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TMI Blog2009 (7) TMI 1300X X X X Extracts X X X X X X X X Extracts X X X X ..... such interest income was not derived from the business of the Industrial Undertaking. This further finds support in the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkalies Chemicals and Fertilizers Ltd. Vs. CIT 227 ITR 172. 2. The ld. CIT(A) erred in law and on facts in holding that the assessee is entitled for netting between interest income earned on Bank deposits and Interest paid to Bank on credits availed. This finding is not acceptable in view of the fact that the decision treating interest income from Bank as business income has not been accepted and is being assailed as per Grounds No. 1 above. 3. The order of ld. CIT(A) on the above issues being erroneous in law and on the facts may be vacated and the other of the AO be restored. 2. Earlier this appeal was disposed of by the Tribunal vide its ex- parte order dtd. 13th July, 2007 by way of consolidated orders for the present assessment year as well as for the appeal for AY 1997-98. This Tribunal following the decision of Hon'ble Delhi High Court in the case of CIT Vs. Shri Ram Honda Power Equipment 289 ITR 475 held that as surplus funds were invested in FDR's therefore, the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was directed to decide the issue independently without being influenced by the observations of Hon'ble High Court. This order was passed by Hon'ble High Court on 13th May, 2009. A copy of such order is placed on record. The assessee vide his application dtd. 10.06.09 has furnished the copy of the said order for compliance thereof. It is in pursuance of the said application filed by the assessee this appeal was fixed for hearing on 22.06.09 when department sought an adjournment and the matter was adjourned to 24.06.09 when both the parties were heard. 5. Relying on the order of AO and earlier order of the Tribunal it was submitted by ld. DR that interest earned by the assessee could not be treated to be an income in the character of business. It was pointed out that interest earned by the assessee on FDR was having character of income from other sources and thus, AO was right in holding that such income should be assessed as income from other sources. Reference was also made to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Shree Ram Honda Power Equipment 289 ITR 475 to contend that interest earned on FDR, for the purpose of deduction u/s 80HHC, is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, in their appeal for AY. 1993-94, 1994-95, 95-96, 97-98 00-01 that interest income and bank FDRs taken and furnished to bank as security for availing Packing Credit and other limits in its export business would be income. I find that on the facts of the case in the present appeal, the FDRs taken by the appellant out of its accumulated profits were used by way of security for availing credit limits to the tune of ₹ 4 crores as certified by the bank. Thus, the nexus between these FDRs and export of business of the appellant is not absent in view of the bank's certificate. Therefore, interest earned thereon is from utilization of business funds and would thus, bear the same nature and character as of business receipts. I, therefore, hold that interest income is assessable as business income on the facts and circumstances of the case. 9. Ld. CIT(A) also observed that the assessee is entitle for netting of interest in accordance with decision of Spl. Bench in the case of Lalsons Enterprises Vs. DCIT 89 ITD 29 Spl. Bench (Del.). Referring to the findings given by ld. CIT(A) it was submitted by ld. AR that the Tribunal was wrong in observing that it was an admitted posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the character of income from other sources. Reference was also made to the decision of Hon'ble Bombay High Court in the case of CIT Vs. Paramount Premises Pvt. Ltd. 190 ITR 259 wherein the assessee had given the guarantee to State Bank in respect of amount taken by it on lease for construction work. For that purpose certain amounts were kept in fixed deposits on which interest was earned. A finding of fact was recorded by the Tribunal that the entire interest sprang from the business activity of the assessee and did not arise out of any independent activity. Hence, interest income was held assessable as business income. It was submitted that Hon'ble Supreme Court has dismissed SLP against the said decision of Hon'ble Bombay High Court and such dismissal is reported as (2000) 244 ITR (Statute) 54. It was submitted that following the aforementioned decision in the case of CIT Vs. Paramount Premises P. Ltd. (supra), Hon'ble Bombay High Court again in CIT vs. Nagpur Engineering Co. Ltd. 245 ITR 806 has held that interest was assessable as business income. 10. It was submitted that assessee being 100% exporter, the decision of Hon'ble Bombay High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed before us. 16. The Assessing Officer has treated a sum of ₹ 36,88,078/- being interest earned on FDRs lying with various banks as income from other sources as against the claim of the assessee that it is an income from business, resultantly disallowing the claim of assessee u/s 80HHC to the extent it relates to interest earned by the assessee on those FDRs. For holding so, the Assessing Officer has placed reliance on the decision in the case of CIT vs. Dr. D.P. Gopinath (supra). According to the Assessing Officer, the ratio of the decision is that interest income has to be taxed as Income from other sources which cannot be set off against payment of interest on overdraft facilities. The Assessing Officer observed that in accordance with the said decision of Hon'ble Supreme Court, the interest earned by the assessee on FDR is to be treated as Income from other sources on which deduction u/s 80-L was allowable. Therefore, for computing deduction under section 80HHC, the said interest has been ignored. The part disallowance of deduction under section 80HHC was agitated by the assessee in appeal before the CIT (A) contending that interest income earned on FDR is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is not eligible for deduction under section 80HHC on interest income which is purely in the nature of interest on FDRs and, therefore, is to be assessed as income from other sources. Considering the submission of the assessee and considering the contents of the bank certificate which are as under:- THIS IS TO CERTIFY THAT THE BANK HAS PROVIDED CREDIT FACILITY TO M/S VRINDAVAN CARPETS, CHAMAN STREET, HARTHRAS IN THE YEAR 2000-2001 IN THE FORM OF PACKING CREDIT AND FDB LIMITS FOR RUPEES FOUR CRORES AGAINST THE FDR'S OF FOUR CRORES. the Ld. CIT (A) has observed that purpose of depositing the funds in bank's fixed deposit was to obtain the FDRs in consideration of which the assessee should continue to enjoy various bank credit limits in the shape of packing credits and such interest income arose to the assessee from deployment of business funds which could not be termed to be investment simplicitor. The income earned was in the character as a trader in the course of export business. The assessee being 100% exporter income from deposits with banks and other parties were bearing the character of business income. For this purpose, the Ld. CIT (A) has relied on the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00% exporter whereas Section 80HHC (3) (b) deals with composite business. In the case of 80HHC (3)(b) local sales were included. Therefore, under section 80HHC (3)(a) entire profits are entitled to deduction which would include interest income also. The said decision of the Hon'ble Bombay High Court was also considered in the case of CIT vs. Shree Ram Honda Power Equipment Ltd. (supra) and discussion in this regard find place in para 18 of the said decision. Their Lordships have expressed that it was not clear from the narration of facts in the Punit Commercial Ltd.'s case that whether the interest earned was as a result of parking surplus funds in deposits and if it was so earned, then it will be difficult to accept the said view of Hon'ble Bombay High Court in view of decision of Kerala High Court in the case of K. Ravindranathan Nair vs. DCIT 262 ITR 20 (Ker) which was affirmed by Hon'ble Supreme Court so as to hold that such interest income was business income. Thus, their Lordships of Delhi High Court have recorded their dissent from the view taken by Hon'ble Bombay High Court. Both are the decisions of non-jurisdictional High Court. 19. It is observed f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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