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TMI Blog2016 (8) TMI 1380X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of interest income of Rs. 20,58,049/-, which the appellant treated, as business income. 3. The assessing officer issued notice, under Section 148 of the Act, followed by notices, under Sections 142(1) and 143(2) of the Act and after considering the material on record, and the submissions of the appellant's representative, passed an order, dated 13.01.2004, under Section 143(3) of the Act, determining the taxable income at Rs. 21,78,049/- and allowed deduction, under Section 80HHC of the Act, to an extent of Rs. 4,93,188/- only. While arriving at the taxable income, the assessing officer subjected to tax, interest income of Rs. 20,58,049/-, under the head, "Other Sources", and also denied the benefit of deduction, under Section 80HHC, on the said sum. 4. Being aggrieved by the same, the appellant/assessee filed an appeal, in I.T.A.No.28/2004-05, before the Commissioner of Income-Tax (Appeal), Chennai. Contention has been made that the appellant was enjoying credit facilities towards working capital, from State Bank of India, for which, the appellant had to make certain deposits, out of realisation of sale proceeds of the exports made, and the interest earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITAT, Delhi relied upon by the appellant will not be applicable to his case. It may also be of significance to cite the Madras High Court decision in the case of K.S.Subbiah Pillai & Co., (India) Pvt. Ltd., v. CIT (260 ITR 304), wherein, it has been clearly held that interest paid and claimed as deduction in computing business income cannot be set off against interest receipt and computed as income from 'Other Sources'. In view of the categorical finding given by the Madras High Court also, it has to be held that the Special Bench decision relied upon by the appellant will not be applicable to his case. 8. Thus, the assessing officer's action of assessing the interest income from Fixed Deposits under the head, 'Other Sources' is upheld and therefore that interest income would not be eligible for any deduction, u/s. 80HHC. In the result, the appeal is dismissed." 8. Being aggrieved by the order, the assessee has filed an appeal in I.T.A.No.3094/Mds/2004, before the Income-Tax Appellate Tribunal, 'A' Bench, Chennai, contending inter alia, that both the assessing officer, as well as the Commissioner of Income Tax (Appeals), have failed to consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal has been filed and record of proceedings shows that appeal has been admitted on 08.08.2007, on the following substantial question of law, "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in not holding that the interest from fixed deposits formed out of compulsory retention and transfer of export realisation is income from business liable for inclusion as business profit for computation of deduction under Section 80HHC of the Income Tax Act?" 12. Assailing the correctness of the order of the Tribunal and seeking for an answer, in favour of the assessee/appellant, on the above substantial question of law, Ms.Sushma Harini, learned counsel appearing for the appellant reiterated the submissions. Added further, she submitted that the decision rendered in CIT v. Nizar Ahmed & Co., reported in 259 ITR 244, has been misapplied by the appellate authority and that the Tribunal has also committed a mistake, in rejecting the case of the appellant/assessee, by relying on the decision of this Court in CIT vs. Chinnapandi reported in (2006) 282 ITR 389, which according to her, is not applicable to the case on hand. 13. Harping on the letter, ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 484 (Mad.), was also pressed into service by the Revenue, which considered the decision in CIT v. Nizar Ahmed & Co., reported in 259 ITR 244. 16. Referring to Section 80HHC of the Income Tax Act, 1961, learned standing counsel for the Income Tax Department submitted that if the Company is engaged in the business of export, income earned out of exports of any goods or merchandise, deduction to the extent of profits, referred to in sub-Section (1B) alone would be allowed, if only the income is derived by the assessee, from the export of such goods or merchandise, and not from any other source. He further submitted that on the facts and circumstances of the case, interest income has been derived, not from the export of goods or merchandise, but derived from the deposits made by the appellant and therefore, interest income, earned by the assessee, cannot be treated as "business income", liable for deduction. According to him, interest income earned from the deposits, should be treated only as "other source" and therefore, both the appellate authority, as well as the Tribunal, have rightly decided the issue, in favour of the Revenue. 17. Inviting the attention of this Court to E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bank of India, stating that for extention of credit facility, deposit had to be made and when such deposit was made, from the business profits, interest income earned from such deposit, cannot be excluded from "business income" and be termed as income from "other sources". She reiterated that there is certainly a nexus between the export earning deposit a requirement for the credit facility and thus, interest income, has to be necessarily treated as "business income" and not from "other source". Decision in Premier Enterprises v. Deputy Commissioner of Income-Tax reported in 2015 (370) ITR 465 (MAD.), rendered in favour of the assessee therein, on the facts that case, wherein, the assessee therein had deposited amounts for the purpose of availing credit facilities, has also been pressed into service. Heard the learned counsel appearing for the parties and perused the materials available on record. 21. Before adverting to the rival submissions, let us have a cursory look at the provisions in the Income Tax Act, 1961. Section 28 of the said Act deals with profits and gains of business or profession, and the said Section is extracted hereunder: "The following income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1992 (22 of 1992) ; (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ; (v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of Section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ; (va) any sum, whether received or receivable, in cash or kind, under an agreement for (a) not carrying out any activity in relation to any business [or profession]; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-clause (a) shall not apply to (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B), derived by the assessee from the export of such goods or merchandise : Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Explanation 2. For the removal of doubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch, office, warehouse or any other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch, office, warehouse or establishment, then, such transfer shall be deemed to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in sub-section (1) of section 50 of the Customs Act, 1962 (52 of 1962), shall, for the purposes of this section, be deemed to be the sale proceeds thereof. (3) For the purposes of sub-section (1), (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, (a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme : Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiie) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, (a) he had an option to choose either the duty drawback or the Duty Free Replenishment Certificate, being the Duty Remission Scheme; and (b) the rate of drawback credit attributab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the profits of the business the same proportion as the turnover in respect of sale to the respective Export House or Trading House bears to the total turnover of the business carried on by the assessee. (4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of Section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section: Provided that in the case of an undertaking referred to in sub-section (4C), the assessee shall also furnish along with the return of income, a certificate from the undertaking in the special economic zone containing such particulars as may be prescribed, duly certified by the auditor auditing the accounts of the undertaking in the special economic zone under the provisions of this Act or under any other law for the time being in force. (4A) The deduction under sub-section (1A) sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962); (ba) "total turnover" shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) : Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression "total turnover" shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of Section 28; (baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by (1) ninety per cent 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 (2) the profits of any branch, office, warehouse or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the other hand, as stated above, the assessing officer has held that the interest income was income from other sources. If that be the case, then such an income cannot come within the ambit of Section 28 to 44D of the Income-tax Act. It cannot come under profits and gains of business." 26. In Nanji Topanbhai v. Assistant Commissioner of Income Tax reported in 2003 (243) ITR 192 (Ker), the Kerala High Court held that income received by the assessee as income from fixed deposits with the bank is not business income, but only income from other sources. So also, the decision of the Kerala High Court in Assistant Commissioner of Income Tax v. South India Produce Company reported in 2003 (262) ITR 20 (Ker.). 27. In K.S.Subbiah Pillai v. Commissioner of Income Tax reported in 2003 (179) CTR 522 (Mad) : 2003 (260) ITR 304 (Mad.), this Court held that, "6. Clause (baa) under the Explanation to Section 80HHC defines, profits of the business as computed under the head "Profits and gains of business or profession". The deductions to be made are from the amount of profit so computed and not from the amount computed under any other head of income of that assessee. The reference to "such pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as aggrieved over the said decision and accepting the contention of the revenue, the question referred to above, was answered against the assessee and in favour of the Revenue. 31. Though Ms.Sushma Harini, learned counsel for the appellant attempted to distinguish the above judgment, we are not inclined to accept the same, in view of the categorical decision rendered in Nizar Ahmed's case, wherein, this Court held as follows: "3. When the matter was taken to the Tribunal, it took the view that the letter from the bank was sufficient basis to hold that the making of the deposit and the facilities enjoyed from the bank were inextricably linked. It also held that the interest received on those deposits was required to be treated as part of the income from the business for computing the relief under Section 80HHC. 4. That view of the Tribunal cannot be sustained. The Commissioner has rightly pointed out that the deposits kept by the assessee in the bank in a large sum of over Rs. 130 lakhs were to the assessee's own advantage, inasmuch as they provided a return at the rate of 10 per cent. That was in the nature of an additional source of income to the assessee which was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deposited to the account from which interest was earned. The appellant therein contended that there is a nexus between the amount received on export sales and that there was deposit in short-term deposits and hence, the deposit was from business earnings and consequently, the interest earned was income from business. The Assessing Officer did not accept the said contention. The Commissioner of Income-Tax (Appeals), confirmed the said decision. The assessee was also unsuccessful before the Tribunal. Considering the facts and circumstances of the said case, a Hon'ble Division Bench of the Kerala High Court, held as follows: "From the above discussion of the meaning of the word "attributable to" with reference to the expression "derived from", it can be seen that the meaning of the expression "derived from" has got only a limited import and, therefore, the expression "derived from" as used in Section 80HHC must be understood as profit directly arising from the export of the goods and not incidental to the export. As already noted, the interest from short-term deposits received by the appellant is not the direct result of any export of any goods or merchandise. The fixed deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port business as fixed deposits is valid in law?" After considering the decisions in K.S.Subbiah Pillai's case (cited supra) and Rani Paliwal v. CIT [(2003) 185 CTR P H 333 = 2004 268 ITR 220 P&H], this Court, at Paragraphs 6 and 7, held as follows: "6. The above two judgments support the case of the Revenue. The appellant in the present case had received interest of Rs. 2,65,019 and hence the receipt of interest is alone relevant and the same is to be taken into consideration for the purpose of deduction for the claim under Section 80HHC of the Act. No expenditure or any other deduction is permissible from the receipt of interest income. Section 80HHC stipulates a deduction in respect of export profits, Instead of enjoining the AO to compute such export profits from out of the consolidated amount of the assessee, which may involve income by way of interest, rent, commission etc., the legislature has provided a simple procedure under which 90 per cent of the receipts such as interest, rent, commission, brokerage etc. shall be excluded as profits not attributable to exports. The intention is therefore clear that there should be no attempt to deduct any expenditure from the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, the Appellate Tribunal was right in law in overlooking the fact that in the absence of any "real income" is it permissible to contend that the interest credited is to be set off against interest paid, what is contemplated in Explanation (baa) is, "any other interest/ commission income which are otherwise taxable as "business income" like interest earned from money-lending business etc., and not the interests from these fixed deposits ? (3) Whether on a correct and proper interpretation of Section 80HHC of the Income Tax Act, 1961 and application thereof to the facts and circumstances of the case, was the Tribunal legally right in holding that the claim for deduction in respect of income from F.D. was not sustainable despite contrary and consistent view having been expressed by the Bombay High Court in the case of C.I.T. v. Paramount Premises (P) Ltd., (190 ITR 259) and C.I.T. v. Nagpur Engineering Co. Ltd., (245 ITR 806) against which the S.L.P. of the Department/Revenue stood dismissed as reported in C.I.T. v. Nagpur Engineering Co. Ltd., (244) ITR (St.) 54) ?" After considering K.S.Subbiah Pillai's case (cited supra) and Nizar Ahmed's case (cit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "So far as the first question is concerned. Article 141 of the Constitution unequivocally indicates that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. The aforesaid Article empowers the Supreme Court to declare the law. It is, therefore, an essential function of the Court to interpret a legislation. The statements of the Court on matters other than law like facts may have no binding force as the facts of two cases may not be similar. But what is binding is the ratio of the decision and not any finding of facts. It is the principle found out upon a reading of a judgment as a whole, in the light of the questions before the Court that forms the ratio and not any particular word or sentence. To determine whether a decision has 'declared law' it cannot be said to be a law when a point is disposed of on concession and what is binding is the principle underlying a decision. A judgment of the Court has to be read in the context of questions which arose for consideration in the case in which the judgment was delivered. An 'obiter dictum' as distinguished from a ratio decidendi is an observation by Court on a legal questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms "dictum" and "obiter dictum" are generally used synonymously with regard to expressions in an opinion which are not necessary to support the decision, in connection with the doctrine of stare decisis, a distinction has been drawn between mere obiter and "judicial dicta," the latter being an expression of opinion on a point deliberately passed upon by the court." Further at pg. 525 and 526, the effect of dictum has been discussed: "190. Decision on legal point; effect of dictum ... In applying the doctrine of stare decisis, a distinction is made between a holding and a dictum. Generally stare decisis does not attach to such parts of an opinion of a court which are mere dicta. The reason for distinguishing a dictum from a holding has been said to be that a question actually before the court and decided by it is investigated with care and considered in its full extent, whereas other principles, although considered in their relation to the case decided, are seldom completely investigated as to their possible bearing on other cases. Nevertheless courts have sometimes given dicta the same effect as holdings, particularly where "judicial dicta" as distinguished from "obiter di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt of "Dicta" has also been considered in Corpus Juris Secundum, Vol. 21, at pg. 309-12 as thus: "190. Dicta a. In General A Dictum is an opinion expressed by a court, but which, not being necessarily involved in the case, lacks the force of an adjudication; an opinion expressed by a judge on a point not necessarily arising in the case; a statement or holding in an opinion not responsive to any issue and not necessary to the decision of the case; an opinion expressed on a point in which the judicial mind is not directed to the precise question necessary to be determined to fix the rights of the parties; or an opinion of a judge which does not embody the resolution or determination of the court, and made without argument, or full consideration of the point, not the professed deliberate determination of the judge himself. The term "dictum" is generally used as an abbreviation of "obiter dictum" which means a remark or opinion uttered by the way. Such an expression or opinion, as a general rule, is not binding as authority or precedent within the stare decisis rule, even on courts inferior to the court from which such expression emanated, no matter how often it may be repeated. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratio decidendi constitute obiter dicta and are not authoritative. (See Divisional Controller, KSRTC v. Mahadeva Shetty)" 30. In Girnar Traders v. State of Maharashtra, (2007) 7 SCC 555, this Court has held: "Thus, observations of the Court did not relate to any of the legal questions arising in the case and, accordingly, cannot be considered as the part of ratio decidendi. Hence, in light of the aforementioned judicial pronouncements, which have well settled the proposition that only the ratio decidendi can act as the binding or authoritative precedent, it is clear that the reliance placed on mere general observations or casual expressions of the Court, is not of much avail to the respondents." 31. In view of above, it is well settled that obiter dictum is a mere observation or remark made by the court by way of aside while deciding the actual issue before it. The mere casual statement or observation which is not relevant, pertinent or essential to decide the issue in hand does not form the part of the judgment of the Court and have no authoritative value. The expression of the personal view or opinion of the Judge is just a casual remark made whilst deviating from answe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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