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TMI Blog2011 (10) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... t-assessee pertaining to the immediate earlier assessment year 2003-04. For the sake of convenience, we reproduce the entire order disposing of ITA 125/2009:- On 28th August, 2009, the following questions of law were framed:- "a) Whether the Ld. ITAT has erred in law in the facts and circumstances of the case in confirming the order of the CIT(A) whereby the CIT(A) held that since the interest paid on borrowed funds is more than the interest received on FDR, therefore, 90% of the gross interest received from FDR should not be reduced from the business income of the assessee for computing deduction under Section 80HHC? b) Whether the Ld. ITAT was correct in law in holding that the interest on FDR should not be reduced from the business profits since the interest income is not assessed by the assessing officer under the head „Income from other sources‟?" 2. The respondent-assessee is a company engaged in the business of manufacturing and sale of bulk drugs. It is also exporting drugs manufactured by them. 3. For the assessment year 2003-04, return of income declaring income of Rs.4,81,84,570/- was filed on 2nd December, 2003. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing deduction u/s 80HHC of the Income Tax Act." 7. The Revenue filed an appeal before the Income Tax Appellate Tribunal (for short, the tribunal), but by the impugned decision dated 29th July, 2008, the said appeal was dismissed. While dismissing the appeal, the tribunal noticed and has observed that interest earned on the FDRs was not income from other sources, but had been treated as business income. 8. Mr. Tripathi, learned counsel appearing for the Revenue in the present appeal has submitted that interest earned on the FDRs should be treated as income from other sources and not income derived from export. He has referred to the decisions rendered in Pandian Chemicals Ltd. Vs. Commissioner of Income Tax, Madurai (2003) 5 SCC 590, K. Ravindranathan Nair Vs. Deputy Commissioner of Income Tax (Assessment) and Another [2003] ITR 669 (Ker.), South India Shipping Corporation Vs. Commissioner of Income Tax [1999] ITR (Vol.240) 24 (Madras), Commissioner of Income Tax Vs. Cosmos International [2009] 318 ITR 314 (Delhi) and Commissioner of Income Tax Vs. Shri Ram Honda Power Equip [2007] 289 ITR 475 (Delhi) 9. The aforesaid contention of the appellant-Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 10. Thereafter, the Division Bench examined the question of netting of interest under Clause (bba) of the Explanation to Section 80HHC. Learned counsel for the Revenue is, therefore, right in his contention that interest income earned from the FDRs does not qualify for deduction under Section 80HHC of the Act, but has ignored the findings of the Division Bench in Shri Ram Honda Equip (supra) on the question of netting of interest, if the interest earned on FDRs has nexus with the export business of the assessee for the purpose of Clause (bba) of the Explanation to Section 80HHC. It is the second aspect which is relevant and material in the present case. 11. After examining the said provision and several judgments, the Division Bench in Shri Ram Honda Equip (supra), in conclusions (v) to (ix) has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from section 37, will require to be shown by the assessee for application of the netting principle." 12. Referring to the aforesaid conclusions, another Division Bench of this Court in Commissioner of Income Tax Vs. Shahi Export House [2010] 195 Taxman 163 (Delhi) has held as under:- "7. A conjoint reading of conclusion Nos.1,4, 5 and 6 and particularly No.5 would clearly demonstrate that only in those cases where interest earned on fixed deposits have an immediate nexus with the export business would be treated as income from business and interest earned on fixed deposits which does not have an immediate nexus with the export business, it would be treated as income from other sources. The court opined that when the interest was earned on the fixed deposits for the purposes of availing of credit facilities from the bank, it did not have such a nexus with the export business and therefore, had to be necessarily treated as income from other sources and not the business income. 8. Thus, insofar as earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see under the head "Income from other sources" and accordingly, disallowed for the purpose of benefit of deduction u/s 80 HHC within the meaning of explanation (bba) below section 80 HHC (4C) of the I.Tax Act. Order of the CIT (Appeals) I have examined the submission of the appellant and the observation made by the Assessing Officer in the assessment order. Vide para 5 of the Assessment Order, the A.O. has observed that appellant could not submit anything to prove direct nexus between the interest received on FDR‟s and cash credit facility taken by it. The F.D.Rs. have been made with earlier years surplus funds available with the appellant. During the course of appellate proceedings, the appellant filed letters from Punjab National Bank, Sector 16, Chandigarh Branch and State Bank of India, wherein Fixed Deposits of Rs.3,05,05,850/- and Rs.2,19,58,524/- have been got issued, continued or renewed during F.Y. 2001-02 to 2003-04. In both the certificates, it is mentioned that "FD‟s have been got issued, continued or renewed for the F.Y. 2003-04 for the C.C. A/c No.05755008700004684 of the holder of M/s Nectar Life Sciences Ltd. and C.C. A/c No.10214998738. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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