This appeal, by the assessee, is against the order of the Commissioner (Appeals) in confirming the order of assessment denying relief under section 80HHC of the Act to the assessee on the interest receipts.
The assessee is a registered firm. The assessment year is 1991-92. The assessee is in the business of purchasing timber from forest and processing it and then selling the same. The sales include export sales and also local sales. In the profit & loss account, the assessee had credited a sum of Rs. 20,30,734 as interest received and claimed exemption under section 80HHC. In the view of the assessing officer, the interest income was to be taxed under 'other sources' and, therefore, relief under section 80HHC was not allowable on the interest income. The assessee explained, before the assessing officer, that surplus funds of the business had been temporarily advanced to its sister concerns, It was, therefore, claimed that since monies advanced were out of business funds the interest income earned is business profits and, therefore, relief under section 80HHC should be allowed.
The assessing officer was of the view that the advancing of money was not the business of the assessee and the advances were made only with a view to earn interest. He concluded that interest income earned was from non-trading activities and, therefore, was not eligible for relief under section 80HHC. Aggrieved, the assessee appealed. Relying on various decisions of High Court, the Commissioner (Appeals) upheld the action of the assessing officer in disallowing the claim of the assessee. Hence, this further appeal before us.
At the time of hearing before us, the learned counsel for the assessee, fairly conceded that there are decisions of various High Courts against the assessee on this issue, and also by the Hon'ble Supreme Court. She was also fair enough to furnish a copy of the order of the Tribunal in the case of ITO v. Kabadi Enterprises, in ITA Nos. 2069 & 2070/Bang/91, dated 24-4-2000. On the other hand, the learned Departmental Representative supported the orders of the authorities below.
We have heard the rival parties. We have also perused the order of the Tribunal in the case of Kabadi Enterprises (supra) to which one of us, the AM, was a party. After going through the facts of the case and also considering the case laws cited by the parties, it has been observed there by the Tribunal : "We have considered the rival submissions, the evidence on record and the ratio of the decisions cited by both the parties. The dispute here relates to the computation of deduction under section 80HHC. The deduction under this section is allowable in respect of an assessee engaged in the business of export out of India of any goods or merchandise to which this section applies and the deduction is in respect of 'profits derived by the assessee' from the export of such goods or merchandise. The key expression here 'derived from' has been the subject-matter of controversy in the context of deduction under section 80HHC and 80-I and the Hon'ble Supreme Court of India in the case of CIT v. Sterling Foods (1999) 237 ITR 579 (SC) has considered the meaning of the term 'derived from' in contradistinction to the term 'attributable to'. Their Lordships held that the expression 'attributable to' was wider in import than the expression 'derived from' and that not to obtain the benefit of section 80HHC the assessee had to establish that the profits and gains were derived from its industrial undertaking and it was just not sufficient that a commercial connection was established between the profits earned and the industrial undertaking. The industrial undertaking itself had to be the source of the profit. In other words there should be a direct nexus or proximate connection between the business of the industrial undertaking and the income on which deduction under sections 80HH or 80-I is claimed. The same expression 'derived from' is available in section 80HHC and, therefore, the ratio of the decision of the Supreme Court in the above mentioned case applies with equal force in the context of claim of deduction under section 80HHC, the only difference being that in the case of section 80HHC the term 'export of such goods or merchandise'. We also find support from another decision of the Supreme Court in the case of Orissa State Warehousing Corpn. v. CIT (1999) 237 ITR 589 (SC) and of the Delhi High Court in the case of CIT v. Cement Distribution Ltd. (1994) 208 ITR 355 (Del), in addition to the various decisions cited by the learned Departmental Representative in this context. With respect, it has to be observed that the various decisions cited by the learned counsel for the assessee were rendered without considering the decision of the Apex Court in the case of Sterling Foods and Orissa State Warehousing Corpn. Ltd. (supra)." Finally the Tribunal held that the interest income earned by the assessee was not allowable for deduction under section 80HHC of the Act.
Facts being identical, following the above order of the Tribunal bases on not only of various High Courts but also on the Supreme Court, we hold that the authorities below were justified in not allowing the claim of deduction under section 80HHC of the Act on the interest income earned by the assessee.