JUDGMENT [ENTITY], J.
1. [CASE NUMBER] relate to the asst. yr. 1991-92 which arises out of an order in [CASE NUMBER] and [CASE NUMBER], and [CASE NUMBER] relates to the asst. yr. 1992-93 which arises out of the order in [CASE NUMBER]. The issue involved in all these appeals is the same. Hence, we are disposing of these cases by a common judgment.
2. Assessee is engaged in the business of running a textile mill. For the year 1991-92, while claiming deduction under [SECTION], assessee included bank interest and interest on income-tax refund and commission received on sale of machinery and cotton canvassing under the head "business". Assessing authority did not agree with the claim and assessed all the items under the head "other sources". Aggrieved by the same, assessee preferred an appeal before the AAC and contended that interest received on deposit of surplus money earned during the course of business operation for short periods was business income and taxable under the head "business". With regard to interest on income-tax refunds, it was contended there was a direct business connection between the tax paid and profit and gains of business and the refund of such tax. Regarding commission receipts, assessee contended that the activity of procuring business by canvassing has been part of the business for the past several years and in the previous years the income was assessed under the head "income from business or profession".
3. CIT(A), [ENTITY], by order dt. 28th Sept., 1994 held that the various interest receipts should be assessed as income from "other sources". With regard to commission income, the CIT held that the activity of procuring business by canvassing has been part of the business and the income was assessed under the head "income from business or profession". Appellate authority, therefore, directed the AO to compute [SECTION] deduction by including the said amount under the head business income.
4. Aggrieved by the decision of the appellate authority, assessee (sic-Revenue) took up the matter before the Tribunal, Assessee contended that the various interest receipts fall under the head business income. With regard to commission receipts, Department also preferred appeal against the order of the CIT. Tribunal heard both the appeals and confirmed the order of the authorities below that interest accrued on bank deposits, refund of income-tax and other receipts should be assessed under the head "other sources". In the appeal filed by the Department, Tribunal reversed the order of the CIT and, held that the assessee is not entitled to deduction under [SECTION], Assessee has raised the following questions of law :
1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest received by the appellant aggregating to Rs. 6,62,338 was not eligible for computation of [SECTION] relief ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that the appellant is not entitled to deduction under [SECTION] on the commission receipts from the sale of machinery ?
3. Whether, there were materials to hold that interest income and commission received by the appellant cannot be taken into account for [SECTION] deduction?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in its interpretation of [SECTION] for the assessment year in question especially by relying on Sub-section (3)(a) and (b) of the [ACT] ?
Before examining the questions of law raised, we may extract the statutory provision for easy reference.
"80HHC. Deduction in respect of profits retained for export business. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise.
xxxxxx (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any export house or trading house in respect of which the export house or trading house has issued a certificate under the proviso to Sub-section (1), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of the profits derived by the assessee from the sale of goods or merchandise to the export house or trading house in respect of which the certificate has been issued by the export house or trading house.
(2)(a) This section applies to all goods or merchandise, other than those specified in Clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee other than the supporting manufacturer in convertible foreign exchange within a period of six months from the end of the previous year, or, where the Chief CIT or, CIT is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief CIT or CIT may allow in this behalf.
(b) This section does not apply to the following goods or merchandise, namely :
(i) mineral oil; and
(ii) minerals and ores (other than processed minerals and ores specified in the Twelfth Schedule) Explanation 1 : The sale proceeds referred to in Clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.
Explanation 2 : For the removal of doubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch office, warehouse or any other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch office, warehouse or establishment, then, such transfer shall be deemed to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in [SECTION] of the [ACT], shall, for the purposes of this section, be deemed to be the sale proceeds thereof.
xxxxxx (3) For the purposes of Sub-section (1)
(a) where the export out of India is of goods or merchandise (manufactured or processed by the assessee) the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee;
(b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export;
(c) where the export out of India is of goods or merchandise (manufactured or processed by the assessee) and of trading goods, the profits derived from such export shall,
(i) in respect of the goods or merchandise (manufactured or processed by the assessee) be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and
(ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods :
xxxxxx Explanation : For the purposes of this sub-section,
(a) 'adjusted export turnover' means the export turnover as reduced by the export turnover in respect of trading goods;
(b) 'adjusted profits of the business' means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in Clause (b) of Sub-section (3).
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(f) 'trading goods' means goods which are not manufactured or processed by the assessee.
xxxxxx (3A) For the purpose of Sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be (a) in a case whore the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more export house or trading houses, the profits of the business.
(b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more export houses or trading houses, the amount which bears to the profits of the business the same proportion as the turnover in respect of sale to the respective export house or trading house bears to the total turnover of the business carried on by the assessee.
xxxxxx (4) The deduction under Sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form along with the return of income, the report of an accountant, as defined in the Explanation below [SECTION], [SECTION], certifying that the deduction has been correctly claimed in accordance with the provisions of this section.
(4A) The deduction under Sub-section (1A) shall not be admissible unless the supporting manufacturer furnishes in the prescribed form along with his return of income,
(a) the report of an accountant, as defined in the Explanation below [SECTION], certifying that the deduction has been correctly claimed on the basis of the profits of the supporting manufacturer in respect of his sale of goods or merchandise to the export house or trading house; and
(b) a certificate from the export house or trading house containing such particulars, as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the export house or trading house has not claimed the deduction under this section :
Provided that the certificate specified in Clause (b) shall be duly certified by the auditor auditing the accounts of the export house or trading house under the provisions of this Act or under any other law.
Explanation. For the purposes of this section,
(a) 'convertible foreign exchange' means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the [ACT], and any rules made thereunder;
(aa) 'export out of India' shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the [ACT].
(b) 'export turnover' means the sale proceeds received in, or brought into India by the assessee in convertible foreign exchange in accordance with Clause (a) of Sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the [ACT].
(ba) 'total turnover' shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the [ACT] :
Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991 the expression total turnover shall have effect as if it also excluded any sum referred to in [SECTION].
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(c) 'Export house certificate' or 'trading house certificate' means a valid export house certificate or trading house certificate, as the case may be, issued by the Chief Controller of Imports and Exports, Government of India.
(d) 'supporting manufacturer' means a person being an Indian company or a person (other than a company) resident in India, manufacturing including proceeding goods or merchandise and selling such goods or merchandise to an export house or a trading house for the purposes of export."
From a reading of the above-mentioned provision, it is clear that deduction under [SECTION] in respect of profit is allowable only on profits derived by the assessee on the export of goods or merchandise. The expression "derived from" came up for consideration before the apex Court in [PRECEDENT], where the Court held that the expression "derived from" has to be given a restricted meaning whenever the legislature wanted to give the same. Reference was made to [SECTION] of the Act. In [PRECEDENT], the Karnataka High Court has held that the expression "derived from" has a definite, but narrow meaning and that it cannot receive a flexible or wider concept. This Court in [PRECEDENT] held that the profit or gain can be said to have been derived from an activity carried on by a person only if the activity is the immediate and effective source of the profit or gain. The Madras High Court in [PRECEDENT] held as follows :
"Profits or gains" eligible for deduction under [SECTION] of the [ACT], must be derived from the actual conduct of the business. The expression "derived from" should be given a restricted meaning and whenever the legislature wants to give a wider expression, the legislature employs the expression "attributable to", and the use of the expression "derived from" indicates that the profits or gains should be derived from the conduct of; the business. There is no justification to give the expression "derived from" a wider meaning to cover every receipt connected with the industrial undertaking. It is not all business receipts that would qualify for the deduction and the legislature has apparently not intended to give the benefit of deduction to all business income. If the intention of the legislature was to grant relief to all business income, it could have used the expression "profits and gains of industrial undertaking".
In [PRECEDENT] had occasion to consider the question whether receipts like rent, commission, etc. would fall within the expression "profit of the business" and whether labour charges found would be part of operational income. The Court held that they are not to be excluded under [SECTION] of the [ACT]. While holding so, the Court held that the test to be applied in all such matters is, whether interest, service charges, commission accrued out of the main business activity of the company and whether they were operational income. This Court in [PRECEDENT] held that the income earned by processing goods belonging to third persons is not part of the turnover for purpose of [SECTION] of the [ACT]. "The. Court held that in order that an amount must be included in the total turnover, it must either be the purchase price or the sale price or something incidental to the transfer of the goods dealt with by the assessee. In other words, the turnover must relate to the purchase or the sale of the goods made by the assessee. Analysing the above-mentioned decision, it is difficult to accept the contention of the assessee that interest accrued on bank deposit and interest received by the assessee would be profit derived out of the business.
5. Assessee submitted that the amount was kept in fixed deposit when funds were not readily required for regular business purposes. It was also contended that the assessee was under a business compulsion to keep funds out of the export business in bank account as margin money. We have already indicated that deduction is allowable only on the profit from the export of goods or merchandise. Interest accrued to the assessee on bank deposits is not profit derived from the export of goods or merchandise. Since immediate source of interest being the deposit and not the business, it cannot be considered as derived from the export business, making it eligible deduction under [SECTION].
6. We may now examine whether assessee is entitled to deduction under [SECTION] taking into account commission income under the head business. Assessee has received total amount of Rs. 2,38,812 as commission on sale of machinery and cotton. Assessee contended that the activity of procuring business by canvassing on behalf of Japan company was part of the business of the assessee. Further, it is also stated that such income was treated as business income in the previous years and there is no justification in treating such income as not relating to the business for the current year. We have already held that deduction is allowable only on profit derived from the export of specified goods or merchandise which has to be computed with reference to business income. We fail to see how the commission would constitute part of business income as petitioner has not accounted any turnover of sale of machinery for which commission is received. Unless and until commission amounts to business profit, assessee is not entitled to deduction under [SECTION] of the Act with reference to such income. Above being the legal position, we are inclined to answer all the questions in favour of the Revenue. We hold interest received by the assessee on fixed deposit, commission received on sale of machinery, etc. are not business income and consequently, assessee is not entitled to computation of eligible deduction under [SECTION] of the Act by including those receipts under business income. All the appeals would, therefore, stand dismissed.