2001 (9) TMI 252 - AT - Income Tax

Summary

Issues Involved:
1. Exclusion of interest income for calculation of deduction under Section 80HHC.
2. Classification of interest income as business income or income from other sources.
3. Disallowance of conveyance expenses.

Issue-wise Detailed Analysis:

1. Exclusion of Interest Income for Calculation of Deduction under Section 80HHC:
The appellant contended that the interest income earned from surplus funds, which were temporarily not needed for business, should be included in the calculation of deduction under Section 80HHC of the Income Tax Act. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] excluded this interest income, arguing that it was not derived from the export of goods or merchandise. The Tribunal upheld the CIT(A)'s decision, referencing the Rajasthan High Court's decision in Murli Investment Co. vs. CIT, which held that interest income from surplus funds is not business income but income from other sources. The Tribunal also noted that the appellant failed to establish a direct nexus between the interest income and the export business, which is a prerequisite for claiming deduction under Section 80HHC.

2. Classification of Interest Income as Business Income or Income from Other Sources:
The appellant argued that the interest income should be classified as business income, citing various Tribunal decisions, including Sharda Gums & Chemicals vs. Asstt. CIT, which supported the view that interest income with a direct nexus to business expenditure should be treated as business income. However, the Tribunal found that the appellant did not intend to carry on a money-lending business and that the interest income was from surplus funds not immediately required for business. The Tribunal referenced the Rajasthan High Court's principles in CIT vs. Rajasthan Land Dev. Corpn., which state that interest income from surplus funds not required for business should be assessed as income from other sources. Consequently, the Tribunal upheld the CIT(A)'s decision that the interest income was assessable under the head "Income from other sources" and not eligible for deduction under Section 80HHC.

3. Disallowance of Conveyance Expenses:
The appellant challenged the disallowance of Rs. 2,000 from conveyance expenses, which the AO treated as personal expenses due to lack of detailed records. The Tribunal found the disallowance reasonable, given the absence of proof that the entire expenditure was for business purposes. Therefore, the Tribunal upheld the CIT(A)'s decision to confirm the disallowance.

Separate Judgment by Dinesh K. Agarwal, J.M.:
While concurring with the decision, Dinesh K. Agarwal, J.M., provided additional reasoning on ground No. 1.3. He noted that the CIT(A) had exceeded his jurisdiction by introducing a new source of income not considered by the AO. Citing the Delhi High Court's decision in CIT vs. Union Tyres, he emphasized that the first appellate authority cannot introduce a new source of income. However, he agreed that the appellant failed to establish a direct nexus between the interest income and the export business, and thus, the interest income was not eligible for deduction under Section 80HHC. He also concurred with the findings on the disallowance of conveyance expenses.

Conclusion:
The Tribunal dismissed the appeal, affirming the CIT(A)'s decisions on all grounds. The interest income was classified as income from other sources, not eligible for deduction under Section 80HHC, and the disallowance of conveyance expenses was upheld.