NANJI TOPANBHAI and CO. vs ASSISTANT COMMISSIONER OF INCOME TAX and Others

Mrs. K.K. Usha, J.

These appeals are at the instance of the assessee, They arise from a common order passed by the Tribunal, Cochin Bench in ITA Nos. 262, 263 and 264 (Coch) 1998. The relevant assessment years 1989-90, 1990-91 and 1991-92.

The assessee is a partnership firm engaged in the business of purchase and export of hill products like cardamom, coriander seeds, pepper, ginger etc. The assessments for the above mentioned three years were originally completed u/s 143(1)(a) of the Income Tax Act, 1961. Assessments were subsequently reopened on the ground that the assessee had claimed deduction u/s 80HHC on the interest received from banks on fixed deposits. The assessee contended that the interest earned on fixed deposit with banks was part of the income from export business and, therefore, the assessee was eligible for deduction u/s 80HHC on the interest income. This contention was rejected by the assessing authority relying on a decision of this Court in Collis Line Pvt. Ltd. Vs. Income Tax Officer, A-Ward, . Appeals filed before the Commissioner (Appeals) were also dismissed. The Tribunal held that the interest receipts can be treated under "other sources" and therefore the assessee''s claim for deduction u/s 80HHC on the above income has only to be denied. Reliance was placed by the Tribunal on Collis Line Pvt. Ltd. Vs. Income Tax Officer, A-Ward, as well as CIT v. Cochin Refineries Ltd. (1984) 43 CTR (Ker) 103 : (1983) 154 ITR 345 .

It was contended before us by the learned counsel that fixed deposit had to be retained in the bank by the assessee in order to offer security for loan transaction which was in connection with its business of export. Therefore, according to the assessee, the interest received from the fixed deposit is to be treated as part of business income. It is seen that the Tribunal had entered a finding that for the asst. yrs. 1988-89 and 1989-90 surplus money has been kept in fixed deposit without availing any loan facilities. But the contention of the assessee is that for the years 1990-91 and 1991-92 it has availed loan against collateral security of the deposits. The Tribunal came to the conclusion that in the application for credit facilities the fixed deposits were shown as asset in the balance sheet and they were taken into account for claiming the credit limits. According to the Tribunal, there is no evidence in the form of a letter from the bank manager insisting for fixed deposits for availing loan. The Tribunal did not accept the contention of the assessee that the assessee was compelled to make deposit with the bank for availing loan facilities.

The learned counsel for the assessee contended that there were materials produced before the Tribunal to show that the fixed deposits were taken into consideration by the bank for the purpose of limiting the loan facility and therefore, according to the learned counsel, at least for the years 1990-91 and 1991-92 its claim u/s 80HHC should have been allowed.

Under s. 80HHC of the Income Tax Act the assessee who is engaged in export business be allowed in computing the total income a deduction out of the income derived by the assessee from the export of such goods, etc. Therefore, unless the assessee is able to show that the income it received by way of interest from the fixed deposit is income derived from the export business, it will not be entitled to claim deduction u/s 80HHC. We are in full agreement with the Tribunal that in the nature of the business carried on by the assessee namely, export business interest received by it from the fixed deposit cannot be treated as business income. This aspect has been considered by a Bench decision of this Court in Commissioner of Income Tax Vs. Cochin Refineries Ltd., . In that case that claim was u/s 80I of the Income Tax Act. The following observation in the above judgment is very relevant :

"......... Profits and gains are well understood to mean only the business income, and not any other income. So long as the company has no business of lending money, and so long as the admitted case of the company is that the income derived is only on account of the peculiar situation arising from the time schedule for repayment of the loans, it cannot be stated that the income yielded by the deposits or investments was received in the course of the company''s business so as to be treated as a business profits."

The earlier decision of this Court in Collis Line Pvt. Ltd. Vs. Income Tax Officer, A-Ward, was referred and approved.

In the light of the above, we have no hesitation to hold that the income received by the assessee as interest from fixed deposits with the bank is not business income, but only income from other sources.

In the result, we find no merit in the appeals. The appeals stand dismissed.