9911796707
TMI Blog2016 (11) TMI 746X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80HHC of the Act. - Decided in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudicated upon by us. 6. In ground No. 4, the assessee has raised the issue that interest received on fixed deposit was part of business income and therefore should have been considered for deduction under section 80HHC of the Act. In ground No. 5 the assessee has raised the issue of netting of interest receipt against the interest expenses. 7. The learned Authorized Representative of the assessee submitted that the assessee is an exporter and had credit limit with the Vijay bank to whom interest was paid of ₹ 54,52,729.99 and interest of ₹ 42,18,469.40 was received on term deposits made by way of cutting back 5% on each export bill/proceeds discounted/purchased and the term deposits were under lien to the credit limit sanctioned. She further submitted that the assessee did not make fixed deposit out of surplus funds and the funds were not placed with the bank for earning interest, whereas the cutback was a precondition for credit limit and the precursor to the running of export business and, therefore, the receipt of interest was incidental and having direct nexus and inextricably linked with the export business. She further emphasized that it was not a case of si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip;……….. (d) ………….. (e) ………………….. 10. According to the assessee, the interest on fixed deposit made with the Vijay Bank is in the nature of receipt from business activity as mentioned in Explanation (baa)(1) reproduced above, and in the case of the assessee, the interest paid on credit limit with Vijay Bank was of ₹ 54,52,729/- and interest received on fixed deposit was of ₹ 42,18,619/-and thus the net interest of ₹ 12,34,111/- was claimed as an expense in the computation of export profit of the business. 11. But according to the Assessing Officer, the interest received on fixed deposit of ₹ 42,18,619/- was not in the nature of business profit and assessable under the head 'income from other sources', and thus the consequential deduction claimed by the assessee under section 80HHC of the Act was reduced. 12. Thus, the issue in dispute before us is whether the interest earned by the assessee on fixed deposit with Vijay Bank is part of business profit or to be assessed under the head 'income from other sources'. The learned Commissioner of Income-tax (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we have to proceed on the basis that assessee is a 100% exporter. In the case of CIT vs. Punit Commercial Ltd. (supra) the Hon'ble Bombay High Court has held that in case of 100% exporter, section 80HHC (3) (a) is applicable and the entire profits are entitled to deduction under section 80HHCincluding interest income. It was the contention of the revenue in that case that the interest income could not be treated as profit relating to export and also that any business profits from an activity which was not an export activity was not eligible for deduction under section 80HHC. With regard to these contentions of revenue it was concluded that there was no merit in such contentions of the revenue. It was observed that in the absence of anything contrary, in a case where assessee is 100% exporter, Section 80HHC (3)(a) will be applicable, therefore, the entire business income is deemed to be profit derived from export of goods and the interest incomecould only fall under business income. It was observed that Section 80HHC (3)(a) deals with 100% exporter whereas Section 80HHC (3) (b) deals with composite business. In the case of 80HHC (3)(b) local sales were included. Therefore, und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns are not particularly helpful since they deal with instances of the treatment of income from other sources referable to Section 56 and the allowing of netting for the purpose of earning such income. Thus, their lordships of Hon'ble Delhi High Court having found that the said decision of Hon'ble Supreme Court in the case of CIT vs. Dr. V.P. Gopinath (supra) s not relevant for deciding an issue where the question relating to deduction u/s 80HHC is to be decided. 20. It has been seen that Hon'ble Bombay High Court and Hon'ble Delhi High Court have taken different view on this issue and there is no jurisdictional High Court decision on this issue. Ld. Counsel of the assessee has referred to the decision of Hon'ble Supreme Court in the case of CIT vs. Kullu Valley Transport Company Pvt. Ltd. (supra), CIT vs. Vegetable Products Ltd. (supra) and CIT vs. Naga Hills Tea Co. Ltd. (supra). The sum and ratio of these decisions is that while interpreting taxing statute if there are two reasonable interpretations, then the interpretation which is favourable to the assessee is required to be accepted. So, the law in this regard is well settled, the interpretation which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have taken of Explanation (baa) to Section 80HHC is also the view of the Delhi High Court in Commissioner of Income-Tax v. Shri Ram Honda Power Equip (supra) and the Tribunal in the present case has followed the judgment of the Delhi High Court. On appeal being filed by the Revenue against the order of the Tribunal, the High Court has set aside the order of the Tribunal and directed the Assessing Officer to dispose of the issue in accordance with the judgment of the Bombay High Court in Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra). We must, thus, examine whether reasons given by the High Court in its judgment in Commissioner of Income- Tax v. Asian Star Co. Ltd. (supra) were correct in law. 14. On a perusal of the judgment of the High Court in Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra), we find that the reason which weighed with the High Court for taking a different view, is that rent, commission, interest and brokerage do not possess any nexus with export turnover and, therefore, the inclusion of such items in the profits of the business would result in a distortion of the figure of export profits. The High Court has relied on a decision of this Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure in earning the profits and to avoid a distorted figure of export profits, ninety per cent of the receipts like brokerage, commission, interest, rent, charges are sought to be excluded from the profits of the business. In our considered opinion, it was not necessary to refer to the explanatory Memorandum when the language of Explanation (baa) to Section 80HHC was clear that only ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits computed under the head profits and gains of business of an assessee could be deducted under clause (1) of Explanation (baa) and not ninety per cent of the quantum of any of the aforesaid receipts which are allowed as expenses and therefore not included in the profits of business of the assessee. 16. In the result, we allow the appeal and set aside the impugned order of the High Court and remand the matter to the Assessing Officer to work out the deductions from rent and interest in accordance with this judgment. No costs." 15. In the case of Liberty Footwear Company Vs. CIT (supra) the Hon'ble Apex Court followed the decision in the case of A.C.G. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. 11. We are, therefore, of the opinion that CIT appeal as well as Income Tax Appellate Tribunal has rightly applied the principle laid down in Shri Ram Honda Power Equip (Supra). It may be useful to mention that in Shri Ram Honda Power Equip (Supra) this court specifically affirmed the judgment of Special Bench of the Tribunal in Lal Sons Enterprises v. Commissioner of Income Tax; 2004 (89) ITD 25 (Delhi) and particularly the following observations which were extracted by this court as under:- "if the interest received is found to have a nexus with the business, still it remains to be excluded from the profits of the business by virtue of Explanation (baa)(1), but the claim is that the quantum of such interest income to be excluded must be determined in accordance with the computation provisions relating to business by allowing expenditure by way of interest which bears a nexus with the interest receipt. The computation provisions included section 37(1) under which any expenditure incurred or laid wholly and exclusively for the purpose of the business is to be allowed as a deduction. Therefore, any expenditure incurred which has a connection or nexus with interest rece ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
