TMI Blog2003 (9) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... received was excluded while working out the deduction under section 80-I, holding that interest on fixed deposits is not an item of income eligible for deduction under section 80-I, since it has not been received by the assessee out of its industrial activity. 4. Before the learned Commissioner (Appeals), the assessee alleged, inter alia , that the Assessing Officer erred in reducing the net interest received of Rs. 25,76,073, from the net profit, for calculating deduction under section 80-I; that the assessee is a manufacturer of machinery, i.e. , Cold Rolling Mills, and takes bulk orders on a turnkey basis; that on the orders, the assessee has to give performance guarantee to most of its customers; that the amount of these guarantees runs into heavy sums; that since the values of the orders also run into crores of rupees, generally, guarantees are given from 25 per cent to 5 per cent of the order value; that while issuing bank guarantees, the bank insists for 10 per cent to 20 per cent margin to be kept in fixed deposits with the bank; that so, the interest received on these fixed deposits is attributable to the business of manufacturing; and that so, the assessee is entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 80-I. It is further submitted that as per Dy. CIT v. Lupin Agrochemical (I) Ltd. [2001] 75 ITD 278 (Mum.), a decision co-authored is by one of us, i.e. , the Accountant Member, even if such income is business income but it is not from an industrial undertaking, the assessee is not entitled to deduction under section 80-I. 7. On behalf of the assessee, the learned A.R. has filed a fact sheet. Strong reliance has been placed on Asstt. CIT v. Gallium Equipment (P.) Ltd. [2001] 79 ITD 41 (Delhi) (TM) to submit that opening of LC and giving margin to bank and depositing margin and giving guarantees is income derived from an industrial undertaking , as held in that decision. It is stated that the facts attending there are identical to the ones of the present case. It is pointed out that in the assessee s case, the fixed deposit was kept as a performance guarantee, and also for taking orders. Otherwise, it would be impossible for the assessee to run its business. So, it is averred, the interest income in question is definitely income arising out of an industrial undertaking as envisaged under section 80-I of the Act. There is a direct nexus between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase ( supra ). So, no new law has been laid down in the A. Ariff s case ( supra ). The assessee s income is directly linked with the assessee s industrial undertaking and, therefore, it cannot be gainsaid that such income is income derived from the industrial undertaking of the assessee. 9. In the Gallium Equipment (P.) Ltd. s case ( supra ), the assessee company was engaged in the manufacture and sale of tube-mill plant equipments. For assessment year 1989-90, the assessee claimed deduction under section 80-I, in respect of interest on FDRs deposited with the bank, along with other miscellaneous receipts and chit dividends. The Assessing Officer was of the view that the assessee was not entitled for deduction under section 80-I, in respect of this amount. In appeal, it was contended that the Assessing Officer was not justified in denying the relief in respect of interest on FDRs, which was part of the assessee s business. It was submitted that the assessee was booking the orders from different customers and to ensure honouring of these orders by customers it was asking for advance deposit ranging from 20 per cent to 30 per cent of the value of the order booked. The custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome derived from the investing of money in the banks, be it out of the borrowed money or otherwise, is an independent source of income and it is not an income derived from the industrial undertaking. 11. It is the self-avowed stand of the assessee, that neither earning interest nor money lending is its business. In other words, taking FDRs is not the assessee s business. That being so, right away, the income in question takes on the character of income from other sources. 12. Otherwise also, the legislature, in its wisdom, in Chapter VIA of the I.T. Act has employed different terms at different places. Where the intention was to address larger income, the term used is derived from any business of an industrial undertaking (Section 80-IA). Where, however, a more specific income was chosen to be referred to, the phrase used is derived from an industrial undertaking (Sections 80H and 80-I). Here, admittedly and undeniably, the income in question is not income directly generated from the industrial undertaking of the assessee. This interest income is sought to be got included within the ambit of the income derived from an industrial undertaking by widening its scope and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. And rent is not land within the meaning of the definition. 14. Drawing a parallel, embarking upon a similar enquiry, we find that the effective source in our genealogical tree or pedigree table is the fixed deposits, the making of which is the genesis of the interest. So, the industrial undertaking of the assessee does not sire the rent-fixed deposits bear such interest. The industrial undertaking is separated by one degree from the interest, as was the case with the land and interest before the Privy Council. The interest here is, thus, not derived from the industrial undertaking. Concluding otherwise would amount to legal incest, not merely taboo, but in outright violation of the specific provisions of section 80-I. The proposition preferred by the assessee militates against the plain words of the provision and such violation is impermissible in law. 15. The Ahmedabad Bench of the Tribunal, in Bio Pharma v. Dy. CIT [2003] 85 ITD 575 was dealing with section 80HH. There, the assessee received interest on FDs, which were pledged with the bank as security against margin money for letter of credit and bank guarantee as well as cash credit facilities availed of by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground raised in the memo of appeal clearly pointed out that the interest income had earned from the surplus funds of the assessee company. On these admitted facts, there was no merit in the assessee s claim for netting of interest. 16. Furthermore, the decision on the Hon ble Madras High Court in N.S.C. Shoe s case ( supra ) directly covers the point at issue. Though the learned A.R. as sought to aver that since in that case the money was kept for import of material, it was not derived from an industrial undertaking , and that here, it is a guarantee for selling of goods. To our minds, the distinction thus sought to be drawn is no distinction at all. In both the cases, the income was not derived directly from an industrial undertaking as envisaged under section 80-I. Therefore, the parallel between the two is clearly drawn. The Madras judgment is clearly applicable. 17. In view of our above discussion, the appeal of the department succeeds. Respectfully following the decision of the Privy Council in Raja Bahadur Kamakhaya Narayan Singh s case ( supra ) and that of the Hon ble Supreme Court in Pandiyan Chemicals Ltd. s case ( supra ), besides other abovementioned d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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