DY. CIT Vs. TRANSPOWER (P) LTD

JUDGEMENT

(1.) PRESENT appeals are filed by the revenue against the order of Commissioner (Appeals), dated 22 -9 -1994, for the assessment years 1987 -88, 1988 -1989 and 1990 -91. The grievance of revenue was against treatment of interest on bank deposits as business income and thereby eligible for deduction under sections 32AB, 80HH and 80I of the Income Tax Act, 1961.

(2.) THE assessee is an industrial undertaking engaged in the manufacturing of electrical towers against the orders of Assam State Electricity Board (hereinafter referred to as the ASEB). During the course of its business for manufacturing of towers, it got advance payment from ASEB for execution of its orders. The assessee put part of the advances received from ASEB in bank as fixed deposits for procuring bank guarantees against the same. Assessee also availed overdraft facilities from the bank against such deposits. Assessment completed under section 143(1) was set aside by Commissioner under section 263, on the ground whether interest received from fixed deposit could be attributed to the business activities of the assessee and if the investment had been made in the course of and for the purpose of the business. As such, the order was set aside under section 263 to reconsider the point for entitlement of deductions under section 80HH for the assessment year 1987 -88 and under sections 32AB and 80 -I for the assessment years 1988 -89 and 1990 -91. Before the assessing officer, it was contended by the assessee that fixed deposit along with interest thereon has been utilised for the purpose of industrial activities of the assessees company. A certificate from the United Bank of India was also filed which showed that the assessee -company had a fixed deposit with the bank which had been credited out of mobilising advance received from State Electricity Department against bank guarantee. The assessing officer declined assessees claim by observing that deduction under section 80HH/80 -I is allowable on the income derived from "industrial undertaking" only and deduction under section 32AB is allowable on the income derived from profit and gains of business and profession. Hence, the income from other sources, i.e., interest income is no way qualify for this deduction. The assessing officer held that allowability of deduction depends on source of income and in the instant case, the assessee could not prove that interest from fixed deposit is not an income from other sources. Hence, the assessees claim was rejected under sections 80HH, 80 -I and 32AB in respect of interest income from bank.

(3.) THE learned authorised representative vehemently argued that interest received was inextricably linked with the carrying or of the business. The advance from A.S.E.B. was received for manufacture of towers and the same was put in the bank for availing bank guarantee and overdraft facility against the same. It was argued that bank guarantee was required to be furnished in the course of business, which is not available from bank without giving fixed deposit to the bank. A bank certificate to this effect was also furnished to the assessing officer in the course of assessment under section 143(3)/263. The certificate clearly stipulated that "fixed deposit with the bank have been created out of mobilisation advances from State Electricity Department against our bank guarantees". The authorised representative further placed reliance on the following judgments :