TMI Blog2019 (2) TMI 1809X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80-IA - The efforts on the part of the Revenue authorities to create such artificial compartments in the business income of the assessee, merely to reduce the quantum of deduction available to the assessee under section 80-IA of the Act of which the eligibility of the assessee is not even in doubt, is nothing but a whimsical and the arbitrary view of the Revenue authorities and the same is opposed to common sense and business prudence of a common businessman. Our view is fully supported by the judgments relied upon by the learned counsel for the assessee as quoted above, whereas we find distinction of the facts in the case law relied upon by the Revenue and therefore, we have no hesitation to hold that the interest income earned by the assessee on margin money deposits with the bank and interest on short-term loans and advances in the form of belated payments made by customers was very much profits and gains of the business of the assessee and therefore, the assessee was entitled to deduction under section 80-IA of the Act in respect of such interest income also. Having in favour of the assessee, we do not consider it even necessary to answer the question whether the reo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision reported in South India Shipping Corporation Ltd. v. CIT [1999] 240 ITR 24 (Mad) ren dered subsequent to the original assessments framed for the respec tive years under consideration which would justify such assumption of jurisdiction for reopening the completed assessments ? (iii) Whether the Tribunal is correct in rejecting the grounds chal lenging the assessment of receipts more fully described in page 4 of the common order of the Commissioner of Income-tax (Appeals)-VI, Chennai-600 034, dated February 21, 2003 under the head 'Income from other sources' with a view to reduce the deduction allowable under section 80-IA of the Act ? (iv) Whether the Tribunal is correct in ignoring the alternative grounds raised to press for the assessment of the income under con sideration under the head 'Other sources' after setting of the expenses incurred in earning such income and other proportionate overhead expenses which would have a limited impact on the consequential recomputation of deduction under section 80-IA of the Act ? and (v) Having held that the assessment framed cannot be said to be in accordance with the provisions of section 143(2) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction is allowed equal to 100 per cent. of the profits and gains derived from the business for ten consecutive assessment years. 8. The case of the Revenue before us is that the aforesaid interest income on the margin money deposit with the bank and interest on short-term loans and advances in the form of interest from customers on the belated payments received by the assessee, were liable to be taxed as income from other sources , because the same was not earned directly by any manufacturing or industrial activity of the assessee and therefore, such interest income did not form part of the profits and gains of the business of the assessee and no deduction under section 80-IA of the Act in respect of the same could be allowed in the hands of the assessee. 9. All the three authorities below, namely, the assessing authority, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, held against the assessee on the aforesaid issue and hence, the present appeal has been filed by the assessee before this court under section 260A of the Act raising the aforesaid substantial question of law before this court. 10. The learned counsel for the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business or profession of the assessee relatable to its manufacturing activity and the incidental income arising out of the deposit of the margin money, which was required by the bank to be kept with it and the interest from customers on belated payments shown as interest on short-term loans and advances was nothing but part of business and profits of the assessee and was not taxable as income from other sources under section 56 of the Act and being part of profits and gains of the business , the assessee was entitled to claim deduction under section 80-IA of the Act in respect of such interest income as well. 14. He relied upon a recent decision of a Co-ordinate Bench of this court in the case of Arul Mariammal Textiles Ltd. v. Asst. CIT [2018] 97 taxmann.com 298 (Mad), delivered on August 7, 2018, which is almost on similar facts. A Division Bench of this court held that the interest on margin money by way of fixed deposit kept with the assessee's banker so as to enable the bank to obtain open foreign letter of credit which was essential for import of critical components for carrying on the assessee's business of manufacturing windmill, was eligible for deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are linked to the profits and not to investment, whereas, in the other provisions, namely, sections 80H, 80HH, 80HHA, 80HHB, 80HHBA and 80HHC, the scheme is different. In fact, this distinction was noticed by a Division Bench of the Kerala High Court in K. Ravin dranathan Nair v. Deputy CIT (Assessment) [2003] 262 ITR 669 (Ker), wherein, the court, while considering the decision of the hon'ble apex court in Karnal Co-operative Sugar Mills Limited pointed out that the said decision was not rendered in the context of all the provisions of section 80HHC of the Act, as the decision in Kar nal Co-operative Sugar Mills Limited followed the decision in the case of CIT v. Bokaro Steel Limited [1999] 236 ITR 315 (SC). In Karnal Co-operative Sugar Mills Limited, the deposit of money was directly linked with the purchase of plant and machinery and therefore, it was held that any income earned on such deposit was incidental to the acquisition of assets for the setting up of plant and machinery. There fore, in our view, the Tribunal committed an error in allowing the Revenue's appeal by merely placing reliance on the decision in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 10A or section 10B of the Act. The words 'derived by an undertaking' in section 10A or section 10B are different from 'derived from' employed in section 80HH, etc. A provision intended for promoting economic growth has to be interpreted liberally. The incidental activity of parking of surplus funds with the banks or advancing of staff loans by such special category of assessees cov ered under section 10A or section 10B of the Act is an integral part of their export business activity and a business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be de-linked from the profits and gains derived by the under taking engaged in the export of articles as envisaged under section 10A or section 10B cannot be taxed separately under section 56. Gains of the undertaking including the incidental income by way of interest on bank deposits or staff loans would be entitled to 100 per cent. exemption or deduction under section 10A and section 10B. Such interest income arises in the ordinary course of export business of the undertaking even though not as a direct result of export but from the bank deposits, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary requirements to enable the appellant to make the export. From the above it is clear that the interest income received on the short-term deposits though it can be attributed to the export business cannot be treated as income which is derived from the export business. In the above circum stances, even assuming that the bank had insisted for making shortterm deposits for opening letters of credit and for other facilities, it cannot be said that the income is derived from the export business. That apart, the very question as to whether the income derived from deposits made with the bank is entitled to the relief under section 80HHC was considered by this court in Nanji Topanbhai and Co. v. Asst. CIT [2000] 243 ITR 192 (Ker), CIT v. Jose Thomas [2002] 253 ITR 553 (Ker) and also in Abad Enterprises v. CIT [2002] 253 ITR 319 (Ker) where it was categorically held that such interest income is not entitled to the relief under section 80HHC of the Act. For all these reasons we answer the two questions on which notice is issued against the appellant and in favour of the Revenue. The appeal is accordingly dismissed. (emphasis supplied) 19. The hon'ble Supreme Court also in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. That, the said items distorted the figure of export profits. . . . Before concluding we state that the nature of every receipt needs to be ascertained in order to find out whether the said receipt forms part of/or that it has an attribute of an export turnover. When an indi rect tax is collected by the taxpayer on behalf of the Government, the tax recovered is for the Government. It may be an income in the con ceptual sense or even under the Income-tax Act but while working out the formula under section 80HHC(3) of the Income-tax Act and while applying the four variables one has to ascertain whether the receipt has an attribute of export turnover. An indirect tax like excise duty does not have that element of export turnover as understood in the above formula. As stated above, it is recovered by the taxpayer on behalf of the Government. Therefore, in the present cases, our judg ment in CIT v. Lakshmi Machine Works [2007] 290 ITR 667 (SC) has no application. (emphasis supplied) 20. It may be stated here that clause (baa) of Explanation to section 80HHC deals with the items like rent, commission, brokerage charges, etc. which though form part of the gross total income, hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest income is concerned, clause (id) of sub-section (2) of section 56 clearly provides that income by way of interest on securities will be taxable under section 56, if only such interest income is not chargeable to Income-tax under the head Profits and gains of business or profession . Thus, interest income earned in the ordinary course of business is excluded from section 56 of the Act. An interest income earned by the assessee or received by the assessee during the year in question, in the ordinary and regular course of business is an integral part of business income itself. Like hundreds of business decisions taken by the assessee in its business, the deposit of money with the bank either under compulsion like maintaining the margin money with the bank or for opening of foreign letters of credit or for obtaining the loan itself or cash credit facility or the voluntary deposits made by it of the surplus funds, which would otherwise be lying idle, the assessee, in its own business or commercial prudence, makes a deposit in bank and incidentally earns an interest through it or interest from staff loans or customers on the belated payments and such interest income is nothing b ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
