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TMI Blog2016 (3) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003, D.B. Income Tax Appeal No.89/2004, D.B. Income Tax Appeal No.142/2004, D.B. Income Tax Appeal No.28/2005, D.B. Income Tax Appeal No.57/2005, D.B. Income Tax Appeal No.25/2006 Mr. Justice Ajay Rastogi and Mr. Justice J.K. Ranka Mr. Anuroop Singhi, Sr. Standing Counsel, Mr. OP Pareek and Mr. Amitabh Jatav counsel for the Appellant Mr. TC Jain Mr. Amit Jindal Mr. ML Borad and Mr. Vivek Singhal counsel for the Respondent JUDGEMENT (Per J.K. Ranka, J.) 1. These income tax reference and Income Tax appeals, filed at the instance of both, Revenue and Assessees, since involve common questions of law, and raise common controversy, are being disposed of, as agreed by counsel for the parties, by this common order. 2. In DBIT Reference No.4/2003, which relates to the assessment year 1989-90, filed at the instance of Revenue before the Income Tax Appellate Tribunal (for short 'ITAT'), as directed by this court under Section 256(2) of the Income Tax Act, referred the following substantial question of law:- "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to deduction under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was referred to Hon'ble the Chief Justice to constitute a Larger Bench. 7. The Larger Bench of this court, in Reliance Trading Corporation v. ITO (2015) 376 ITR 53 (FB-Raj.), dealt with and answered the questions referred, as under:- "Q. No.(1) Whether the assessee is entitled for deduction under section 80 HHC on interest income of Rs. 1,76,930/- as per law as existing at the relevant assessment year? Ans. While applying the direct and proximate nexus test, we are of the view that where the interest earned does not have direct and proximate nexus with the income from the business of export, the interest cannot be deducted as income from export under Section 80HHC(3)(a) of the Act, and has to be given the same treatment for tax, as "income from other sources" under Section 56 of the Act. The question No.1 is, thus, answered in favour of the Revenue, and against the assessee. Q. No.(2) Whether the amendment in section 80 HHC, by way of insertion of sub-section (4B) excluding interest income for the purpose of deduction under section 80 HHC will affect the deduction of interest income under section 80 HHC for the period prior to amendment? Ans. So far as question No.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, was in the nature of 'income from other sources' having no proximity with Export of goods. 8.1 While relying upon the judgment of the Larger Bench, the learned counsel for the Revenue in addition has relied upon judgments of this court in Murli Investment Co. v. CIT (1987) 167 ITR 368, CIT v. Rajasthan Land Development Corporation (1995) 211 ITR 597 (Raj.), judgment of the Delhi High Court in the case of CIT v. Shri Ram Honda Power Equip (2007) 289 ITR 475 (Delhi), judgments of the Kerala High Court in Ravindranathan Nair (K.) v. Deputy CIT (Assessment)(2003) 262 ITR 669, Southern Cashew Exporters v. Deputy CIT (2003)183 CTR (Ker) 175, and other authorities. He further contended that this court, in the case of CIT v. Rajasthan Land Development Corporation (supra), laid down five tests and according to him, all the five tests go against the claim of the Assessees and thus, contended that the claim of Revenue deserves to be upheld. 9. Per contra, learned counsel for the Assessees jointly and separately contended that judgment of the Larger Bench is distinguishable, and contended that the issue before the Larger Bench, though have a substantial legal question, but facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intainable and deserves to be dismissed. 12. Mr. Vivek Singhal, learned counsel, contended that the Allahabad High Court in the case of CIT Agra v. M/s. Divya Jewellers (P) Ltd. (2014) 368 ITR 671, has held that earning by way of interest being proximate to the business activity of an exporter, it ought to be taken as in the nature of income from business. He also relied upon the judgment rendered in the case of CIT v. M/s. Punjab Stainless Steel Industries (2014) 364 ITR 144 (S.C.), and contended that the exporters play a vital role in earning of precious foreign exchange for the country and the Revenue should not tinker with minor disallowances/claim when Section 80HHC primarily gives benefit to an exporter. 12.1 In support of their contentions, following judgments were also relied upon by the learned counsel for the assessees :- Karnani Properties Ltd. v. (1971) CIT, 82 ITR 547 Rameshwar Prasad Bagla v. CIT, (1973) 87 ITR 421 Patnaik & Co. Ltd. v. CIT, (1986) 161 ITR 365 CIT v. Nagarjuna Steel Ltd., (1988) 171 ITR 663 (A.P. High Court) Keshavji Ravji & Co. v. CIT, (1990) 183 ITR 1. Thiru Arooran Sugars Ltd. v. CIT, (1997) 227 ITR 432. K. Ravindranathan Nair v. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business assets and further held that the claim of the Revenue is correct in not treating the income from interest from surplus funds as business income, entitled to deduction under Section 80HHC and we also concur with the later findings of the ITAT. 17. In DBIT Appeal 52/2003 the Assessing Officer while disallowing deduction under Section 80HHC in respect of income received by way of interest, held that an assessee is entitled to deduction under Section 80HHC on the profits derived from export of goods or merchandise out of India and sale proceeds of which are to be received in convertible foreign exchange, and in the instant case the income is by way of export of jewellery and the interest being not received in convertible foreign exchange on export of goods (jewellery), such activity of advancing money to various miscellaneous parties, was not entitled for deduction under Section 80 HHC. The Tribunal further held that the nexus between the borrowed funds and money advanced on interest has not been established. Intention to do business has not also been proved by placing any tangible evidence on record. Exploitation of business funds or earning interest does not constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 2(13) of the Income-tax Act, 1961. The definition reads as under :- "business" includes any trade, commerce or manufacture of any adventure or concern in the nature of trade, commerce or manufacture. 22. This Court in the case of Rajasthan Land Development Corporation (supra) at page 601 has observed as under :- "The word 'business' has been the subject mater of judicial scrutiny and interpretation and it has been held that it is of wider import which relates to real, substantial and systematic or organised course of activity or conduct with a set purpose. The frequency or continuity of the activity may in a certain set of circumstances be a desired factor but are not the conclusive or infallible test. An isolated transaction may also be a business." 23. It is, therefore, essential to advert to definition of the word 'purpose' and also to the word 'intention' as no provision has been brought to our notice from which the intent and purport to carry on the business of money lending could be inferred. In Black's Law Dictionary, Sixth Edition, the words 'purpose' and 'intention' have been defined as under :- Purpose : Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans advanced constitute an incidental activity to the business of exports of the assessee. Irresistible conclusion, therefore, is that the earning of interest by an assessee on sums advanced does not come within the purview of business income, or as profits from business. 26. This court in the case of CIT v. Rajasthan Land Development Corporation (supra) had, while answering the reference in favour of the Revenue and against the assessee, laid down following principles:- "(i) interest on fixed deposits and other deposits before the commencement of the business is income from other sources, (ii) income from interest on deposits of surplus money during the construction period is also to be considered/treated as income from other sources, (iii) interest income in respect of surplus money, not required for business and deposited in bank or person, as idle money, for safe keeping, would be assessable as income from other sources. If the income from interest is from a fund which has been brought as surplus capital, it would be assessable as income from other sources, (iv) in respect of investment of surplus funds there is divergence of opinion between different High Courts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or making repayment to the creditors, it was withdrawn by the assessee-company and the funds were utilised for the aforesaid purposes. The Tribunal held that such activity would not constitute business. The company merely invested its funds when they were not required by it for the time being. As such the income from such investment cannot be assessed as business income. The Tribunal has further held that such income would be assessable only under section 56 of the Income-tax Act, 1961. Mr. Sharma, learned counsel for the assessee was unable to show any authority taking a contrary view nor was he able to show any error in the order of the learned Tribunal." 30. This court, again in the case of CIT v. M/s Avon Apparels [D.B. ITA No.41/1999 dated 11.7.2002, (Rajasthan High Court)], held that "the income of the assessee earned on account of interest on surplus funds in India, the assessee is not entitled for deduction on that income under Section 80HHC of the Act, 1961". 31. The Larger Bench of this court has taken into consideration the judgment of CIT v. Shri Ram Honda Power Equip (supra) which by and large has touched the controversy in hand and the said judgment of Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e all the three authorities the only question was claim of deduction on interest under Section 80HHC and even before the said authorities this issue was never raised nor was there any ground in appeal before ITAT, which has been raised now in the instant appeal at this stage. 32.2 Even otherwise, once substantial questions have been answered by the Larger Bench of this court, quoted in para 7 of this judgment in identical circumstances, the issue remains no more res integra to be adverted any further. 32.3 Mr. Borad has also raised a point that insofar as his appeal DBIT Appeal No.28/2005 is concerned, the tax effect is less than the amount stipulated in the circular of the Central Board of Direct Taxes, as it stood then i.e. Rs. 4 lac, and he has contended that since the tax effect being less than Rs. 4 lac, the appeal preferred by the Revenue should be dismissed. 32.4 We have considered the arguments of the counsel for the assessee and in our view, mere tax effect may not come in the way to leave the substantial question of law unanswered. 32.5 Similar issue also came up before this court in the case of CIT v. M/s Udaipur Mineral Development Syndicate (P) Ltd., (D.B. Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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