TMI Blog1998 (2) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... a reference, the following questions have been referred at the instance of the Revenue : "1. Whether, on the facts and in the circumstances of the case, and having regard to the provisions of section 57 of the Income-tax Act, 1961, the Appellate Tribunal was right in holding that the interest paid on overdrafts to the bank should be deducted against the interest on fixed deposit assessed under the head 'Other sources' ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the tax paid at foreign ports should be allowed as a deduction in computing the income of the assessee ?" The assessee is a public limited company engaged in shipping business. For the assessment year 1976-77, it reported an income of Rs. 1,75,79,871 under the head "Business (shipping) income". Of that sum, a sum of Rs. 87,51,231 was stated to be income by way of interest received on short-term bank deposits. The Income-tax Officer treated the income received by the assessee by way of interest on bank deposits as being taxable under the head "Other sources". The interest paid by the assessee on overdrafts obtained by it were treated by him as expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the assessee there that such income could not be taxed under the head "Income from other sources". It was also the assessee's case there that the interest paid by the assessee on its borrowings are required to be set off, against the interest earned by the assessee on its bank deposits. It is in the background of those facts that the apex court considered the questions that were raised before it. After setting out the facts, the court made the following significant observation : "In the usual course, interest received by the company from bank deposits and loans would be taxable as income under the head 'Income from other sources' under section 56 of the Income-tax Act." The court then noticed that the argument that was advanced before it for the assessee that the assessee therein had not commenced its business and, therefore, the income derived from funds borrowed for setting up the factory should be adjusted against the interest payable on the borrowed funds. The court rejected his arguments and held that : "In our judgment neither of the two factors can affect the taxability of the income earned by the company." The court pointed out that section 14 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT v. Calcutta National Bank Ltd. [1959] 37 ITR 171, in support of his submissions that the term "business" is a word of wide scope and that all activity carried on in the course of the business are to be regarded as one integrated whole and that, therefore, the income realised from the fixed deposits of idle funds can only be regarded as business income, The decision of the court does not support the proposition so advanced, The court therein was dealing with the provisions of the Excess Profits Tax Act, 1940. The court found that the term "business" in that Act was wider than that contained in the Income-tax Act, and found that the Excess Profits Tax Act is not concerned with all kinds of income but only with profits, if made, beyond the certain standard laid down in the Act. It was in that background that the court held that the rental income realised by the assessee from property owned by it was required be treated as "business income" for the purposes of the Excess Profits Tax Act. Under the Income-tax Act, the distinct heads under which the income of an assessee is to be classified are set out in section 14 of the Act. The income received by an assessee has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar to the one taken by this court in the case of CIT v. Madras Refineries Ltd. [1997] 228 ITR 354. All these decisions which have held that the interest received on short-term bank deposits by an assessee carrying on business and having the business income are not to be treated as income from other sources, but as business income must be held to have been impliedly overruled by the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172. This court in the case of the very assessee, and at its instance, had considered this question as early as in the year 1983, and had rejected the argument similar to the one raised in this case by the assessee, in T.C.P. No. 108 of 1983, decided on July 18, 1983. The Division Bench of this court declined to direct the Tribunal to state the case and to refer the question of law, viz., as to whether interest from bank deposits and interest on loan to others received by the assessee should be under the head "Other sources" and not "Business", was not a question which was required to be referred to this court, as the court was of the view that the view that had been taken by the Tribunal that such income could o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources". The second question that has been referred to us, at the instance of the assessee, has to be answered against the assessee and in favour of the Revenue as it is no longer res integra. The apex court in its decision in the case of CIT v. Arvind Mills Ltd. [1992] 193 ITR 255 and this court in the case of South India Shipping Corporation Ltd. v. CIT (Addl.) [1979] 116 ITR 819, held that the additional cost incurred due to exchange fluctuations is capital expenditure and not revenue expenditure. The second part of the question is covered against the assessee by the decisions already rendered in the cases of CIT v. South India Viscose Ltd. [1979]120 ITR 451 (Mad) ; CIT v. South India Viscose Ltd. (No. 2) [1998] 229 ITR 203 (Mad) and Sivananda Steels Ltd. v. CIT [1998] 229 ITR 197 (Mad), wherein the claim for development rebate in respect of such additional cost was disallowed. Coming now to the questions that have been referred to us at the instance of the Revenue, these questions are required to be answered in favour of the Revenue and against the assessee, in view of the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilisers Ltd. [1997] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. A similar argument was considered and rejected by this court in the case of CIT v. Kerala Lines Ltd. [1993] 201 ITR 106. We are in respectful agreement with the law laid down in that decision. The tax paid to the Australian Government was from out of the freight earned by the assessee in Australia, and such payment of tax was not an expenditure which was incurred for the purpose of earning the income out of which the tax was paid. The Tribunal in this case has allowed the expenditure on the ground that the tax so paid was not a tax on the profits or gains of the assessee, and that it was not computed as a percentage of the total profits and gains. That fact, though relevant for the purpose of section 40 of the Act, is not of any relevance for the purpose of determining the true character of the payment as to whether it is an item of expenditure allowable as a business expenditure or is an amount paid by the assessee from out of its profits. The Tribunal has misled itself in holding that such payment not being one to which section 40 of the Act is applicable, the same is required to be allowed as a business expenditure. The questions referred to us at the instance of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
