TMI Blog1997 (11) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... est on deposit with private parties Rs. 2,98,198 ------------ Total Rs. 5,89,926 ------------ It was claimed by the assessee before the Assessing Officer that aforesaid income by way of interest should be considered as profits and gains derived from industrial undertaking for the purpose of computing relief under sections 80HHA and 80-I. The Assessing Officer rejected contention of the assessee by observing as under:- "The assessee's explanation has been duly considered but is not found to be a correct interpretation of the law. The expression in the section is 'derived from'. The expression is narrower in import in comparison to the term 'attributable to'. This was decided by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. As the Legislature has deliberately used the words 'derived from' in section 80HHA, a restricted narrower meaning of profits gains has to be taken. Only those i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o assessment year 1993-94 by contending that interest earned on commercial assets, i.e., the surplus funds should be treated as business income. It was his submission that company intended to expand its business by establishing other industrial undertaking. For this purpose, the assessee company went on accumulating the surplus funds, by making deposits either with the banks or with the private parties on interest. It was further submitted by him that ultimately in April 96, the assessee company purchased 2 new undertakings by investing Rs. 10 crores approximately. In this connection, he relied on the decision of Hon'ble Bombay High Court in the case of CIT v. Hindustan Antibiotics Ltd. [1982] 137 ITR 42. In that case, the assessee earned huge profits but the same were not distributed by way of dividends, etc., because of future expansion of business. The assessee had claimed exemption under section 15C of the Indian Income-tax Act, 1922 equal to 6 per cent of the capital employed in the undertaking. The Assessing Officer had excluded a sum of Rs. 1,59,50,000 from the computation of capital employed on the ground that this sum was not required by the Company for the purpose of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has used the words "derived from" which are narrower in scope than the words "attributable to". In this connection, he relied on the decision of Cambay Electric Supply Industrial Co. Ltd.'s case . According to him, there must be direct and proximate nexus between the profits derived and the activity of the industrial undertaking. The activity of the industrial undertaking must be the immediate source of earning. In this connection, he relied on the decision of Hon'ble Bombay High Court in the case of Hindustan Lever Ltd. v. CIT [1980] 121 ITR 951. In that case, the court was concerned with the interpretation of the words "income derived from export". The assessee made certain exports against which the Government had issued import entitlements to the assessee. On the basis of such licence, the assessee imported large quantity of palm oil at a rate cheaper than the rates prevailing in the home market. It was claimed by the assessee, that savings so effected by it should be treated as income derived from export of the goods. This contention of the assessee was rejected by the court and it was held that the words "derived from exports" could not be accepted as equivalent to "referrab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a companies whose 60 per cent income was exempt from tax as agricultural income. The assessee also claimed 60 per cent of dividend income as exempt from tax being agricultural income. The court was concerned with the interpretation of the words "Revenue derived from land". It was held that income must have direct association or relation with the land so that it may fall within the scope of the words "Revenue derived from land". Dividend income was out of investment of funds in Shares and therefore, the same could not be treated as agricultural income. Again in the case of Cambay Electric Supply Industrial Co. Ltd. , Supreme Court has held that the expression "attributable to" is wider in import than the expression "derived from", It was further held that whenever the Legislature intended to give restricted meaning, it has used the expression "derived from". Following observations of the Lordships are noteworthy "It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other parties out of surplus or idle funds cannot be equated with the profits and gains derived from industrial undertaking. 12. In support of our proposition, we also refer to the decision of Hon'ble Bombay High Court in the case of Hindustan Lever Ltd. wherein it has been held that savings accrued to the assessee on the import of palm oil on the basis of import entitlements issued to the assessee against the exports made by it could not be treated as income 'derived from export'. The same view has been taken by the Bombay High Court in the case of CIT v. Kirloskar Oil Engines Ltd. [1986] 157 ITR 762/[1985] 20 Taxman 11. In that case, the assessee was engaged in the business of manufacture and export of oil engines against which import licenses were granted to the assessee for the import of dry fruits. The assessee earned profits from the sale of dry fruits, imported under the import licence. The assesses claimed the deduction under section 80E/80-I. The issue before the Court was whether profits earned on the sale of dry fruits could be said to be attributable to the priority industry. It was held by the court that such profits were only remotely linked to manufacture of oil e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He has referred to the decision of this Bench in the assessee's own case in ITA No. 1232/PN/90 dated 1-9-1987 wherein it has been held that the act of depositing the amount with the bank as fixed deposit for the purpose of opening the letter of credit was an act incidental to the business. The learned Senior D.R. submitted before us that this Bench has not considered the decision of Madras High Court in the case of Universal Radiators (P.) Ltd. wherein it has been held that there was no connection between the priority industry and the fixed deposit made by the assessee. 16. After considering the rival submissions of the parties we are of the view that submission of Mr. Khandalwal, learned counsel for the assessee, is not without force. In our opinion, there is a direct nexus between the earning of interest on the fixed deposits with the bank and manufacturing activity of the industrial undertaking because the fixed deposits were made in order to open the letter of credit to facilitate the smooth running of business of manufacturing. The decision of Madras High Court relied upon by the learned D.R. is quite distinguishable. There is a clear finding in that case at page 538 that ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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