TMI Blog2005 (2) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... r the insistence of the bank and this deposit is not made out of surplus funds. According to the assessee, the interest income earned from the funds has direct nexus with the export business of the assessee. While framing assessment under s. 143(3) r/w s. 148 for the asst. yrs. 1997-98, 1998-99 and under s. 143(3)(1) r/w s. 144A for the asst. yr. 2001-02, the AO treated the income earned from these deposits as income from other sources as against the claim of the assessee that this income is not earned from business. The assessee questioned the legality of the assessment and also reopening of assessment and treatment of interest income as business income before the CIT(A). The CIT(A) confirmed the action of the AO. Aggrieved by this, the assessee is in appeal before us. 3. The learned counsel for the assessee questioned the reopening of assessment for the asst. yrs. 1997-98 and 1998-99 and submitted that the assessment was reopened only on the basis of changed opinion due to the observation of the audit party and the reasons for reopening were not communicated to the assessee and the assessee has discharged its duty in disclosing fully and truly the material facts necessary for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of computation of relief under s. 80HHC, interest income derived from deposits which was made at the compulsion of the bank, that portion of interest should be treated as income from business. For this purpose, he relied on the judgment of Hon ble jurisdictional High Court in the case of CIT vs. NSC Shoes (2003) 179 CTR (Mad) 524 : (2002) 258 ITR 749 (Mad) and the judgment of Lucknow Bench of the Tribunal in the case of Leatherage vs. ITO (2003) 78 TTJ (Lucknow) 937 : (2003) 86 ITD 482 (Lucknow), and submitted that the deposit made by the assessee was not out of surplus funds but made at the instance of the bank and the bank has retained the earnings of the export business by 5 per cent and the assessee has no choice to make or not to make any deposits and the deposits were made before the proceeds of the export reached the hands of the assessee and it was made according to normal banking norms of the bank. He further submitted that there is a direct nexus between the export business of the assessee, money advanced by the bank and the deposit made by the assessee. As such, the direct nexus is established and hence, the income derived from such deposits should be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the head Income from other sources only if it cannot be brought within one or other of the specified head of charges. He also relied on the judgment of Hon ble Supreme Court in the case of CIT vs. B.N. Agarwal Co. (2003) 180 CTR (SC) 311 : (2003) 259 ITR 754 (SC) for the same proposition. 7. The learned counsel for the assessee vehemently argued that in the case of few assessee s, the same appellate authority under the same circumstances and facts of the case, has assessed the income from interest and deposits as income from business and the CIT(A) cannot adopt different yardsticks to different assessee s according to his own will and wish, which is against the law of the land. But, such order of the CIT(A) was not challenged by the Revenue before any higher forum. For this purpose, he relied on the judgment of Hon ble Supreme Court in the case of Berger Paints India Ltd. vs. CIT (2004) 187 CTR (SC) 193 : (2004) 266 ITR 99 (SC). 8. For the asst. yr. 1997-98, the assessee has submitted that the bank has not credited any interest to the assessee s account or nor paid any interest. However, the AO has estimated the interest received at Rs. 10,99,993 and treated as income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om his salary savings and derives income from house property, the income from house property cannot be assessed under the head income from salary because the assessee has constructed the house out of his salary income. 10. In this case, the source of investment was not important, but the source of income was very important. Interest paid and claimed as deduction in the computation of profits and gains from business cannot be set off against interest from other sources. In this case, the AO clearly treated the income from deposits as income from other sources. There is no question of netting of interest paid out of interest received. For this purpose, he relied on the judgment of Hon ble jurisdictional High Court in the case of K.S. Subbiah Pillai Co. (India) (P) Ltd. vs. CIT (2003) 179 CTR (Mad) 522 : (2003) 260 ITR 304 (Mad). The interest income received by the assessee on deposits is not the direct result of any export activity and the fixed deposit was made according to the mutual agreement between the bank and the assessee. The agreement between the bank and the assessee cannot override the provisions of the IT Act. He further submitted that the interest derived from the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with the norms prescribed by the bank. For the asst. yr. 2001-02, this argument is factually incorrect. Further, for the asst. yr. 2001-02, fixed deposits made out of deduction of 5 per cent from the export profits was only to the extent of Rs. 11.44 lakhs, whereas the deposit made from the surplus funds during the year is to the tune of Rs. 401.55 lakhs. Besides this, renewal of deposits from the previous year is to the extent of Rs. 1,708.41 lakhs. Hence, out of the total deposits kept by the appellant with the Canara Bank for the relevant year of Rs. 2,121.41 lakhs only deposits of Rs. 11.44 lakhs were part of retention proceeds. For the subsequent assessment years, the deposits made out of 5 per cent of the export profits is nil. From the above, it is very clear that major part of the interest earned by the assessee from the bank deposits is voluntary in nature. Kindly refer to the banker s statement dt. 30th Nov., 2004. 3. Please refer CIT(A)-II s order, dt. 9th July, 2004, on which the appellant has come to the Hon ble Tribunal. The CIT(A) has clearly relied on the binding decision of the jurisdictional Madras High Court in the case of South India Shipping Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and also we have gone through the renewal of sanctioning of limit letter No. MDUC:OBC:S-14"97:TVS, dt. 28th Feb., 1997, and terms and conditions of sanction of credit limit where there was no condition to make deposits and the bank imposed the conditions as follows : Terms and Conditions: 1. Sundry creditors for goods should be separately shown in the stock statement and excluded while arriving at drawing limit. 2. Quarterly interest debited to the account should be cleared immediately after the end of the calendar quarter. Necessary provision should be made in the current account at the end of the quarter to enable the branch to recover the interest debited before the commencement of next quarter. 3. All other terms and conditions marked with -/ in the annexure should be scrupulously complied with. 4. All other terms and conditions as applicable to the above nature of advance(s) shall apply for compliance without fail as per HO circulars/guidelines issued from time-to-time. Remarks: 1. The party should give 5 per cent cutback on export bills by way of term deposits. However, the same need not be taken as collateral security. 2. Branch should submit copies of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even the interest earned on deposits shall be assessable under the head of income from business. This proposition is not correct as the income from different sources is assessable under the different heads of income. There are distinct heads of income for each source of income. If we accept the arguments of assessee that the interest income shall be assessable under the head of income from business, it leads to absurd situations. The facts in the case of K.S. Subbiah Pillai Co. (India) (P) Ltd. vs. CIT which was considered by the Hon ble Madras High Court are similar to the present facts of the case. In that case, Hon ble Madras High Court has held that interest paid and claimed as deduction in the computation of profits and gains for business cannot be set off against interest received and computed under income from other sources . What has been said about interest is equally applicable to rent and commission included in the computation under the head "Profits and gains of business or profession". Further, the Hon ble jurisdictional High Court in the case of CIT vs. A.S. Nizar Ahmed Co. has held that the interest paid by the assessee to the bank was, no doubt, an item of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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