The Commissioner Of Income Tax v. M/S. Ravi Ratna Exports (P.) Ltd.

S.H Kapadia, J.:— By our order dated 25th July, 2000, the appeal of the Department was allowed in following terms:—

“This appeal concerns A.Y 89-90. I.T.A.T has held that interest income is Business income. In view of the Judgment of this Court in 191 I.T.R 359, such income cannot be business income. It is income from other sources. Therefore, it will not form part of profits from business under section 80HHC. Hence, appeal is allowed. No costs.”

2. We now seek to give detailed reasons which are mentioned herein below.

3. This appeal relates to Assessment Year 1989–1990. In the said Assessment Year, the assessee received Rs. 35,000/- as interest on fixed deposits.

4. The assessee claimed interest income and included the same in business profits in the following formula viz. Business profits X Export turnover/total turnover to arrive at export profits on which the assessee claimed deduction under section 80HHC of the Act. The Department treated the income from interest as income from other sources. However, the Tribunal included the said interest income in the business profits. Hence, the Department has come in appeal. Before 1.4.92, distortion arose in determining export profits. The assessee used to inflate the business profits in the above formula by including receipts which had no relation with export activities. In cases of composite business, even where the component of local sales far exceeded sale proceeds from export activity, receipts like rent, interest, labour commission were included in business profits in the above formula. In the case of C.I.T v. Kantilal Chhotalal,1 this Court has excluded such receipts from business profits. Further, this Court has held that the amending law which came into force from 1.4.92 by which clause (baa) has been introduced in the explanation to section 80HHC, all such receipts which have no nexus with the export activity, stand excluded. This Court has held that clause (baa) is clarificatory. Hence, interest income from fixed deposit cannot be included in business profits. Moreover, it may be mentioned that in the case of C.I.T v. Shirke Construction Equipments,2 this Court has taken the view that business profits were required to be computed under the head “profits and gains of business” which, in turn, refers to section 28 to section 44D of the Income Tax Act. In the case of C.I.T v. K.K Doshi and Co.,3 this Court has once again reiterated that even before 1.4.1992, receipts which did not have nexus with the export activity cannot be included in business profits. In the present matter, we may mention that the A.O has recorded a finding of fact that the said interest income from fixed deposits was income from other sources. The Tribunal has not considered this aspect. In the case of Godavari Sugar Mills Ltd., (No. 2) v. C.I.T,4 the Division Bench of this Court took the view, on facts, that the assessee had no evidence to show that the monies on which the interest was earned were advanced in the course of assessee's business and, therefore, the Division Bench held that interest income was taxable as income from other sources. In this matter, we are concerned with appeal under section 260A. In this matter, the A.O has recorded a finding of fact that interest income was taxable as income from other sources. In the circumstances, such income cannot fall under the head “profits and gains of business”. Hence, such income cannot be included in business profits in the above formula. Therefore, on both counts, the appeal stands allowed. Even if it is held that interest income was a business income, the same was not ineludible in business profits in the above formula. On the other hand, as stated above, the A.O has held that the interest income was income from other sources. If that be the case, then such an income cannot come within the ambit of section 28 to section 44D of the Income Tax Act. It cannot come under profits and gains of business. Therefore, looking at this matter from either point of view, the appeal needs to be allowed.

5. Accordingly, the appeal stands allowed with no order as to costs.

6. C.C expedited.