TMI Blog2016 (3) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... are lying idle with it or which can be spared as surplus in the business for earning income from the said source and a businessman will not keep funds idle and certainly an endeavour of a business man primarily is to earn maximum profits, that does not mean character of income changes merely because the assessee has taken such interest in the profit and loss account and projected it as business income, it does not mean that such receipt also enures for deduction under Section 80HHC of the Act. The assessee are not engaged in the activity of advancing money as a business activity nor loans advanced constitute an incidental activity to the business of exports of the assessee. Irresistible conclusion, therefore, is that the earning of interest by an assessee on sums advanced does not come within the purview of business income, or as profits from business. - Decided against assessee - D.B. Income Tax Reference No.4/2003, D.B. Income Tax Appeal No.52/2003, D.B. Income Tax Appeal No.56/2003, D.B. Income Tax Appeal No.57/2003, D.B. Income Tax Appeal No.58/2003, D.B. Income Tax Appeal No.60/2003, D.B. Income Tax Appeal No.70/2003 - - - Dated:- 11-9-2015 - D.B. Income Tax Reference No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in holding that assessee is not entitled for deduction under section 80HHC on interest income of ₹ 2,80,007/- as per law as existing at the relevant assessment year. Whether on the facts and circumstances of the case and on the basis of material available on record, the Hon'ble Tribunal was correct in coming to the conclusion that income from interest on surplus funds is to be treated as Income from other sources even in absence of any such finding by lower authorities. 4. DBIT Appeal No.52/2003, which relates to the assessment year 1991- 92, filed at the instance of Assessee, has been admitted on the following substantial question of law:- Whether in the facts and circumstances of the case the ITAT was justified in law in restricting the claim of interest and not allowing full benefit of deduction u/s. 80HHC of interest income as profit and gains from business. 5. By and large, the questions involved in all these references/appeals, revolve around the above issues. 6. Primarily the Assessees in all these cases are exporters of precious and semi precious stones and jewellery, and are 100% exporters and the goods are being exported after being appraise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble foreign exchange by way of an interest on the money advanced, even then, whether the assessee is eligible for deduction under section 80 HHC of the Act? Ans. 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 whether deduction is allowable in respect of the income derived from the profits retained for export business. The question No.3 is also decided in favour of the Revenue and against the assessee. 8. Learned counsel appearing for the Revenue contended that the issues in the present batch of cases, are primarily the same which have been answered in favour of the Revenue by the Larger Bench and, therefore, primarily the contention on behalf of the Revenue is that there is no direct nexus of the funds with the export activity of the Assessee and the contention of the Assessee all throughout has been that out of the export rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning by way of interest, the claim of the assessees is well justified and sec. 80HHC does not distinguish various kind of businesses. They further contended that direct and proximate nexus test is required to be proved by the Revenue rather than assessee and the finding of the Tribunal that it is a business income, supports the case of the assessee. 10. Mr. T.C. Jain, learned counsel, apart from common submission further contended that there is a definite finding that carrying on the business of earning of interest was regular and systematic, regular books of account are being maintained and such transactions are duly recorded in the same books of account, constitute business income and once it has been held that it was business income, deduction under sec. 80HHC ought to be allowed. 11. Mr. M.L. Barod, learned counsel, also contended that in DBIT Appeal No.28/2005 issue is the same, but also emerges is that the assessee earned interest and simultaneously paid interest as well and only net interest earned is required to be considered as the income from surplus funds, while Revenue has considered the gross interest income. In this regard he relied upon the judgment rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e instant matters vis-a-vis the arguments advanced before the Larger Bench. 15. In our view, Section 80HHC allows deduction in a case where the assessee is primarily an exporter and is engaged in the business of export out of India of any goods or merchandise, and also receives foreign remittance/sale/export proceeds received in India or brought into India by the assessee in convertible foreign exchange. In our view, a deduction is allowable to an exporter of goods and none else. 16. The Tribunal while reversing the earlier view in DBIT Reference No.4/2003 and DBIT Appeal No.60/2003 insofar as the same assessee is concerned, observed that the Assessing Officer held that neither the interest income is profit derived by the assessee on export of goods or merchandise nor they have been in convertible foreign exchange as per provision of Section 80HHC, instead the income (interest) has been derived from advancing to various parties small amounts and is not a part of assessee's income from business entitled to deduction under Section 80HHC, and it further held that the assessee is entitled to deduction only in respect of profit derived by it from export of goods and merchandis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exports. The assessees by and large have been found to have raised fresh loans whereas no new loan or advances have been given in the year under consideration. It is also an admitted fact that the assessees have also not redeemed majority of the loans advanced for its business purposes to several entities, and a finding has been recorded by the Assessing Officer that majority of the parties from whom interest was received continued to remain the same. Neither any correspondence with any of the parties to whom loans are advanced, was produced so as to prove the purpose or intention of doing business. 20. In our view, and rightly so, intention of the assessees is well set that it only wants to earn interest from those funds which are lying idle with it or which can be spared as surplus in the business for earning income from the said source and a businessman will not keep funds idle and certainly an endeavour of a business man primarily is to earn maximum profits, that does not mean character of income changes merely because the assessee has taken such interest in the profit and loss account and projected it as business income, it does not mean that such receipt also enures for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olve or determination with which a person acts. It is all to be kept in mind that 'intent' and 'motive' are two different things and should not be confused. Motive is what prompts a person to act. Intent refers only to the state of mind with which the act is done or omitted. 24. In our view, merely because the assessee contends that receipt of interest is income from business, or in one or two cases the finding being recorded by the Assessing Officer that it is business income, in support thereof no tangible evidence has been placed to prove the intention that the assessee carried these transactions of advancing loans, as business. Merely contending that the funds were of business and is a case of exploitation of business assets, thus would be income from business cannot be intended at least for deduction under Section 80HHC. Derivation of income must be directly connected with the business in the sense that the income is generated from business. It would not be sufficient if it is generated by exploitation of business asset. In the instant matters, the income by way of interest on the deposits/advances is no doubt an income derived by investing surplus cash of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of money-lending or lending of money. 27. In our view when we analyse the above principles with the facts of the present matters, none of the principles support the contention raised by the counsel for the assessees, except that only clause (v) may to a certain extent support the contention of the assessees, but then it is a case of a Limited Company and not an individual or a partnership firm, as in the instant cases. Even otherwise, it does not support the contention of the counsel for the assessees. 28. In the present set of facts, the principle in paras (iii) and (iv) does not support the case of the assessees, but rather goes against the assessees as admittedly it is interest income in respect of surplus money, it was held that the surplus funds are invested instead of keeping them idle, the income by way of interest is to be treated as income from other sources. The principles in paras (i) and (ii) are also inapplicable but does not support the assessee either. 29. In the above case, judgment of Murli Investment Company rendered by this court (supra), was relied upon where it has been held as under:- After considering the entire material on record, the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Equip (supra), so also Rajasthan Land Development Corporation (Supra), Murli Investment Company (supra) and Avon Apparels (Supra), apply to the facts of the instant case with full force and we, after analysing the facts in the instant reference/appeals so also judgment of Larger Bench hold that interest received/earned does not enure for deduction under Section 80HHC. 32. Counsel for the assessee Mr. Borad in DBIT Appeal No.28/2005 (CIT v. M/s Chordia Gems), as noticed earlier, had also raised point that in this case while interest has been received so also interest has been paid and only net is required to be considered. However, this question does not arise for our consideration inasmuch as the following questions were admitted in D.B. ITA No.28/2005 :- i) Whether on the facts and circumstances of the case, the ITAT was right and justified in treating the interest income of ₹ 9,67,366/- as business income of the assessee? ii) Whether on the facts and circumstances of the case, the ITAT was right and justified in allowing the deduction under Section 80HHC of the Act of 61 on the interest income of ₹ 9,67,336/- and in holding that there is no infirmity in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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