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TMI Blog2017 (7) TMI 1013X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of Rs. 10,32,523 earned by the assessee-appellant on fixed deposit receipts pledged with the bank for availing credit facility for the purposes of export is income from business or it would be income from other sources, liable to deduction in terms of explanation (baa) after sub-section (4C) of Section 80HHC of the Act while computing his taxable income under the head "profits and gains of business and profession". We have heard at length Sri Rahul Agarwal, learned counsel for the assessee-appellant and Sri Manish Goel for the Income Tax Department. The Government of India in order to encourage export inserted Section 89A of the Income Tax Act w.e.f. 1st June, 1982 for providing tax relief to Indian companies or a resident of India having export turnover exceeding a specified limit. This provision of Section 89A of the Act was replaced by Section 80HHC vide Finance Act, 1983 w.e.f. 1.4.1983. The aforesaid Section 80HHC so inserted, inter alia, provides for deductions in respect of profit from export business as referred to in sub-section (1B) of Section 80HHC in computing the total income of the assessee. Sub-section (1) of Section 80HHC reads as under: "Where an asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by computing it under the head "profits and gains of business and profession" after reducing it, inter alia, by ninety per cent of the receipt of interest. The aforesaid explanation (baa) do not specify the source of interest so received which is deductible from the profits and gains of business and profession. The main provision of Section 80HHC(1) is in relation to deductions of the profits to the extent specified under sub-section (1B) of it in computing the total income of assessee derived from the export business whereas the explanation (baa) provides for reduction of the income from business of export so computed under the head "profits and gains of business or profession" by the interest income to the extent specified. The provision of Section 80HHC(1) and explanation (baa) to sub-section (4C) of it operates in totally two different situations. Section 80HHC provides for exclusion of the percentage of profits in computation of the total income of an assessee from export whereas the explanation (baa) provides for reduction of 90% interest receipt from unspecified sources in computing profits of the business of export under the "head profits and gains of business and prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose is a condition precedent for export. If such deposits yield interest it is attributable to or could be said to be derived from the business activity of export. Therefore, the interest earned on bank deposits kept for obtaining letters of credit was deductible from the total income of the assessee. The ratio of the above decisions clearly favours the assessee-appellant. The view expressed therein is that any interest earned on deposits with bank, if such deposits are necessitated for the export business would yield business income. The department on the other hand contends that the interest income so earned is not an income derived from the export business though it may be in some sense attributable as income from business. The emphasis is that the word used under Section 80HHC of the Act is 'derived' and the use of the said word is very important for determining the nature of the interest income. No doubt the above provision uses the word 'derived' and as pointed out it has a narrower meaning in comparison to the expression income attributable to business. In this connection, a decision of the Supreme Court in Commissioner of Income Tax Vs. Sterling Foo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras High Court in K.S. Subbiah Pillai and Co. (India) Pvt. Ltd. Vs. Commissioner of Income Tax wherein it was held that if an assessee engaged in a business of export invests surplus fund in a fixed deposit and earns interest thereon such income cannot be treated as business income as it does not bear any direct nexus with the export business. In line with the above decision three decisions of the Kerala High Court in Urban Stanislaus Co. Vs. Commissioner of Income (2003) 263 ITR 10 (Ker); Southern Cashew Exporters Vs. Deputy CIT (2003) 130 Taxman 203 (Ker) and K. Ravindranathan Nair Vs. Deputy CIT (Assessment) (2003) 262 ITR 669 (Ker) were cited wherein it was held that the assessee can claim deduction in respect of profit derived from export of the goods only when it is established that the income is solely related to the export. The interest from short term deposit was not held to be the direct result of any export and was not accepted for deduction in computing the income of the assessee. The Delhi High Court in Shri Ram Honda (supra) followed the above decisions with approval for the reason that against all the above three decisions special leave petitions before the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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