ASST COMMISSIONER OF INCOME TAX Vs. SOUTH INDIA PRODUCE COMPANY
HIGH COURT OF KERALA
ASSISTANT COMMISSIONER OF INCOME-TAX
SOUTH INDIA PRODUCE COMPANY
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G. Sivarajan, J. -
(1.) THESE two appeals are filed by the Revenue against the common order of the Income-tax Appellate Tribunal, Cochin Bench, in I. T. A. Nos. 798 and 799 (Coch) of 1994 filed by them in respect of the assessment years 1989-90 and 1991-92. The appeals filed by the respondent-assessee (I. T. A. Nos. 652 and 653 (Coch) of 1994) for the very same assessment years were also disposed by the said common order. The appeals filed by the Revenue were allowed in part and the appeals filed by the assessee were dismissed. There are no appeals by the assessee. Common questions of law arise for consideration in both these appeals. The only difference is in the amount in the two cases. Hence, these two cases are being disposed of by this common judgment.
(2.) THE respondent-assessee is a leading exporter of spices in South India. In the assessment under the Income-tax Act, 1961 (for short "the Act"), for the years 1989-90 and 1991-92, the assessee claimed deduction under Section 80HHC of the Act in respect of interest received on fixed deposits. THE asses-see had also excluded the agency despatches from the total turnover for the computation of the deduction under Section 80HHC. Both the claims were rejected by the Assessing Officer. THE assessments were completed treating the interest on fixed deposit as income under other sources. THE Assessing Officer also included the agency despatches in the "total turnover" relying on the decision of the Supreme Court in Cardamom Planters Association v. Deputy CST (Law), Board of Revenue (Taxes)  75 STC118. In appeal by the asses-see the Commissioner of Income-tax (Appeals) allowed both the claims. THE Tribunal dismissed the appeal filed by the Revenue and confirmed the order of the first appellate authority on these issues. Hence, these appeals by the Revenue.
The Revenue has raised the following questions of law on which notices were issued in both the appeals.
"I. Whether, on the facts and in the circumstances of the case, the interest income of Rs. 19,40,886 is assessable under the head 'Business income' ?
2. Whether, on the facts and in the circumstances of the case, can the interest be said to be an income directly connected with the business in the sense the income is generated by the business ?
3. Whether, on the facts and in the circumstances of the case, the interest income is eligible to be considered for deduction under Section 80HHC of the Income-tax Act ?
Whether, on the facts and in the circumstances of the case, the Tribunal is right in deleting the agency despatch from the total turnover of the business for computing the deduction under Section 80HHC of the Income-tax Act?
(3.) WHETHER, on the facts and in the circumstances of the case and in view of the exclusive definition of total turnover as per which only sums referred to Clauses (iiia), (iiib) and (iiic) of Section 28 are to be excluded, whether the agency despatches were rightly deleted from the total turnover by the Tribunal ?"
4. We have heard Sri P.K.R. Menon, learned senior Central Government standing counsel for the Revenue, and Sri P. Balachandran, learned counsel appearing for the respondent-assessee, in both these cases. The first three questions relate to the claim for deduction in respect of the interest income received on fixed deposits under Section 80HHC of the Act.
5. During the assessment years 1989-90 and 1991-92, the assessee had received interest from fixed deposits from banks and also from amounts lent to others. The assessee claimed deduction on interest receipt as business income under Section 80HHC of the Act. The Assessing Officer had noted that in the appeal against the assessment order for the assessment year 1990-91 the first appellate authority had taken the view that interest on fixed deposit with the banks has to be treated as business income eligible for deduction under Section 80HHC. However, since the said order was pending in appeal the Assessing Officer had maintained the stand that interest income is assessable under the head "Other sources". The claim was accordingly rejected. In the appeals against the assessment order for the years 1989-90 and 1991-92 the first appellate authority, relying on the appellate order for the year 1990-91, allowed the deduction in respect of the interest on deposits with the bank. In appeals by the Revenue, the Tribunal concurred with the view of the first appellate authority.
The question as to whether interest income from bank deposits would constitute "business income" for the purpose of computation of the deduction under Section 80HHC came up for consideration before this court in CIT v. Jose Thomas  253 ITR 553. The Division Bench, relying on its earlier decision in CIT v. Parekh Brothers  253 ITR 43, and other decisions of this court in Trace Cable Company Ltd. v. CIT  72 ITR 503 and Collis Line (P.) Ltd. v. ITO  135 ITR 390 held that interest income on bank deposits is only income from "other sources" and does not constitute business income for the purpose of computation of relief under Section 80HHC of the Act. The decision of this court in CIT v. Parekh Brothers  253 ITR 43 relied on by the Division Bench in Jose Thomas' case  253 ITR 553 (Ker) appears to be a mistake. Probably the Division Bench had in mind their decision in Abad Enterprises v. CIT  253 ITR 319 where the Division Bench held in the context of prima facie adjustment under Section 143(1)(a) of the Act, relying on the decision of this court in CIT v. Cochin Refineries Ltd.  135 ITR 278, that interest received on a bank deposit was not income from business. Another Division Bench of this court in Nanji Topanbhai and Co. v. Asst. CIT  243 ITR 192, had taken the view that income received by way of interest on fixed deposit with the bank is not business income but only income from "other sources".;
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