TMI Blog2005 (5) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court that the words derived from must be understood as something, which has a direct or immediate nexus with the industrial undertaking. In that case, the assessee derived interest on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking. Thus, the deposits made by the assessee were essential requirement for carrying on the functioning of the industrial undertaking. The electricity was required for the purpose of running the industrial undertaking. Nevertheless, the Hon'ble Supreme Court held that the interest earned by the assessee on such deposit was not profit derived from the industrial undertaking and, therefore, the assessee is not entitled to deduction u/s 80HH. Thus, we do not consider it necessary to discuss the various cases, which have been relied upon by the ld. counsel for the assessee. As mentioned above, the Supreme Court decision in the case of Pandian Chemicals Ltd., was not considered in any of the cases. We, therefore, hold that the interest income is not eligible for deduction u/s 10A as such income cannot be said to be in the nature of profits and gains derived from the export of articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year on account of higher realization of export proceeds outstanding on 31-3-2000 during the year at a rate higher than the rate at which they were accounted for as on 31-3-2000 as per rule 115 from the profits of the undertaking eligible for deduction under section 10A(1) as read with section 10A(4). 2.2 Your appellant submits that the said gain realized during the year on account of Exchange Fluctuation forms part of both the export turnover and total turnover and is derived from the business of undertaking and is deductible under section 10A(1) as read with section 10A(4). 2.3 Your appellant, therefore, prays to direct the cancellation of the order of enhancement. 2.4 Your appellant prays to hold that ld. CIT(A) ought to have followed the order of ITAT, Mumbai in case of S.S. Industries and ought not to have ordered enhancement of your appellant's total income. 3. From the above, it may be seen that the grounds of appeal pertain to two issues. The first issue is as to whether interest income of Rs. 2,67,212 is eligible for deduction under section 10A of the Income-tax Act. The second issue pertains to the enhancement made by the ld. CIT(A) to the assessed income by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank for the purchase of gold, which is the assessee's main raw material and also in connection with Bank Guarantee required for business purposes. It is, therefore, contended that the interest income earned by the assessee is in the nature of business income and it cannot be considered as income from other sources. The ld. counsel invited our attention to the provisions of section 10A(1), which may be reproduced below: 10A.(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. 8. The ld. counsel thereafter referred to the provisions of subsection (4) of section 10A, which reads as under: (4) For the purposes of [sub-sections (1) and (1A)], the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that deduction will be allowable in respect of profits and gains derived from an industrial undertaking. It is claimed that the aforesaid Supreme Court decision cannot be applied to section 10A. Alternatively, the ld. counsel argued that for making the bank deposits for the purposes of business, the assessee has utilized borrowed funds on which interest has been paid and, therefore, such interest should be deducted from the gross interest income and only the net can be excluded for the purpose of exemption under section 10A. 11. The ld. DR Shri Bharat Bhushan strongly supported the orders of revenue authorities and has relied on the various judgments, which are referred to in the orders of the Assessing Officer and CIT(A). He also relied on the Supreme Court decision in the case of Pandian Chemicals Ltd. 12. We have given a careful consideration of the rival submissions made before us vis-a-vis the facts of the case and in the light of the legal position emerging from the relevant provisions of the I.T. Act and the various precedents cited before us. First of all it must be mentioned here that in none of the cases which has been relied upon by the ld. Counsel for the assessee, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest earned by the assessee on such deposit was not profit derived from the industrial undertaking and, therefore, the assessee is not entitled to deduction under section 80HH. 14. Here a reference may also be made to the Kerala High Court judgment in the case of K. Ravindernathan Nair which has also been strongly relied upon by the ld. CIT(A). The aforesaid case arose in the context of section 80HHC and the ratio of this case is reproduced below from the head note: The provisions of section 80HHC of the Income-tax Act, 1961, clearly provide that the deduction permissible under the said section is of the profits derived by the assessee from the export of such goods or merchandise. The meaning of the expression 'derived from' has got only a limited import and, therefore, the expression 'derived from' as used in section 80HHC must be understood as profit directly arising from the export of the goods and not incidental to the export. Held , that, in the instant case, the interest from short-term deposits received by the appellant was not the direct result of any export of any goods or merchandise. The fixed deposit was made only for the purpose of opening lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The mere fact that the deposit made was for the purpose of obtaining letters of credit which letters of credit were in turn used for the purpose of the business of the g industrial undertaking does not establish a direct nexus between the interest and the industrial undertaking. 16. The Madras High Court drew support from the Supreme Court decisions in the cases of Cambay Electric Supply Industrial Co. Ltd. and Sterling Foods. 17. In view of the categorical legal position which emerges from the above-mentioned cases including the Supreme Court decision in the case of Pandian Chemicals Ltd., we do not consider it necessary to discuss the various cases, which have been relied upon by the ld. counsel for the assessee. As mentioned above, the Supreme Court decision in the case of Pandian Chemicals Ltd., was not considered in any of these cases. We, therefore, hold that the interest income is not eligible for deduction under section 10A as such income cannot be said to be in the nature of profits and gains derived from the export of articles or things. Therefore, on this issue, we confirm the order of ld. CIT(A). 18. Coming to the alternative claim that only net interest income can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es suffers a loss and sometimes earns profit in respect of sale consideration, which remains due on the last day of the accounting year and is actually received in the subsequent accounting year. The ld. Counsel contended that this issue is covered in assessee's favour by various judicial pronouncements. He referred to ITAT, Delhi Bench decision in the case of Smt. Sujatha Grover v. Dy. CIT [2002] 74 TTJ 347. In this case, for the purpose of section 80HHC, it was held that income from foreign currency fluctuation was part of export turnover and was in the nature of only additional sales price. Similar view was taken in the following cases: 1. Sree Hanuman Trading Co. v. CIT [1980] 125 ITR 1 (Ker.) 2. Fab India v. of [1981] 130 ITR 143 (Delhi) 3. V.D. Swami Co. (P.) Ltd. v. CIT [1984] 146 ITR 425 (Mad.) 4. Hindustan Trading Corpn. v. CIT [1986] 160 ITR 154 (Guj.). The ld. counsel also relied on the ITAT, Mumbai Bench decision in the case of Mandhana Bornemann Industries Ltd. v. Asstt. CIT [IT Appeal Nos. 4577 and 4578 (Mum.) of 1999, dated 15-4-2004]. In this case, the question arose as to whether deduction under section 80HHC is available on the profit earned by the assessee on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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