Income Tax Appellate Tribunal - Agra
Deputy Commissioner Of Income Tax vs Allen And Alvan (P) Ltd. on 18 September, 2003
Equivalent citations: (2003)81TTJ(AGRA)751
ORDER
M.L. Gusia, A.M.
1. This appeal of the Revenue is directed against the order passed by CIT(A)-II, Agra on 1st May, 1997, for the asst. yr. 1996-97.
2. The only ground of appeal is that the CIT(A) has erred in law and on fact in directing the AO to recompute the deduction under Section 80HHC of the IT Act, 1961, allowing the claim of deduction in respect of discount received from the bank on certificate of deposit.
3. The facts of the issue are that the AO noted that the assessee claimed deduction under Section 80HHC on a discount amounting to Rs. 56,74,825, received from the banks on certificate of deposits. It is contended before the AO that the discount received from the bank on certificate of deposits is outside the scope of taxable income under Section 80HHC, which is a complete code by itself. It was stated that the clarifications issued by the CBDT vide circular No. 647 dt. 22nd March, 1993, clarified that a question has been raised as to whether difference between the issue price and face value of certificate of deposits should be treated as interest and in which case, it would be liable to deduction of tax at source under Section 194A of the IT Act, 1961, or it should be treated as "discount", which is not liable to deduction of tax at source. It is clarified by the Board that the difference between the issue price and the face value of commercial papers and the certificate of deposits is to be as "discount allowed" and not as "interest paid". Hence, the provisions of IT Act relating to deduction of tax at source are not applicable in the case of transaction in these two instruments. According to the AO, the clarification issued by the Board reconciles the position and the use of word "like" in the circular clarifies the nature of the receipt and the word "etc" extent and scope of the receipts, in which element of turnover is absent and can be considered to be covered by any other receipt of a similar nature to prevent distorted version of export profits. According to the AO, it is covered under any other receipt of similar nature to that of interest, mentioned in Expln. (baa) of Section 80HHC of the Act. According to the AO, the discount is also earned on deposits and worked out at prevalent market rate with reference to the period of deposit like interest but paid in advance because of its minimum and maximum period fixed in advance for the discounting of the instrument at face value. The application for certificate of deposit is to be made on similar form and similar introduction etc. is required as in deposits and the discount is calculated, accounted and treated the same in nature of payment as that of interest. The AO further mentioned in his order that the clarification issued by the Board was in the context of Section 194A of the IT Act, 1961, which will not be applicable to the certificate of deposits, as the amount is only discount and not interest serves only a limited purpose and has a definite meaning and these provisions are machinery sections with a specific view to collect tax at source at the origin of receipt and it will not in any way determine the basic nature of the receipt itself. According to the AO, it is not reasonable to interpret them, as overriding which the assessee seems to have believed reading the clarification in isolation, The relevant Expln. (baa) to Section 80HHC r/w charging Section 28 of the IT Act, 1961, makes a meaningful understanding of the said clarification. Therefore, according to AO, though the discount may not be covered under any receipt by way of interest as such, yet it cannot be said to be out of the purview of the term "any other receipt of a similar nature", used in Expln. (baa) of Section 80HHC. The AO has made an elaborate discussion in the order to hold that the discount on certificate of deposits with the bank is in the nature of interest. The AO rejected the claim of assessee and proceeded to reduce 90 per cent of the amount of discount from the profits of business eligible to deduction under Section 80HHC.
4. In appeal before the CIT(A), it is submitted that similar action of the AO has been struck down in appeal for the asst. yrs. 1992-93, 1993-94 and 1995-96, where the facts have been elaborately discussed in the order dt. 23rd Dec., 1996, passed in appeal No. CIT(A)-n/9, 10, 11/Addl. CIT/Aligarh/96. It has been held therein, after taking into account Board's circular No. 647 dt. 22nd March,1993, as well as the clarification given by Bombay Chartered Accountants Society in their book Provisions of Section 80HHC--A study, in their 3rd edition of June, 1995 at p. 16, thereof, which reads as under :
"The 90 per cent reduction is with reference to any receipt by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits. It may be noted that the term 'charges' and 'any other receipt of a similar nature' will cover only such receipts as are of a similar nature to commission, interest, rent etc. As such, amounts recovered in respect of bad debts written off earlier, credit balances written off, discount and rebate on purchases etc, cannot be reduced from such profits. Similarly, any other items credited to the P&L a/c arising directly on account of the export business also cannot be reduced from such profits."
5. In view of the above, the CIT(A) held that the deduction under Section 80HHC in respect of discounting charges received is not in the nature of interest and therefore, cannot be similar to interest. Consequently, the AO was directed to recompute the deduction as per computation given by the assessee.
6. During the course of hearing before us, the learned Departmental Representative contended that the discount cannot be included in turnover of export. In support of his contention, he relied on the decision of Bombay High Court in the case of CIT v. Kanti Lal Chhota Lal (2000) 246 ITR 439 (Bom). The learned Departmental Representative has further argued that the discount received from the bank on certificate of deposits does not generate from the business of the assessee, therefore, the same cannot be included in the turnover for deduction under Section 80HHG of the IT Act.
7. On the other hand, the learned, counsel for the assessee argued that the Expln. (baa) of Section 80HHC does not apply on the discount received from the bank on certificate of deposits.
8. We have considered Expln. (baa) of Section 80HHC, which is reproduced as under :
"(baa). "Profits of the business" means the profits of the business as considered under the head "Profits and gains" of business or profession as reduced by--
(1) ninety per cent of any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2)....................."
9. According to the assessee, "any other receipt of similar nature" does not include discount received from the bank on certificate of deposits. The learned counsel also contended that in assessee's own case, the CIT(A)-I, Agra in her order for the asst. yr. 1994-95, has set aside the issue and restored the matter to the file of AO directing to apply his mind to the Board's circular and also clarification given by the Institute of Chartered Accountants and the clarification governing the claim of certificate of deposits. Accordingly, the AO was directed to reconsider the claim of the assessee by going through all the documents filed before him. Considering the above directions, the AO allowed the discount for the purpose of relief given under Section 80HHC vide his order dt. 29th Dec., 1998, under Section 154/251/143(3). The learned counsel further argued that against setting aside of the order passed by CIT(A)-I, Agra for the asst. yr. 1994-95, the Department preferred appeal before ITAT, Agra, Bench, bearing ITA No. 5475/Del/1996, where the appeal of the Revenue was dismissed. The learned counsel further argued that the surplus fund of the assessee was utilized in certificate of deposits. Therefore, the discount received therefrom is a business receipt. In support of his contention, he relied upon the decision of Hon'ble Calcutta High Court in the case of CIT v. Tirupati Woollen Mills Ltd. (1992) 193 ITR 252 (Cal), wherein it is held as under :
"The assessee earned income from fixed deposits and other deposits which was sought to be assessed as income from other sources. The Tribunal found that the assessee had utilized its commercial assets, which were lying in the form of surplus cash, for earning interest. Such earning, according to the Tribunal, arising from utilization of commercial assets would be business income. On a reference :
Held, that the Tribunal had found that the interest arose from utilization of commercial assets. The funds utilized in making fixed deposits with banks were business funds lying temporarily surplus with the assessee. It was, therefore, assessable as business income and revenue expenditure could be deducted from it."
10. The learned counsel further placed reliance on the decision of Tribunal Jodhpur, SMC Bench, in the case of ITO v. Gopal Ram Prem Ram (2001) 72 TTJ (Jd) 698, wherein it is held that the interest earned on business fund lying idle and temporarily lent to a private party arose out of business activity, and as such, is assessable as income from business and not as income from other sources.
11. Similarly, Tribunal Delhi Bench 'D' in the case of Smt. Gulab Sundri Bapna v. Dy. CIT (2001) 79 ITD 455 (Del) it is held as under :
"The CIT(A) was justified in holding the interest income as 'business income'. The case of the Revenue was erected on the edifice of fact that the assessee was not regularly engaged in moneylending activities and also no license was obtained for this purpose, but from the facts placed, it was patent that the assessee was regularly engaged in the moneylending business since 198 and earning interest income therefrom albeit the assessee had not obtained moneylending license, yet the regular course of dealings in moneylending could not be brushed aside. Taking into consideration, the conspectus of the case, it was to be held that the interest income was taxable under the head 'Business income".
12. It is further argued that the AO has not disputed that it is a business income. The surplus fund of the assessee was invested in certificate of deposits and the discount received by the assessee is eligible for deduction under Section 80HHC of the Act. In support of his contention, he placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT v. Nagpur Engineering Co. Ltd. (2000) 245 ITR 806 (Bom), wherein, their Lordship has held that the Tribunal was justified in directing the AO to treat the interest income from fixed deposits as eligible profits of the business while computing the deduction under Section 80HHC and Section 80-I of the IT Act, 1961, The Special Leave Petition, filed before the Hon'ble Supreme Court by the Department was also dismissed, [(2000) 244 ITR (St) 54).
13. We have carefully considered the rival submissions. We have also gone through the provisions of Expln. (1)(baa) of Section 80HHC(4B), which says as under (inserted by Finance Act, 1999, w.e.f. 1st April, 1992) :
"(baa) "Profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by --
(1) ninety per cent of any sum referred to in Clauses (iiia), (iiib) and fiiic) of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) ..............."
14. We noted that the discount on certificate of deposits is not covered by Expln, (baa)(1). The receipt of similar nature as mentioned in the Explanation does not include discount. The "receipt of a similar nature" in the above clause is meant in the company of expressions like 'brokerage', 'commission', rent', 'charges'. If the expression 'receipt of similar nature' is to be applied, then it should be in accommodation of brokerage, commission, interest and charges. Because such income does not have any nexus with any manufacturing or processing or the core business activities, the abovespecified words form the distinct category, inasmuch as, all those items dealt on receipts earned by an assessee other than its regular and principal business activities. In such circumstances, "any other receipt of similar nature" also should be read along with meaning of those specified words forming themselves into a special category. If so, the words 'any other receipt of similar nature' should be confined to those chargers, which do not have anything to do with the business and the related activities carried out by the assessee. In the instant case, the discounts on certificate of deposits credited by the assessee in its trading account are forming part of its principal business. Further, in this case, the discount receipts are integral part of the main business activities as the surplus fund was utilized in certificate of deposits for a temporary period. Thus, the discounts are being earned by utilizing one's entire resources. The Hon'ble Bombay High Court in the case of CIT v. Bangalore Clothing Co. (2003) 260 ITR 371 (Bom) has held as under :
"Explanation (baa) to Section 80HHC of the IT Act, 1961, was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1st April, 1992. Under that Explanation, "profits of the business", for the purposes of Section 80HHC does not include receipts, which do not have an element of turnover like rent, commission, interest, etc. However, as some expenditure might be incurred in earning such incomes an ad hoc 10 per cent deduction from such income is provided for, to account for those expenses. In every matter, the AO will have to ascertain whether the receipt of interest, commission, labour chargers, etc., was a part of operational income. No standard test for deciding what would constitute operational income can be laid down. Broadly, the Department will have to consider the memorandum and articles of association of the company, the nature of the business, the nature of the activity and such other tests............................................".
15. We have gone through the article of association of the assessee-company and noted that at sub-para (a) of para 23, it is mentioned that general management of the business of the company shall be in the hands of directors, in office who shall have full powers and authority :
"to invest and deal with any funds of the company not immediately required for the purpose thereof and from time to time, vary or realize such investments."
16. In view of the above facts and circumstances and various judicial pronouncements (supra), we do not find any infirmity in the order of CIT(A).
17. Hence, the appeal of the Revenue is dismissed.