KIRTI CHAND DHADDA vs. U O I

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR DB Income Tax Appeal No.12/2005 Kirti Chand Dhadda Vs. Union of India & anr. Date of Order :: 19/01/2016 PRESENT HON'BLE MR. JUSTICE AJAY RASTOGI HON'BLE MR. JUSTICE J.K. RANKA Mr. Anant Kasliwal, Adv., for appellant Mr. Anuroop Singhi, Adv. with Mr. Sandeep Pathak, Adv. Mr. Saurabh Jain, Adv. & Mr. Hemant Sharma, Adv., for respondent. 1. Instant Income Tax Appeal u/Sec.260A of the Income Tax Act (for short, 'Act') is directed against the order dt.31/05/2004, passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (for short, 'Tribunal') and is relevant for the Assessment Year 1992-93. 2. The appeal was admitted by the Court vide order dated.31/01/2005 on the following substantial questions of law:- “1.Whether the ITAT was justified in having restored the order of the AO even though the ground raised in the Memo of Revenue's Appeal claimed a relief only to the extent of allowability of 80 HHC in respect of the interest income? 2.Whether the ITAT was justified in having taken the view that interest earned by the appellant from utilization of excess/idle funds was taxable as an income under the head 'Income from other

2 sources'.” 3. This case was one of the cases which was taken up by the Larger Bench of this Court in lead case of M/s Reliance Trading Corporation Vs. ITO, Jaipur : (2015) 376 ITR 53 (FB- Raj.) whereby all the questions were answered in favour of the Revenue and accordingly in the light of the Larger Bench judgment of this court referred to supra, the matter has been listed for answering the substantial questions of law raised in the instant case as aforesaid. 4. Brief facts noticed are that the appellant-assessee claims that it derives income from the business of manufacturing and trading of precious and semi-precious stones including exports and also derives income from property and other sources. A return declaring loss of Rs.41,093/- was filed by the assessee. The assessee also claimed deduction u/Sec. 80-HHC of the Act on an amount of Rs.3,24,177/-. It was also claimed that the interest received by the assessee from several debtors had a regularity of transaction and was in the nature of business income and therefore, deduction u/Sec. 80-HHC is also required to be allowed on the said interest received. However, the Assessing Officer (for short, 'AO'), after analyzing the material on record, was of the view that the interest received on advance to various persons (debtors) had no direct nexus with the business of export and these were idle funds lying

3 with the assessee which was advanced to various persons which was not immediately needed in the business and accordingly held that it is income from other sources. 5. The matter travelled before the Commissioner of Income Tax (for short, 'CIT(A)') who was pleased to allow claim of the assessee that it had large number of transactions and it was continuous activity and thus held that it is in the nature of business income. 6. The Revenue preferred appeal before the Tribunal who reversed the finding of the CIT(A) taking into consideration the judgment rendered by this Court in the case of Murli Investment Co. Ltd. Vs. CIT :(1987) 167 ITR 368; CIT Vs. Rajasthan Land Development Corporation :(1995) 211 ITR 597 (Raj.) and other judgments, and came to the conclusion that it is nothing else except that the idle funds were lying which has been advanced to various concerns and it had no direct nexus with the export business. 7. Ld. counsel for the appellant contended that there was a regularity of the transaction and even the AO as well as CIT(A) both have accepted that there were several innumerable transactions of receipt of income which was a continuous process, it had the character of business income and therefore, once it is business income, then deduction u/Sec. 80-HHC on the export activity including interest, the claim was well

4 justified and ought to have been allowed by the Tribunal. 8. Per-contra, ld. counsel for the respondent contended that Larger Bench of this Court in the case of Reliance Trading Corporation Vs. ITO (supra) and Division Bench of this Court in the case of CIT & ors. Vs. Vimal Chand Surana and ors., DB Income Tax Reference No.4/2003 and other connected cases, decided on 11/09/2015, has held that there is no nexus with the export activity and idle funds are in the nature of simple advance and does not partake character of business income and it is income from other sources and that thus the view of the Tribunal is well justified. 9. We have considered the arguments advanced by counsel for the parties and in our view, the issue is no more res-integra as the Larger Bench of this Court in the case of Reliance Trading Corporation Vs. ITO (supra) has answered the questions in favour of the Revenue. Consequent thereto this Court in the case of CIT & ors. Vs. Vimal Chand Surana and ors. (supra), had also gone into the issue at length and after considering the arguments raised by the counsel for the parties held that the deduction u/Sec. 80-HHC is not admissible on the interest earned by such exporters. It would be relevant to quote para 31 of the judgment (Vimal Chand Surana : supra) :- “The Larger Bench of this court has taken into consideration the judgment of CIT v. Shri Ram

5 Honda Power Equip (supra) which by and large has touched the controversy in hand and the said judgment of Delhi High Court has taken into consideration the fact about deduction under Section 80HHC of allowing a claim similar to the present controversy, and after examining the controversy has come to the conclusion that the issue has been considered taking into note the judgments rendered by the Hon'ble Apex Court in the case of Tuticorin Alkali 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 that deduction under Section 80HHC is not allowable, and in our view, the judgment of Shri Ram Honda Power Equip (supra), so also Rajasthan Land Development Corporation (Supra), Murli Investment Company (supra) and Avon Apparels (Supra), apply to the facts of the instant case with full force and we, after analysing the facts in the instant reference/appeals so also judgment of Larger Bench hold that interest received/earned does not enure for deduction under Section 80HHC.” 9. In the light of judgment of the Larger Bench of this Court in the case of Reliance Trading Corporation Vs. ITO (supra) and Division Bench of this Court in the case of CIT & ors. Vs. Vimal Chand Surana and ors. (supra), the question

6 involved in the instant appeal is answered against the assessee and in favour of the Revenue. 10. Consequently, the appeal, being devoid of merit, is hereby dismissed. No costs. (J.K. Ranka), J. (Ajay Rastogi), J. Raghu Certificate:All corrections made in the judgment/order have been incorporated in the judgment/order being e-mailed. Raghu, Sr. PA.