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TMI Blog2005 (11) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... in unit and Rs. 10,05,006 from MEPZ, totalling to Rs. 32,26,069. This included the interest on refund of income-tax at Rs. 19,766. This amount also includes interest from bank to the extent of Rs. 17,48,477. The assessee treated the entire interest receipts as its income assessable under the head "Profits and gains from business" and thereby included the same in the local turnover for the purpose of deduction under s. 80HHC. The AO observed that there was no doubt in assessee's contention that the interest received from moneylending business was assessable under the head "profits and gains from business" and would form part of local turnover for the purpose of deduction under s. 80HHC. However, he held that interest received from banks on FDRs in main unit and MEPZ unit amounting to Rs. 11,11,809 and Rs. 6,36,669 respectively will be assessable under the head "other sources" as the same represent interest arising from fixed deposits with the bank made out of surplus funds. The AO has included the balance interest as part of total turnover for the purpose of deduction under S. 80HHC. 4. On appeal the learned CIT(A) held that there was definitely nexus between the monies investe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Instruments which can be tradable in the open market just like any other security and are akin to promissory notes. Therefore, these are all pure financial transactions carried out by the assessee in its character of a financial dealer or moneylender. The assessee carries out this business in a systematic manner and all the ingredients of the business are found therein and which has been accepted in the orders itself. Therefore, it is submitted that the entire interest receipts of Rs. 4,89,92,839 and Rs. 5,67,82,293 for the asst. yrs. 1997-98 and 1998-99 respectively are only emanating from the moneylending and financial business of the assessee and are to be considered as business income for the purpose of s. 80HHC. The assessee is not claiming this income as export profits but only as profits and gains of business. In respect of this he relied on the decision of the Tribunal, Mumbai Bench, in the case of Jadishprasad M. Joshi vs. Dy. CIT (2005) 97 TTJ (Mumbai) 924. 6. Learned Authorised Representative has drawn our attention to the decisions of the Hon'ble Supreme Court in the cases of CIT vs. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC), Brooke Bond & Co. Ltd. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as income under the head "other sources". 10. We have carefully considered the submissions of both the parties. AO has treated moneylending business as income under the head "Profits and gains of business". However, idle money deposited in bank has been taken income from other sources. In asst. yr. 1990-91 the money invested in moneylending business was treated as stock-in-trade by the AAC and no second appeal was filed by the Department. It is admitted fact that no separate books of account are maintained in respect of export business and moneylending business. Therefore, the funds of moneylending business and export business are inter-twined. There is interlacing of funds. The Revenue has not been able to bifurcate that the funds invested in short-term fixed deposits were not out of moneylending activities of the assessee and they represented surplus funds of export business. Since the assessee is engaged in the moneylending business where idle funds are parked in short-term fixed deposits, the same will not lose the character of stock-in-trade of moneylending business. In our view the case is like insurance companies where the main activity is insurance business and income ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee will not be entitled for deduction under s. 80-I of the Act on interest income earned by the assessee from moneylending business. 12. In the result, the Revenue's appeal for asst. yr. 1991-92 is partly allowed. 13. Now coming to Revenue's appeals for Asst. yrs. 1997-98 and 1998-99, the point at issue is with regard to allowance of deduction under s. 80HHC and - 80-IA of the Act. For asst. yr. 1991-92 in Revenue's appeal we have held that assessee will be eligible for deduction under s. 80HHC in respect of interest income from moneylending including interest on fixed deposits. We have also held that assessee will not be eligible for deduction under s. 80-I in respect of moneylending income. Following our observations in the Revenue's appeals for asst. yr. 1991-92, it is held that assessee will be eligible for deduction under s. 80HHC in respect of interest income on fixed deposits. The assessee will not be eligible for deduction under s. 80-IA in respect of income from moneylending business. In the result, the Revenue's appeals for both the years are partly allowed. 14. Now coming to assessee's appeal, the common issue for asst. yr. 1997-98 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking. If an industrial undertaking purchases the raw material from outside and opts for not paying duty of customs, it will not be entitled for any duty drawback. Further, if the industrial undertaking is in MEPZ/SEZ, neither the custom/excise duty is payable by the manufacturer on purchase of its raw material even it is purchased locally and in-turn that undertaking is not getting any duty drawback also. This is because industrial undertaking has not paid any duty on its raw material purchases. Thus whatever profits derived by the industrial undertaking is profit of the business derived from industrial undertaking. Thus by no stretch of imagination, it can be said that an industrial undertaking, which carries on its activities identical to MEPZ, if it is outside the MEPZ will be deprived of deduction admissible under s. 80-IA simply because it first Pay the duty and later gets reimbursed; not under any scheme but as per the statute provisions in Customs Act and Central Excise Act. He further submitted that import entitlement is an export incentive to help in promoting exports whereas duty drawback is the refund of duties of customs and excise paid by the industries on its raw ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assessee, there is difference in wordings of S. 80-IA. At the relevant time S. 80-IA(1) contained the expression "any profits and gains derived from any business of an industrial undertaking". The words "any business", appearing in the expression, according to the assessee would include the income from moneylending business also. Since the issue relating to deduction under s. 80-IA in respect of money tending business is not contained in the grounds of appeal and no additional ground has been raised, we reject the plea of the assessee. However, we are unable to agree with the assessee that deduction under s. 80-IA is available in respect of any business on the ground that s. 80-IA(1) is an enabling section whereas sub-s. (5) of s. 80-IA is machinery section which deals with the computation of deduction under this section. sub-s. (5)(i)(a) talks about the deduction at specified rate in respect of profits and gains "derived from" such industrial undertaking. In the machinery section the expression "any business" has not been used. Accordingly, the provisions of ss. 80-IA(1) and 80-IA(5) are to be interpreted harmoniously and would mean that assessee will be eligible for deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty is levied, has been used in the manufacture of any goods of any class or description and if such manufactured goods have been exported out of India, then customs duty paid on imported goods is given back to the manufacturer by way of rebate This duty drawback is given only to the manufacturer making export as is apparent from s. 75 of Customs Act, 1962. In other words, it is nothing but reimbursement of duty already paid. Whenever such duty is paid, it is directly effected in profits of industrial undertaking inasmuch as it is debited to manufacturing and profit and loss account. Such payment of Customs duty increases the cost of manufacturing but when the same is received back as duty drawback, it nullifies the effect of aforesaid increase in the cost of manufacturing. Therefore, the duty drawback is inextricably linked with the production cost of the goods manufactured by the assessee. Accordingly, the drawback is a trading receipt of the industrial undertaking having direct nexus with the activities of such industrial undertaking and accordingly forms part of the income derived from such industrial undertaking. Similar view has been expressed by Hyderabad Tribunal in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. However, when excise duty/import duty is refunded in the name of duty drawback under the Central Excise Act/Customs Act, the same is to be treated as directly or inextricably linked with the industrial activities of the assessee. Hon'ble Madras High Court in the case of CIT vs. Madras Motors/M.M. Forgings Ltd. has held that the assessee will be eligible for deduction under 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 under s. 80-IA of the Act. If duty drawback has been received as export incentives, the same will not be treated as derived from industrial activities and accordingly the assessee will not be eligible for deduction under s. 80- IA in view of decision of the jurisdictional High Court and of the Hon'ble Supreme Court referred to above. 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. 25. The second issue for consideration for asst. yrs. 1997-98 and 1998-99 pertains to deduction under s. 80-IA in respect of exchange ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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