M/S.lovsons Commercial Agencies v. The Deputy Commissioner Of Income Tax And Anr

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.272 OF 2006 M/s.Lovsons Commercial Agencies..AppellantVs.The Deputy Commissioner of Income Taxand Anr...RespondentsWITHINCOME TAX APPEAL NO.315 OF 2006M/s.Lovsons Commercial Agencies..AppellantVs.The Asstt. Commissioner of Income Taxand Anr...RespondentsMr.F.B.Andhyarujina, Senior Advocate withMr.P.C.Tripathi i/b. Ms.Pallavi Divekar for theAppellant.Mr.P.S.Sahadevan for the Respondent. ..Appellant..Respondents CORAM :- DR.S.RADHAKRISHNAN &V.C.DAGA, JJ.DATE : 4TH DECEMBER, 2008 P.C. .Heard the learned Counsel for the parties. In both the above Appeals, the Appellant is seeking to raise the following substantial questions of law: i. Whether the Tribunal erred in affirmingthe orders of Respondent No.1 and 2 and inholding that interest income of the Appellantwas assessable under the head "Income fromother Sources" and not under the head "Incomefrom Business"? ii. Whether the Tribunal was right in holdingthat the Appellant was not entitled to thededuction u/s.80HHC of the I.T.Act on interestearned by the Appellant from deposits placedwith the Bank matching with the borrowings andwhich were in the nature of business income ? 2.We have perused the judgment of the Income Tax Appellate Tribunal dated 27th October, 2005. In paragraph No.13, the Tribunal has observed as under: 13. The learned Counsel for the Assessee has reiterated that deposits were made to meet therequirement of the Bank and, therefore,interest on deposits be considered as businessincome and further be set off against theinterest paid. He has also raised additionalfund for setting off the interest in respectof Assessment Year 1991-92 since byinadvertence, failed in grounds of appealthough contended before the Learned CIT(Appeals). We are unable to uphold thecontention of the Learned Counsel for theAssessee. The Assessing officer has givenfactual finding at Pages 8 and 9 of his orderthat three, out of four loans were givenwithout any security in form of deposits.These loans were given against othersecurities like hypothecation of stock, exporttrust receipts, E.C.G.C. guarantee, shippingdocuments, etc. Only QIC loan was givenagainst deposits. Assessing Officer furtherfound that only interest of Rs.5,91,372/- waspaid against QIC loan. Thus, interestreceived of Rs.23,41,986/- out ofRs.29,33,388/- had no connection with businessof assessee. This finding of fact has notbeen disputed before us. Therefore, we haveno hesitation in holding that interest ofRs.23,41,986/- related to deposits out ofsurplus fund and consequently assessable asincome from other sources. Regarding balancesum of Rs.5,91,372/- we made query fromassessee’s Counsel as to how it could be saidthat deposits were made at the direction ofBank. It was told to him that if FDRs arefirst purchased without any reference to anyrequirement and then subsequently merelypledged with Bank, then it cannot be said thatsuch interest income had any nexus withbusiness. Assessee’s Counsel drew ourattention to the letters of Bank but could nottell whether such deposits were made at theinstance of the Bank. On the other hand, wefound from one of the letters that depositswere merely pledged as security. Henceassessee could not demonstrate that depositswere made as per the requirements of Banksanctioning loan. If deposits are made out ofsurplus money, then, in our opinion, interestthereon would be assessable as income fromother sources and the fact that such depositswere pledged or kept as security subsequentlywould not change the legal position. It isthe intention at the time of making depositwhich is relevant and not the subsequentfactors. Accordingly, we hold that entireamount was assessable as income from othersources. This finding would apply to allthree years as separate arguments for separate Appeals. Hence, both the above Appeals stand dismissed. (V.C.DAGA,J.) (DR.S.RADHAKRISHNAN,J.)