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TMI Blog2019 (2) TMI 1809X X X X Extracts X X X X X X X X Extracts X X X X ..... : Assessment year 1994-95 Interest on short-term loans and advances - Rs. 5,15,691. Assessment year 1995-96 Interest on short-term loans and advances - Rs. 41,78,835. Interest on margin money deposits with banks - Rs. 7,00,389. 3. As far as the interest on margin money deposits with banks for the assessment year 1994-95 is concerned, the learned counsel for the assessee submitted that the Commissioner of Income-tax (Appeals) had allowed that benefit to the extent of Rs. 4,55,313 and the Revenue did not contest it further and therefore, that issue is only for the assessment year 1995-96. 4. The substantial questions of law on which the present appeal of the assessee was admitted by the Co-ordinate Bench of this court on October 25, 2005 are as follows : "(i) Whether the Tribunal is correct in upholding the order of the Assessing Officer for the respective assessment years in assuming jurisdiction under section 147 of the Act with a view to frame assess ment ? (ii) Whether the Tribunal is correct in confirming the assessment orders for the assessment years under consideration on the point of assumption of jurisdiction in view of the decision reported in South In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and the eligibility to get such deduction under section 80-IA is not in dispute from the side of the Revenue, but the only question is whether such deduction, based on the "profits and gains of the business", would include or not, the aforesaid interest income received by the assessee from the banks on the margin money deposits or interest received from the customers on the belated payment of invoices. In other words, whether such interest income is taxable as "profits and gains of business" or is liable to be taxed as "interest income from other sources" and thus, not falling within the ambit and scope of section 80-IA of the Act. 7. Section 80-IA in Chapter VI-A of the Act, which deals with the deductions to be made in computing total income of the assessee, provides for deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc., and vide clause (v) of sub-section (2) of section 80-IA, an industrial undertaking, which manufactures or produces article or things, employs ten or more workers in the manufacturing process, then it shall be entitled to such deduction. The deduction is allowed equal to 100 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o section 56 of the Act dealing with income from other sources, the learned counsel for the assessee vehemently submitted that income of every kind, which is not to be excluded from the total income under this Act, could only be charged to Income-tax under the head "Income from other sources", if it is not chargeable under any of the heads specified under section 14 and Part A to E of Chapter IV as narrated above. He, therefore, submitted that such residuary clause cannot be applied to income from interest generated and earned by the assessee during the ordinary course of business. 13. He further submitted that a deeper look at section 56 in its entirety would reveal that only income from dividend and interest on securities, if the interest income is not chargeable to Income-tax under the head "Profits and gains of business or profession", could so fall under section 56 of the Act, vide section 56(2)(id) of the Act. Though he submitted that if the interest income is relatable to regular and ordinary course of business, section 56 of the Act cannot be applied and the interest income in the present case was very much "Profit from the business or profession" of the assessee relatable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred cannot be treated as a first source of income, which is the quintessence for attracting the benefit and incentive provided under section 80-IA of the Act. It was found that the monies, which were given by the assessee, were towards perfor mance guarantee and certain margin money for purchasing raw material. The court, however, has not elaborated upon the facts of the decision of the hon'ble apex court in CIT v. Karnal Co-operative Sugar Mills Limited [2000] 243 ITR 2 (SC) and Bokaro Steel Limited [1999] 236 ITR 315 (SC) and on facts, we find that the said decision of the High Court of Himachal Pradesh cannot be applied to the facts and circumstances of the case on hand." (emphasis supplied) 15. The Division Bench of this court in the aforesaid judgment also dealt that the distinction of a scheme of sections 80-I, 80-IA and 80-IB as against the scheme under sections 80H, 80HH and 80HHC in the following manner : "Firstly, we note that sections 80-I, 80-IA and 80-IB have a com mon scheme and from the reading of those sections it is clear that the said sections provide for incentive in the form of deduction(s), which are linked to the profits and not to investment, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logy parks of India, where the entire profits and gains of the entire undertaking making 100 per cent. exports of articles including software are given 100 per cent. deduction. The dedicated nature of the business or their special geo graphical locations in software technology parks of India or special economic zones makes them a special category of assessees entitled to the incentive in the form of 100 per cent. deduction under section 10A or section 10B of the Act, rather than it being a special character of income entitled to deduction from gross total income under Chapter VI-A under section 80HH, etc. The computation of income entitled to exemption under section 10A or section 10B of the Act is done at the prior stage of computation of income from profits and gains of busi ness in accordance with sections 28 to 44 under Part D of Chapter IV before 'gross total income' as defined under section 80B(5) is com puted and after which the consideration of various deductions under Chapter VI-A in section 80HH, etc., comes into the picture. Therefore the analogy of Chapter VI deductions cannot be telescoped or imported in section 10A or section 10B of the Act. The words 'der ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the interest earned on deposits was not profits and gains of business and therefore, deduction under section 80HHC available to exporters on export income was not available in respect of such interest income. The extract of the Kerala High Court decision in the case of K. Ravindranathan Nair, which was relied upon by the Division Bench of this court, is also quoted below for ready reference (page 673 of 262 ITR) : "From the above discussion of the meaning of the words 'attri butable 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 deposit was made only for the purpose of opening letters of credit and for getting other benefits which are necessary requirements to enable the appellant to make the export. From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aphs 18 and 23 of the said decision are quoted below for ready reference (page 240 of 295 ITR) : "In the present case the Assessing Officer had worked out business profits of Rs. 1,94,08,220 as the gross total income on the basis of income received from cashew business (See pages 50 and 52 of the SLP paper book). Even according to the assessees, in the above for mula his business profits included the abovementioned processing charges. However, according to the assessees, the said charges were not to be included in the total turnover. We are not inclined to accept the contention of the assessees. The above discussion indicates that the formula in section 80HHC(3) of the Income-tax Act provided for a fraction of export turnover divided by total turnover to be applied to business profits calculated after deducting 90 per cent. of the sums mentioned in clause (baa) to the said Explanation. That, profit incentives and items like rent, commission, brokerage, charges, etc. though formed part of gross total income had to be excluded as they were 'independent incomes' which had no element of export turn over. That, the said items distorted the figure of export profits. . . . Bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered opinion, we find a considerable force in the contention raised by the learned counsel for the assessee and the cases relied upon by him. The Scheme of computing the total income under various heads in Chapter IV of the Act and an analysis of section 56 of the Act itself would clearly reveal that "income from other sources" is only that income which cannot be brought to tax under any of the specified heads of income in the provisions preceding section 56 of the Act in the said Chapter IV of the Act, namely under the head of "salary", "income from business or profession", "income from house property" and "income from capital gains". The head "Income from other sources" is like a residuary clause and the income which cannot be attributed or related to any specified and defined head of income, then only such income can be brought to tax under section 56 of the Act, which itself provides both an inclusive and exclusive definition. It is a long provision and enumerates several such incomes which can be included therein and within such inclusions, the exclusions are also made. 23. As far as the interest income is concerned, clause (id) of sub-section (2) of section 56 clearly pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the part of the Revenue authorities to create such artificial compartments in the "business income" of the assessee, merely to reduce the quantum of deduction available to the assessee under section 80-IA of the Act of which the eligibility of the assessee is not even in doubt, is nothing but a whimsical and the arbitrary view of the Revenue authorities and the same is opposed to common sense and business prudence of a common businessman. 26. Our view is fully supported by the judgments relied upon by the learned counsel for the assessee as quoted above, whereas we find distinction of the facts in the case law relied upon by the Revenue and therefore, we have no hesitation to hold that the interest income earned by the assessee on margin money deposits with the bank and interest on short-term loans and advances in the form of belated payments made by customers was very much profits and gains of the business of the assessee and therefore, the assessee was entitled to deduction under section 80-IA of the Act in respect of such interest income also. 27. Having arrived at the said conclusion in favour of the assessee, we do not consider it even necessary to answer the question w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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