TMI Blog2002 (3) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... d manner. 4. Aggrieved with the order of the learned CIT(A), the assessee has come up in appeal before us. The grounds of appeal, which bring out the grievance of the assessee, are reproduced hereunder : (1) The order of the CIT(A) not allowing deduction under section 80HH in respect of interest of Rs. 5,71,689 is bad in law as also on facts. (2) The CIT(A) failed to appreciate that the above interest was earned from the surplus funds of the industrial undertaking and therefore was nothing but the profits and gains derived from an industrial undertaking and was also taxed as such as having been taxed as business income the only business being the business of the industrial undertaking and therefore, 80HH relief ought to be allowed thereon. (3) The CIT(A) erred in so far as he did not follow the order of his predecessor in office for the assessment years 1990-91 and 1991-92 whereby he had held that the assessee is entitled to 80HH relief in respect of such interest. 5. Shri Manish J. Shah, the learned counsel for the assessee argued that the assessee has received interest on FDs which are lying pledged with the Bank as security against Margin Money for letter of credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Undertaking" connotes that immediate and effective source of income eligible for grant of relief under section 80HH must be the Industrial Undertaking itself and not any other source. Shri Bhatti further urged that the mandate of law is that unless the source of profit is the undertaking, the assessee is not eligible to claim deduction under section 80HH. The learned DR further added that the immediate source of interest income is the bank deposits and not the Industrial Undertaking. The learned DR pointed out that the Legislature has deliberately and consciously used the expression "derived from" whereas in similar provisions the words, "attributable to" have earlier been used e.g., in section 80E which was inserted by the Finance Act, 1966 with effect from 1-4-1966. That section was omitted and in its place section 80-I was introduced by the Finance (No. 2) Act, 1967 with effect from 1-4-1968. In both these provisions, the Legislature has used the expression "profits and gains attributable to". Subsequently, when section 80-I was again inserted by the Finance (No. 2) Act, 1980 with effect from 1-4-1980 [earlier section 80-I was omitted by the Finance Act, 1972 with effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Courts, these decisions are binding and should be followed in the instant case. Regarding the decision of Ahmedabad Bench of ITAT in the assessee's own case for earlier years relied upon by the learned counsel, the learned DR submitted that in the said decision the learned Members have not considered the binding decisions of Hon'ble Supreme Court cited above and therefore a contrary view by the Tribunal is not correct. The learned DR further submitted that the law as laid down by the Hon'ble Supreme Court is the law of the land and no Court or Tribunal is entitled to take a contrary view. Regarding the decision of the Hon'ble Supreme Court in the case of Bokaro Steel Ltd. heavily relied upon by the learned counsel, the learned DR argued that the decision is entirely distinguishable on facts and issue involved there and it renders no assistance to the assessee's case. The learned DR made specific mention of the decision of Hon'ble Madras High Court in the case of South India Shipping Corpn. Ltd. wherein their Lordships have followed their earlier decision in Pandian Chemicals Ltd.'s case and held that the interest on bank FDs represents income from other sources and cannot be const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e quibus non. The source from which the interest is derived has not thereby been ascertained. The word 'derived' is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest, land indeed appears in the second degree, but the immediate and effective source is rent which has suffered the accident of non-payment. And rent is not land within tile meaning of the definition. There is no commercial connection between the interest and the rented land and an effective source-not land has become apparent." 8.3 It is apparent from the above observations that the Privy Council assigned a restricted meaning to the word "derived". In the view of the Privy Council, if an enquiry is to be made into the genealogy of the item or the product, the enquiry should stop as soon as the effective source is discovered, and there shall not be any further enquiry into any other matter, however closely connected with the effective source in question. 8.4 In Cambay Electric Supply Industrial Co. Ltd.'s case the Supreme Court has also given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the profit. The business of the Industrial Undertaking had directly to yield that profit. The Industrial Undertaking should be direct source of that profit and not a Means to earn the profit. 8.6 In Hindustan Lever Ltd. v. CIT [1999] 239ITR 297 the Supreme Court had an occasion to construe the phrase "profits and gains derived from the export of any goods". The assessee exported groundnut oil and the import entitlements obtained from the Government of India were utilised by the assessee to purchase goods for use in manufacture of other products which were sold in India. The Supreme Court held that the profits from sales could not be said to have been derived from export sales. According to the Supreme Court the immediate source of the profit was sale of goods and the export of other goods was not even the second degree but it had to be traced to an even more remote degree. In the chain of sequence the earlier export would be four degrees away. 8.7 From the aforesaid decisions of the Privy Council and the Supreme Court, it becomes clear that the expression "derived from" has a definite but narrow meaning and it cannot receive a flexible or wider concept. There is a well kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted meaning to the expression "derived from" in conformity with the judicial interpretation by the Highest Court. 8.9 At this stage, we may usefully refer to various High Court decisions which have a direct bearing on the question of eligibility of interest income on FDs in the context of the provisions of sections 80HH and 80-I. These decisions are obviously direct authorities for deciding the question arising in the present appeal before us. 8.10 We would first refer to the decision of the Hon'ble Madras High Court in the case of Pandian Chemicals Ltd. cited by the learned Dr. In this case, the assessee-company engaged in the manufacture and sale of potassium chlorate had to deposit money with Tamil Nadu Electricity Board under the requirements of the statute for getting power supply and earned interest income on such deposits. The Hon'ble Madras High Court observed at page 506 of the Report as under: "A study of various case laws clearly indicates that a restricted meaning is given when the Legislature user the expression, 'derived from'. Though the assessee has necessarily to make the deposit with the Electricity Board for running the industry and the power supply will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Madras Refineries Ltd. [1997] 228 ITR 354 (Mad.) (3) CIT v. A.P. Industrial Infrastructure Corpn. Ltd. [1989] 175 ITR 361/[1988] 36 Taxman 201 (AP) (4) Snam Progetti S.P.A. v. Addl. CIT [1981] 132 ITR 70/[1982] 10 Taxman 86 (Delhi) and observed as under: "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." 8.12 A similar view has been taken in the following decisions of various other High Courts laying down that interest received by a company from bank deposits and loans could only be taxed as income under the head "other sources" under section 56 of the Act. (1) Collis Line (P.) Ltd. v. ITO [1982] 135 ITR 390/9 Taxman 129 (Ker.) (2) Bokaro Steel Ltd. v. CIT (No. 2), [1988] 170 ITR 545/37 Taxman 109 (Pat.) (3) Murli Investment Co. v. CIT [1987] 167 ITR 368/31 Taxman 410 (Raj.) (4) CIT v. Pondicherry Distilleries Ltd. [2000] 241 ITR 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... casion for the High Court to consider whether such interest income can be treated as profits derived from the Industrial Undertaking. This decision therefore does not help the assessee's case. 8.17 The learned counsel has next relied upon the decision of Hon'ble Supreme Court in the case of Vellore Electric Corpn. Ltd. v. CIT[1997] 227 ITR 557. This decision pertains to assessment years 1969-70 and 1970-71. For these assessment years the expression 'attributable to' has been used in section 80-I of the Act. The appellant company before the Supreme Court was a Public Limited Company having a licence under the provisions of the Electricity (Supply) Act, 1948 to distribute power in the Vellore and Ranipet areas. Under the statutory provisions of Electricity (Supply) Act, the assessee was obliged to invest the sums appropriated in the "contingencies reserve" in securities authorised under the Indian Trust Act, 1882. The issue arising before the Supreme Court was whether interest on such securities can be treated as profits and gains attributable to priority industry for the purpose of section 80-I. The Hon'ble Supreme Court referred to its earlier decision in Cambay Electric Supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the nation. The phrase 'Law declared' in Article 141 is of wide amplitude and takes in the "ratio decidendi" of the case as well as "orbiter dictum". An Obiter dictum or a mere enunciation of a principle of law pronounced ex cathedra would amount to a declaration of law, under Article 141. Obiter dicta of course does not include passing casual observation made by the Supreme Court. the Supreme Court, while construing "derived from" has consistently taken the view in the various decisions referred to earlier that the income should have connection of first degree with the Industrial Undertaking i.e. a direct and immediate source of income should be the Industrial undertaking. Interest income from Fixed Deposits does not obviously fulfil this test. Without going into the controversy whether interest income is to be treated as "income from other sources" or as "business income", the inference is irresistible that interest income from Fixed Deposits flows from the bank deposits and the first and immediate source of income is the bank deposits and not the Industrial Undertaking. Such interest income may have commercial connection with the Industrial Undertaking inasmuch as the Fixed D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Ltd. We have already discussed the facts and issue involved in the case of Vellore Electric Corpn. Ltd. and observed that the Supreme Court in the said decision construed the expression "attributable to" as against "derived from" used in section 80HH which is under consideration before us. The Hon'ble Tribunal has further referred to Supreme Court decision in the case of Ashok Leyland Ltd. v. CIT[1997] 224 ITR 122 . This decision also interpreted the expression "attributable to" and not "derived from". The said decision, therefore, does not support the view taken by the Delhi Tribunal. 8.21 We may further point out that the Hon'ble Delhi Tribunal in Para 13 of its aforesaid order has placed reliance on the decision of the Madras High Court in the case of CIT v. South India Shipping Corpn. Ltd. [1995] 216 ITR 651. We have already mentioned above that this decision has been overruled by the Hon'ble Madras High Court itself in its subsequent decision in South India Shipping Corpn. Ltd.'s case . 8.22 The learned counsel has next cited the decision of Ahmedabad Bench "A" in the case of Inductotherm (India) Ltd. In this decision, the Hon'ble Tribunal held that the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clearly distinguishable and does not render any assistance to assessee's case before us. The Hon'ble High Court in the said case held that the amount kept by the assessee in short term fixed deposits out of idle funds are to be included in the computation of capital employed for the purpose of relief under section 84 and under section 80J for the relevant years. The assessment years involved before the High Court were 1967-68, 1968-69 and 1969-70. There was no occasion for their Lordships to construe the words 'derived from' or whether interest on Fixed Deposits represents profits derived from the Industrial Undertaking. The said judgment therefore does not in any manner support the assessee's case. 8.24 The learned counsel made a fervent plea that in case the earlier decisions of the Tribunal taking a contrary view are not followed, the matter may be referred to a larger Bench. However, we are not inclined to accept the contention in view of the fact that the legal position involving the point in issue before us is settled beyond doubt by a string of judicial authorities including Hon'ble Supreme Court, Hon'ble Gujarat High Court as well as various other High Courts which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Bokaro Steel Ltd. 11. After careful consideration of the rival submissions, we are inclined to reject the alternative contention for netting of interest receipt, raised by the learned counsel. While adjudicating the main grounds of the assessee we have held, after a detailed discussion of case law on the subject, that the interest from Fixed Deposits received from the bank is to be treated as income from other sources and therefore there is no justification for deducting any interest expenditure against the interest income from the Fixed Deposits. The fact that the Fixed Deposits have been utilised by the assessee for the purpose of cash credit facilities or margin money would not per sealter the nature of interest received from the bank as income from other sources. So far as interest debited to the P L Account is concerned, this has been allowed as a business expenditure. There is therefore no merit in the assessee's contention for adjusting such expenditure against the interest from bank deposits. It is further to be noted that no facts and material have been brought on record on behalf of the assessee regarding the source of funds deposited with the bank; no case has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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