1. This is a reference under Section 256(1) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal at the instance of the assessee in respect of the following question of law:
Whether the Tribunal is right in law in holding that deduction under Sections 80HH and 80-I was not available on interest received on short-term deposit of money, on investment in IDBI and on security deposit with M.P.E.B. for supply of H.T. electricity.
2. We have heard Mr. Sandesh Jain, learned Counsel for the appellant-assessee and Mr. Sanjai Lal, learned Counsel for the respondent-Revenue.
3. Mr. Sandesh Jain, learned Counsel for the assessee-applicant, submitted that he has instructions to withdraw the reference. He has commended us to the decision rendered in Gajadhar Prasad Nathu Lal v. CWT : [1970]76ITR615(MP) , wherein the learned Chief Justice, speaking for the court after referring to the decision rendered in M.M. Ispahani Ltd. v. Commissioner of Excess Profits Tax : [1955]27ITR188(Cal) , Arisetty Butchanna v. CIT : [1962]46ITR703(AP) and Karnani Industrial Bank Ltd. v. CIT : [1956]30ITR16(Cal) , expressed the opinion as under (page 618):
In view of the fact that the assessee does not want to pursue this reference and the Department is also not interested in the reference being answered, the only course we can adopt is to decline to answer the question referred in this case. We, therefore, decline to answer the question referred to us for decision. As the Commissioner of Wealth-tax, Madhya Pradesh, has appeared and has incurred the usual expenses, he shall have costs of this reference. Counsel's fee is fixed at Rs. 150.
4. Learned Counsel has also invited our attention to the decision rendered in Smt. Indramanidevi Parasrampuria v. Asst. CED : [1983]141ITR593(SC) , wherein a Division Bench has opined that where a party at whose instance a reference is made is not interested in pursuing the reference and getting the opinion of the High Court on the question referred to it by the Tribunal, the High Court would decline to answer the question referred. The Division Bench placing reliance on the decision rendered in Gajadhar Prasad Nathu Lal v. CWT : [1970]76ITR615(MP) declined to answer the reference.
5. In Karnani Industrial Bank Ltd. v. CIT : [1956]30ITR16(Cal) , the Bench took note of the fact that the assessee appeared through an advocate and brought to the notice that the question has now been finally determined against the contention of the assessee by the highest court of the country. In the circumstances, the only order which could possibly be made the order is in accordance with the previous decision which has been affirmed by the Supreme Court.
6. K. Ch. Venkatratnam v. CGT : [1974]95ITR277(AP) , the High Court of Andhra Pradesh, while dealing with the reference under Section 26(2) of the Gift-tax Act, opined that when an assessee makes a request to withdraw from the reference and says that he is not interested in pursuing the matter, it is left to the High Court, having regard to the circumstances of the case, either to accede to the request and decide not to answer the reference or to proceed to answer the reference in spite of such request.
7. Similar view was expressed in State of Gujarat v. Premier Auto Electricals Ltd. [1982] 51 STC 115 (Guj).
8. In the case at hand, while Mr. Sandesh Jain, learned Counsel has expressed that he has instructions to withdraw the reference Mr. Sanjay Lal has seriously opposed the prayer. In view of the aforesaid we are obliged to answer the reference inasmuch as there is opposition by the Revenue. Hence, we proceed.
9. The assessee is a public limited company and is engaged in the business of manufacture and sale of polyethylene insulated jelly filled telephone cables. The Assessing Officer issued a notice under Section 143(2) of the Act after dealing with the explanation offered by the assessee. The Assessing Officer expressed the view that the interest income as claimed by the assessee is not acceptable inasmuch as the interest on the security deposit with the M. P. E. B is not in the character of income from industrial undertaking as the same has no nexus with the assessee's activities of an industrial undertaking. Similarly, the Assessing Officer came to the conclusion that the interest on deposits in I. D. B. I. is also not generated from the industrial undertaking as the Income-tax Act does not compel the assessee to deposit any amount with I. D. B. I. Because of the aforesaid view the Assessing Officer denied the said benefits to the assessee.
10. On an appeal being filed the Commissioner of Income-tax (Appeals), vide order dated July 22, 1992, treated the same as the business income and allowed the deductions under Sections 80HH and 80-I excluding the amount of Rs. 26,519 which was conceded to by learned Counsel for the assessee. Be it noted, the appellate authority allowed the appeal of the assessee in respect of certain other items.
11. Being aggrieved by the order passed by the Commissioner of Income-tax (Appeals), an appeal was preferred by the Revenue and the assessee also preferred an appeal. Both the appeals were heard analogously by the Tribunal. The Tribunal allowed the appeal preferred by the assessee in part. Thereafter, the assessee filed an application referring two questions to this Court. Before the Tribunal question No. 2 was not pressed and, hence, a singular question has been referred to this Court.
12. From the statement of facts it is quite clear that the Tribunal had recorded a finding that the interest drawn from the deposits would not be included under Sections 80HH and 80-I. The Commissioner of Income-tax (Appeals) had allowed the appeal of the assessee holding the assessee is entitled to benefit under Sections 80HH and 80-I in respect of interest income also as has been stated hereinbefore. The Tribunal reversed the said finding and directed the Assessing Officer to allow deduction under Section 80-I on the profit of the industrial undertaking without reducing therefrom the deduction allowed under Section 80HH.
13. In this context we may refer with profit to the decision rendered in Pandian Chemicals Ltd. v. CIT : [2003]262ITR278(SC) , wherein their Lordships of the apex court while answering the reference 'Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the interest on deposits with the Tamil Nadu Electricity Board should be treated as income derived by the industrial undertaking for the purpose of Section 80HH ?' held as under (page 280):
The word 'derived' has been construed as far back in 1948 by the Privy Council in CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325 (PC) when it said (page 328):
The word 'derived' is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition.This definition was approved and reiterated in 1955 by a Constitution Bench of this Court in the decision of Mrs. Bacha F. Guzdar v. CIT : [1955]27ITR1(SC) . It is clear, therefore, that the words 'derived from' in Section 80HH of the Income-tax Act, 1961, must be understood as something which has direct or immediate nexus with the appellant's industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with the Electricity Board cannot be said to flow directly from the industrial undertaking itself.
Learned Counsel appearing on behalf of the appellant has referred to several decisions of the Madras High Court in order to contend that the words 'derived from' could be construed to include situations, where the income arose from something having a close connection with the industrial undertaking itself. All the decisions cited by the appellant have been considered by the Madras High Court in the case of CIT v. Pandian Chemicals Ltd. : [1998]233ITR497(Mad) . We see no reason to disagree with the reasoning given by the High Court in Pandian Chemicals Ltd.'s case : [1998]233ITR497(Mad) with respect to those decisions to hold that they do not in any way allow the word 'derived' in Section 80HH to be construed in the manner contended by the appellant.
14. In view of the aforesaid enunciation of law, we are of the considered opinion that the assessee is not entitled to deduction on interest received on term deposit with M. P. E. B. for supply of high tension electricity.
15. In the result, the reference is answered in the affirmative in favour of the Revenue and against the assessee.