TMI Blog2007 (5) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... ( i )allowing deduction under section 80-IB of the Income-tax Act, on interest income on margin money deposited with bank for opening letter of credit and obtaining bank guarantees for business. ( ii )the appellant craves leave to add, to alter, or amend any ground of the appeal raised above at the time of the hearing." 2. Rival contentions have been heard and record perused. Brief facts in this case are that the assessee-company is engaged in the manufacture of tele-communication equipments. The assessee claimed deduction under section 80-IB of the Act @ 30% of the eligible profits. During the course of assessment under section 143(3), the Assessing Officer observed that assessee is claiming deduction on the basis of profit as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to qualify for special deduction under section 80-IB of the Act. He relied on the proposition laid down by Hon ble Supreme Court in case of CIT v. Sterling Foods [1999] 237 ITR 579 1 , wherein the Hon ble Supreme Court has held that "there must be, for the application of the words derived from a direct nexus between the profits and gains and industrial undertaking". As per learned DR in the present case, the earning of interest was incidental to the business of the assessee, therefore, CIT (Appeals) was not at all justified in treating such interest income, as directly flowing from the industrial undertaking for allowing claim of deduction under section 80-IB of the Act. 5. On the other hand, learned AR Shri R.S. Singhvi ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances during the year under consideration. He further submitted that even otherwise there is no infirmity in the order of CIT (Appeals), as benefit of netting is to be allowed even as per the decision of Hon ble Delhi High Court in case of CIT v. Shri Ram Honda Power Equip. Ltd. [2007] 289 ITR 475. The purchase of FDRs were out of borrowed funds, therefore, there is on reason to decline netting of the interest expenditure out of the interest income, while bringing the net interest income for taxation under the head "Income from other sources". He further relied on various decisions of the following co-ordinate Benches, wherein bank interest income was considered as inextricably related to carrying out on business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction if it is included in the computation of profits and gains of the business. 6. We have considered the rival contentions carefully gone through the orders of the lower authorities and deliberated on the case laws cited by the learned AR and DR in the factual matrix of the case. There is no dispute to the fact that deposit was given by the assessee for securing bank guarantee and LCs, which was meant for the purpose of business. There is also no dispute that bank deposit was given out of the borrowed funds as per the abstract of bank statement placed before the lower authorities. The issue regarding receipt of duty drawback on the raw material utilized as in-put by the assessee, whether income derived from industrial undertaking s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial undertaking. The words "derived from" have been used in the same spirit in both the sections. We can safely apply the broad principles laid down in case of Shri Ram Honda Power Equip. Ltd. ( supra ), to the cases where interest income is claimed as deduction under section 80-IB of the Act. Broad principles for determining the nature of interest income, as to whether such interest income is "business income" as computed under sections 28 to 44 of the Act or income from other sources as determined under section 56 read with section 57 of the Income-tax Act were laid out. The first category of such interest income was held by the Hon ble High Court as arising out of parking of surplus fund, such income is to be treated as income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of section 80HHC. To give effect to this position, the Assessing Officer while computing profits of the export business will have to remove from the debit side of the profit loss account the corresponding interest expenditure that has been laid out to earn such income from other sources. Otherwise this will depress the profits by an amount which is out of the reckoning of section 80HHC, a consequence not intended to be brought about." 8. It is quite clear from the above proposition that if the assessee has incurred any expenditure for making the FDRs, interest income of which is brought to tax under the head Income from other sources , such interest expenditure is to be taken out from the profits of export business, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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