Income Tax Appellate Tribunal - Jaipur
Reliance Trading Corporation vs Ito on 25 September, 2001
Equivalent citations: (2001)73TTJ(JP)851
Order B. R. Jain, A.M. This appeal has been preferred by the assessee and is against the order of the Commissioner (Appeals), Rajasthan-II, Jaipur, for assessment year 1989-90.
2. The following grounds have been raised :
1.1 "That the Commissioner (Appeals) erred on facts and in law in upholding the action of the assessing officer in excluding interest income of Rs. 1,76,930 for calculation of deduction under section 80HHC.
1.2 That the Commissioner (Appeals) erred on facts and in law in observing that the interest earned on deposits made out of the funds not required in the business were not the profits derived from the export of goods or merchandise.
1.3 That the Commissioner (Appeals) erred on fact and in law in observing that the interest income earned by the appellant was not the business income.
2. That the Commissioner (Appeals) erred on facts and in law in confirming disallowance of Rs. 2, 000 from conveyance expenses, treating them as personal expenses."
3. The learned counsel for the appellant contends that the assessee is hundred per cent exporter. It has export sales of Rs. 138.82 lakhs and owned net profit of Rs. 232.82 lakhs. The said net profit in inclusive of net income from interest credited to the profit and loss account at Rs. 1,76,930. The assessee has taken loans from the bank and the said borrowings have been utilised in the export business. The surplus borrowings and the sale proceeds from the export business, which were (sic-not) required immediately, were lent out by the appellant and earned interest thereon instead of letting them lie idle. The total interest receipts are Rs. 2,28,727 as against which interest paid is Rs. 51,799. The assessing officer vide para 3 of his order required the appellant to explain as to why its claim for deduction under section 80HHC in respect of interest income amounting to Rs. 1,76,930 should not be disallowed because income has not been derived by it from export of goods or merchandise as per provisions laid down in section 80HHC. The explanation was duly furnished but the claim of the deduction in respect of interest income has been disallowed by him. The learned Commissioner (Appeals) has also erred in upholding the action of the assessing officer despite the fact that the findings of the assessing officer were duly disputed. The Commissioner (Appeals) has also erred in giving a finding that the interest income of the appellant was not even a business income, it was an income which could be charged to tax only under the head "Income from other sources" by relying on the judgment of the Rajasthan High Court in the case of Murli Investment Co. v. CIT (1987) 167 ITR 368 (Raj). The said decision was not in respect of an exporter and could not be said to be applicable to the facts and circumstances of the case. It was contended that the issue in the appellant's case is covered by the decision of Jodhpur Bench of the Tribunal in the case of Sharda Gums & Chemicals v. Astt. CIT 76 ITD 282 (Jd). Reliance has also been placed on the decision of Jaipur Bench of the Tribunal in the case of Kanhaiya Lal Kalyan Mal in ITA No. 572/Jp/99 dated 23-11-2000, and contended that the facts in that case are identical to the facts in appeal before the Tribunal. The assessee has also placed reliance on the following decisions of the Tribunal :
(a) Asstt. CIT v. Vimalchand Surana (HUF) 19 TW 1;
(b) Avon Apparels v. ITO 22 TW 399; and
(c) Precious Enterprises (P) Ltd. v. ITO 23 TW 320.
It was, therefore, contended that the Commissioner (Appeals) has erred in coming to the conclusion that the income from interest was assessable under the head "Income from other source" and not the "business income" of the appellant. Such a finding of the Commissioner (Appeals) needs to be reversed and the claim of the appellant be allowed so as to be treated as profits of the business for the purpose of claim of deduction under section 80HHC of the Income Tax Act.
4. On the other hand, the learned Departmental Representative contends that the Commissioner (Appeals) has passed a reasoned order. The income is not derived from exports of merchandise. There is no foreign exchange earnings involved in earning of interest. Conditions of section 80HHC have not been fulfilled. The assessee has not proved any direct nexus. The assessee's claim is only of employment of idle funds and not a relevant business of money-lending. The cases relied upon by him are fully distinguishable, as the facts are also different in order to be eligible for claim of deduction under section 80HHC the income should have been derived from the business of exports. Reliance has been placed on the following decisions :
1. CIT v. Raja Bahadur Kamakhaya Narain Singh & Ors. (1948) 16 1TR 325 (PC);
2. Mrs. Bacha F. Guzdar v. CIT (1955) 27 ITR 1 (SC);
3. CIT v. Rajasthan Land Dev. Corpn. (1995) 211 1TR 597 (Raj); and
4. Hindustan Lever Ltd. v. CIT (1999) 239 1TR 297 (SC).
It was further contended that in Sharda Gums and Chemicals (supra), heavily relied upon by the appellant's counsel, the decision in the case of Hindustan Lever (supra) was not considered. Under such circumstances, it cannot be said that the assessee had carried on money-lending business and the interest earned by him was his business income and not income from other sources, as has been held by the authorities below. The ground so raised by the assessee needs to be rejected. However, if at all the assessee is found to have been carried business, then also, the amount so earned by the appellant is not qualified for deduction under section 80HHC. Reference has been drawn to the decision of Madras High Court in the case of CIT v. Pandian Chemicals Ltd. (1998) 233 ITR 497 (Mad). The learned Departmental Representative has also urged that in any event as the facts are different, the Tribunal can take different view in the matter which comes later before it and as such the Jaipur Bench decisions, relied upon by the appellant, cannot be said to be applicable consistently. Reliance has been placed on the decision of Distributors (Baroda) (P) Ltd. v. Union of India & Ors. (1985) 155 ITR 120 (SC).
5. Rival submissions have been heard with reference to the material available on record. The assessee has placed heavy reliance on the decision in the case of Sharda Gums and Chemicals v. Asstt. CIT (supra) decision rendered by the Jodhpur Bench of the Tribunal, where the issue for consideration was with respect to a receipt of interest which had a direct nexus with the interest expenditure. The assessing officer had computed the entire income under one head of income as 'income from business' and not under the head 'Income from other sources'. The interest receipt was only a meagre amount and the resultant amount after reducing the receipts on account of interest showed a higher amount of expenditure on interest and finance charges, though the issue related to the same assessment year i.e., assessment year 1989-90, as in appeal before us. It is only after finding the direct nexus of interest receipt with the interest expenditure relatable to a business, the Tribunal came to the conclusion that the Commissioner (Appeals) has erred in directing the assessing officer to reduce the profits of business by the amount representing interest receipt for the purpose of computing deduction under section 80HHC of the Act. The finding of the nexus by the Tribunal essentially shows that the income from interest was in the nature of business income and not as an income from other sources as has been found by the Commissioner (Appeals) in the appeal before us by following the decision of jurisdictional High Court in the case of Murli Investment Co. v. CIT (supra).
6. The appellant has also placed a strong reliance on the decision rendered by the Jaipur Bench of the Tribunal in the case of Kanhaiya Lal Kalyan Mal v. ITO in ITA No. 572/Jp/99, dated 23-11-2000 where both of us were parties to the order, the dispute stood settled in that assessee's own case for earlier years by the jurisdictional High Court. The income from interest was not found to be an income from other sources by the authorities below. The issue related to assessment year 1996-97, an year which came for consideration, after the insertion of the Explanation (baa) in section 80HHC by the Finance (No. 2) Act, 1991, with effect from 1-4-1992, which Explanation is not applicable to assessment year 1989-90, the year under appeal before us. We do find that this Explanation was duly considered by the Jodhpur Bench of the Tribunal in the case of Sharda Gums & Chemicals (supra) for the purpose of interpretation of the word 'receipt' while concluding it to mean as net receipt. This was done by observing that Explanation (baa) requires 90 per cent of interest receipt which is included in profits of business, will be excluded. Though such an issue is not in appeal before us, we, therefore, are not inclined to deal with in details. However, as an obiter we may say that such a receipt on account of interest shall be reduced even if it is in the nature of profits and gains of business and that is why the specific meaning appears to have been assigned to the 'profits and gains of business' for the purpose of section 80HHC by reducing 90 per cent of certain items as specified therein.
7. In the decision of the Hon'ble Rajasthan High Court in the case of Murli Investment Co. Ltd. v. CIT (supra) referred by the Commissioner (Appeals) in his order, the Hon'ble court confirmed the finding of the Tribunal. In that case, the assessee was found to have invested its funds when they were not required by it for the time being and when the money was needed in the regular business, it was withdrawn by the assessee and the funds were utilised for the investment in property business. Such a transaction was not treated to be a money-lending business. The income from such an investment was held to be not assessable as business income but assessable only under section 56 of the Income Tax Act, 1961. Since it has merely confirmed the findings of fact given by the Tribunal, we, therefore, resort to the decision of the jurisdictional High Court in the case of CIT v. Rajasthan Land Dev. Corpn. (supra), relied by the learned Departmental Representative. The Hon'ble High Court of Judicature in this case has laid down general principles 'as to whether the income from interest is to be assessed as income from business or income from other sources. The principles as laid down read as under:
"(i) interest on fixed deposits and other deposits before the commencement of the business is income from other sources.
(ii) income from interest on deposits of surplus money during construction period is also to be considered/treated as income from other sources.
(iii) interest income in respect of surplus money, not required for business and deposited in bank or person, as idle money, for safe keeping, would be assessable as income from other sources. If the income from interest is from a fund which has been brought as surplus capital, it would be assessable from other sources.
(iv) in respect of investment of surplus funds there is divergence of opinion between different High Courts and this court in the case of Murli Investments Co. held that if the surplus funds are invested instead of keeping them idle, the income by way of interest should be treated as income from other sources.
(v) If the surplus funds emerge out of business carried on by the assessee which is regularly carried on by the assessee and then with the intention to carry on the business of lending of money or money-lending, the loan is advanced, the income therefrom would be income from business. The intention has to be gathered with referenced to all the activities of advancing money which should be permitted by the objects of the company and also by the resolution of the Board of Directors to carry on the business of money-lending or lending of money."
8. From the pleadings made by the assessee, and the connected material placed on record, we find that the appellant before us derives income from manufacturing and exporting of precious and semi-precious stones besides it has also declared net interest income of Rs. 1,76,930 as interest received from 18 parties during the year under appeal. The gross amount of interest received is Rs. 2,28,727 and the payments made to the bank and one another person on account of interest are aggregating to Rs. 51,799. It has been explained by the assessee before the authorities below that the amounts on which the interest of Rs. 2,28,727 was earned by the assessee represented the assessee's money required for its business. Since, however, the moneys were not required immediately, the assessee made short-term deposits of these moneys and earned interest thereon, instead of letting them lie idle. Appellant has exploited its commercial asset which has yielded as profits of the business to it irrespective of the manner in which assets have been exploited. The said explanation, however, was not accepted by the authorities below holding that the interest earned by the appellant on the deposits made out of funds not required in its business were not the profits derived from the export of goods or merchandise. The Commissioner (Appeals) gave a further finding that the interest income of the appellant was not even its income from business and the same is under challenge before us.
9. Section 14 of the Income Tax Act, 1961, specifies distinct heads of income indicating the sources which are mutually exclusive and income derived from different sources falling under the specified heads have to be computed for the purpose of taxation in the manner provided by the appropriate section. If the income from a source falls within a specific heads set out in section 14, the fact that it was indirectly be covered by another head will not make the income taxable under the latter head. In view of this aspect of the matter and to find out whether the activity in the case of the appellant constituted its business of money-lending, we refer to the term "business" defined under section 2(13) of the Income Tax Act, 1961. The definition reads as under :
"business" includes any trade, commerce or manufacture of any adventure or concern in the nature of trade, commerce or manufacture."
10. The Hon'ble Rajasthan High Court in the case of Rajasthan Land Dev. Corp. (supra) at page 601 has observed as under :
"The word "business" has been the subject-matter of judicial scrutiny and interpretation and it has been held that it is of wider import which relates to real, substantial and systematic or organised course of activity of conducting with a set purpose. The frequency or continuity of the activity may in a certain set of circumstances be a desired factor but are not the conclusive or infallible test. An isolated transaction may also be a business."
It is, therefore, essential to advert to definition of the word 'purpose' and also to the word 'intention' as no such provision has been brought to our notice from which the intent and purpose to carry on the business of money-lending could be inferred. In Black's Law Dictionary Sixth Edn., the words 'purpose' and 'intention' have been defined as under :
Purpose : That which one sets before him to accomplish or attain; and end intention, or aim, object, plan, project. Term is synonymous with ends sought, an object to be attained, an intention, etc. Intention : Determination to act in a certain way or to do a certain thing.
Meaning; will; purpose, design. "Intention", when used with reference to the construction of wills and other documents, means the sense and meaning of it, as gathered from the words used therein. When used with reference to civil and criminal responsibility, a person who contemplates any result, as not unlikely to follow from a deliberate act of his own, may be said to intend that result, whether he desires or not.
It is, therefore, the design, resolve or determination with which a person acts. It is also to be kept in mind that 'intent' and 'motive' are two different things and should not be confused. Motive is what prompts a person to act. Intent refers only to the state of mind with which the act is done or omitted.
11. After careful consideration of the above situation and position as well as the entire connected matters and precedents relied upon by both the parties, we find that there is no dispute to the fact that the surplus funds have emerged with the appellant out of export business carried on by him and that the said business of export is its regular business. The appellant invested only those funds in making advances/deposits which were not immediately required by him in the regular business of export carried by it and not that the investment was made for the purpose of doing business of money-lending. No such material has been placed before us from which it could be inferred that the appellant had any intention to do the business of money-lending with the set purpose of earning profit therefrom. It cannot, therefore, be said that advances made by the appellant to various parties were the result of its activities carried on continuously in an organised manner with a set purpose and with a view to earn profits. The only purpose of making the transaction was to invest the funds when they were not needed, in the regular business of export for a short period. Such transactions cannot be said to be of money-lending business. Accordingly, the making of advances was not even a business activity and income arising therefrom was, therefore, not an income from business or profession but an income from other source. No error is, therefore, found in the conclusion arrived at by the Commissioner (Appeal's) in holding that the income from interest was the appellant's income assessable under the head "income from other sources" and not eligible for deduction under section 80HHC of the Income Tax Act, 1961. The grounds 1.1 to 1.3 raised by the appellant stand rejected.
12. Ground No. 2 relates to the disallowances of conveyance expenses.
13. After hearing the rival submissions and careful consideration of material on record, we find that the assessing officer made the disallowance of Rs. 2,000, as the assessee did not maintain the details as well as proof of the entire expenditure for business purpose was not placed before him. In such circumstances, the disallowance of Rs. 2,000 on conveyance expenses for personal use is found reasonable. No interference is considered necessary. The ground raised by the appellant stands rejected.
14. In the result the appeal of the assessee stands dismissed.
Dinesh K. Agarwal, J.M.
15. I concur with the decision taken by my learned Accountant Member but with different reasons on ground No. 1.3.
16. In Para 11 of the order, I find that in this case the Commissioner (Appeal's) was of the view that the interest earned by the appellant, on the deposits made out of funds not required in the business, was chargeable to tax under the head "income from other sources", Thus, the Commissioner (Appeal's) has discovered a new source of income which was neither mentioned in the return of the assessee nor considered by the assessing officer in the order under appeal and hence the Commissioner (Appeal's) has exceeded his jurisdiction. Recently, the Hon'ble Delhi High Court in the case of CIT v. Union Tyres (Del) (1999) 240 ITR 556 (Del) has considered the powers of the first appellate authority in the light of the various Supreme Court decisions and has held at page 560 as under :
"A question regarding powers of the first appellate authority came up for consideration before the Supreme Court recently in CIT v. Nirbheram Daluram (1997) 224 ITR 610 (SC). Following their earlier decisions in CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) and Jute Corporation of India v. CIT & Ors. (1991) 187 ITR 688 (SC) though their Lordships reiterate that the appellate powers conferred on the Appellate Assistant Commissioner under section 251 could not be confined to the matter which had been considered by the Income Tax Officer, as the Appellate Assistant Commissioner is vested with all the plenary powers which the Income Tax Officer may have while making the assessment, but did not comment on the issue whether these wide powers also include the power to discover a new source of income. Therefore, the principle of law laid down in CIT v. Shapoor ji Pallanji (1962) 44 ITR 891 (SC) and CIT v. Rai Bahadur Hardut Roy Chamaria (1967) 66 ITR 443 (SC) still holds the field.
Thus the principle emerging from the aforenoted pronouncement of the Supreme Court is, that the first appellate authority is invested with very wide powers under section 251(1)(a) of the Act and once an assessment order is brought before the authority, his competence is not restricted to examining only those aspects of the assessment about which the assessee makes a grievance and ranges over the whole assessment to correct the assessing officer not only with regard to a matter raised by the assessee in appeal but also with regard to any other matter which has been considered by the assessing officer and determined in the course of assessment. However, there is a solitary but significant limitation to the power of revision, viz., that it is not open to the Appellate Assistant Commissioner to introduce in the assessment a new source of income and the assessment has to be confined to those items of income which were the subject-matter of original assessment."
17. In view of the above well settled position of law, I am of the view that the Commissioner (Appeal's) was not justified in. holding that the interest income is chargeable to tax under the head "income from other sources" and, accordingly, the ground No. 1.3 is decided in favour of the assessee for the academic interest only.
18. However, in this case, the assessee has not brought on record any material to establish that interest was earned out of surplus fund available with it is relatable to the business of export. Unless there is a direct nexus between the export activity of the assessee and earning of income from interest, the income cannot be said to be from export business entitled for deduction under section 80HHC. Since no such material was brought on record by the assessee to prove that earning of interest is from export business, therefore, I am of the view that the assessee is not entitled for the deduction under section 80HHC on the interest income and, accordingly, the ground Nos. 1.1 and 1.2 are decided against the assessee.
19. In ground No. 2, I fully agree with the findings recorded by the learned A.M. in upholding the order of the Commissioner (Appeal's) on this issue and, accordingly, the ground raised by the appellant stands rejected.
20. Since there is no relief to the assessee and the ground No. 1.3 is decided for the academic interest only, therefore, the appeal preferred by the assessee is dismissed.
21. In the result, the appeal stands dismissed.