TMI Blog2010 (2) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... ituted capital receipt and it was only a notional sum/income. The learned Commissioner of Income-tax (Appeals) also erred in upholding the reduction of 90 percent of the receipt on account of sale of DEPB licence in terms of Explanation (baa) to section 80HHC of the Act treating the same as "other receipts" and in not adding back DEPB credit allocated in the ratio of the export turnover to the total turnover in terms of section 80HHC(3) while computing the deduction. We have heard Shri Ajay Vohra, learned counsel for the assessee and Shri Kishore B., the learned Departmental representative. We find that the same issue has been considered by the Special Bench of the Tribunal in the case of Topman Exports v. ITO [2007] 318 ITR (AT) 87 (Mumbai) ; 33 SOT 337 wherein it has been held as under : (i) the argument of the Revenue that DEPB is a post-export event and has no relation with the purchase of goods cannot be accepted. There is a direct relation between DEPB and the customs duty paid on the purchases. For practical purposes, DEPB is a reimbursement of the cost of purchase to the extent of customs duty ; (ii) the DEPB benefit (face value) accrues and becomes assessable to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest income of Rs. 12,39,921 from investment/deposits made pursuant to the requirement under the Companies (Acceptance of Deposits) Rules, 1957 as income from other sources. The assessee has provided details of interest income received as under : (Rs.) Interest on fixed deposits 1,12,290 Interest on bonds 12,39,981 Interest on staff loan 5,44,541 Interest on overdue payment 9,12,270 Interest in inter-corporate loans 80,64,606 Total 1,08,73,688 The assessee has also incurred interest expenditure amounting to Rs.8,50,55,301. The Assessing Officer has excluded the entire interest income of Rs. 1,08,73,688 from the profit of the business for computing deduction under section 80HHC of the Act. It was submitted before the learned Commissioner of Income-tax (Appeals) that the fixed deposit receipts of Rs. 15.55 lakhs were procured for giving a guarantee to the Excise Department and interest of Rs. 92,207 on such fixed deposits was earned. Similarly some deposits were obtained for giving L.C. margin money for business purposes. Money lending is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Power Equip [2007] 289 ITR 475 (Delhi). The hon'ble Delhi High Court held as under (page 494) : "In the context of section 80HHC itself, the Madras High Court in K. S. Subbiah Pillai and Co. (India) P. Ltd. v. CIT [2003] 260 ITR 304 has held that if an assessee which is engaged in the business of exports, invests surplus funds in fixed deposits and earns interest thereon, such income cannot be treated as business income since it does not bear any direct nexus with the export business of the assessee. In the following decisions, the Kerala High Court has consistently held that in the context of section 80HHC the interest income earned on fixed deposits having to be kept by the assessee for availing of credit facilities from the bank, does not qualify as business income and therefore, will go to reduce the deductible amount for the purposes of that section : (i) Nanji Topanbhai and Co. v. Asst. CIT [2000] 243 ITR 192 (Ker) ; (ii) Abad Enterprises v. CIT [2002] 253 ITR 319 (Ker) ; (iii) CIT v. Jose Thomas [2002] 253 ITR 553 (Ker) ; (iv) CIT v. Abad Fisheries [2002] 258 ITR 641 (Ker) ; (v) Southern Cashew Exporters v. Deputy CIT [2003] 130 Taxman 203 (Ker) ; (vi) Asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R (St.) 3]. To the same effect is the judgment of the same High Court in Southern Cashew Exporters v. Deputy CIT [2003] 130 Taxman 203 (Ker) which has been affirmed by the hon'ble Supreme Court on account of the dismissal of the special leave petition (order reported in [2003] 264 ITR (St.) 142). The resultant position is that on three occasions the hon'ble Supreme Court has affirmed the judgments of the Kerala High Court that has consistently held that interest earned on fixed deposits for the purposes of availing of credit facilities from the bank, does not have an immediate nexus with the export business and, therefore, has to necessarily be treated as income from other sources and not as business income. In each of these decisions, the Kerala High Court has consistently followed the earlier judgments listed at (i) to (iv) of paragraph 14 (page 494 supra) above. The decision of the Bombay High Court in CIT v. Punit Commercial Ltd. [2000] 245 ITR 550 concerned a case where the assessee was a 100 percent exporter. The High Court noticed that according to the Tribunal, the Assessing Officer had proceeded on the footing that the interest income was business income, but that it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gument on behalf of the assessee is that but for such a stipulation by the bank there was no need for the exporter to keep the money in fixed deposit and therefore the income earned from such fixed deposits bears a direct nexus to the business activity itself. Given the repeated affirmation by the hon'ble Supreme Court of three judgments of the Kerala High Court on the same issue, we are inclined to follow the view expressed by the Kerala High Court on each of these occasions. We accordingly hold that interest earned on fixed deposits for the purposes of availing of credit facilities from the bank, does not have an immediate nexus with the export business and therefore has to necessarily be treated as income from other sources and not business income. Question (a) and issue (i) are answered accordingly." Since such interest income are assessed as income from other sources, the same will not be reckoned for the purpose of computing deduction under section 80HHC. As regards interest on staff loan and interest on over due payment from customers, which are treated as business income, 90 percent thereof is excluded from the "Profits of business" in terms of clause (baa) of the Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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