TMI Blog2018 (8) TMI 1729X X X X Extracts X X X X X X X X Extracts X X X X ..... income accrued is merely incidental and not the prime purpose of doing the act in question, which resulted into accural of some additional income and therefore, the said income is not liable to be assesseed and is eligible to be claimed as deduction. We are of the clear view that the Assessee is entitled to deduction and the Tribunal erred in applying the decision of the Pandian Chemicals [2003 (4) TMI 3 - SUPREME COURT], which is distinguishable, for the reasons set out by us above. - T.C.A. No. 909 of 2008 - - - Dated:- 7-8-2018 - T. S. Sivagnanam And V. Bhavani Subbaroyan, JJ. For the Petitioner : Mr.B.Kumar, Senior Counsel for M/s.R.Loganathan and S.Ramachandran For the Respondent : Mr.S.Rajesh for Mr.T.R.Senthil Kumar ORDER This appeal by the Assessee is directed against the order passed by the Income Tax Appellate Tribunal, Madras D Bench, in I.T.A.No.1221/Mds/2004, dated 04.01.2018 for the Assessment Year 1996-1997. 2. The Assessee filed return of income for the Assessment Year 1996-1997 claiming that in respect of two units, one situated at Pondicherry and another outside, a total interest income on the monies kept with the bank by way of margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2008 on the following substantial question of law : 1. Has not the Tribunal committed an error in blindly applying the ratio in Pandian Chemicals case, 262 ITR 278, of Supreme Court when the language employed in Section 80IA is much wider since it includes profits or gains derived from the business of an Industrial undertaking whereas the language in Section 80HH which was the subject matter of interpretation, the Pandian Chemical case merely stated profits and gains derived from an Industrial undertaking 7. Mr.B.Kumar, learned Senior Counsel assisted by Mr.S.Ramachandran, learned counsel for the Assessee, submitted that the Assessee, for the purpose of manufacture of wind operated electricity generation, popularly called as wind mill , had imported some critical components from abroad, for which purpose, they had opened a foreign Letter of Credit through bank, for which, the bank had insisted upon margin money to be kept as a condition for availing the Letter of Credit facility. It is submitted that the interest earned on such margin money was claimed as deduction under Section 80IA of the Act on the ground that it is for the purpose of carrying on business as for manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of scraps during manufacturing would be included as profits and gains of the industrial undertaking and qualified for deduction under section 80IA of the Act. 7.5. Reliance was also placed on the decision of the High Court of Delhi in Priviera Home Furnishing V. Additional Commissioner of Income Tax, (2016) 237 Taxman 0520 (Delhi), wherein, it was held that the interest on fixed deposit receipts, which were received on margin kept in the bank for utilization of Letter of Credit and bank guarantee itself would form part of the business income of eligible undertaking of the Assessee and the same could be excluded from the eligible profits for the purpose of computing deduction under section 10B of the Act. 7.6. Reliance was placed on the decision of High Court of Gujarat in the case CIT V. Shah Alloys Limited, (2017) 396 ITR 0711 (Guj), which was rendered taking into consideration the decision in the case of CIT V. Karnal Co-operative Sugar Mills Ltd., 2000 (9) SCC 493, wherein, it is held that the deposit made by the petitioner for the purpose of opening a foreign Letter of Credit in the bank is directly linked with the profits or gains derived from the business of the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achal Pradesh in Himachal Futuristic Communication Ltd. V. CIT, (2014) 42 taxmann.com 179 (HP). It is submitted that the Court, following the decision in the case of Liberty India answered the question, which was more or less identical to that of the Assessee's case, in favour of the Revenue. 8.3. Reliance was placed on the decision of the Division Bench of this Court in the case of Gerard Perira V. ITO, (2016) 389 ITR 547 (Mad), wherein, the Court held that the interest income earned on deposit made by the Assessee for availing credit facility was not deductable as it was income earned from other sources. 8.4. Reliance was placed on the decision of the Division Bench of this Court in the case of CIT V. Menon Impex P. Ltd., (2003) 259 ITR 403 (Mad), wherein, it was held that the mere fact that the deposit was made for the purpose of obtaining a Letters of Credit, which were in turn, used for the purpose of doing business of the industrial undertaking did not establish a direct nexus between the interest and the industrial undertaking and therefore, the Assessee was not entitled to get the benefit of Section 10A of the Act in relation to the interest. 8.5. The learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it reiterated its order dated 17.03.2006 and held that the interest earned from bank deposit for the purpose of margin money do not qualify for deduction. In other words, it is held that Pandian Chemical's case will hold the field and accordingly, allowed the Revenue's appeal. 11. Thus, we are first required to examine as to whether the decision in Pandian Chemical's case would apply to the facts and circumstances of the case. In preceding paragraphs, we have referred to the factual position of the Assessee's case. The margin money by way of fixed deposit was available with the Assessee's bankers so as to enable the Bank to open a Foreign Letter of Credit, which was essential for the purpose of import of critical components for the purpose of manufacture of the wind mill for generation of electricity. 12. Firstly, we note that the case of Pandian Chemical's arose out of a claim under Section 80HH of the Act. The Assessee therein had made deposits with the Tamil Nadu Electricity Board, which had earned interest. The question arose was whether interest on deposits with the Tamil Nadu Electricity Board should be treated as income derived on the part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of computation of deduction under Section 80IA of the Act. The Court, after taking note of the decision in the case of Liberty India, pointed out that Section 80IA/80IB of the Act, has a common scheme and a reading of Section 80IA makes it clear that the only requirement for the applicability is deriving of income by an undertaking or an enterprise from any business referred to in sub section (4) and thus, any profits and gains derived from an industrial undertaking from any business would qualify for deduction under Section 80IA of the Act. In our view, the decision rendered in the case of T.T.G. Industries Limited would squarely apply to the case on hand. 16. In the case of Priviera Home Furnishing V. Additional CIT, (2016) 237 Taxmann 520 (Delhi), the Assessee has stated that the interest on Fixed Deposit Receipts was received as margin money kept in the bank for utilization of Letter of Credit and Bank Guarantee limits and the Court held that the decision of the Tribunal that such interest bears the requisite characteristic of business income and has nexus to the business activities of the assessee cannot be faulted with. This decision also supports the case of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses that the company has incurred as the interest earned was inextricably linked with requirement of the company to raise share capital and was thus adjustable towards the expenditure involved for the share issue. 19. In the above referred decision, the Court analysed the purpose of deposit and held that it was not for some additional income, but to comply with the statutory requirements and the interest accrued on such deposit is merely incidental. In our considered view, this will be the right test to be applied to the case on hand and essentially, the answer to the substantial question should be in favour of the Assessee. 20. In the case of CIT V. Jaypee DSC Ventures Ltd., CDJ 2011 DHC 308, the Court held that the deposit made by the Assessee was not the surplus money lying idle with it to earn interest, but it was the amount of interest earned from fixed deposit, which was kept in the bank for the purpose of furnishing the Bank Guarantee. In our view, this decision also will enure in favour of the Assessee. 21. Equally is the decision in the case of CIT V. Paramount Premises (P) Ltd., (1991) 190 ITR 259 (Bom), wherein, analysing the purpose, for which, the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and they belong to the category of ancillary profits of such undertakings. Therefore, on facts, learned counsel for the Revenue cannot place reliance on the case of Liberty India (supra) to deny the benefit to the Assessee. 24. So far as the decision in the case of Cyber Pearl IT Park Limited, the Court, after taking into consideration various decisions, pointed out that in order to come to a conclusion as to whether such profits or gains, that is, income would be amenable to deduction, the effective source of income is to be looked at. Thus, essential factual matrix needs to be looked to arrive at a conclusion as to the effective source from which such income earned and if it is found that it is derived from secondary source, it is not the effective source, which falls outside the purview of such like provision, which provides for deduction. 25. In the instant case, the requirement of the Assessee to furnish the fixed deposit was a pre-condition to enable the Assessee to open a foreign Letter of Credit for the purpose of import of critical components for the manufacture of wind mill. This incidentally had earned some interest. As pointed out by the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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