G. Slvarajan, J.:— The question that arises for consideration in this appeal is as to whether the interest income derived by the appellant from the deposit made with the bank for opening letter of credit and other formalities to enable the appellant to export goods to various countries is eligible for the relief under section 80HHC of the Income-tax Act, 1961 (for short “the Act”). The appellant is an individual. He derives income from various sources. He has a proprietary business by name “Vijayalekshmi Cashew Company”. For the assessment year 1995-96, the appellant filed a return of income on July 22, 1996. While computing the relief under section 80HHC of the Act the Assessing Officer treated the interest of Rs. 61,50,722 received by the appellant on short-term deposits with the bank as income from “other sources”. The Assessing Officer also noted that the appellant has got a cash credit loan account with the bank for availing of loan facilities for purchase of raw cashew nuts and that when the imports are completed, during the lean season the sale proceeds of the exports are deposited to the account from which interest is earned. According to the appellant there is a nexus between the amount received on export sales and the deposit in short-term deposits and hence the deposit is from the business earnings and, consequently, the interest earned is income from business. However, the Assessing Officer did not accept the said contentions and assessed the interest under “other sources”. The appellant took up the matter in appeal before the Commissioner of Income-tax (Appeals), Thiruvananthapuram who by his order dated August 11, 1998 (annexure B), confirmed the order of the Assessing Officer. The appeal by the appellant before the Tribunal was also unsuccessful. Hence, this appeal.
2. We have heard Shri P. Balachandran, learned counsel for the appellant, and Shri P.K.R Menon, learned senior Central Government standing counsel for income-tax for the respondent.
3. At the time of admission notice was ordered on the following two questions:
“1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the interest amount of Rs. 61,50,722 received on short-term deposit was income from other sources and not business income?
2. Whether there were materials for the Appellate Tribunal to hold that the interest on short-term deposits has to be treated as income from other sources, in view of the fact that the deposits were made at the instance of the bank for opening letters of credit and for keeping margin money and because of which the deposits are committed deposits?”
4. Senior standing counsel appearing for the respondent submits that these questions are squarely covered by the decisions of this court in Abad Enterprises v. Commissioner Of Income-Tax, [2002] 253 ITR 319 and in Commissioner Of Income Tax v. Jose Thomas, [2002] 253 ITR 553 against the appellant and in favour of the Revenue.
5. Counsel appearing for the appellant submits that the said decisions are distinguishable for the reason that in the present case the appellant had to make the short-term deposits only because of the insistence of the bank for making such deposits as a condition precedent for the opening of the letter of credit and for the grant of other facilities which were not considered by the Division Bench in the said two decisions.
6. Counsel also brought to our notice a decision of a Division Bench of this court in Nanji Topanbhai and Co. v. Asstt. CIT, [2000] 243 ITR 192 and also the decisions of the Supreme Court in CIT v. Kar-nal Co-operative Sugar Mills Ltd., [2000] 243 ITR 2; Commissioner Of Income-Tax v. Nagpur Engineering Co. Ltd., [2000] 244 ITR (St.) 54 and another decision in CIT v. Karnataka State Co-operative Apex Bank, [2001] 251 ITR 194 all in support of the contention that the interest income received from the short-term deposits is income from business and, therefore, it is an eligible income from business as contemplated under section 80HHC of the Act. Senior standing counsel appearing for the Revenue then submitted that in order to get the relief under section 80HHC of the Act, the income must be the profits derived by the assessee from the export of such goods or merchandise. Senior standing counsel submits that the expression “derived” implies that the profit must be on account of the direct result of the export and not in any way connected with the export. Senior standing counsel also relied on the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT, [1978] 113 ITR 84. Senior standing counsel submits that admittedly the interest on short-term deposits was not the direct result of any export and, therefore, it is not eligible for the relief under section 80HHC of the Act.
7. We have gone through the decision of the Division Bench of this court in Nanji Topanbhai and Co.'s case, [2000] 243 ITR 192. It is seen that the appellant had contended before the Division Bench that the fixed deposit receipt had to be retained in the bank in order to offer security for loan transaction which was in connection with its business of export and, therefore, the interest received from the fixed deposit is to be treated as part of business income. This court in that context referred to the appellate order of the Tribunal and observed that, according to the Tribunal, there is no evidence in the from of a letter from the bank manager insisting on fixed deposits for availing of loan and that the Tribunal did not accept the contention of the assessee that the assessee was compelled to make deposits with the bank for availing of loan facilities. Thereafter the Division Bench considered the question regarding the eligibility for the relief under section 80HHC of the Act and observed that unless the assessee is able to show that the income received by way of interest from the fixed deposit is income derived from the export business, it will not be entitled to claim deduction under section 80HHC of the Act. The Division Bench thereafter held that they are in full agreement with the Tribunal that in the nature of the business carried on by the assessee, i.e, export business, the interest received by it from the fixed deposit cannot be treated as business income. The Division Bench also noted that the very same question was considered by this court in Commissioner Of Income-Tax, Kerala-I, Ernakulam v. Cochin Refineries Ltd., [1985] 154 ITR 345. In that case the claim was under section 80-1 of the Act wherein it was held that 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 profit. It is on the basis of the decision in Nanji's case, [2000] 243 ITR 192 (Ker), counsel appearing for the appellant submitted that if there was evidence regarding the insistence by the bank for fixed deposits for availing the loan, the position would have been different.
8. From the discussion made hereinabove, we are unable to accept the contention that the production of a letter from the bank manager regarding the insistence of fixed deposits as a condition for opening the letter of credit and for other formalities would have changed the situation and in such a situation the appellant would have been entitled to the relief under section 80HHC of the Act. The decision of the Supreme Court in Karnal Co-operative Sugar Mills Ltd.'s case, [2000] 243 ITR 2, it must be noted that the said decision was not rendered in the context of the provisions of section 80HHC of the Act. The Supreme Court observed that the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier, that it was on the money so deposited that some interest has been earned and that, therefore, this was not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest. The Supreme Court in that context observed that the deposit of money in that case was directly linked with th e purchase of plant and machinery and hence any income earned on such deposit was incidental to the acquisition of assets for the setting up of the plant and machinery. Here, it must be noted that the provisions of section 80HHC of the Act clearly provide that the deduction permissible under the said section is of the profits derived by the assessee from the export of such goods or merchandise. In Cambay Electric Supply Industrial Co. Ltd. ‘s case, [1978] 113 ITR 84 mentioned earlier, the Supreme Court considered the meaning of the expression “attributable to” and observed that the Legislature has deliberately used the expression “attributable to” having a wider import than the expression “derived from”. It was further observed that (page 93 of 113 ITR):
“It cannot be disputed that the expression ‘attributable to’ is certainly wider in import than the expression ‘derived from’. Had the expression ‘derived from’ been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression ‘derived from’, as, for instance, in section 80J. In our view, since the expression of wider import, namely, ‘attributable to’, has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.”
9. From the above discussion of the meaning of the word “attributable to” with reference to the expression “derived from”, it can be seen that the meaning of the expression “derived from” has got only a limited import and, therefore, the expression “derived from” as used in section 80HHC must be understood as profit directly arising from the export of the goods and not incidental to the export. As already noted, the interest from short-term deposits received by the appellant is not the direct result of any export of any goods or merchandise. The fixed deposit was made only for the purpose of opening letters of credit and for getting other benefits which are necessary requirements to enable the appellant to make the export. From the above it is clear that the interest income received on the short-term deposits though it can be attributed to the export business cannot be treated as income which is derived from the export business. In the above circumstances, even assuming that the bank had insisted for making short-term deposits for opening letters of credit and for other facilities, it cannot be said that the income is derived from the export business. That apart, the very question as to whether the income derived from deposits made with the bank is entitled to the relief under section 80HHC was considered by this court in Nanji Topanbhai and Co. v. Asst. CIT, [2000] 243 ITR 192; Commissioner Of Income Tax v. Jose Thomas, [2002] 253 ITR 553 and also in Abad Enterprises v. Commissioner Of Income-Tax, [2002] 253 ITR 319 where it was categorically held that such interest income is not entitled to the relief under section 80HHC of the Act.
10. For all these reasons, we answer the two questions on’ which notice is issued against the appellant and in favour of the Revenue. The appeal is accordingly dismissed.