TMI Blog2001 (10) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... Guarantee money in favour of Central Excise Customs Department Rs. 6,484 (ii) Interest on deposit with APSEB Rs. 3,190 ------------- Total Rs. 9,674 ------------- ----------------------------------------------------------------------- The assessee claimed that the above interest income along with its other income is exempt from tax under section 10B of the Act. The Assessing Officer negatived the claim of the assessee, to the extent it related to the above receipts of interest, and treated the said interest income as income assessable under the head 'Other Sources'. Accordingly, he rejected the claim for exemption on the above income, and levied tax thereon. 3. On appeal, the CIT (A) upheld the action of the Assessing Officer. He held that what is exempt under section 10B is only profit derived from the exports made by the assessee. He observed that the term 'derived from' has a narrower meaning than the term 'attributable to', as explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m relates to the business. To qualify for exemption under section 1OB, it must have been 'derived' from the business. In the instant case, the interest is not derived from the business and therefore would not qualify for exemption under section 10B. As regards Circular No. 684 dated 10-6-1994 this is merely an explanatory note to the amendment to section 10B by the Finance Act, 1994 by which conditionality was introduced to the effect that if at least 75% of the turnover is exported, the assessee will qualify for exemption under section 10B. I do not see how this circular is of any help to the assessee. 15. In view of the above discussion, the assessment order is confirmed. In the result, the appeal is dismissed." 4. Before me, the learned counsel for the assessee reiterated the contentions made out before the Revenue authorities. Firstly, he explained that the interest amount of Rs.6,484 was earned on fixed deposits given as margin to the bank to obtain bank guarantee in favour of the Central Excise and Customs Department. When this fact was desired to be established, learned counsel filed before me a certificate of Andhra Bank dated 3-9-2001, which reads as under-- "We ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4; and of the Delhi Bench of the Tribunal in Honda Siel Power Products Ltd. v. Dy. CIT [2001] 77 ITD 123, wherein it has been held that interest income has to be treated as income derived from the industrial undertaking for the purposes of granting deduction under sections 80HH and 80-1. It is also mentioned that while coming to this conclusion, the Delhi Bench of the Tribunal has duly considered the Hon'ble Madras High Court decision in the case of Pandian Chemicals Ltd. and the decisions of the Apex Court in the cases of Sterling Foods and Cambay Electric Supply Industrial Co. Ltd. 6. The learned Departmental Representative, on the other hand, strongly supported the orders of the Revenue authorities, Reiterating the reasoning given by the CIT (A) in the impugned order, the learned Departmental Representative especially relied on the decisions of the Apex Court in Sterling Food's case; and of the Madras High Court in Pandian Chemicals Ltd.'s case. He also relied on the following other decisions- (a) CIT v. Siddaganga Oil Extractions (P.) Ltd [1993] 201 ITR 968 (Kar.). (b) Sterling Foods v. CIT [1984] 150 ITR 292 2 (Kar.). (c) CIT v. Cement Distributors Ltd. [1994] 208 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Board, that the immediate and effective source of the interest was the deposit and not the industrial undertaking; and that the fact that the amount was assessable as business income would not be sufficient to hold that the interest income was derived from the actual conduct of the industrial undertaking. In the face of this decision of the Hon'ble Madras High Court, my only defence is that there are certain other decisions, which hold a contrary view on this issue, and I shall refer to those decisions hereinafter. 8. In the case of CIT v. Nagpur Engg. Co. Ltd. [2000] 245 ITR 806, the Hon'ble Bombay High Court, following its earlier decision in CIT v. Paramount Premises (P.) Ltd. [1991] 190 ITR 259 held as under-- "Held, that the Tribunal was justified in directing the Assessing Officer to treat the interest income from fixed deposits as eligible profits of the business while computing the deduction under section 80HHC and section 80-I of the Income-tax Act, 1961." In the case of Paramount Premises (P.) Ltd. the Hon'ble Bombay High Court held as under-- "Held, that the Tribunal had given a finding of fact that the entire interest sprang from the business activity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - "Held, that, in the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest had been earned. This was, therefore, not a case where any surplus share capital money which was lying idle had been deposited in the bank for the purpose of earning interest. The deposit of money in the present case was directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit was incidental to the acquisition of assets for the setting up of the plant and machinery. The interest was a capital receipt, which would go to reduce the cost of asset." It may be observed that the Apex Court has specifically held that the deposit of surplus share capital money, which was lying idle, was directly linked with the purchase of plant and machinery, and so the interest earned on such deposit deserves to be reduced from the capital costs of plant and machinery. What is directly linked to the business must be held as 'derived from' the business and not as something 'attributable to' it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oil Extractions (P.) Ltd., it was held that income by way of lorry hire, weighment charge, miscellaneous receipts and income from fixed deposits could not be included in the profits of the business for calculating deduction under section 80HH in respect of newly established industrial undertakings in backward areas. This decision proceeded on the basis that the industrial undertaking should be the direct source of profit and the income derived by the assessee from any other source cannot be held to be the income derived from the industrial undertaking. It appears that the decision in this case is contrary to the decision of the Bombay High Court in the case of Nagpur Engg. Co. Ltd., and also the decision of the Apex Court in the case of Karnal Co-operative Sugar Mills Ltd. We have already given our reasons for following the decision of the Bombay High Court in Nagpur Engg. Co. Ltd.'s case. 15. In the case of Cement Distributors Ltd., it was held by the Hon'ble Delhi High Court that the income derived by leasing out of the entire undertaking to another party, cannot be regarded as income derived from the running of the industrial undertaking. This situation is totally different f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 our view, since the expression of wider import, namely, 'attributable', has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.' It appears that the above observations of the Apex Court are only an authority for the proposition that the connotation of the expression 'derived from' is narrower than the term 'attributable to'. On the specific issue whether the balancing charge from the sale of fixed assets can be regarded as profit derived from the conduct of business, the Apex Court only mentioned that it could be argued 'with some force' that such profit is not derived from the conduct of business. But, it appears that the Apex Court really did not decide this issue in the said decision. Actually, that decision ultimately went in favour of the assessee on the ground that the expression used in section 80E, as it stood during the relevant period was 'attributable to', and so, the balancing ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the stage of conducting or carrying on of the business. I have already referred to the decision of the Hon'ble Bombay High Court in the case of Nagpur Engg. Co. Ltd. which is in favour of the assessee. 20. I also find that the view taken by me finds support from the decision of the Madras Bench of the Tribunal in the case of Ambika Cotton Mills Ltd. v. Jt. CIT [2001] 71 TTJ 871, wherein as per the relevant portion of the head-note, it was held as under: "Assessing Officer directed to verify whether the deposits and guarantees were given by the assessee to the State Electricity Board as a precondition for supply of power for running its factory; if that is so, he is to treat the interest income as part of profits and gains of the industrial undertaking and allow deduction under sections 80HH and 80-I in respect of said income." Similar view it also taken by the Delhi Bench of the Tribunal in Honda Siel Power Products Ltd.'s case, wherein as per the relevant portion of the head-note, it was held as under: "The link of the investment was inextricably in nature of business because the assessee was paying interest on its borrowings, which were for the purpose of business an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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