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TMI Blog2017 (7) TMI 1013X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Pankaj Mithal And Hon'ble Vinod Kumar Misra, JJ. For the Appellant : Rahul Agarwal For the Respondent : Manish Goel ORDER This income tax appeal by the assessee-appellant relates to the assessment year 1998-99. The assessee-appellant is an exporter of carpets. He was under an obligation to invest some money in fixed deposit with the bank in order to avail credit facility for export. On this fixed deposit he earned interest. He claimed deduction of 90% of the said interest under explanation (baa) to sub-section (4C) of Section 80HHC of the Income Tax Act (in short the Act ). It was disallowed by the assessing officer. The appeal of the assessee-appellant before the Commissioner Income Tax (Appeals) failed and so was his further appeal to the Income Tax Appellate Tribunal, Agra. The present appeal has been preferred against the order of the Income Tax Appellate Tribunal dated 28.12.2006 on the short substantial question of law whether the interest of ₹ 10,32,523 earned by the assessee-appellant on fixed deposit receipts pledged with the bank for availing credit facility for the purposes of export is income from business or it would be incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India. Explanation (baa) to sub-section (4C) of Section 80HHC in relation to export business defines profits of the business to mean the profits of the business as computed under the head Profits and gains of business or profession and as reduced, inter alia, by ninety per cent of any receipt by way of brokerage, commission, interest, rent or any other receipt of similar nature. A combined reading of Section 28, 80HHC with explanation (baa) aforesaid reveals that in relation to export business profits of the business would be computed (i) after deduction of specified percentage of profit as envisaged under sub-section (18) of Section 80HHC and then by computing it under the head profits and gains of business and profession after reducing it, inter alia, by ninety per cent of the receipt of interest. The aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of interest which the assessee earned in short term deposit kept in the bank. The assessee was an Indian exporter and had received advance from foreign customers which he invested in short term fixed deposit. The interest received on this deposit was claimed by the assessee as business income and accordingly a deduction was claimed under Section 80HHC of the Act. The assessing officer disallowed the claim but it was accepted by the Tribunal. The High Court upholding the order of the Tribunal held that the amount so deposited in the bank and the interest income derived from it had a close link with the business activity of the assessee and, therefore, the interest on deposits was assessable as business income. A Division Bench of Telengana and Andhra Pradesh High Court in Commissioner of Income Tax Vs. Indo Aquatics Ltd. (2014) 369 ITR 589 (T AP) in a similar situation as in the case at hand, held that obtaining letters of credit for export business is an essential business activity as the deposit of amounts for that purpose is a condition precedent for export. If such deposits yield interest it is attributable to or could be said to be derived from the business activity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation (baa) aforesaid. The Delhi High Court tracing out the history of Section 80HHC went on to consider the nature of the receipt by way of interest on deposits made with the bank either of the surplus fund available with the assessee or as a compulsion for the purposes of obtaining letters of credit essential for export business in the light of large number of decisions by classifying them into two categories; the first category being that of non Section 80HHC decisions and the other of Section 80HHC decisions. In the first category of decisions (non Section 80HHC decisions) apart from various other decisions a judgment of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. Commissioner of Income Tax (1997) 227 ITR 172 (SC) was referred wherein it was held that interest earned on deposits made with bank even for business purposes cannot be treated as business income but income from other sources. However, the nexus theory was reiterated. In the category of Section 80HHC decisions, a reference was made to the Madras High Court in K.S. Subbiah Pillai and Co. (India) Pvt. Ltd. Vs. Commissioner of Income Tax wherein it was held that if an assessee engaged i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and sound. It is a matter of judicial proprietary that where there are different opinions of the concurrent Benches of the other High Courts, the Court of concurrent jurisdiction seized of the matter is free to formulate its independent opinion following the law which appears it to be more logical and legally sound with reasoning appealing to its conscience rather than following the decision which may have been followed by some other Court more particularly when the controversy involved can be settled on a different reasoning as well. In the case at hand, as discussed above, there is hardly any relevancy regarding the nature of the interest income earned by the assessee-appellant. Notwithstanding its nature, as the specified percentage of the said interest is deductible from the profits of business computed under the head profits and gains of business and profession as provided under the explanation (baa) to sub-section (4C) of Section 80HHC of the Act, the interest income as specified is deductible. Accordingly, the substantial question raised in this appeal is answered holding that the interest income earned by the assessee of the description specified is deductibl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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