TANNA EXPORTS LTD Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS is a Reference under section 256(1) of the Income Tax Act, 1961 arising out of the order of the Income Tax Appellate 23rd Tribunal (Tribunal) dated November, 1994 in ITA No.763/Bom/1992 pertaining to the assessment year 1989-1990. The Tribunal on the assessee's application drew up the statement of claim and framed the following question for the opinion of this Court :-

(2.) THE applicant-assessee is engaged in the business of export, inter-alia, of rice, green peas and hardware. THE assessee filed its return of income of Rs.8,44,690/- on 31st October, 1989 and a revised return on 7th March, 1990, declaring an income of Rs.4,46,920/-. THE Assessing Officer, by an order dated 21 st January, 1991, assessed the total income at Rs.48,05,374/-. THE difference arises on account of the determination of the deduction under section 80HHC.

(3.) THE applicant, therefore, in order to avail of the benefit of section 80HHC, in accordance with the second proviso thereof, created a reserve in its balance sheet. THE reserve was not distributed among the partners which resulted in the yield by way of interest which was credited to the Profit & Loss Account. THE extra capital was created because the reserve was not required for the purpose of the applicant's export business. In view of the various authorities cited before us, it is of vital importance to note that the assessee contended, as recorded, inter-alia, in paragraph 2 of the order of the Tribunal that the extra funds available because of the reserve not being required for the purpose of the assessee's export business was invested elsewhere viz. with the sister-concerns and the applicant earned interest income on such investment.