1999 (7) TMI 26 - HC - Income Tax

Summary

Issues involved: Interpretation of deduction u/s 80HHC for interest income from fixed deposits in the context of export business.

The judgment pertains to appeals by a partnership firm engaged in the export business of hill products like cardamom, coriander seeds, pepper, ginger, etc., for the assessment years 1989-90, 1990-91, and 1991-92. The firm claimed deduction u/s 80HHC on interest received from fixed deposits with banks, contending it was part of export business income. However, the assessing authority and Commissioner of Income-tax (Appeals) rejected this claim, citing precedents like Collis Line Pvt. Ltd. v. ITO [1982] 135 ITR 390. The Income-tax Appellate Tribunal also denied the deduction, treating the interest receipts as "other sources" income, relying on Collis Line Pvt. Ltd. v. ITO [1982] 135 ITR 390 and CIT v. Cochin Refineries Ltd. [1985] 154 ITR 345.

The Tribunal found that while surplus money was kept in fixed deposits without availing loans for certain years, for 1990-91 and 1991-92, the firm used the deposits as collateral for loans. The Tribunal did not accept the argument that the deposits were made to secure loans, as there was no explicit requirement from the bank manager for fixed deposits to avail loans.

The firm's counsel argued that the fixed deposits influenced the bank's decision on loan limits, especially for 1990-91 and 1991-92, justifying the claim u/s 80HHC. However, u/s 80HHC, only income derived from export activities qualifies for deduction. The Tribunal and the court concurred that interest from fixed deposits, not directly linked to export business, cannot be considered business income, citing CIT v. Cochin Refineries Ltd. [1985] 154 ITR 345 and Collis Line Pvt. Ltd. v. ITO [1982] 135 ITR 390.

Therefore, the court dismissed the appeals, affirming that interest income from fixed deposits does not qualify as business income under section 80HHC, but falls under income from other sources.