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TMI Blog2000 (3) TMI 1085X X X X Extracts X X X X X X X X Extracts X X X X ..... m included interest of ₹ 81,910 received from various parties, to whom the surplus funds stated to be out of this export business were given on interest. The Assessing Officer treated this interest as income from other sources and did not consider the same for allowing deduction under section 80HHC on the ground that the interest was earned in India from the parties situated in India only. He further held that for qualifying for deduction under the provisions of section 80HHC, the first and the vital point is that in the exporting business, the income earned should be in foreign currency and transferred to India. He accordingly added the income of ₹ 81,910 by way of interest in India as income other sources and thus excluded the same from the purview of profits and gains of business or profession of the assessee. The assessee went in appeal before the first appellate authority and the learned CIT(A) allowed the claim of the assessee on the ground that since the interest was earned out of business funds, the same was business income. In this regard, the learned CIT(A) referred to the explanation furnished by the assessee before the Assessing Officer vide her letter date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Departmental Representative also relied upon the decision of the Hon'ble Supreme Court in the case of CIT v. Sterling Foods [1999] 153 CTR (SC) 439 : [1999] 237 ITR 579 (SC). In this case, the Hon'ble Supreme Court interpreted the words "derived from" as used in section 80HH and held that profits from sale of import entitlements of an undertaking situated in an backward area are not profits derived from industrial undertaking and thus not eligible for special deduction under section 80HH. The Hon'ble Supreme Court held that there must be, for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. The nexus should be direct and not only incidental. The learned Departmental Representative vehemently relied upon the decision of the Cochin Bench of the Tribunal in the case of Berlia & Co. v. Asstt. CIT [1998] 62 TTJ (Coch.) 719 : [1998] 67 ITD 347 (Coch.), for the assessment year 1990-91. In this case, the assessee-firm carried on business of export and claimed relief under section 80HHC after including therein the interest received on bank deposits on the ground that such deposit was made with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 992] 193 ITR 252 (Cal.) in which it was held that where the company utilised its commercial assets which were lying in the form of surplus cash, for earning interest, the interest arise from the utilisation of commercial assets only and would, therefore, be business income. The learned counsel for the assessee further relied upon the decision of the Hon'ble Madras High Court in the case of CIT v. Madras Refineries Ltd. [1997] 137 CTR (Mad.) 619 : [1997] 228 ITR 354 (Mad.). In this case, interest was earned on long-term deposits with banks. The deposit of money was out of surplus money of the business which was not immediately required for business purposes. The deposit so made by the assessee in the bank was accepted by the Department as capital employed and included in the capital base for the purpose of relief under section 80J of the IT Act. The Court held that any income earned by the capital employed would automatically become business income of the assessee and it could not treated as income earned from other sources. the learned counsel for the assessee also relied upon the decision of the Hon'ble Calcutta High Court in the case of CIT v. Tirupati Woollen Mills Ltd. (supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of 'profit and gains of business or profession'. In the present case, it is stated by the learned counsel for the assessee that the amount was advanced to various parties. These amounts were not secured by way of any security. In the case of Madhya Pradesh State Industries Corporation Ltd. v. CIT [1968] 69 ITR 824 (MP), the shares of the assessee-company, which was incorporated in 1961 as a Government private limited company for taking over and running certain concerns of the Government of Madhaya Pradesh, were held by the Government of Madhya Pradesh, the Madhya Pradesh Electricity Board and the Director of Madhya Pradesh Government. For the assessment year 1962-63, the assessee did not carry on any business, nor was there any production. The share moneys received by the company not being immediately required, were deposited in call-deposits in certain banks. During the year, the assessee received interest on the deposits. It was held that deposit of share capital in a bank cannot be said to be an act of money-lending and, hence, the interest income was properly assessable as "Income from other sources" under section 56 of the IT Act, 1961, and not as "Business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest should be treated as income from other sources, (v)if the surplus funds emerge out of business carried on by the assessee which is regularly carried on by the assessee and then with the intention to carry on the business of lending of money or money-lending, the loan is advanced, the income therefrom would be income from business. The intention has to be gathered with reference to all the activities of advancing money which should be permitted by the objects of the company and also by the resolution of the board of directors to carry on the business of money-lending or lending of money." The business of the assessee is exclusively of export out of India and only those incomes can come within the purview of the term "Business" vis-a-vis the assessee which arise from the business of export. The learned counsel for the assessee submitted that the interest from the advances has been earned out of surplus funds made available, out of export profits. He emphasised that by exploitation of this commercial asset in the form of surplus funds, income has been earned. The surplus funds, a best, represented the asset of the assessee and not a commercial asset as used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort than the expression 'derived from'. Had the expression 'derived from' been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned solicitor-General, it has used the expression 'derived from' a for instance in section 80J." In the case of Sterling Foods v. CIT [1985] 47 CTR (Kar.) 157 : [1984] 150 ITR 292 (Kar.) : the Karnataka High Court made by the following observation in regard to the meaning of the expression 'derived from' : "The expression 'derived from' has a definite but narrow meaning and it cannot receive a flexible or wider concept. If a word or expression has received judicial interpretation by the highest Court of the Tribunal and thereafter it is found to have been used in legislative enactments, it must be presumed that the legislature must have used that word or expression with the same meaning a judicially ..... X X X X Extracts X X X X X X X X Extracts X X X X
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