Commissioner of Income Tax vs Samir Diamonds Exports Ltd.

S.H. Kapadia, J.—The short point which arises for consideration in this appeal is : Whether the Department was right in recomputing the deductions u/s 80HHC by including interest on refunds and interest on loans in the total turnover ? By the impugned judgment, the Tribunal has excluded the above two items from the total turnover. Hence, this appeal by the Department.

Mr. Deodhar, learned counsel for the Department, contended that having regard to the plain words of the section, the above two items were required to be included in the total turnover. He contended that the Legislature in its wisdom excluded only two items, viz., freight and insurance, which pre-supposes that all other items were intended to be included in the total turnover. He contended that the Legislature has used the words "total turnover" in contradistinction to the word "turnover" which presupposes that the Legislature clearly intended that all amounts for which goods are bought or sold, should form part of the value of the goods and, accordingly, the above two items are includible in the total turnover. He relied upon the judgment of the Supreme Court in the case of George Oakes (Private) Ltd., Addison and Co. (Private) Ltd. and Rane (Madras) Ltd. Vs. State of Madras, .

Ms. Patel, learned counsel for the assessee, contended that in this case, on the facts, the Commissioner of Income Tax (Appeals) as well as the Tribunal have found that interest on Income Tax refund as well as on loans were assessable under the head "Income from other sources". She contended that the above two items were not assessable as business income. In the circumstances, she contended that this court should not interfere with the finding of fact recorded by the authorities below. She submitted that even a bare look at the grounds of appeal show that the above finding of fact has not been challenged by the Department in this appeal.

I find merit in the contentions advanced on behalf of the assessee. Firstly, both the Commissioner of Income Tax (Appeals) as well as the Tribunal have followed the judgment dated January 8, 1993, in the case of Royal Cushions v. CIT (unreported). Secondly, both the above authorities have found that the above two items fall under a different head of income, viz., "Income from other sources". Thirdly, u/s 80HHC(3)(b), as it stood at the relevant time, the deduction for export profits was allowed from the gross total income in accordance with the following formula :

Therefore, the Department ought to have raised a specific ground stating that the above two items fell in the profits of business and not under a separate head, viz., "Income from other sources". There is no such ground in the memo of appeal. Hence, the finding of fact recorded by the authorities below are hereby accepted.

Accordingly, the appeal is dismissed with costs.