2002 (11) TMI 56 - HC - Income Tax

1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the interest amount of Rs. 61,50,722 received on short-term deposit was income from other sources and not business income? - 2. Whether there were materials for the Appellate Tribunal to hold that the interest on short-term deposits has to be treated as income from other sources, in view of the fact that the deposits were made at the instance of the bank for opening letters of credit and for keeping margin money and because of which the deposits are committed deposits? - we answer the two questions on which notice is issued against the appellant and in favour of the Revenue.

Summary

Issues Involved:
- Eligibility of interest income for relief under section 80HHC of the Income-tax Act, 1961.
- Interpretation of the term "derived" in relation to profits from export business.

Analysis:

Issue 1: Eligibility of interest income for relief under section 80HHC
The appellant derived interest income from short-term deposits made with a bank for opening letters of credit and other export-related formalities. The Assessing Officer treated this interest income as income from "other sources" instead of business income. The appellant contended that there was a nexus between the interest income and the export sales, making it income from business. The Commissioner of Income-tax (Appeals) and the Tribunal upheld the Assessing Officer's decision. The appellant argued that the bank's insistence on short-term deposits for various facilities was not considered in previous decisions. However, the Revenue argued that for the income to be eligible under section 80HHC, it must be directly derived from the export of goods. The court reviewed past decisions and held that the interest income from short-term deposits, even if related to export business, was not directly derived from export activities. Therefore, the interest income was not eligible for relief under section 80HHC.

Issue 2: Interpretation of the term "derived" in relation to export business profits
The court analyzed previous judgments, including Nanji Topanbhai and Co. v. Asst. CIT and other relevant cases, to interpret the term "derived" in the context of profits from export business. It was established that income must be directly linked to the export activities to qualify for relief under section 80HHC. The court emphasized that the interest income from short-term deposits, though related to export business requirements, did not directly result from export activities. The court referred to the Supreme Court's decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT to explain the wider import of the term "attributable to" compared to "derived from." Ultimately, the court held that the interest income from short-term deposits did not meet the criteria of being profits directly derived from export business, as required by section 80HHC. The court dismissed the appeal based on these findings.

In conclusion, the court ruled against the appellant, stating that the interest income from short-term deposits, despite its connection to export activities, did not qualify as income directly derived from export business for the purpose of claiming relief under section 80HHC of the Income-tax Act, 1961.