TMI Blog2005 (11) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... ] , held that for the purpose of computation of income the interest on securities separately classified, income by way of interest from such securities does not cease to be part of income from business income if the securities are part of trading assets. In the absence of separate books of account, it is impossible to identify whether funds of moneylending business are invested in export business or vice versa. Therefore, funds of both the businesses are inter-twined, intermingled and interlaced with each other. The AO has himself treated the interest received on fixed deposits as income from business. Therefore, the fixed deposits are to be treated as stock-in-trade and consequently the interest received from fixed deposits has to be treated as profits and gains of business or profession. As we have held that interest from fixed deposits is to be assessed under the head Profits and gains of business or profession , therefore, provisions of Expln. (baa) in s. 80HHC would not be applicable. Whether assessee will be entitled for deduction u/s 80-I of the Act for asst. yr. 1991-92 in respect of income received earned by the assessee - Under s. 80-I any profit and gains derived from an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction u/s 80HH of the Act in respect of Modvat credit which is similar to duty drawback. The assessee in this situation will be eligible for deduction u/s 80-IA of the Act. We accordingly direct the AO to verify the fact whether the assessee has received duty drawback under the Central Excise Act or as export incentive under the scheme announced by the Government. Exchange rate fluctuation - It is nothing but part of trading receipts. The assessee makes the sales in foreign currency. The realisation thereof on receipt of such sale proceeds may result in a gain attributable to exchange rate fluctuation. Therefore, the amount received on account of foreign exchange fluctuation will be in the nature of trading receipt and the assessee will be eligible for deduction u/s 80-IA in respect of foreign exchange rate fluctuation since it has direct nexus with the industrial activities of the assessee. In the result, the assessee's appeals for asst. yrs. 1997-98 and 1998-99 are partly allowed. - HON'BLE N. VIJAYAKUMARAN, J.M. AND K.D. RANJAN, A.M. For the Appellant : Philip George, Adv. For the Respondent : C. Venkateswarlu, Adv. ORDER K.D. Ranjan, A.M. : 1. These cross-appeals are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending business. In asst. yr. 1990-91 the interest earned on money lending business was treated as business income and no appeal against the said order was filed by the Department. The assessee was held eligible for deduction under s. 80HHC of the Act. In this regard reliance was placed on the decision of the Punjab Haryana High Court in the case of CIT vs. Vikas Chemi Gum India (2005) 196 CTR (P H) 123: (2005) 276 ITR 32 (P H) for the proposition that when the Department has accepted the appellate order in one year it cannot challenge-the same issue in a subsequent year. It was further submitted that moneylending business is done by the assessee as a part of business of the industrial unit. The money which is invested in the moneylending business constituted stock-in-trade of moneylending business. When there is no demand the same is invested in short-term fixed deposits. Since, the money itself constituted the stock-in-trade, the income earned from the idle funds invested in short-term fixed deposits will be assessable under the head Profits and gains of business or profession . The learned Authorised Representative further submitted that the assessee is having consolidated books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence whether having regard to the true nature and character of the income, it could be described as income from business, even though it is liable to fall for computation under another head. 7. It was further argued that the AO himself has held that the interest receipts from financial debtors who constituted the moneylending business are assessed under the head business income . Having held so, there is no justification for the AO for not treating the bank interest under the head Business income , since the stock-in-trade (money) was kept as short-term deposit when the same was not used in business. By keeping the stock-in-trade in deposit, the character of the income would not change and it is only in course of carrying on moneylending business. 8. The learned Departmental Representative on the other hand, submitted that interest income earned on fixed deposits was out of surplus funds and therefore the same should be assessable under the head other sources . He further submitted that assessee's case is similar to that of a salaried person who invests his surplus income from salary; interest therefrom is assessable under the head other sources . Therefore, the same is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of computation of income the interest on securities separately classified, income by way of interest from such securities does not cease to be part of income from business income if the securities are part of trading assets. In the absence of separate books of account, it is impossible to identify whether funds of moneylending business are invested in export business or vice versa. Therefore, funds of both the businesses are inter-twined, intermingled and interlaced with each other. The AO has himself treated the interest received on fixed deposits as income from business. Therefore, the fixed deposits are to be treated as stock-in-trade and consequently the interest received from fixed deposits has to be treated as profits and gains of business or profession. As we have held that interest from fixed deposits is to be assessed under the head Profits and gains of business or profession , therefore, provisions of Expln. (baa) in s. 80HHC would not be applicable. 11. Another issue for consideration is whether assessee will be entitled for deduction under S. 80-I of the Act for asst. yr. 1991-92 in respect of income received earned by the assessee. Under s. 80-I any prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial undertaking. Profit or loss can be said to have been derived from an activity carried on by an industrial undertaking only if the said activity is an immediate and effective source of said profit or gain. Mere commercial connection between the income and the industrial undertaking would not be sufficient. He, therefore, came to the conclusion that the duty drawback and exchange rate fluctuation receipt were not eligible for deduction under s. 80-IA of the Act. On appeal, the learned CIT(A) following the decision of Hon'ble Supreme Court in the case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439: (1999) 237 ITR 579 (SC) held that duty drawback could not be said to be as profit derived from undertaking. 15. Before us, the learned Authorised Representative of the assessee submitted that the scheme of taxation in relation to custom and central excise duties has recognised the impact of multiple taxation on raw materials and on various inputs including packing materials, at the time of production of goods. The relief provisions in the case of exports were provided considering the internationally recognised practice in most of the countries to provide relief from input taxat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the decision of Hon'ble Supreme Court in the case of Sterling Foods is factually distinguishable as it deals with premium on import licence. He also relied on the following cases wherein it was held that duty drawback is eligible for exemption under s. 80-IA : (i) Anil L. Shah vs. CIT (2005) 95 TTJ (Mumbai) 216 (ii) Dy. CIT vs. Metro Tyre Ltd. (2001) 79 ITD 557 (Del) (iii) A.P. Industrial Components Ltd. vs. Dy. CIT (2002) 74 TTJ (Hyd) 272 16. It was accordingly, submitted that duty drawback is not granted under scheme but under the statutory provisions of the respective Acts and is directly connected to business. 17. He placed reliance on the decision in the case of CIT vs. India Gelatine Chemicals Ltd. (2005) 194 CTR (Guj) 492 : (2005) 275 ITR 284 (Guj), wherein it was held that the duty drawback is intended to reduce the cost of production and being integral part of pricing of goods, is part of the cost of production of the industrial undertaking' and hence 'derived from' industrial undertaking and eligible for deduction under s. 80J. He further submitted that the wordings of s. 80-IA are any profits and gains derived from any business of an industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35 : (2003) 261 ITR 737 (Mad). 20. However, the assessee's plea is that duty drawback has not been received by it as a part of the scheme. It has been explained that assessee has received duty drawback under Customs Act, 1962; and Central Excise Act. As per s. 75 of Customs Act, 1962 duty drawback means grant of refund of duty suffered on imported or local inputs used in the manufacture of a product on its export. The Drawback Rules, 1995 also define drawback in relation to any goods manufactured in India and exported and means the rebate of duty chargeable on any imported material or excisable material used in the manufacture of such goods. Therefore, it is clear that assessee may also receive duty drawback under Central Excise Act in respect of excise duty paid on inputs when the goods manufactured by an assessee are exported out of India. What the assessee may receive by way of duty drawback is excise duty already paid and therefore, refund of excise duty will have direct nexus with the industrial activity of the assessee. Under s. 28(iiic) of the IT Act, 1961 any duty of customs or excise repaid or repayable as duty drawback to any person against exports under the Customs a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of which the assessee had earned Modvat credits. Therefore, that credit would be directly relatable to the industrial undertaking. Therefore, the amounts received by the assessee under Modvat credits were eligible for deduction under s. 80HH. The same logic applies to the income earned by the assessee under the International Price Rationalisation Scheme. The amount paid by the Government at the rate of Rs. 6 per kg. of raw materials purchased by the assessee had connection only with the industrial activity of the assessee. If the assessee had riot purchased the raw materials for its industrial activity and had not exported the finished forgings, the assessee would not be entitled to the said amount of Rs. 6 per kg. Therefore, the amount earned by the assessee under the International Price Rationalisation Scheme was eligible for deduction under s. 80HH. 23. In the case of CIT vs. U.P. State Industrial Development Corporation (1997) 139 CTR (SC) 267 : (1997) 225 ITR 703 (SC), wherein Hon'ble Supreme Court upheld the view taken by the Tribunal that the underwriting commission in respect of shares held by the assessee would reduce the cost of shares and would not be separately ..... X X X X Extracts X X X X X X X X Extracts X X X X
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