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2015 (5) TMI 689

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..... rom 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 purposes of deduction under Section 80HHC of the Act, will also affect the deduction of interest income under Section 80HHC of the Act, for the period prior to the amendment, inasmuch as the applicability of the principle of direct and proximate nexus to the business income, will apply both, to the provisions of the Act prior to, and after the amendment, which came into effect by the Finance Act, 1992, with effect from 01.04.1992. - Decided in favour of the Revenue. Eligibility for deduction 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 .....

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..... on 80HHC(4) of the Act on 27.10.1989, for 15 months. A notice under Section 143(2) of the Act was served ,and in compliance thereof, a representative of the firm had attended the proceedings, and produced the books of accounts, cash-book, ledger, stock register, bank book, journal, purchase vouchers, expenses vouchers and sales bill books. The Assessing Officer(AO) noticed, 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 ₹ 1,76,930/-, as this income did not derive from export of goods or merchandise, the Authorized Representative submitted that it relied upon paras 1.8 and 1.9 of the expert opinion, given on the subject, by Shri O.P. Vaish, Advocate, Supreme Court, dated 11.03.1989, filed in the case of M/s Gupta Jewel Corpn. Jaipur, a siste .....

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..... s 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 invested only those funds in making advance/ deposits which were not immediately required by him in the regular business of export carried by it and not that the investment was made for the purpose of doing business of money lending. No such material has been placed before us from which it could be inferred that the appellant had any intention to do the business of money lending with the set purpose of earning profit therefrom. It cannot, therefore, be said that advances made by the appellant to various 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 a .....

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..... rnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export, and sub-section (c), provides that where the export out 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 export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods. 12. Referring to the definition of 'business' under Section 2(15); the head of income under Section 14, profits and gains of business or profession under Section 28, and income from other sources under Section 56, it is submitted that the interest income is the income from the business includible for the purpose of Section 80HHC of the Act. Reliance has been placed on Comm .....

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..... e deductions under Section 80HHC of the Act. 16. In Commissioner of Income-Tax Vs. Tamil Nadu Dairy Development Corporation Ltd.(supra), the matter did not relate to deduction of the profits under Section 80HHC. The judgment has been cited, to refer to the term business , which was held to be a word of very wide connotation, and by no means determinate in its scope and has to be considered with reference to each particular kind of activity and occupation of the person concerned. 17. In Commissioner of Income-Tax Vs. Govind Choudhury And Sons(supra), 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 interest can be assessed under the head Income from other sources only if it cannot be brought within one or the other of the specific heads of charge. The Supre .....

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..... 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 consist exclusively of the export out of India of the goods or merchandise to which the section applies, the amount which bears to the profits of the business as computed under the head Profits and gains of business or profession , the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, shall be profit derived from the export of goods or merchandise out of India. In computing such profit of business, no exclusion has to be made 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 .....

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..... to justify his argument by referring to subsequent amendments made from April 1, 1992, whereunder as we have pointed out above by adding Clause (baa) to the Explanation at the end of Sub-section (4A) with effect from April 1, 1992, 90 per cent. of this commission, etc., is not to be regarded as profits 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 from export of self manufactured goods and trading goods, the profits and losses in both trades have to be taken into consideration. If after the adjustment, there was a positive profit, the assesse will be entitled to the deduction under Section 80HHC(1), and if there was a loss, the assessee will not be entitled to any deduction. It was held that the processing charges, which are part of gross tota .....

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..... d 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 order to earn interest cannot be classified under the head of business income, but will fall for classification as income from other sources. 29. In Commissioner of Income Tax etc. etc. Vs. Shri Ram Honda Power Equip etc. etc., [2007] 289 ITR 475 (Delhi), it was held that the interest income kept by the assessee for availing of credit facilities from bank, does not qualify the business income, and, therefore, will go to reduce the deductible amount for the purposes of Section 80HHC. Reliance was 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 ded .....

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..... s connection it may 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 Singhi, learned counsel appearing for the Department, submits, relying on Commissioner of Income-Tax Vs. Rajasthan Land Development Corporation, 211 ITR 597(Raj.), Murli Investment Company Vs. Commissioner of Income-Tax, 167 ITR 368 (Raj.), CIT, Jaipur Vs. M/s Avon Apparels (D.B. Income Tax Appeal No.41/99), decided on 11.07.2002, Commissioner of Income-Tax Vs. Shri Ram Honda Power Equip, [2007] 289 ITR 475(Delhi), The Commissioner of Income Tax Vs. Meea Ceiko Pumps Pvt. Ltd., MANU/2584/2014, 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 s .....

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..... by way of interest on the investment in securities of the amounts appropriated to the contingencies reserve, which was mandatorily required to be maintained by it in terms of the Electricity(Supply) Act, 1948. It was held that the condition statutorily incorporated is incidental to the carrying on of the business of generation and distribution of electricity 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 Explanation, to mean the profits of the business as computed under the head Profits and gains of business or profession , which incorporates the entire procedure for computing the business income under Section 28 to 44 of the Act. Dehors Section 80HHC of the Act, the consistent approach is that where the statutory provision talks of income derived from the business activity in question, .....

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..... swered in favour of the Revenue, and against the assessee. 43. So far as question No.2 is concerned, on the aforesaid discussion, we are also of the view that the amendment in Section 80HHC, by way of insertion of sub-section (4B), excluding interest income for the purposes of deduction under Section 80HHC of the Act, will also affect the deduction of interest income under Section 80HHC of the Act, for the period prior to the amendment, inasmuch as the applicability of the principle of direct and proximate nexus to the business income, will apply both, to the provisions of the Act prior to, and after the amendment, which came into effect by the Finance Act, 1992, with effect from 01.04.1992. The question No.2, is thus decided in favour of the Revenue and against the assessee. 44. On the question No.3, we hold 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 determining, as to w .....

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