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TMI Blog2004 (2) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (baa) w.e.f. 1-4-1992, the formula that existed before the date for computing the export profits on which deduction was to be allowed gave a distorted figure when receipts like interest, commission, etc. which do not have element of turnover are included in the profit and loss account and it was with a view to removing the distortion that it was clarified through the Explanation that 'profits of the business' for the purpose of section 80HHC will not include receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature. In fact, it would be incongruous to hold that the Legislature recognised the principle of netting in clause (2), it did not do so in clause (1) of the same Explanation, though both the clauses deal with the same subject-matter, viz., exclusion from business profits of something which cannot strictly be called business income. In clause (2), it is significant to note, no ad hoc deduction is allowed for common expenses, obviously because it speaks of profits of any branch, office, warehouse or any other establishment of the assessee situate outside India, in which case it would not be difficult to ascertain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof is a negative profit (loss) and if so whether the said negative profit (loss) has to be adjusted/setoff against the amount of deduction allowable under the proviso to section 80HHC(3) or the loss computed under all or any of the clause (a), (b) or (c) of section 80HHC(3) has to be ignored and deduction u/s 80HHC is required to be allowed on the amounts computed under proviso to section 80HHC(3) of the Income-tax Act? - For the purpose of computing the deduction allowable under the proviso to sub-section (3) of section 80HHC in respect of the export incentives mentioned in section 28(iiia),(iiib) and (iiic), the loss, if any, suffered by the assessee under any of the clause (a),(b) or (c) of the sub-section shall be ignored and the deduction shall be allowed in respect of the amount computed under the said proviso. (iii) Whether 90 per cent of the gross interest received by the assessee shall be reduced from the profit and gains of the business or profession to determine profits of the business as given in Explanation (baa) below sub-section 4(b) of section 80HHC of the Income-tax Act in order to compute the deduction u/s 80HHC of the Income-tax Act or only 90 per cent of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act or only 90 per cent of net receipt of the interest after allowing a set off of interest paid against the interest receipt?" 2. All the three questions involve the interpretation of section 80HHC, which has become perhaps the most debated section of the Act lately. The section has been amended many times and some of the amendments were purportedly made to clarify or rationalise or streamline the provisions but that has not stopped the rival parties - the taxpayer and the Revenue - from raising disputes on the basis of the interpretation of the section, each to suit their own purpose. Many of the issues reached the Tribunal all over the country and many orders were passed thereon by different Benches. It was found that there was a need for uniformity of views with regard to some of the important provisions of the section. Accordingly, one of the benches inDelhimade a reference to the Hon'ble President with a request to constitute a Special Bench to resolve the issues and hence the present reference. 3. We have had the benefit of well-prepared arguments from both the sides - Mr. Sapra and Mr. Ajay Vohra, advocates Mr. Rajan Vohra, chartered accountant from Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outsideIndia;" 5. We may now take up the questions referred to us for decision, seriatim. As regards the first question, it was agreed before us by both the sides that the reference therein to clauses (a) and (b) of sub-section (3) is not apposite since the question of adjustment of the tosses against the profits under clauses (a) and (b) cannot possibly arise and can arise only under clause (c) because it contains two sub-clauses which provide for the determination of the export profits in respect of an assessee who exports both manufactured goods and traded goods. It is only in his case, where clause (c) applies, that the question of adjusting the loss in one of these two export activities against the profit arising in the other can arise. Therefore, Mr. Prahlad Singh, the learned CIT(DR) suggested the reframing of the first question as under, which was accepted by the assessees/inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of the business or profession' and so read they have to be computed only in accordance with the provisions of sections 28 to 43D of the Act which fall under Chapter IV-D of the Act, and that sections 70 and 71, which provide for adjustment of the loss under one source or head against the profits from another source or head respectively, do not fall under the computation provisions relating to business income and therefore the mutual adjustment of the loss or profit from the export of trading goods against the loss or profit from the export of manufactured goods cannot be permitted. It was noted that section 80HHC is a self-contained provision by itself -a view which the Bombay High Court also took in IPCA Laboratories Ltd's case - and therefore the benefit available under sub-section (1) thereof has to be worked out in accordance with and subject to the provisions of that section only. It was further held that the legislative intention was clearly to exclude the provisions of sections 70 and 71 of the Act while computing the profits and gains of business under Explanation (baa), for the computation of the profits in such a manner would arise only for arriving at the total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der that section not separately on the profits of each business but on the aggregate of the profits of all the businesses carried on by the assessee. For instance, where the assessee carries on several businesses, he was held entitled to set-off losses incurred in one business against profits in another. The resultant negative figure may be due to the allowances permitted under a particular head in the computation of income. Section 70 incorporates the principle of the above decisions and fills up a lacuna that existed under the old Act. By virtue of this section, loss arising from any source of income under any particular head can be set-off against profit from another source under the same head of income. After the enactment of this section, it is unnecessary to consider whether such 'set-off' could be effected even otherwise, say, on the language of section 28 itself." 9. The same view has been expressed at page 870 of Vol.I of Kanga and Palkhivala's The Law and Practice of Income-tax, 8th Edn. "Section 70. Set-off of loss against income under same head-Except in the three cases noted below, if the net result in respect of any source under any head is a loss, that loss may be se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable to income-tax, transfer their export turnover to business houses merely by endorsement of letter of credit received by them. Business houses which 'buy' this export turnover get the benefit of deduction under section 80HHC without any physical export of goods. The tax concession under section 8OHHC is intended to compensate an exporter for the comparative disadvantage faced by him in the international market. With a view to ensuring that the tax concession is not misused, it is proposed to amend sub-section (3) of section 80HHC of the Income-tax Act" " 12. The contention of Mr. Mitra, based on the above circular, is that the amendment was brought only to prevent the misuse of getting the deduction for export of trading goods by buying the turnover from others and applying the Heydon's rule of interpretation, as applied in many cases and recently by the Supreme Court in Quarry Owners Association v. State of Bihar [2000] 8 SCC 655, even for the purpose, of clause (c) of the subsection the principle of aggregation should not be applied. Detailed written submissions were made in this behalf to explain the contention with examples. It would be better to reproduce this part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and manufactured exports for the purposes of section 80HHC of the Act. Computation of deduction subsequent to amendment of section 80HHC (on or after assessment year 1992-93) (i) Profits derived from export of manufactured goods = (Adjusted profits of the business) X (Adjusted export turnover)/(Adjusted total turnover) = [1050 X 200/2900] = Rs. 72.41, namely as discussed earlier. (ii) Profits derived from export of trading goods = [Trading exports Trading expenses] = Rs. 50 (loss) Now, prior to the amendment of section 80HHC(3) of the Act, the assessee was able to use the mischief of the said section to its advantage, to the tune of Rs. 27.59 [Rs. 100 - Rs. 72.41]. It was this mischief that the Legislature wanted to remove by segregating trading exports and manufactured exports, such that only if an assessee derived profits on export of manufactured goods, being bona fide transactions, then it would be entitled to the benefits of the said section. In the event the assessee also derived a positive income or profits from export of trading goods, then the said profits would be added to the profits derived from the export of manufactured goods for the purpose of computing the total q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) of the sub-section. 14. Despite the forceful point made by Mr. Mitra, we are unable to hold that sub-clauses (i) and (ii) of clause (c) of sub-section (3) should be read disjunctively. This point has been specifically decided by the Bombay High Court in IPCA Laboratories Ltd.'s case and it has been held that the word 'and' should be read as a conjunction. As regards the mischief rule (Heydon's rule), since the issue has been decided in the above judgment, it is not proper for us, as lower tribunal, to try to overcome the same merely on the ground that this rule of interpretation was not considered therein. The point in issue has been directly decided in the judgment, and earlier in this order we have given our reasons as to why we have preferred to adopt the reasoning of the judgment. The general argument (raised by all the learned counsel and learned representatives for the assessees and interveners)"that there is no direct judgment of the Delhi High Court on the issue (in fact, on all the three issues before us) which is binding on the Special Bench sitting at Delhi and hence we are free to take a view different from the view taken by other High Courts puts us in considerable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgments and giving cogent and acceptable reasons, tempered with judicial dignity, discipline and decorum and without crossing the well-demarcated frontiers, if it feels judicially inclined to prefer one decision over the other. For instance, if the provisions of law considered in those judgments were different, or if there has been an amendment of the law thereafter, or if the judgment was rendered per incuriam without reference to earlier judgments of the Supreme Court or binding judgments of the same High Court, or if the facts of the case or the context or the controversy were different, or if the correct legal position does not appear to have been brought to the notice of the court - in such cases (which are only illustrative) it is only by explaining the judgments properly and by giving reasons as to why it prefers one judgment over the other that the Special Bench has to come to one or the other conclusion. We felt the need to make these observations because in this case we have preferred the view taken by the Bombay High Court in deciding the first question, though a contrary view has been expressed by the Kerala High Court which is in favour of the assessee, and in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 992] 196 ITR 188 (SC). 18. Mr. Ajay Vohra, the learned counsel for M/s. Eicher International (intervener), put forth the following contentions: (a) Though a negative profit (loss) can be arrived at under the three clauses of sub-section (3), considering the language of the proviso thereto, which uses the expression 'further increased', it implies that if there are profits under the three clauses they shall be 'further increased' and in the context of losses the expression will have no meaning and has to be ignored. In this regard, he invited our attention to the judgments of the Delhi High Court in Modi Cement Ltd. v. Union of India [1992] 193 ITR 91 and Allahabad High Court in Indo-Gulf Fertilizers Chemicals Corpn. Ltd. v.UnionofIndia[1992] 195 ITR 485, in which the provisions of section 143(IA), where the words 'further increased' appear, were considered. (b) Section 271(1)(c) uses the expression 'in addition to any tax payable' which has been held to mean that if only there is some tax payable consequent to the assessment, can penalty be levied and if the assessment is upon a loss and no tax is therefore payable, there is no question of paying any penalty. Just as the existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1984] 150 ITR 1 (Delhi) (ii) CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 (Bom.) (iii) Taylor Instrument Co. (India) Ltd. v. CIT [1998] 232 ITR 771(Delhi) (iv) Patil Vijaykumar v.UnionofIndia[1985] 151 ITR 48 (Ker.) (f) The judgment of the Kerala High Court in Smt. T.C. Usha's case should be preferred to the judgment of the Bombay High Court in IPCA Laboratories Ltd.'s case as the former is in favour of the assessee, on the basis of the rule laid down by the Supreme Court 'in Vegetable Products' case. (g) In the following cases, it has been held that the loss cannot be adjusted against the export incentives under the proviso, and the reasoning therein should be preferred: (i) Alpine Solvex Ltd. v. Dy. CIT (Indore Bench) - against which the appeal to the High Court has not been admitted (copy of order judgment filed in the paper book) (ii) Sumedh Synthetics (P.) Ltd. case (iii) Hindustan Fashions Ltd. v. Asstt. CIT [1998] 61 TTJ (Ahd.) 734. 19. The learned counsel of the assessee in ITA No. 1805/Del/99 Tee Ess Exports (P.) Ltd. adopted the arguments of Mr. Ajay Vohra. 20. Mr. Prahlad Singh, the learned CIT (DR) put forth the following contentions on behalf of the Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is due. He relied on the judgment of the Supreme Court in H.H. Sir Rama Varma v. CIT [1994] 205 ITR 433 in support of the submission. 22. In their reply, the learned counsel for the assessees, Mr. Sapra and Mr. Ajay Vohra, submitted as follows: (a) According to the circular of the Board reported, the tax concession is given to compensate the exporters for the loss they incur in the competitive export market and the interpretation placed by the income-tax authorities upon the proviso goes contrary to such an intention. (b) The proviso cannot be interpreted in such a manner as to defeat the intention of the law. The language should not be stretched and strained to deny relief. The proviso should be interpreted reasonably, giving each word its meaning. (c) The judgment of the Supreme Court in B.C. Srinivasa Setty's case, relied on by the department, was rendered in the context of the charging provisions of section 45 of the IT Act and therefore the ratio cannot be blindly applied to a beneficial provision. (d) The purpose of defining 'profits of the business' in Explanation (baa) introduced with effect from 1-4-1992, by excluding the export incentives from its purview bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the export business, no deduction was allowable. The amendment brought about a different scheme of deduction devised more elaborately, distinguishing between export of trading goods and export of manufactured goods. The proviso was also brought by the amendment. In Circular No. 621, dated19-12-1991explaining the amendment, it was recognized in para 32.7 that "the, tax concession under section is intended to compensate an exporter for the comparative disadvantage faced by him in the international market. With a view to ensuring that the tax concession is not misused, sub-section (3) of section 80HHC of the Income-tax Act has been amended". Sub-para (d) of para 32.8 says "the profits shall be increased by the amount which bears to ninety per cent of the export incentives, profits on sale of exim scrips, receipts by way of duty drawback or payments under the International Price Reimbursement Scheme (IPRS) the same ratio as the export turnover bears to the total turnover". If the intention is to compensate the exporter for the disadvantage he suffers on account of international competition, it appears to us that there is no logic in saying that if he incurs a loss in the export bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of an additional levy. This is what was held. In doing so, the words 'further increase' in section 143(1A)(a)(i) were relied upon to hold that there is nothing to be "further increased" if first of all there is no tax payable because of the assessment having been made on a loss. The analogy of section 271(1)(c)(ii) and (iii) where the penalty is payable 'in addition to any tax payable' is also not appropriate to the problem before us. The proviso with which we are concerned is more complex. Even the Revenue does not contend that in case of a loss in the export business under any of the three clauses of the sub-section the proviso is not attracted at all and that the assessee would not be eligible for any deduction in respect of the export incentives. If that was their stand then they would not have adjusted the loss against the appropriate proportion of the export incentives; they would have simply held that the assessee is not entitled to any deduction under the proviso. What they contend is that the loss would be adjusted against the export incentives to reduce the deduction. If it is conceded that even in the case of a loss the proviso is attracted, then there is, in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative income), that however the word 'profit' in sub-section (3) would include losses, that on this basis the loss suffered by an exporter, who carries on both export of trading goods and manufactured goods and thus falls under clause (c), on export of trading goods shall be set-off against the profits earned in the export of manufactured goods and that the idea of such adjustment or set-off is conveyed by the conjunction 'and' employed between sub-clauses (i) and (ii) of the clause. This judgment did not decide the question as to what would happen if the proviso to the sub-section is applied to a case of a loss under any of the three clauses of the sub-section. The question was not before the High Court. The question posed was: "Whether the loss in respect of export of trading goods was to be ignored while determining the appellant's entitlement to deduction under section 80HHC(c) of the Act?" 27. It would appear to us that the Revenue has taken inspiration from this judgment, albeit to a limited extent, to contend that the idea of set-off or adjustment or aggregation runs right through section 80HHC, including the proviso. The difficulty in accepting this contention is that, as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------ Amount eligible for deduction Rs. 6,700 ---------- As per Assessee: Profits under the head 'business' Less: Interest receipts Rs. 4,000 Less: Interest expenses Rs. 1,000 Rs.3,000 --------- Amount eligible for deduction Rs. 7,700 --------- 29. The issue arises in the case of Lalsons Enterprises, the appellant in ITA No.3990/Del/99. The arguments of Mr. Ajay Vohra, the learned counsel for the assessee, were heard along with the arguments of Mr. Rajan Vohra, the learned chartered accountant from Bombay appearing for the intervener M/s. Swani Corporation and Mr. Rahul Mitra, the learned chartered accountant from M/s. Price Waterhouse, Calcutta for the intervener M/s. Exide Industries, on behalf of the Department, we heard the arguments of Mr. Salil Gupta and Mr. Prahlad Singh, the learned CIT(DRs) and the learned Senior Departmental Representative. 30. The issue is whether the assessee's claim that the interest receipt is to be 'netted' by setting of the interest expenditure. It will be seen from the above rough example that if the claim is accepted the assessee will be eligible to a higher deduction. Mr. Ajay Vohra the learned counsel for the Lalsons Enterprises contended as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to in the Explanation has to be allowed further, which is not prohibited. 31. Mr. Rajan Vohra, the learned representative for M/s. Swani Corporation, intervener, submitted as follows: (a) Under Explanation (baa) the computation of business income is to be made as per the computation provisions of sections 28 to 44D and not as per the Profit Loss account. This means that the expenditure to earn the receipts has to be allowed as deduction. Automatically therefore the exclusion can be only of the net income. (b) The orders of the Mumbai Benches of the Tribunal in Pink Star v. Dy. CIT[2000] 72 ITD 137 and Dy. CIT v. Diamond Creek [2002] 82 ITD 291 illustrate the illogic in the interpretation sought to be placed by the Department. (c) In CIT v. Kamal Co-operative Sugar Mills Ltd. [2000] 243 ITR 2 the Supreme Court has distinguished its judgment in Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT [1997] 227 ITR 172 and has held that in the case of a running business, interest paid shall be adjusted against the interest received. (d) There are observations in the order of the Special Bench of the Tribunal in Surendra Engg. Corpn. v. Asst CIT[2003] 86 ITD 121 (Mum.) supporting the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would mean that the Department would also be entitled to deduct the expenditure incurred to earn the export incentives referred to in section 28(iiia), (iiib) and (iiic). (c) Section 80M and section 80L refer to deduction from "income", in contrast to the word 'receipt' used in Explanation (baa) which shows that where the Legislature wanted to allow deduction for net income, they have expressly said so. (d) The provisions of sections 44AA and 44AB have been enacted to provide for a different situation in a different context. They are not provisions relating to computation of income and are not for determination of eligibility to any deduction. Reliance on them by the assessees is misplaced. (e) The correct conclusion has been reached in the orders of the Delhi Bench of the Tribunal in the case of Sutlej Industries and Dy. CIT v. J.R. Sharma Overseas (P.) Ltd. which contain the reasoning (f) Section 28(iiia), (iiib) and (iiic) refer to gross amounts of the receipts by way of cash assistance, duty drawback etc. Therefore, the Explanation, when it refers to these sections, refer only to gross amounts. If that is so, the other receipts mentioned in the Explanation (interest, brokerage, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle of 'netting' is implicit in the language employed in the Explanation itself. (f) There is no difference in the ideas expressed by clauses (1) and (2) of the Explanation. Whereas the idea of netting is implicit in both, only the language employed is different. The words 'receipts...included in such profits' appearing in clause (1) and the words "profits of any branch . . ." appearing in clause (2) convey the same idea. (g) The judgment of the Supreme Court in Dr. V.P. Gopinathan's case has no application to the facts of the present case. (h) The provisions of section 80HHC are not controlled by section 80AB. 37. We also sought clarifications from both sides on the applicability of the judgment of the Supreme Court in the case of Karnal Co-operative Sugar Mills Ltd which we came across in the course of the hearing and during discussions held amongst us, as also with regard to the facts of M/s. Lalsons Enterprises, the appellant, in connection with this issue. Accordingly we have heard Mr. Ajay Vohra, the learned counsel for the appellant as well as Mr. Salil Gupta, the learned CIT(DR). Mr. Rahul Mitra, the learned representative for the intervener, M/s. Exide Industries. Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generality of cases is part of common expenses, ad hoc 10 per cent. Deduction from such incomes is provided to account for these expenses". Now when the Legislature has fixed an ad hoc percentage as expenditure incurred to earn the receipts, can it be further argued that only the net income, which means gross receipt by way of commission, interest, rent etc. minus all the expenditure which has a nexus with the receipt, can be excluded from the 'profits of the business' as computed under the head 'business'? Is there any warrant for such an argument? On the language of Explanation (baa) there is reason to think there is. The ad hoc 10 per cent deduction, given indirectly by saying that only 90 per cent of the receipts will be excluded from the profits of the business as computed, instead of the entire receipts, has been given for common expenses, according to the circular. Such common expenses are generally the indirect or fixed expenses which every businessman has to incur to continue in business, such as salaries and wages, other administrative expenses and so on. In addition to such common expenses, there may be expenses which have a direct bearing or nexus with the receipts by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend reduced by the expenditure incurred in relation to it. The stand taken by the Department in that case was upheld by the Supreme Court. In doing so, it was held that what was included in the gross total income as income by way of dividend, on which deduction under section 80M was allowable, was only the net income after adjusting the expenditure against the gross amount of dividend, and therefore the deduction was allowable only on the net income. On parity of reasoning, the amount of 'receipts' included in the profits of the business as computed under the Act is the gross receipts as reduced by the expenditure incurred in relation thereto. It is this concept that is conveyed by the words "receipts by way of. . . included in such profits". The word 'receipts' cannot be read in isolation and divorced from the words following viz., 'included in such profits', which actually control and qualify the former. In other words, in addition to the ad hoc 10 per cent deduction given for common expenses, the assessee would be entitled to claim expenditure which has a nexus with the receipt by way of interest, commission, brokerage etc. on the principle of 'netting' in view of the langu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the computation provisions of the Act, whatever be the head of income, are aimed at bringing only the net income to assessment. Even under the head 'capital gains' it is only the gains that are assessed and not the entire sale proceeds. Therefore there is no violence done to the language employed in the Explanation when we read into it the principle of netting. We do not think that any absurdity ensues by doing so. 45. It was argued on behalf of the Department that if netting is allowed then the income-tax authorities would be entitled to deduct expenditure incurred by the assessee for receiving export incentives mentioned in section 28(iiia), (iiib) and (iiic). We are not sure if this would be to the advantage of the Department. By deducting expenditure incurred by the assessee to earn the export incentives, while applying Explanation (baa), a lesser amount of export incentives will be excluded from the profits of the business as computed, with the result that a larger amount of profits of the business will be available for the purpose of the deduction, Be that as it may, clause (1) does not permit it. It is in two parts. The first part reduces 'ninety per cent' of any sum refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of these decisions to the issue under consideration, the facts in these cases have to be noted. In Dr. V.P. Gopinathan's case the facts as we find from the judgment of the Kerala High Court in CIT v. Dr. V.P. Gopinathan [1998] 229 ITR 801 the assessee received certain amount of interest on the fixed deposits placed with banks. He took a loan against the fixed deposits and paid interest thereon. In his income-tax return, he set-off the interest paid against the interest received. The Kerala High Court allowed the claim, but on appeal by the Department the Supreme Court reversed the judgment of the High Court. It is seen from the facts of the case that in the assessment the Assessing Officer brought the interest to tax under the head 'income from other sources' and not under the head 'Business'. The assessee did not contest the head of income under which the interest was assessed. It was on these facts that the Supreme Court held that the interest paid cannot be deducted from the interest received on the basis of the theory of real income, because (a) if the assessee had taken a loan from a different bank and paid interest thereon he would not have been entitled to claim deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided a nexus is established between the expenditure and the interest receipt. Thus, there are statutory provisions which authorise the claim of the assessees in the case before us when they contend that the net income by way of interest be computed and excluded from business profits. This takes the case out of the purview of the judgment. 48. In Karnal Co-operative Sugar Mills Ltd.'s case, the facts as seen from the judgment of the Punjab Haryana High Court, are that the interest was received by the assessee on fixed deposits placed with the banks in connection with the purchase of machinery. The finding of the income-tax authorities was that the business had not commenced. It was held that the interest received would go to reduce the cost of the machinery and will not be taxable as income from business or under 'other sources'. This case does not help the case of the Department with regard to the controversy before us. The controversy before us has arisen only in the background of the fact that the assessee is engaged in the business of exports and such business has been carried on during the relevant previous year. Obviously, the question of applying section 8OHHC and the mann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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