9911796707
TMI Blog1983 (12) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment years involved, so that it ended on 31-3-1976 for the assessment year 1976-77, on 31-3-1978 for the assessment year 1978-79, on 31-3-1979 for the assessment year 1979-1980, and on 31-3-1980 for the assessment year 1980-81. The assessee-company for each of the years held fixed deposits in banks, the amounts of the deposits representing accumulated profits and reserves ; the assessee not having declared or distributed any dividend right from the beginning. On these fixed deposits it earned interest, which was assessed under the head 'Income from other sources'. The assessee claimed that the deduction under section 80HH which was allowed in respect of its profits and gains emanating from distillery operations, i.e., manufacture of liquor, should also be allowed in respect of the income derived by way of interest on the fixed deposits. This has been disallowed by the departmental authorities and, hence, the assessee is in further appeal before the Tribunal. It is seen that the interest on fixed deposits in respect of which it claimed 80HH deduction is as under : Assessment year Amount Rs. 1976-77 1,70,446 1978-79 3,89,573 1979-80 4,94,397 1980-81 4,71,998 Deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, Pondicherry, in the first instance and also to meet necessary expenses in this connection. However, it was stated that according to the intimation received from the Director of Industries. such a project was reserved exclusively for a small-scale industry and as the assessee-company was a medium scale industry, it had to give up the project. The assessee-company also took up the proposal for laying submarine pipelines for the disposal of the distillery effluent as per the direction of the Central Board for Prevention and Control of Water Pollution and this has since been completed. Another project in its contemplation was said to be the adoption of French technology for manufacture of high protein cattle feed from the distillery effluent and it is stated that the resolution was passed in the Board meeting on 12-5-1982 and the chairman of the company was deputed to France to have preliminary discussions with French technologists and to undertake an on the spot study of the project. It is stated that as a result, the company has decided to go in as a first step for the pilot project plant for the adoption of French technology for manufacture of cattle feed from the distillery eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis for holding that the intention from the beginning was to accumulate the profits for the assessee's business projects as these resolutions were passed long after. In any case the dates fall outside the accounting years relevant for the first three assessment years. It was further contended that even if the amounts could be held to be retained for contemplated projects or for future expansion of business of the assessee, the income derived by way of interest on fixed deposits cannot be equated to the income derived from the profits and gains of the industrial undertaking envisaged by section 80HH because the nexus of the income by way of interest is the investment in fixed deposits and not the manufacture or production of alcohol. The learned counsel for the assessee particularly pointed out that according to the decision of the Calcutta High Court in Phillips Carbon Block Ltd.'s case, the purpose for which the accumulation is made is not relevant and the assessee did not keep idle money which was not required for the business but kept back the profits for being utilised in the new projects. 3. We have carefully considered the facts and the rival contentions of the parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fixed deposits. When the funds representing the accumulated profits are kept back even though there is no necessity, for the same for the current needs of business or any project or expansion in the immediate contemplation of it, it can be consistent with the position that some future plans of expansion or new projects are envisaged to take place though not in the near future, but at appropriate opportune time or as and when the needs of the business dictate and especially when the contemplated or envisaged projects or expansion are likely to take place after a lapse of comparatively long number of years, it is but prudent to make the funds more productive by investment in fixed deposits so that it generates some further finance which will be available for such expansion or new projects. In the facts of this particular case, it is seen that occasions have arisen for the assessee to undertake certain projects referred to earlier including the construction of staff quarters and the project for disposal of the effluent, of the distillery in a suitable and appropriate manner for prevention and control of water pollution. We, therefore, hold that the contention of the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment on the decision of the Kerala High Court in Collis Line (P.) Ltd.'s case. In that case interest earned on deposits in a bank by a shipping company was held to be incidental to the main purpose of deposit which was safekeeping and not earning of profit. In that case it was claimed on behalf of the company that the interest constituted business income because one of the objects of the company was to lend money and invest and deal with money. It was held that such a contention was not raised and the investment, as found by the Commissioner, was only to secure the money which was lying idle. In our view, the ratio of the decision will not be applicable to the present case because the facts found and the contentions raised were somewhat different. In the present case before us it is not that the money was deposited for safe-keeping or securing it. The money was kept back for the purpose of utilisation in the projects or expansion of the business undertaking of the assessee as and when occasion arise and as it was likely to take same time, it was considered prudent to make it grow meanwhile by the amount of interest earned on fixed deposit which was one of the prudent ways of ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in Cambay Electric Supply Industrial Co. Ltd.'s case. In the Supreme Court decision in Cambay Electric Supply Industrial Co. Ltd.'s case, the question arose as to whether the balancing charge under section 41(2) of the Indian Income-tax Act, 1922, could be held to be part of the profits and gains of business of generation and distribution of electricity of the assessee. It is in this context that their Lordships considered the two expressions 'attributable to' and 'derived from'. It is to be seen that section 80E of the Act considered in that decision provided for relief by way of deduction in respect of profits and gains attributable to the business of generation and distribution of electricity or any other form of power, etc. The expression used is 'profits and gains attributable to the business of...'. Now there is a distinction between this expression and the expression used in section 80HH. Section 80HH speaks in the first part thereof of any profits and gains derived from an industrial undertaking. It is to be noted that the same section also refers to the business of a hotel in the later part. Again, section 80HHB of the Act providing for deduction in respect of profits ..... X X X X Extracts X X X X X X X X Extracts X X X X
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