Commissioner of Income Tax, (Central) Kanpur vs Kothari Products Ltd.

The income tax Appellate Tribunal, Delhi has referred the following question of law u/s 256(1) of the income tax Act, 1961 (hereinafter referred to as the Act) for opinion of this Court. Whether on the facts and in the circumstances of the case, the Hon''ble ITAT is justified in law in holding that interest income from investment in bank be treated as business income on which deduction u/s 80HHC could be allowed?

The reference relates to the assessment year 1989-90.

Briefly stated the facts giving rise of present reference are as follows:

The assessee company is engaged in the manufacture of Pan Masala and Zarda Yukt Pan Masala under the brand name of "Pan Parag". On 29-3-1990, they filed their return for the assessment year 1989-90 showing an income of Rs. 3,27,89,790. Assessment on an income of Rs. 11,82,03,500 was completed u/s 143(3) of the Act on 31-3-1992. In the proceedings initiated u/s 263 of the Act, the Commissioner of income tax took the view that the assessment rendered by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of revenue for the reasons that the assessee''s claim u/s 80HHC had been wrongly allowed even on an amount of Rs. 1,46,94,374 being income from other sources. This amount represented dividend and interest etc. on F.D. Rs. And did not form part of "business income". Contesting the assessee claimed that the deduction u/s 80HHC was rightly allowed, the Commissioner of income tax cancelled the assessment with certain directions to the Assessing Officer. In the appeal filed by the assessee before the Tribunal, it took the view that the interest income on F.D. Rs. was nothing but income from business as was held by the Tribunal in the assessee''s own case for the earlier years while computing deduction u/s 32-AB of the Act. The stand of the Department has been that the situation under the two sections, namely section 32AB and section 80HHC was different and in the absence of evidence on record to establish that only the surplus cash of business had been invested in the F.D. Rs. For earning interest on the ground that it was lying idle, benefit u/s 80HHC could not be granted to the assessee on such interest income.

We have heard Sri A.N. Mahaja, learned standing counsel for the revenue and Sri R.S. Agarwal, learned counsel appearing for the respondent assessee. We find that the controversy raised herein has been set at rest by the decision of the Apex Court in the case of the Pandian Chemicals Ltd. Vs. Commissioner of Income Tax, has interpreted the word "derived from" occurring in section 80HHC of the Act and has held that deduction is admissible only in respect of the profits derived from the export of goods or merchandise. In the present case interest income from investment in Bank cannot be treated as income derived from export of goods or merchandise and, therefore, it was an eligible to deduction u/s 80HHC of the Act. Thus, the question referred to us is answered in the negative i.e. in favour of the revenue and against the assessee. There shall be no order as to costs.