D.b. Income Tax Appeal v. The Income Tax Officer & Another

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR Reportable 16.D.B. Income Tax Appeal No.57/2005Vijay Chand Lodha v. The Income Tax Officer & Another 17.D.B. Income Tax Appeal No.25/2006CIT v. Ashish GoyalCIT v. Ashish Goyal Reserved on 31[st] July 2015 Pronounced on 11[th] Sept. 2015 Hon'ble Mr. Justice Ajay RastogiHon'ble Mr. Justice J.K. Ranka Mr. Anuroop Singhi, Sr. Standing Counsel,Mr. OP Pareek andMr. Amitabh Jatav...... counsel for appellants Mr. TC JainMr. Amit JindalMr. ML Borad andMr. Vivek Singhal...... counsel for respondents By the Court(per J.K. Ranka, J.) 1.These income tax reference and Income Tax appeals, filed at theinstance of both, Revenue and Assessees, since involve common questionsof law, and raise common controversy, are being disposed of, as agreed bycounsel for the parties, by this common order. 2.In DBIT Reference No.4/2003, which relates to the assessment year1989-90, filed at the instance of Revenue before the Income Tax AppellateTribunal (for short 'ITAT'), as directed by this court under Section 256(2) ofthe Income Tax Act, referred the following substantial question of law:- “Whether on the facts and in the circumstances of the case, theTribunal was right in holding that the assessee was entitled todeduction under section 80HHC(1) in respect of interest of Rs.3,62,342/- earned by employing surplus funds locally,notwithstanding the provisions of sub-section 2(a) of section80HHC?” 3.DBIT Appeal No.60/2003 :The facts in the instant appeal relatesto the same assessee as in IT Reference No.4/2003 (supra) but for theassessment year 1991-92. We have already noticed that in Referenceno.4/2003, the appeal was allowed by the Tribunal in favour of theassessee, but in the instant case though between the same parties, theappeal of the assessee before the Tribunal was dismissed though thecontroversy remaining the same and the Tribunal changed its view. The appeal was admitted on following questions of law:- “Whether on the facts and circumstances of the case, theHon'ble Tribunal was justified in holding that assessee isnot entitled for deduction under section 80HHC on interestincome of Rs.2,80,007/- as per law as existing at therelevant assessment year. Whether on the facts and circumstances of the case and onthe basis of material available on record, the Hon'bleTribunal was correct in coming to the conclusion thatincome from interest on surplus funds is to be treated asIncome from other sources even in absence of any suchfinding by lower authorities.” 4.DBIT Appeal No.52/2003, which relates to the assessment year 1991-92, filed at the instance of Assessee, has been admitted on the followingsubstantial question of law:- “Whether in the facts and circumstances of the case the ITATwas justified in law in restricting the claim of interest and not allowing full benefit of deduction u/s. 80HHC of interestincome as profit and gains from business.” 5.By and large, the questions involved in all these references/appeals,revolve around the above issues. 6.Primarily the Assessees in all these cases are exporters of preciousand semi precious stones and jewellery, and are 100% exporters and thegoods are being exported after being appraised by the custom authoritiesand the remittance of sale consideration is received through bank. Sincequestion of deduction u/sec. 80HHC of the Income Tax Act arise in all thesecases, for claiming of such deduction, Audit report, as mandated, has beenobtained and the provisions of the Act have been complied with. Sincethere was divergence of opinion in judgments of Division Bench of thiscourt, therefore, the matter was referred to Hon'ble the Chief Justice toconstitute a Larger Bench. 7.The Larger Bench of this court, in Reliance Trading Corporation v.ITO (2015) 376 ITR 53 (FB-Raj.), dealt with and answered the questionsreferred, as under:- 7.The Larger Bench of this court, in Reliance Trading Corporation v.ITO (2015) 376 ITR 53 (FB-Raj.), dealt with and answered the questionsreferred, as under:- “Q. No.(1)Whether the assessee is entitled for deductionunder section 80 HHC on interest income of Rs.1,76,930/- asper law as existing at the relevant assessment year? Ans. While applying the direct and proximate nexus test, weare of the view that where the interest earned does not havedirect and proximate nexus with the income from the businessof export, the interest cannot be deducted as income from export under Section 80HHC(3)(a) of the Act, and has to begiven the same treatment for tax, as “income from othersources” under Section 56 of the Act.The question No.1 is, thus, answered in favour of theRevenue, and against the assessee. Q. No.(2)Whether the amendment in section 80 HHC, byway of insertion of sub-section (4B) excluding interest incomefor the purpose of deduction under section 80 HHC will affectthe deduction of interest income under section 80 HHC for theperiod prior to amendment? Ans. So far as question No.2 is concerned, on the aforesaiddiscussion, we are also of the view that the amendment inSection 80HHC, by way of insertion of sub-section (4B),excluding interest income for the purposes of deduction underSection 80HHC of the Act, will also affect the deduction ofinterest income under Section 80HHC of the Act, for the periodprior to the amendment, inasmuch as the applicability of theprinciple of direct and proximate nexus to the business income,will apply both, to the provisions of the Act prior to, and afterthe amendment, which came into effect by the Finance Act,1992, with effect from 01.04.1992. The question No.2, is thusdecided in favour of the Revenue and against the assessee. Q. No.(3)In case the assessee is not earning income inconvertible foreign exchange by way of an interest on themoney advanced, even then, whether the assessee is eligible fordeduction under section 80 HHC of the Act? Ans. On the question No.3, we hold that the earning of theincome convertible from foreign exchange by way of interest,is not necessary so long as the interest is derived from businessof export, and has direct and proximate nexus, with the incomeearned out of the profits retained for the export business. Theearning of the income convertible from foreign exchange, is nota test for determining, as to whether deduction is allowable inrespect of the income derived from the profits retained forexport business. The question No.3 is also decided in favour ofthe Revenue and against the assessee.” in the present batch of cases, are primarily the same which have beenanswered in favour of the Revenue by the Larger Bench and, therefore,primarily the contention on behalf of the Revenue is that there is no directnexus of the funds with the export activity of the Assessee and thecontention of the Assessee all throughout has been that out of the exportreceipts/income, the surplus funds which were lying idle, were advanced inthe market and that has yielded interest and such interest having directnexus with Exports being income from business enures for deduction u/s80HHC of the Act but the claim of the Revenue throughout has been thatthough it may constitute a separate business, but had no nexus with theexport of precious and semi precious stones, and whatever the interest wasearned, was in the nature of 'income from other sources' having noproximity with Export of goods. 8.1While relying upon the judgment of the Larger Bench, thelearned counsel for the Revenue in addition has relied upon judgments ofthis court in Murli Investment Co. v. CIT (1987) 167 ITR 368, CIT v.Rajasthan Land Development Corporation (1995) 211 ITR 597 (Raj.),judgment of the Delhi High Court in the case of CIT v. Shri Ram HondaPower Equip (2007) 289 ITR 475 (Delhi), judgments of the Kerala HighCourt in Ravindranathan Nair (K.) v. Deputy CIT (Assessment)(2003) 262ITR 669, Southern Cashew Exporters v. Deputy CIT(2003)183 CTR (Ker)175, and other authorities. He further contended that this court, in the caseof CIT v. Rajasthan Land Development Corporation (supra), laid down fivetests and according to him, all the five tests go against the claim of the Assessees and thus, contended that the claim of Revenue deserves to beupheld. 9.Per contra, learned counsel for the Assessees jointly and separatelycontended that judgment of the Larger Bench is distinguishable, andcontended that the issue before the Larger Bench, though have a substantiallegal question, but facts of each case are required to be looked into. Theyfurther contended that in these cases the contention of the Assessees hasbeen that there is a finding of fact recorded by the Tribunal as also by theAssessing Officer, in some cases, that the Assessees were regularly engagedin the business of earning interest out of realisation of sale receipts fromExports, which constituted business income and once there is a finding offact recorded by the Tribunal that the Assessees were carrying on thebusiness of money lending, such a finding of fact recorded by the Tribunalbeing a fact finding authority, cannot be said to be perverse. They furthercontended that once there is a joint business of export of goods andmerchandise, business income constituted earning by way of interest, theclaim of the assessees is well justified and sec. 80HHC does not distinguishvarious kind of businesses. They further contended that direct andproximate nexus test is required to be proved by the Revenue rather thanassessee and the finding of the Tribunal that it is a business income,supports the case of the assessee. 10.Mr. T.C. Jain, learned counsel, apart from common submissionfurther contended that there is a definite finding that carrying on thebusiness of earning of interest was regular and systematic, regular books of account are being maintained and such transactions are duly recorded in thesame books of account, constitute business income and once it has beenheld that it was business income, deduction under sec. 80HHC ought to beallowed. 11.Mr. M.L. Barod, learned counsel, also contended that in DBIT AppealNo.28/2005 issue is the same, but also emerges is that the assessee earnedinterest and simultaneously paid interest as well and only net interest earnedis required to be considered as the income from surplus funds, whileRevenue has considered the gross interest income. In this regard he reliedupon the judgment rendered in the cases of ACG Associated Capsules Pvt.Ltd. v. CIT (2012) 343 ITR 89 (SC) and CIT v. Shri Ram Honda PowerEquip (supra) of Delhi High Court. His further contention is that the taxeffect at least in his case is less than Rs.4 lac, and even as per the prevailingcircular of the Central Board of Direct Taxes, when the present appealswere filed, the tax effect being less than Rs.4 lac, the appeal at the instanceof Revenue was not maintainable and deserves to be dismissed. 12.Mr. Vivek Singhal, learned counsel, contended that the AllahabadHigh Court in the case of CIT Agra v. M/s. Divya Jewellers (P) Ltd. (2014)368 ITR 671, has held that earning by way of interest being proximate tothe business activity of an exporter, it ought to be taken as in the nature ofincome from business. He also relied upon the judgment rendered in thecase of CIT v. M/s. Punjab Stainless Steel Industries (2014) 364 ITR 144(S.C.), and contended that the exporters play a vital role in earning ofprecious foreign exchange for the country and the Revenue should not tinker with minor disallowances/claim when Section 80HHC primarilygives benefit to an exporter. 12.1In support of their contentions, following judgments were alsorelied upon by the learned counsel for the assessees :-Karnani Properties Ltd. v. (1971) CIT, 82 ITR 547Rameshwar Prasad Bagla v. CIT, (1973) 87 ITR 421Patnaik & Co. Ltd. v. CIT, (1986) 161 ITR 365 CIT v. Nagarjuna Steel Ltd., (1988) 171 ITR 663 (A.P. High Court)Keshavji Ravji & Co. v. CIT, (1990) 183 ITR 1. Thiru Arooran Sugars Ltd. v. CIT, (1997) 227 ITR 432.K. Ravindranathan Nair v. CIT, (2001) 247 ITR 178. 13.We have heard the learned counsel for the parties, considered thematerial on record including the Larger Bench judgment of this court,as also other judgments relied upon by the counsel for the parties. 14.Though the arguments raised at the Bar by both the sides havealready been considered by the Larger Bench of this Court and, primafacie, all the three questions which do emerge in the present set ofreference / appeals / cross appeals, have been considered at length afteranalysing the latest judgments of the Hon'ble Apex Court on thesubject, including judgments of this High Court as also of other HighCourts, however, counsel for the assessees has tried to distinguish the facts in the instant matters vis-a-vis the arguments advanced beforethe Larger Bench. 15.In our view, Section 80HHC allows deduction in a case where theassessee is primarily an exporter and is engaged in the business ofexport out of India of any goods or merchandise, and also receivesforeign remittance/sale/export proceeds received in India or broughtinto India by the assessee in convertible foreign exchange. In our view,a deduction is allowable to an exporter of goods and none else. 16.The Tribunal while reversing the earlier view in DBIT ReferenceNo.4/2003 and DBIT Appeal No.60/2003 insofar as the same assesseeis concerned, observed that the Assessing Officer held that neither theinterest income is profit derived by the assessee on export of goods ormerchandise nor they have been in convertible foreign exchange as perprovision of Section 80HHC, instead the income (interest) has beenderived from advancing to various parties small amounts and is not apart of assessee's income from business entitled to deduction underSection 80HHC, and it further held that the assessee is entitled todeduction only in respect of profit derived by it from export of goodsand merchandise and receipts of sale proceeds in convertible foreignexchange. The ITAT has also come to the conclusion that the intention of the assessee was only to earn interest income, source of which is theadvances and not that it is out of business of exports. It was furtherheld that the derivation of income must be directly connected with thebusiness in the sense that the income is generated by the business and itwould not be sufficient if it is generated by exploitation of businessassets and further held that the claim of the Revenue is correct in nottreating the income from interest from surplus funds as businessincome, entitled to deduction under Section 80HHC and we also concurwith the later findings of the ITAT. of the assessee was only to earn interest income, source of which is theadvances and not that it is out of business of exports. It was furtherheld that the derivation of income must be directly connected with thebusiness in the sense that the income is generated by the business and itwould not be sufficient if it is generated by exploitation of businessassets and further held that the claim of the Revenue is correct in nottreating the income from interest from surplus funds as businessincome, entitled to deduction under Section 80HHC and we also concurwith the later findings of the ITAT. 17.In DBIT Appeal 52/2003 the Assessing Officer while disallowingdeduction under Section 80HHC in respect of income received by wayof interest, held that an assessee is entitled to deduction under Section80HHC on the profits derived from export of goods or merchandise outof India and sale proceeds of which are to be received in convertibleforeign exchange, and in the instant case the income is by way ofexport of jewellery and the interest being not received in convertibleforeign exchange on export of goods (jewellery), such activity ofadvancing money to various miscellaneous parties, was not entitled fordeduction under Section 80 HHC. The Tribunal further held that thenexus between the borrowed funds and money advanced on interest hasnot been established. Intention to do business has not also been proved by placing any tangible evidence on record. Exploitation of businessfunds or earning interest does not constitute business. The interestincome also cannot be held to be an incidental activity to exportincome, the receipt of interest and payment of interest are two differentactivities and we also concur with the same view. 18.In our view, though in one or two cases it has been held thatinterest received is in the nature of business income but ultimately ashort question is as to whether where merely because interest has beenheld to be business income whether deduction under Section 80HHC isallowable or not? 19.In our view, no effort has been made by the assessees that theimmediate source of receipt of interest as income is the amountadvanced which were given as loan in the preceding years and not byrealisation of exports. The assessees by and large have been found tohave raised fresh loans whereas no new loan or advances have beengiven in the year under consideration. It is also an admitted fact thatthe assessees have also not redeemed majority of the loans advancedfor its business purposes to several entities, and a finding has beenrecorded by the Assessing Officer that majority of the parties fromwhom interest was received continued to remain the same. Neither any correspondence with any of the parties to whom loans are advanced,was produced so as to prove the purpose or intention of doing business. 20.In our view, and rightly so, intention of the assessees is well setthat it only wants to earn interest from those funds which are lying idlewith it or which can be spared as surplus in the business for earningincome from the said source and a businessman will not keep fundsidle and certainly an endeavour of a business man primarily is to earnmaximum profits, that does not mean character of income changesmerely because the assessee has taken such interest in the profit andloss account and projected it as business income, it does not mean thatsuch receipt also enures for deduction under Section 80HHC of theAct. 21.Section 14 of the Income-tax Act, 1961 specifies distinct heads ofincome indicating the intention which are mutually & exclusive incomederived from different sources falling under the specified heads, haveto be computed for the purpose of taxation in the manner provided. Tofind out whether the activity in the case of an assessee constitute itsbusiness of money lending, we refer to the term 'business' definedunder section 2(13) of the Income-tax Act, 1961. The definition readsas under :- 21.Section 14 of the Income-tax Act, 1961 specifies distinct heads ofincome indicating the intention which are mutually & exclusive incomederived from different sources falling under the specified heads, haveto be computed for the purpose of taxation in the manner provided. Tofind out whether the activity in the case of an assessee constitute itsbusiness of money lending, we refer to the term 'business' definedunder section 2(13) of the Income-tax Act, 1961. The definition readsas under :- “business” includes any trade, commerce or manufacture of anyadventure or concern in the nature of trade, commerce ormanufacture. 22.This Court in the case of Rajasthan Land DevelopmentCorporation (supra) at page 601 has observed as under :- “The word 'business' has been the subject mater of judicialscrutiny and interpretation and it has been held that it is of widerimport which relates to real, substantial and systematic ororganised course of activity or conduct with a set purpose. Thefrequency or continuity of the activity may in a certain set ofcircumstances be a desired factor but are not the conclusive orinfallible test. An isolated transaction may also be a business.” 23.It is, therefore, essential to advert to definition of the word 'purpose' and also to the word 'intention' as no provision has beenbrought to our notice from which the intent and purport to carry on thebusiness of money lending could be inferred. In Black's LawDictionary, Sixth Edition, 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 issynonymous with ends sought, an object to be attained, anintention etc. Intention: Determination to act in a certain way or to do a certainthing. Meaning; Will; purpose, design. “Intention”, when usedwith reference to the construction of will and other documents,means the sense and meaning of it, as gathered from the wordsused therein. When used with reference to civil and criminalresponsibility, a person who contemplates any result, as notunlikely to follow from a deliberate act of his own, may be saidto intend that result, whether he desires or not.” It is, therefore, the design, resolve or determination with which aperson acts. It is all to be kept in mind that 'intent' and 'motive'are two different things and should not be confused. Motive iswhat prompts a person to act. Intent refers only to the state ofmind with which the act is done or omitted.” 24.In our view, merely because the assessee contends that receipt ofinterest is income from business, or in one or two cases the findingbeing recorded by the Assessing Officer that it is business income, insupport thereof no tangible evidence has been placed to prove theintention that the assessee carried these transactions of advancingloans, as business. Merely contending that the funds were of businessand is a case of exploitation of business assets, thus would be incomefrom business cannot be intended at least for deduction under Section80HHC. Derivation of income must be directly connected with thebusiness in the sense that the income is generated from business. Itwould not be sufficient if it is generated by exploitation of businessasset. In the instant matters, the income by way of interest on thedeposits/advances is no doubt an income derived by investing surpluscash of the assessee generated as profits of exports, but it is not themoney derived from the business activity on export as an exporter. It isalso not established that carrying on business of export is connectedwith or dependant upon such advances or loans given by it, and as suchit cannot be termed that earning of interest on such loans was incidentalto business of export. 25.In our view, the assessees are not engaged in the activity ofadvancing money as a business activity nor loans advanced constitutean incidental activity to the business of exports of the assessee.Irresistible conclusion, therefore, is that the earning of interest by anassessee on sums advanced does not come within the purview ofbusiness income, or as profits from business. 26.This court in the case of CIT v. Rajasthan Land DevelopmentCorporation (supra) had, while answering the reference in favour ofthe Revenue and against the assessee, laid down following principles:- “(i)interest on fixed deposits and other deposits beforethe commencement of the business is income from othersources, (ii)income from interest on deposits of surplus moneyduring the construction period is also to beconsidered/treated as income from other sources, (iii)interest income in respect of surplus money, notrequired for business and deposited in bank or person, asidle money, for safe keeping, would be assessable asincome from other sources. If the income from interest isfrom a fund which has been brought as surplus capital, itwould be assessable as income from other sources, (iv)in respect of investment of surplus funds there isdivergence of opinion between different High Courts andthis court in the case of Murli Investments Co. held that ifthe surplus funds are invested instead of keeping them idle,the income by way of interest should be treated as incomefrom other sources, (v)if the surplus funds emerge out of business carried onby the assessee which is regularly carried on by the assessee and then with the intention to carry on thebusiness of lending of money or money-lending the loan isadvanced, the income therefrom would be income frombusiness. The intention has to be gathered with referenceto all the activities of advancing money which should bepermitted by the objects of the company and also by theresolution of the board of directors to carry on the businessof money-lending or lending of money.” 27.In our view when we analyse the above principles with the factsof the present matters, none of the principles support the contentionraised by the counsel for the assessees, except that only clause (v) mayto a certain extent support the contention of the assessees, but then it isa case of a Limited Company and not an individual or a partnershipfirm, as in the instant cases. Even otherwise, it does not support thecontention of the counsel for the assessees. 28.In the present set of facts, the principle in paras (iii) and (iv) doesnot support the case of the assessees, but rather goes against theassessees as admittedly it is interest income in respect of surplusmoney, it was held that the surplus funds are invested instead ofkeeping them idle, the income by way of interest is to be treated asincome from other sources. The principles in paras (i) and (ii) are alsoinapplicable but does not support the assessee either. 29.In the above case, judgment of Murli Investment Company rendered by this court (supra), was relied upon where it has been heldas under:- 28.In the present set of facts, the principle in paras (iii) and (iv) doesnot support the case of the assessees, but rather goes against theassessees as admittedly it is interest income in respect of surplusmoney, it was held that the surplus funds are invested instead ofkeeping them idle, the income by way of interest is to be treated asincome from other sources. The principles in paras (i) and (ii) are alsoinapplicable but does not support the assessee either. 29.In the above case, judgment of Murli Investment Company rendered by this court (supra), was relied upon where it has been heldas under:- “After considering the entire material on record, theTribunal arrived at the finding that in the facts of thepresent case, the company was investing its surplus fundsand was deriving interest thereon, instead of keeping thatidle. Such transactions could not be said to constitutemoney-lending business. The Tribunal further held thatafter purchasing the property, the assessee-company hadapproximately Rs. 20,000 as surplus with it. It wasinvested by it instead of keeping it idle. When the moneywas needed for making alterations to the property and formaking repayment to the creditors, it was withdrawn by theassessee-company and the funds were utilised for theaforesaid purposes. The Tribunal held that such activitywould not constitute business. The company merelyinvested its funds when they were not required by it for thetime being. As such the income from such investmentcannot be assessed as business income. The Tribunal hasfurther held that such income would be assessable onlyunder section 56 of the Income-tax Act, 1961. Mr. Sharma,learned counsel for the assessee was unable to show anyauthority taking a contrary view nor was he able to showany error in the order of the learned Tribunal.”Tribunal arrived at the finding that in the facts of thepresent case, the company was investing its surplus fundsand was deriving interest thereon, instead of keeping thatidle. Such transactions could not be said to constitutemoney-lending business. The Tribunal further held thatafter purchasing the property, the assessee-company hadapproximately Rs. 20,000 as surplus with it. It wasinvested by it instead of keeping it idle. When the moneywas needed for making alterations to the property and formaking repayment to the creditors, it was withdrawn by theassessee-company and the funds were utilised for theaforesaid purposes. The Tribunal held that such activitywould not constitute business. The company merelyinvested its funds when they were not required by it for thetime being. As such the income from such investmentcannot be assessed as business income. The Tribunal hasfurther held that such income would be assessable onlyunder section 56 of the Income-tax Act, 1961. Mr. Sharma,learned counsel for the assessee was unable to show anyauthority taking a contrary view nor was he able to showany error in the order of the learned Tribunal.” 30.This court, again in the case of CIT v. M/s Avon Apparels [D.B.ITA No.41/1999 dated 11.7.2002, (Rajasthan High Court)], held that“the income of the assessee earned on account of interest on surplusfunds in India, the assessee is not entitled for deduction on that incomeunder Section 80HHC of the Act, 1961”.ITA No.41/1999 dated 11.7.2002, (Rajasthan High Court)], held that“the income of the assessee earned on account of interest on surplusfunds in India, the assessee is not entitled for deduction on that incomeunder Section 80HHC of the Act, 1961”. 31.The Larger Bench of this court has taken into consideration thejudgment of CIT v. Shri Ram Honda Power Equip (supra) which by andjudgment of CIT v. Shri Ram Honda Power Equip (supra) which by and 30.This court, again in the case of CIT v. M/s Avon Apparels [D.B.ITA No.41/1999 dated 11.7.2002, (Rajasthan High Court)], held that“the income of the assessee earned on account of interest on surplusfunds in India, the assessee is not entitled for deduction on that incomeunder Section 80HHC of the Act, 1961”.ITA No.41/1999 dated 11.7.2002, (Rajasthan High Court)], held that“the income of the assessee earned on account of interest on surplusfunds in India, the assessee is not entitled for deduction on that incomeunder Section 80HHC of the Act, 1961”. 31.The Larger Bench of this court has taken into consideration thejudgment of CIT v. Shri Ram Honda Power Equip (supra) which by andjudgment of CIT v. Shri Ram Honda Power Equip (supra) which by and large has touched the controversy in hand and the said judgment ofDelhi High Court has taken into consideration the fact about deductionunder Section 80HHC of allowing a claim similar to the presentcontroversy, and after examining the controversy has come to theconclusion that the issue has been considered taking into note thejudgments rendered by the Hon'ble Apex Court in the case of TuticorinAlkali Chemicals and Fertilizers Ltd. v. CIT (1997) 227 ITR 172,Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 113 ITR 84,CIT v. Sterling Foods (1999) 237 ITR 579, Pandian Chemicals Ltd. v.CIT (2003) 262 ITR 278, and has come to the conclusion thatdeduction under Section 80HHC is not allowable, and in our view, thejudgment of Shri Ram Honda Power Equip(supra), so also RajasthanLand Development Corporation (Supra), Murli Investment Company(supra) and Avon Apparels (Supra), apply to the facts of the instantcase with full force and we, after analysing the facts in the instantreference/appeals so also judgment of Larger Bench hold that interestreceived/earned does not enure for deduction under Section 80HHC. 32.Counsel for the assessee Mr. Borad in DBIT Appeal No.28/2005(CIT v. M/s Chordia Gems), as noticed earlier, had also raised point thatin this case while interest has been received so also interest has beenpaid and only net is required to be considered. However, this question does not arise for our consideration inasmuch as the followingquestions were admitted in D.B. ITA No.28/2005 :- “i) Whether on the facts and circumstances of the case, the ITAT wasright and justified in treating the interest income of Rs.9,67,366/- asbusiness income of the assessee? ii) Whether on the facts and circumstances of the case, the ITAT wasright and justified in allowing the deduction under Section 80HHC ofthe Act of 61 on the interest income of Rs.9,67,336/- and in holdingthat there is no infirmity in the order of the CIT(A)? iii) Whether on the facts and circumstances of the case, the finding ofthe I.T.A.T. is perverse, contrary to the record and untenable in the eyeof law?” There is no cross appeal or cross objection at the instance of theassessee on this point about netting of interest, and question ofanswering this issue now raised does not arise. 32.1Be that as it may, we have also gone through the orders ofthe Assessing Officer, the order of the CIT (Appeals), and also order ofthe Tribunal, and before all the three authorities the only question wasclaim of deduction on interest under Section 80HHC and even before the said authorities this issue was never raised nor was there anyground in appeal before ITAT, which has been raised now in the instantappeal at this stage. 32.2Even otherwise, once substantial questions have beenanswered by the Larger Bench of this court, quoted in para 7 of thisjudgment in identical circumstances, the issue remains no more res integra to be adverted any further. 32.1Be that as it may, we have also gone through the orders ofthe Assessing Officer, the order of the CIT (Appeals), and also order ofthe Tribunal, and before all the three authorities the only question wasclaim of deduction on interest under Section 80HHC and even before the said authorities this issue was never raised nor was there anyground in appeal before ITAT, which has been raised now in the instantappeal at this stage. 32.2Even otherwise, once substantial questions have beenanswered by the Larger Bench of this court, quoted in para 7 of thisjudgment in identical circumstances, the issue remains no more res integra to be adverted any further. 32.3Mr. Borad has also raised a point that insofar as his appealDBIT Appeal No.28/2005 is concerned, the tax effect is less than theamount stipulated in the circular of the Central Board of Direct Taxes,as it stood then i.e. Rs.4 lac, and he has contended that since the taxeffect being less than Rs.4 lac, the appeal preferred by the Revenueshould be dismissed. 32.4We have considered the arguments of the counsel for theassessee and in our view, mere tax effect may not come in the way toleave the substantial question of law unanswered. 32.5Similar issue also came up before this court in the case ofCIT v. M/s Udaipur Mineral Development Syndicate (P) Ltd., (D.B.Income Tax Reference No.32/1995 decided on 12.11.2014), and afterconsidering judgments of this court in the case of CIT v. RajasthanPatrika Ltd. (2002) 258 ITR 300, CIT v. Registhan (P) Ltd. (2004) 186CTR 260, and also the Full Bench judgment rendered by the Punjab &Haryana High Court in the case of CIT v. Varindera Construction Co.(2011) 331 ITR 449, and of the Apex Court in the case of CIT v. Surya Herbal Ltd. (2013) 350 ITR 300 (SC) it was held ad infra :- “Thus, we are of the view that once reference has beenadmitted by this Court u/s 256(1) or 256(2), then the mattercannot be disposed off merely because the tax effect isminimal. We dissent with the view expressed by theBombay High Court and M.P. High Court, relied upon bycounsel for the assessee as the judgment rendered by this Court in Rajasthan Patrika Ltd. (supra) and Registhan (P)Ltd. (supra) is binding on us on the self same issue and wewould choose to follow the view rendered by this court. Inour view, once a reference application of the Revenue hadbeen allowed by this court and reference was called at theinstance of this Court, the question of law framed has to beanswered on merits, thus the preliminary objection of thecounsel for the assessee is rejected.” 32.6In our view, though the above speaks of a IT reference as it then was, but it will be equally applicable on Appeals filed underSection 260(A). Accordingly, the contention of Mr. Borad deservesrejection. 33.In ultimate analysis, for the reasons aforesaid all the questions areanswered in favour of the Revenue and against the assessees, with noorder as to costs. (J.K. Ranka) J. (Ajay Rastogi) J. db60-76 [All corrections made in the judgment/order have been incorporated in the judgment/order being emailed.]Deepankar Bhattacharya PSDeepankar Bhattacharya PS