to their creditors. This point was also clarified by the Hon'ble Madras High Court by saying "though the assessee may not be entitled to have interest paid by it on the overdraft to the bank, deducted from the interest received by it on the short term fixed deposits, the assessee is entitled to deduction of this same from its business income". So, the matter is very clear that the interest paid by the assessee to their creditors has to be deducted from its income from business as business expenditure and it cannot be deducted from the interest earned on deposit of surplus fund. In view of the above fact, the interest earned by the assessee cannot be treated as business income and it has necessarily be treated as income from other sources. Merely because the interest received by the assessee went to reduce the interest expenditure of the industrial undertaking it will not change the character and source of income. 3. Now we have to see whether the assessee is entitled for deduction under section 80HH and section 80-I. The Hon'ble Madras High Court had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the lower authorities and the statement of facts is just a formality and it cannot stand in the way of doing justice on merit by this Bench of the Tribunal. As already pointed out, admittedly no defect memo was issued in this case to the Department to rectify the defect. In other words, no opportunity was given to the Department pointing out any defect to rectify the same. Under these circumstances this cannot be a ground to reject this appeal. 5. In view of the above facts, the appeal is partly allowed as indicated above. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961: In this appeal there is difference of opinion between the Members on ground No. 2 of the appeal. In view thereof, the issue is referred to the Hon'ble President of the Income-tax Appellate Tribunal under section 255(4) of the Income-tax Act, 1961, for opinion of the Third Member on this issue. The issue framed is as under:-- "(1) Whether the assessee is entitled for deduction under section 80HH and section 80-I of the Income-tax Act, 1961, from the interest income of surplus fund merely because it goes to reduce the interest burden of the industrial undertaking? (2) Whether the filing of two c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st point is concerned, the facts are that the revenue filed the appeal to the Tribunal in Form No. 36 on 3-10-1994. The appeal memo was sent to the respondent on 4-10-1994 and the case was fixed for hearing on 22-6-2001. Since the Bench did not function on 22-6-2001, the case was adjourned to 20-7-2001 which was again adjourned to 14-8-2001. The assessee sent a telegram requesting adjournment which was rejected and the appeal was disposed of ex parte. 3. The original order was written by the learned Accountant Member. According to him the case of the assessee is covered by the decision of the Tribunal in the case of Multiplan India (P.) Ltd. In the memorandum of appeal filed by the revenue the copies of grounds of appeal before the first appellate authority and two copies of statement of facts as required under Rule 9(1) of the ITAT Rules, 1963 were not included. Since the Tribunal under similar circumstances dismissed the appeal of the revenue in the case of Lohit Co-operative General Stores Ltd. it was his view that the appeal should be dismissed. 4. On the other hand the learned Judicial Member found that in the particular case the defect memo was not issued to the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of the documents referred to in sub-rule (1). When the Department filed the appeal, the Tribunal did not issue defect memo. In such a case the appeal is deemed to have been accepted and it has to be further presumed that the Tribunal has already exercised its discretion under sub-rule (3) of Rule 9 in favour of the appellant. It will, therefore, be unjustified if the appeal is dismissed after hearing the parties especially when this issue was not raised by the respondent. Having decided the issue on merit, the question of validity of appeal is fait accompli I hold accordingly and uphold the order of the learned Judicial Member on the point. 7. With regard to the next point, it is seen that the assessee claimed deduction under sections 80HH and 80-I of the Income-tax Act and the Assessing Officer, however, held that the interest earned by the assessee is in the nature of income from other sources and, therefore, deduction under sections 80HH and 80-I of the Act is not allowable on the interest income. 8. Aggrieved by the said disallowance, the assessee took up the matter in appeal before the CIT (Appeals) and claimed that it paid an interest of Rs. 1,39,707 as interest to B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference of opinion, the second point was referred to me for my decision. At the time of hearing it was submitted by the learned Departmental Representative that the issue is squarely covered by the decision of the Hon'ble Jurisdictional High Court in the case of North East Gases (P.) Ltd. In such a case, there is no alternative for the Tribunal but to follow the binding decision of the Jurisdictional High Court. It is, therefore, submitted that the interest income cannot be treated as business income for the purpose of deduction under sections 80HH and 80-I of the Act. 12. On careful consideration of the submissions in the light of the material on record and on the basis of the various decisions referred to above, I am of the opinion that the view taken by the learned Judicial Member is in order and is to be upheld. The Jurisdictional High Court in the case of North East Gases (P.) Ltd held that for the purpose of section 80HH of the Income-tax Act, 1961, there must be a direct nexus between the activity and the earning of the profit or gain. The income, profit or gain cannot be said to have been 'derived' from an activity merely by reason of the fact that the said activity may ..... X X X X Extracts X X X X X X X X Extracts X X X X
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