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2015 (5) TMI 689 - RAJASTHAN HIGH COURT

2015 (5) TMI 689 - RAJASTHAN HIGH COURT - [2015] 376 ITR 53 (Raj) - Entitled for deduction under section 80 HHC on interest income - Held that:- It is the settled proposition in interpretation of the statutes, that while ascertaining the true scope of a provision in a statute, attention must necessarily be paid not only to the text, but also the context. In Commissioner of Income-Tax Vs. Shri Ram Honda Power Equip(2007 (1) TMI 86 - HIGH COURT, DELHI), the Delhi High Court held that the word "int .....

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he same treatment for tax, as "income from other sources" under Section 56 of the Act. - Decided in favour of revenue.

Affect of amendment in section 80 HHC, by way of insertion of sub-section (4B) excluding interest income for the purpose of deduction under section 80 HHC on the deduction of interest income under section 80 HHC for the period prior to amendment - Held that:- The amendment in Section 80HHC, by way of insertion of sub-section (4B), excluding interest income for the pur .....

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tion under section 80 HHC assessee is not earning income in convertible foreign exchange by way of an interest on the money advanced - Held that:- The earning of the income convertible from foreign exchange by way of interest, is not necessary so long as the interest is derived from business of export, and has direct and proximate nexus, with the income earned out of the profits retained for the export business. The earning of the income convertible from foreign exchange, is not a test for deter .....

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jaffar Iqbal For the Respondents : Mr. R.B. Mathur with Mr. Nikhil Simlote, Mr. Archit Bohra,& Ms. Tanvi Sahai, Mr. Anuroop Singhi with Mr. O.P. Pareek and Mr. Saurabh Jain JUDGMENT By The Court:(Per Hon'ble The Chief Justice) 1. This Larger Bench of three Judges has been constituted, to decide the questions of law, referred by a Division Bench on 21.07.2003, as follows:- "(1) Whether the assessee is entitled for deduction under section 80 HHC on interest income of ₹ 1,76,930/ .....

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n under section 80 HHC of the Act?" 2. For the purpose of deciding the questions of law, referred to above, we are referring to the facts of D.B. Income Tax Appeal No.13/2002. 3. The Income Tax Appeal was filed against the order dated 25.09.2001, passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur in Income Tax Appeal No.1642/JP/93, for Assessment Year 1989- 90. 4. The return of the income was filed by the assessee-firm declaring the total income at Rs. NIL in the status of R. .....

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d, on examining the books of accounts, that the assessee-firm had claimed deductions under Section 80HHC of the Act in respect of n.p. of ₹ 23,82,541/-, which included ₹ 37,215/- by import licence premium; ₹ 1,76,930/- as interest income; ₹ 2,000/- towards disallowance out of telephone expenses; and ₹ 1196/- as income tax added to the total income. 5. On an explanation with regard to deduction under Section 80 HHC in respect of interest income amounting to ₹ 1 .....

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or merchandise. As per the provisions of Section 80HHC of the Act, the assessee was not entitled to such deduction, and was entitled to deduction only in respect of profits derived by it from export of goods or merchandise. The claim was, thus, disallowed. 7. The Commissioner of Income Tax(Appeals), Rajasthan-II, Jaipur, did not accept the contention of the assessee, that the amounts of which the interest income was earned, represented the appellant's business income. Since these amounts we .....

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e. The provisions of sub-Section (3) of Section 80HHC of the Act, could not be applied to the facts and circumstances of the case. The interest income of the appellant was not entitled to any deduction under Section 80HHC, because the basic requirements of the section were not satisfied. The interest income was not even its business income. It was the income which could be charged to tax only under the head "income from other sources". In Murli Investment Co. Vs. CIT, (1987) 167 ITR 36 .....

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te Tribunal, Jaipur Bench, Jaipur (in short, 'the ITAT'), dismissed the appeal with the findings as follows:- "After careful consideration of the above situation and position as well as the entire connected matters and precedents relied upon by both the parties, we find that there is no dispute to the fact that the surplus funds have emerged with the appellant out of export business carried on by him and that the said business of export is its regular business. The appellant investe .....

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s parties were the result of its activities carried on continuously in an organised manner with a set purpose and with a view to earn profits. The only purpose of making the transaction was to invest the funds when they were not needed in the regular business of export for a short period. Such transactions cannot be said to be of money lending business. Accordingly, the making of advances was not even a business activity and income arising therefrom was, therefore, not an income from business or .....

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he benefit of deduction under Section 80HHC on the income of interest earned on the surplus funds. He is entitled for the benefit of deduction under Section 80HHC, even on the income of interest, which is incidental to the business. Sub-section (1) of Section 80 HHC of the Act, provides that where an assessee, being an Indian company or a person (other than a company) is resident of India, and is engaged in the business of export out of India of any goods or merchandise, to which the section app .....

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case, we are concerned with the assessment of the Assessment Year 1989-90, and thus, the provisions of Section 80HHC of the Act, before its amendment by the Finance Act, 1992 w.e.f. 01.04.1992, will be applicable. 11. It is submitted that sub-section (3) of Section 80HHC of the Act further provides that for the purposes of sub-section (a), where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount w .....

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of India is of goods or merchandise manufactured (or processed) by the assessee and of trading goods, the profits derived from such export shall; (i) in respect of goods or merchandise manufactured (or processed) by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the .....

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as been placed on Commissioner Income-Tax Vs. Punit Commercial Ltd., 245 ITR 550(Bom); Commissioner of Income-Tax Vs. Nagpur Engineering Co. Ltd., 245 ITR 806(Bom); Commissioner of Income-Tax Vs. Paramount Premises(P.) Ltd., 190 ITR 259(Bom), against which the Special Leave Petition was dismissed by the Supreme Court, reported in 244 ITR(Statue) 54; Commissioner of Income-Tax Vs. Tamil Nadu Dairy Development Corporation Ltd., 216 ITR 535(Mad); Commissioner of Income-Tax Vs. Govind Choudhury And .....

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d "Business income". 13. In Commissioner Income-Tax Vs. Punit Commercial Ltd. (supra), it was held that the interest income could only fall under "Business income". Section 80HHC3(a), deals with a 100% exporter, whereas Section 80HHC3(b), deals with composite business. In the latter case, local sales are included, hence, the entire profits are entitled to deduction, and will include interest income also. 14. In Commissioner of Income-Tax Vs. Nagpur Engineering Co. Ltd.(supra) .....

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n progress. If the purchasers failed to make deposits by stipulated dates, they had to pay interest. The authorized capital of the assessee was small but the amounts received as deposits were large. Idle amounts were deposited with the bank or given on temporary loans until such time as they were required for construction, and thus, the interest was earned on these amounts. There is nothing in the judgment, which may relate to the deductions under Section 80HHC of the Act. 16. In Commissioner of .....

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the reliance has been placed on the term "Business income", or "Income from other sources". The assessee was executing Government contracts in the settlement of disputes with the State Government with regard to payments under the contracts and referred to arbitration. During the accounting period, the respondent received a certain amount under the awards of the arbitrators including interest for delay in payment of the amounts. It was held by the Supreme Court that the intere .....

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ness. It is not necessary that every business should register itself under the Money Lenders Act and make a claim in relation to any advance made by it only in the capacity of a person carrying on money lending business. The money lending in the case had become irrecoverable by reason of the picture failing at the box office and the producer being unable to repay his debts, and the money was treated to be a trading loss. 19. In Commissioner of Income-Tax Vs. Sociedade De Fomento Industrial Ltd.( .....

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tion No.2, it is submitted on behalf of the assessee that the amendment in Section 80HHC by way of insertion of sub-section (4B), excluding interest income for the purpose of deduction under Section 80HHC, will not affect the deductions of interest income, claimed under Section 80HHC, for the period prior to the amendment. He has relied on Commissioner of Income-Tax Vs. Sharda Gum And Chemicals, (2007) 288 ITR 116(Raj.) and Alfa Laval India Ltd. Vs. Deputy Commissioner of Income-Tax, 266 ITR 418 .....

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, but is to be carved out in proportion from his total business income computed in accordance with the provisions of the Act. The Assessing Officer had fallen into an error by delving into something which was not germane for the purpose of arriving at the income from the business or profession as computed under the head "Profits and gains of business" under the provisions of the Act. In the year 1989-90, Section 80HHC provided that where the business carried on by the assessee does not .....

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de of any income which is to be assessed under the head "Profits and gains of business or profession". 22. In Alfa Laval India Ltd. Vs. Deputy Commissioner of Income-Tax(supra), the Bombay High Court held that the interest from customers and sales tax set off received by the assessee being assessed as part of the business profits under the head "Profits and gains of business of profession", the same could not be excluded while calculating deduction under Section 80HHC. 23. On .....

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on the judgment of the Special Bench of the Income-tax Appellate Tribunal, Delhi Bench in International Research Park Laboratories Ltd. Vs. Asst. CIT, [1995] 212 ITR (AT) 1, wherein interpreting the Central Board of Direct Taxes Circular, it was held as follows:- "Now, we come to whether the commission received could form part of export profits. Here again, we are unable to see it differently. It is no doubt true that this commission is not turnover but it is a profit relatable to exports. .....

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d for the purpose of Clause (b) unless it amounted to discrimination. The interpretation of Clauses (a) and (b) must be harmonious and not discriminatory, cutting against each other. What is sauce for the goose is also sauce for the gander. Secondly, we have just mentioned that this profit is profit derived from export and export is the basis or the foundation or the nexus. The argument of Shri B, B. Ahuja and all his effort to show to us that it has no reference to the export is, therefore, una .....

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ofits derived from export business and this amendment as explained in the Memorandum of Bill was only to clarify the position." 24. The Supreme Court agreed with the law laid down by the Tribunal, as the Revenue did not prefer any appeal against it. 25. Learned counsel appearing for the assessee has also referred to the judgment of the Supreme Court in Commissioner of Income-Tax Vs. K.Ravindranathan Nair, [2007] 295 ITR 228(SC), in which it was held that in arriving at the profit earned fro .....

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0 percent of the processing charges has also to be reduced from the gross total income to arrive at the business profits, and therefore, it has also to be included in the total turnover in the formula for arriving at the business profits in terms of clause (baa) of the Explanation to Section 80HHC(3). While arriving at the export profits under Section 80HHC(3), as it stood in the assessment year 1993-94, the processing charges are to be included in the total turnover. 26. Mr. R.B. Mathur, learne .....

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ITR 172(SC); Commissioner of Income Tax Vs. Swani Spice Mills P. Ltd., [2011] 332 ITR 288(Bom); Liberty India Vs. Commissioner of Income Tax, [2009] 317 ITR 218(SC) Pandian Chemicals Ltd. Vs. Commissioner of Income Tax, [2003] 262 ITR 278(SC); and Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, [1978] 113 ITR 84(SC). 27. In Tuticorin Alkali Chemicals & Fertilizers Ltd., Madras Vs. Commissioner of Income Tax, Madras(supra), the Supreme Cou .....

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discussing several judgments, held in paragraph 20, that the income of an assessee which is chargeable to tax under Section 4, is required for the purposes of computation to be classified under various heads of income specified in Section 14. Section 56, which deals with income from other sources is attracted where the income does not belong to a category which is specified in any of the other heads elucidated in Section 14. The income earned by an assessee, which utilizes its surplus funds in o .....

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placed on the judgments in Commissioner of Income-Tax Vs. K.Ravindranathan Nair(supra), Commissioner Income-Tax Vs. Punit Commercial Ltd.(supra), and the judgments of the Kerala High Court in Abad Enterprises Vs. CIT, [2002] 253 ITR 319 (Ker), CIT Vs. Jose Thomas, [2002] 253 ITR 553 (Ker.), and CIT Vs. Abad Fisheries, [2002) 253 ITR 641(Ker) as well as Urban Stanislaus Co. Vs. CIT, (2003) 263 ITR 10. 30. In Liberty India Vs. Commissioner of Income Tax(supra), the Supreme Court, dealing with the .....

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s of these Acts. The profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking". The trade discounts, rebate, duty drawback, and such similar items are deducted in determining the costs of purchase. The duty drawback, rebate etc. should not be treated as adjustment(credited) to cost of purchase or manufacture of goods. They should be treated as separate items of revenue or income and accounted for accordingly. 31. In Cambay .....

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he business. In paragraph 8, the Supreme Court held as follows:- "8. As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression "attributable to" and not the expression .....

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y be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression "derived from", as for instance in Section 80J. In our view (since the expression of wider import, namely, "attributable to" has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity." 32. Mr. Anuroop Si .....

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, CIT Vs. Greatways(P) Ltd., MANU/PH/0986/2008, that where surplus funds are parked with the Bank and interest is earned thereon, it can be only categorized as income from other sources. This receipt merits separate treatment under Section 56 of the Act, which is outside the ring of profits and gains from business and profession. Such income which could only be earned under Section 56, goes entirely out of the reckoning for the purposes of Section 80HHC. 33. We have considered the submissions at .....

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did not have an element of turnover. The Central Board of Direct Taxes' (CBDT) Circular No.564, dated 05.07.1990, was issued to clear the doubts that clause (baa) of the Explanation to Section 80HHC of the Act, was introduced with effect from 01.04.1992. The rationale for this change was explained in CBDT's Circular No.621, dated 19.12.1991. The profit earned by the assessee during the relevant assessment period from the commission was also treated to be profit, derived from export sinc .....

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rial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad(supra), it was held as follows; "In our view, since the expression or wider import, namely 'attributable to', has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity". 36. The Supreme Court in Vellore Electric Corporation Ltd. Vs. CIT, [1997] 227 ITR 557(SC), held in the context of Section 80-I, which .....

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ricity by the assessee. 37. In sub-section (3) of Section 80HHC of the Act, the words used are, "derived from". In our view, the words "derived from", are of restricted meaning, and are not as wide as are "attributable to". The 'stand-alone' provision of Section 80HHC of the Act has to be construed on its own wordings. A distinction sought to be made in respect of the definition of "profits of the business" under sub-section (baa) of the Explanatio .....

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usiness income or not. 38. In Commissioner Income-Tax Vs. Punit Commercial Ltd. (supra), the assessee was a 100% exporter. The Assessing Officer had proceeded on the footing that the interest income was business income, and that it was not income from exports, and in these circumstances, the High Court held that since the entire business activity of the assessee is only of exports, the entire business income is deemed to be profit derived from export of goods. Both the judgments of the Kerala Hi .....

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in interpretation of the statutes, that while ascertaining the true scope of a provision in a statute, attention must necessarily be paid not only to the text, but also the context. In Reserve Bank of India Vs. Peerless General Finance And Investment Co. Ltd.[1987] 61 Company Cases 663, it was observed that interpretation must depend on the text and the context. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result, which could not have been intended .....

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