25. JVS Exports vs. ACIT; [2019] 419 ITR 123
(Mad.) Date of order: 23rd July, 2019 A.Y.: 2004-05
Export – Deduction u/s 80HHC of ITA, 1961 –
Computation of profits for purposes of section 80HHC – Interest on fixed
deposit in bank – Bank had unilaterally converted part of export earnings to
fixed deposit for added security on loan – Interest includible in business
profits
The assessee is a
partnership firm engaged in the business of manufacture, sale and export of
handloom towels and other items. For the A.Y. 2004-05, the assessee had
included interest on fixed deposit in bank in the business profits for the
purpose of computation of deduction u/s 80HHC of the Income-tax Act, 1961. The
bank had unilaterally converted part of the export earnings to fixed deposit for
added security on loan. The AO excluded the interest on fixed deposits from
business profits for the purpose of computation of deduction u/s 80HHC.
The Tribunal upheld the order.
But the Madras High Court allowed the appeal filed
by the assessee and held as under:
‘i) The
material on record showed that the bank from which the assessee had availed of
loan for its export business, in no uncertain terms had mentioned that from and
out of the export sale proceeds, the bank would divert a part upon realisation
of the sale proceeds towards fixed deposits in the name of the assessee as
additional security for loans. Thus, the conversion of a portion of the export
sale proceeds on realisation, as fixed deposits, was not on the volition of the
assessee, but by a unilateral act of the bank over which the assessee had no
control. Furthermore, the bank had made it explicitly clear that the fixed deposits
were created for being treated as additional security for the loans availed by
the assessee.
ii) The
Department did not dispute the fact that the loans availed by the assessee were
for its export business. The interest income had to be included in computing
the profits and gains of business u/s 80HHC.’
