COMMISSIONER OF INCOME TAX Vs. G SATHEESH NAIR
HIGH COURT OF KERALA
COMMISSIONER OF INCOME TAX
G Satheesh Nair
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G.SIVARAJAN, J. -
(1.) THIS is an appeal filed by the CIT, Thiruvananthapuram, against the order of the Tribunal, Cochin Bench, in ITA No. 410/Coch/1996 for the asst. yr. 1992 -93.
(2.) NOTICE was ordered on the following questions of law :
'1. Whether, on the facts and in the circumstances of the case and also in the light of the Kerala High Court's decision in Nanji Topanbhai and Co. v. Asstt. CIT and Ors. : 243ITR192(Ker) the Tribunal is right in law and fact in interfering with the assessment of interest income under the head 'Other sources' ?
2. Whether, on the facts and in the circumstances if the case, the Tribunal is right in law and fact in directing the interest income to be assessed under different heads and does the distinction drawn by the Tribunal have any difference in the matter of assessment of interest income ?
3. (a) Whether, on the facts and in the circumstances of the case whether in working out the profit, derived in the industrial undertaking belonging to the assessee the profit earned from the sale of the kernels processed in the factories of third parties is to be included for the purposes of Section 80HH ? (b) If the answer to the above question is in the negative whether the Tribunal is justified in remitting the case ?'
The brief facts are as follows :
The respondent -assessee is an individual deriving income from business in the export of cashew kernels. The assessee had received interest on term deposits with banks. In the course of assessment proceedings the assessee claimed that the interest received formed part of the business profit and so the same should have been considered for assessment under the head 'business' only. The AO did not accept the said contention, as according to him, the 'interest income' has to be assessed under 'Other sources'. Accordingly he rejected the assessee's contention and included the sum of Rs. 5,55,849 representing the interest on bank deposits as income under the head 'Other sources'. The assessee also claimed deduction under Section 80HH on a sum of Rs. 32,00,560 but limited to Rs. 26,66,680. The AO noted that out of 24,563 bags of raw nuts processed during the year only 7,318 bags were processed in the assessee's factories in Kanyakumari district, a notified backward area, and that the remaining quantity was processed by third parties in their factories. The AO accordingly allowed the deduction under Section 80HH only in respect of the profit derived from the manufacturing done in his own factory and deduction was not allowed in respect of the profit derived from the cashew kernels processed in the factories belonging to third parties. He accordingly computed the deduction under Section 80HH at Rs. 10,38,288 as against the assessee's claim for deduction of Rs. 26,66,680. The assessee being aggrieved by the said order filed appeal before the CIT(A), who by his order dt. 3rd April, 1996, confirmed the assessment and dismissed the appeal. In second appeal by the assessee the Tribunal took the view that the matter has to be remitted to the AO to ascertain as to whether there was any activity carried on by the assessee in respect of the quantity of 17,243 bags which were processed in the factories belonging to third parties. Further direction in that regard was also issued. The Tribunal also directed the AO to look into the matter afresh and see whether the bank deposits were required to be maintained as margin money for the import of raw nuts. It was also observed that the assessee will be free to furnish evidence to show that there was direct nexus and that the deposit had been made for the purpose of business, i.e., for the import of raw nuts. The Tribunal further directed that the AO will ascertain whether the deposits were maintained for the purpose of the assessee's business and then include the interest as part of the business profit. It was further provided that interest on deposit accounts made not for the purpose of the business alone would be assessable separately as income under the head 'Other sources'. Being aggrieved, the Department is in appeal before this Court.
(3.) TODAY when the matter came up for hearing, Sri. P.K.R. Menon, learned senior Central Government standing counsel for the appellant, submits that all the questions raised in this appeal are covered by the decision of this Court. The senior counsel submits that question Nos. 1 and 2 relating to assessment of the interest income this Court on identical circumstance had held in the judgment, dt. 8th Nov., 2002, in IT Appeal No. 291 of 2002 that such income has to be assessed under the head 'Other sources'. He also pointed out that in the said judgment earlier judgments of this Court on this point were also considered. Regarding question No. 3 it is submitted that the issue is covered by the judgment of this Court in CIT v. Indian Resins and Polymers : 235ITR5(Ker) .;
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