The Commissioner of Income-tax, Goa v. V.S. Dempo & Company Ltd
[Citation -2014-LL-0930-96]

Citation 2014-LL-0930-96
Appellant Name The Commissioner of Income-tax, Goa
Respondent Name V.S. Dempo & Company Ltd.
Court HIGH COURT OF BOMBAY AT GOA
Relevant Act Income-tax
Date of Order 30/09/2014
Assessment Year 1991-92
Judgment View Judgment
Keyword Tags income from business • computing deduction • business activities • interest accrued • business purpose • question of law • interest income • export business • business income • income earned • surplus funds • term deposit • income from other source • inter-corporate deposit
Bot Summary: The aforesaid appeals came to be admitted by order dated 27/11/2006 on the following substantial :2: questions of law: Whether on the facts and in the circumstances of the case the ITAT was justified in law in holding that interest income earned by the assessee was in the nature of business income, though assessee has not shown any nexus to prove that it was earned in the course of their Export business, in order to claim deduction u/s 80HHC Whether on the facts and in the circumstances of the case the ITAT erred in treating the interest earned on Bank deposit, Intercorporate deposit, call money deposit, debentures and interest received from Income Tax Department, as business income for the purpose of computing deduction u/s 80HHC 2. The record discloses that, the Assessment Officer by its orders of different dates relating to the Assessment Years 1991-1992 to 1995-1996 has held that the interest income earned by the Assessee as the income from other sources and not as income from business and thereby declined to give benefit for the purpose of computing deduction as contemplated under Section 80HHC of the Income Tax Act, to and in favour of the Assessee. The Respondent/Assessee feeling dissatisfied by the Assessment Orders passed by the Assessment Officer preferred appeals before the Commissioner of Income Tax who in turn held that the income from the interest earned by the Assessee is the business income and not the income from other sources and gave the necessary statutory benefits to the Respondent/Assessee. The Revenue Department feeling aggrieved by the said orders passed by the Commissioner of Income Tax preferred different appeals before the Income Tax Appellate Tribunal, which in turn held that the income from the interest earned by the :4: Respondent/Assessee is a income from business i.e. business income and not income from other sources. The High Court has further held that in that case, admittedly, the assessee company was engaged in the construction business and had deposited money received in the course of such business with the bank, earning interest thereon and treated the said income as business income and temporarily invested the surplus amounts with banks and other concerns, and that the interest earned thereon is business income :14: and cannot be assessed as income from other sources. In our opinion, the surplus money, unless and until it is pulled out totally from the business and having absolutely no nexus with the amount or ancillary business activity and thereby the same is deposited with the bank only and solely with a view of earning interest by keeping the said funds idle, then it can be treated as non- business income or income from the other sources. In view of the facts of the present cases, we are of the opinion that the interest earned by the Respondent/Assessee is business income only and we hold that the Income Tax Appellate Tribunal has rightly held that the interest income earned by the Respondent/Assessee is a business income.


IN HIGH COURT OF BOMBAY AT GOA TAX APPEALS NO.64, 66, 69 & 70 OF 2006 Commissioner of Income Tax, Having office at Aayakar Bhavan, Patto Plaza, Panaji, Goa. . Appellant V/s V.S. Dempo & Company Ltd., Having office at Dempo House, Campal, Panaji, Goa. . Respondent Ms. Asha Desai with Ms. Priyanka Parab, Advocates for Appellant. Shri Mihir Naniwadekar with Ms. Vinita Palyekar, Advocates for Respondent. CORAM : B.P. DHARMADHIKARI & A.S. GADKARI, JJ. Reserved on : 3rd SEPTEMBER, 2014 Pronounced on : 30th SEPTEMBER, 2014 JUDGMENT : (Per A.S. GADKARI, J.) 1. aforesaid appeals preferred by Revenue Department under Section 260-A of Income Tax Act, 1961, involves common question of law and therefore are decided together by this common judgment. aforesaid appeals came to be admitted by order dated 27/11/2006 on following substantial :2: questions of law: (A) Whether on facts and in circumstances of case ITAT was justified in law in holding that interest income earned by assessee was in nature of business income, though assessee has not shown any nexus to prove that it was earned in course of their Export business, in order to claim deduction u/s 80HHC? (B) Whether on facts and in circumstances of case ITAT erred in treating interest earned on Bank deposit, Intercorporate deposit, call money deposit, debentures and interest received from Income Tax Department, as business income for purpose of computing deduction u/s 80HHC? 2. present appeals are pertaining to Assessment Years 1991-1992 to 1995-1996 of Respondent/Assessee Company. Respondent/ Assessee Company is engaged in business of export of iron ore, cashew kernels and marine products and also deals in auto accessories and general merchandise. As per record, company's Memorandum and Articles of Association in its object clauses (55) and (82) permit Company to lend, advance or deposit money as part of business activities. Assessee contended that, in pursuance to object clauses of Memorandum and Articles of Association, Assessee carries out money market :3: operation as one of its business activities. 3. record discloses that, Assessment Officer by its orders of different dates relating to Assessment Years 1991-1992 to 1995-1996 has held that interest income earned by Assessee as income from other sources and not as income from business and thereby declined to give benefit for purpose of computing deduction as contemplated under Section 80HHC of Income Tax Act, to and in favour of Assessee. 4. Respondent/Assessee feeling dissatisfied by Assessment Orders passed by Assessment Officer preferred appeals before Commissioner of Income Tax ( Appeals ) who in turn held that income from interest earned by Assessee is business income and not income from other sources and gave necessary statutory benefits to Respondent/Assessee. 5. Revenue Department feeling aggrieved by said orders passed by Commissioner of Income Tax ( Appeals ) preferred different appeals before Income Tax Appellate Tribunal, which in turn held that income from interest earned by :4: Respondent/Assessee is income from business i.e. business income and not income from other sources . Income Tax Appellate Tribunal upheld orders of Commissioner of Income Tax (Appeals ) on that point. 6. Revenue Department feeling aggrieved and dissatisfied by said orders precisely dated 21.12.2005 and 30.12.2005 passed by Income Tax Appellate Tribunal has preferred present appeals. As stated herein above, present appeals are admitted on aforesaid substantial questions of law mentioned in para 1 herein above. 7. Heard Ms. Asha Desai, learned counsel appearing for appellant Revenue Department and Shri Mihir Naniwadekar, learned counsel appearing for Respondent/Assessee at length and also perused records minutely. learned counsel appearing for appellant has submitted that Respondent/Assessee is in habit of investing surplus funds in bank deposits and inter-corporate deposits. She submitted that there are instances that Respondent/Assessee has made long term investments and also investing said funds for last :5: so many years. That makes it clear that it is excess fund which is not required for business purpose of Assessee. If it is surplus and excess funds which are invested, same cannot be treated as having nexus with business of Assessee. She, therefore, urged before us that findings recorded by Commissioner of Income Tax ( Appeals ) and Income Tax Appellate Tribunal are incorrect and wrong. She submitted that taking into consideration investment made by Assessee, interest earned on said investment should be treated as income from other sources and not as business income . She further submitted that it is Assessee who has utterly failed to show any nexus about said investments made by it with its business activities and, therefore, Assessee is not entitled to claim deduction under Section 80 HHC of Income Tax Act. She urged before this Court that present appeals may be allowed. 8. learned counsel appearing for appellant i.e. Revenue Department relied on following judgments. (i) (1991) 97 CTR 141 (BOM) : (1991) 57 TAXMAN 47 (BOM) Godavari Sugar Mills Ltd. V/s. Commissioner of :6: Income-Tax, (ii) (2012) 213 TAXMAN 320 (DELHI) M/s. Bharti Televentures Ltd. V/s. Addl./Jt. Commissioner of Income Tax, and (iii) (1982) 29 CTR 35 (KER) : (1982) 9 TAXMAN 129 (KER) Collis Line Pvt. Ltd. V/s. Income Tax Officer, A-Ward, Companies Circle, E. 9. Shri Naniwadekar, learned counsel appearing for Respondent/Assessee submitted that there is no error at all either on facts or on law, committed by ITAT and whatever has been argued by learned counsel appearing for appellant constitute only question of fact and does not involve any question of law. While supporting orders passed by Income Tax Appellate Tribunal, he submitted that, it is not disputed that for last many years Respondent/Assessee is earning interest on fixed deposits and inter- corporate deposits or investments in call money deposits. He further submitted that even Assessing Officer in Assessment Order relating to 1991-1992 has recorded finding that Assessee is investing surplus funds in call money markets or short term :7: deposits in various banks and same is utilized for providing security for obtaining short term loans or as deposit towards LC opening. He submitted that this shows that deposits made by Assessee is having direct nexus with business of Assessee. learned counsel for Respondent/Assessee further submitted that it is one of business activities of Assessee. He contended that in pursuance of object clauses of Memorandum and Articles of Association, Assessee carries out money market operations as one of its business activities. He further contended that money which has been invested by Assessee in banks has direct nexus with Letters of Credit taken out by Assessee. He, therefore, submitted that interest earned on said deposits for taking out Letters of Credit is incidental to main purpose and, therefore, it has to be treated as income from business. He contended that said interest earned by Respondent/Assessee does not arise from any other source as has been held by Assessing Officer. He lastly contended that interest income earned by Respondent/Assessee falls within purview of expression business income as per explanation (baa) to Section 80HHC. Shri Naniwadekar submitted that authorities relied upon by learned counsel appearing for appellant have no :8: application in view of facts of present cases. He contended that present cases involve mixed question of facts and law and, therefore, urged before us that present appeals may be dismissed. He further submitted that law in respect of meaning to be given to interest income as to whether it is business income or income from other sources is well settled by various judgments, either of Supreme Court or High Courts. 10. learned counsel appearing for Respondent/Assessee has relied upon following judgments : (i) (2009) 308 ITR 356 (Bom) : (2010) 189 TAXMAN 452 [A] Commissioner of Income Tax V/s. Lok Holdings, (ii) 1992 AIR 377 : 1991 SCR Supl. (2) 312 Radhasoami Satsang V/s. Commissioner of Income Tax, (iii) (2006) 281 ITR 346 (Delhi) Commissioner of Income Tax V/s. Dalmia Promoters Developers P. Ltd., (iv) 1995 216 ITR 535 Mad. Commissioner of Income Tax V/s. Tamil Nadu Dairy :9: Development Corporation Ltd., and (v) 1991 190 ITR 259 Bom. Commissioner of Income Tax V/s. Paramount Premises (P.) Ltd. 11. record reveals that Assessee has received interest in respective previous years on FDR in banks and inter- corporate deposits. Assessing Officer treated interest income under head income from other sources and excluded from head profits and gains of business or profession . Assessing Officer was of view that Assessee is having surplus funds available which Assessee was investing in call money deposit/short term deposit in various banks and only as and when it is required for providing security, Assessee is availing/furnishing said deposit as security for obtaining short term loans or as deposit towards LC opening. That entire deposits to large extent were being renewed period after period and year after year and Assessee is earning interest for years together on said deposits. That Assessing Officer has further held that as Assessee was having surplus money, which has not been used for business purpose, :10: money was kept for earning interest and interest earned by Assessee cannot be treated as business income. learned counsel appearing for appellant Revenue Department has supported these findings of Assessing Officer and has relied on aforesaid citations in support of her contentions. 12. (i) first judgment relied upon by learned counsel appearing for appellant is in case of Godavari Sugar Mills Ltd., V/s Commissioner of Income Tax ( supra ). Assessing Officer has also after relying on same has reached to conclusion that interest income of Assessee is income from other sources . In case of Godavari Sugar Mills Ltd., learned Single Judge of Bombay High Court has held that it was for Assessee to place material before departmental authorities or Tribunal to show that these monies on which interest in dispute was earned were advanced in course of Assessee's business or that amounts advanced/lent there for short term deposits not for earning interest as such but for not keeping money idle. :11: (ii) second judgment relied upon by learned counsel for appellant is in case of M/s Bharti Televentures Ltd., ( supra ) wherein Division Bench of Delhi High Court after relying on judgment in case of Krishna Prasad & Co. Ltd., V/s CIT ( 1955) 27 ITR 49 (SC) has quoted following paras : term business is word of very wide, though by no means determinate, scope. It has rightly been observed in judicial decisions of high authority that it is neither practicable nor desirable to make any attempt at de-limiting ambit of its connotation. Each case has to be determined with reference to particular kind of activity and occupation of person concerned. Though ordinarily business implies continuous activity in carrying on particular trade or avocation, it may also include activity which may be called, quiescent . It is pertinent to note here that, in case of M/s Bharti Televentures itself, in para 12, Delhi High Court has further held :12: that, while it is true that term business is of wide connotation, true and applicable test in opinion of that Court was articulated in Tuticorin Alkali Chemicals & Fertilizers Ltd., Vs CIT., (1997) 227 ITR 172 (iii) last judgment relied upon by learned counsel for appellant Revenue Department is in case of Collis Line Pvt. Ltd., ( supra) wherein learned Single Judge of Kerala High Court has observed that, That investment, as found by Commissioner, was only to secure money which was lying idle. income earned from that source is, therefore, not income earned in course of business so as to make it part of profits and gains of assessees business. That is income which has been found to be traceable to other sources . And, therefore, it was held by Kerala High Court that interest earned from such deposit was assessable as income from other sources and not as business income. On facts of said case, Kerala High Court has held that amount was deposited because money was lying idle and it was safer and wiser to put it in bank. interest thereby earned was incidental to main purpose of deposit, which was safe keeping and not earning profits. Therefore, it was held that such income was rightly found to be income from other :13: sources. 13. Shri Naniwadekar, learned counsel appearing for Respondent has relied upon aforesaid five judgments in support of his contentions. (i) In case of Commissioner of Income Tax V/s Lok Holdings ( supra ), it has been held by Division Bench of Bombay High Court in paras 7 and 8 of said judgment that, idle amounts were deposited with bank or given on temporary loans until such time as they were required for construction. Thus, interest was earned on these amounts. In due course assessee's appeal was considered by Tribunal and Tribunal recorded finding that entire interest sprang from business activity of assessee and did not arise out of any independent activity. High Court has further held that in that case, admittedly, assessee company was engaged in construction business and had deposited money received in course of such business with bank, earning interest thereon and treated said income as business income and temporarily invested surplus amounts with banks and other concerns, and that interest earned thereon is business income :14: and cannot be assessed as income from other sources . (ii) Next judgment relied upon by learned counsel appearing for Respondent/Assessee is in case of Radhasoami Satsang ( supra ) wherein Supreme Court has adopted Rule of Consistency and held that, in absence of any material change justifying Department to take different view from that taken in earlier proceedings, question of exemption of assessee appellant should not have been reopened. Supreme Court has observed that assessments are certainly quasi-judicial in nature and strictly speaking, res judicata does not apply to income tax proceedings. It was held that each assessment year being unit, what is decided is one year may not apply in following year but where fundamental aspect permitting through different assessment years has been found as fact one way or other and parties have allowed that position to be sustained by not challenging order, it would not be at all appropriate to allow position to be changed in subsequent year. (iii) In case of Commissioner of Income Tax V/s Dalmia Promoters Developers P. Ltd., ( supra ), Division Bench :15: of Delhi High Court after relying on judgment in case of Radhasoami Satsang ( supra ) has held that for rejecting view taken for earlier assessment years, there must be material change in fact situation. There is no gainsaying that previous view will have no applicable even in cases where law itself has undergone change but before earlier view can be upset or digressed from, one of two must be demonstrated, namely, change in fact situation or material change in law whether enacted or declared by Supreme Court. Delhi High Court has therefore, held that amount received from co-developers and investments of such amount in fixed deposit is directly related to business activities and interest income earned on deposits held to be business income for earlier Assessment Years. Revenue accepting Appellate orders and there was no material change in facts in subsequent years, view taken for earlier years would continue on principles of consistency. (iv) Next judgment relied upon by Shri Naniwadekar is in case of Commissioner of Income Tax Vs Tamil Nadu Dairy Development Corporation Ltd., ( supra ) wherein Division Bench of Madras High Court has held that interest accrued on short term deposits of assessee -company which were made out of :16: business funds available with assessee -company before same were utilized for actual business and, and as such, same is incidental to business activity of assessee- company and as such, interest on short term deposits should be treated as business income. (v) last judgment relied upon by learned counsel appearing for Respondent/Assessee is in case of Commissioner of Income Tax V/s Paramount Premises (P) Ltd. (supra ), wherein Division Bench of Bombay High Court has held that idle amounts were deposited with bank or given on temporary loans until such time as they were required for construction. Thus, interest was earned on these amounts. assessee was also required to give guarantee to State Bank in respect of land taken on lease for construction work. For this purpose, certain amounts were kept in fixed deposits on which assessee earned interest. In these circumstances, Tribunal has given finding of fact to effect that entire interest sprang from business activity of assessee and did not arise out of any independent activity. Accordingly, interest income was considered as business income of assessee. :17: 14. Thus, after taking into consideration settled legal position as enumerated from aforesaid citations and as stated earlier, in present case also as per own findings of Assessing Officer, Assessee is utilizing deposits for giving security to banks and opening Letters of Credit etc. As per records, investing surplus funds in call money market or short term deposit in favour of banks for providing security for obtaining short term loans or as deposit towards LC opening is one of business activities of Assessee and this had come for scrutiny of Tribunal for Assessment Years 1967-68 to 1972- 1973 and it was held in favour of Assessee that interest income accrued therefrom is business income. record is very clear that there is no material to demonstrate substantial change in said view for years which were followed thereafter. It was after substantial consistent following of said view, it appears that Assessing Officer took distinct and separate view thereby treating interest income as income from other sources in year 1991-92 and thereafter. department has not established in any case that said interest has been spent for any other purpose except business purpose. important aspect which is to be considered here is that Respondent/Assessee is earning this interest income for last :18: many years and it was always treated as business income. In view of ratio laid down by Supreme Court in case of Radhasoami Satsang ( supra ) and by applying said rule of consistency, we hold that, in absence of any material change justifying Department/Assessing Officer to take different view from that taken in earlier proceedings, question of exemption of Respondent/Assessee should not have been reopened. 15. Respondent/Assessee has utilized surplus money for making investments in bank deposits or call money market or inter-corporate deposits and it always retained its character as business assets. In our opinion interest income earned by Assessee has direct nexus with its business activity, as said amounts were invested by Respondent/Assessee for availing short term loans or for taking out LC opening. object clauses of Memorandum and Articles of Association particularly clauses (55) and (82) permit company to lend, advance or deposit money as part of business activity and Assessee company carries out money market which is one of its business activities. Therefore, it can be safely said that interest income earned by Respondent/ Assessee is earning out of its business activity only, as it has direct :19: nexus with said amount of business activity. interest received by Respondent/Assessee is having direct or proximate relationship with their main business activity and as such, same has to be treated as business income . As stated earlier, money of company was used for making investment in bank deposits or call money market or inter-corporate deposits with objective for availing short term loans or for keeping deposits for purpose of LC's and said money had always retained its character as business assets. In our opinion, surplus money, unless and until it is pulled out totally from business and having absolutely no nexus with amount or ancillary business activity and thereby same is deposited with bank only and solely with view of earning interest by keeping said funds idle, then it can be treated as non- business income or income from other sources. 16. In view of facts of present cases, we are of opinion that interest earned by Respondent/Assessee is business income only and we hold that Income Tax Appellate Tribunal has rightly held that interest income earned by Respondent/Assessee is business income. questions framed hereinabove are answered accordingly. :20: 17. For reasons stated herein above, in our considered opinion, there are no merits in these appeals and appeals are hereby dismissed with no order as to costs. A.S. GADKARI, J. B.P. DHARMADHIKARI, J. NH/at Commissioner of Income-tax, Goa v. V.S. Dempo & Company Ltd
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