JUDGMENT R.M. Lodha, J.
1. This appeal is at the instance of the Revenue and raises the following substantial question of law:
Whether the findings of the Income-tax Appellate Tribunal that the interest income received by the assessee is in the nature of business income and deduction under Sections 80HH and 80-I are available to the assessee is justifiable in law?
2. The facts in brief that have given rise to the aforesaid substantial question of law may be noticed first.
3. Respondent No. 1 (for short, "the assessee"), is a company engaged in the business of manufacturing of industrial jewels. For the assessment year 1990-91, the assessee filed its return and disclosed an income of Rs. 24,53,870 after claiming deduction under Sections 80HH and 80-I of the Income-tax Act. The return filed by the assessee was processed and selected for scrutiny. It was found in the scrutiny that the assessee had earned interest income of Rs. 7,07,711 during the relevant year. The explanation submitted by the assessee that short-term deposits were made in order to utilise funds being beneficial to the company was not accepted by the Assessing Officer as in the opinion of the Assessing Officer, the assessee had surplus funds which were invested in various companies and the interest was earned thereon. The Assessing Officer in the assessment order held that even though the deposits were for a short period, they were renewed from time to time or they were withdrawn and reinvested in other companies. On December 28, 1992, the Assessing Officer passed the assessment order and treated the interest income of Rs. 7,07,711 in the previous year as income from other sources. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals) against the assessment order on the ground that the interest received by the assessee in the sum of Rs. 7,07,711 was in the nature of business income and that deduction under Sections 80HH and 80I was available to the assessee. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal by order dated February 26, 1993 and treated the interest income in the sum of Rs. 7,07,711 as business income and directed the Assessing Officer that the deduction under Sections 80HH and 80I be allowed to the assessee. The order of the Commissioner of Income-tax (Appeals) came to be challenged before the Income-tax Tribunal. By its order dated October 11, 2001, the Income-tax Appellate Tribunal, dismissed the appeal giving rise to the present appeal.
4. The particulars of the income earned by way of interest for the year ending on March 31, 1990, are thus:
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Vr. ref. Particulars Amount
and date Rs.
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(1) (2) (3)
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B222/2.6.89 Interest on inter-corporate deposit with M/s. Hin- 61,667
dustan Co. Ltd.
B273/3.7.89 Interest at 18.25% received on inter-corporate 91,250
deposit with M/s. Gujarat Steel Ltd.
B516/2.9.89 19% interest for 3 months on Rs. 5,00,000 received 23,750
from Photophone Konica Square
B650/17.10.89 Interest on deposit with Photofantacy 10,410
B983/10.1.90 C.B. Development Corporation-interest on deposit 46,250
B999/16.1.90 Neem Timber interest on deposits 46,260
B1032/27.1.90 Electrosales interest on deposits 1,38,750
B1058/31.1.90 Kamat Real Estates interest on short-term deposit 33,333
B1188/1/3.90 Pushpa Corporation Bombay-interest on deposits 1,44,375
B1241/20.3.90 18% Interest on deposit with Pushpa Corporation 11,493
B1276/30.3.90 Interest on short-term deposit with M/s. Kamat 33,333
Real Estate
J49/31.3.90 Interest on deposit with M/s. Electrosales Poona 66,840
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Total 7,07,711
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5. The explanation and the evidence furnished by the assessee were that the assessee was to import machinery and for which orders were already placed, the funds were kept apart from surplus for this purpose. Since the order for machinery was placed outside India, the money had to be kept ready for meeting the demand whenever the shipments arrived. While so awaiting supplies, the funds kept apart for payment were put in inter-corporate deposits so that they could earn more income. At that time the bank deposits carried interest of 11 per cent, per annum, whereas the assessee received 18 per cent, interest from the companies where the inter-corporate deposits were kept.
6. Though the Assessing Officer did not accept the explanation of the assessee, the appellate authority in the facts of the case and in the light of the material placed by the assessee on record, was satisfied that the funds were kept by the assessee in the various companies for short-terms for payment for imported machinery. In this connection the appellate authority held that the balance-sheet for the next year also showed that all these deposits were withdrawn and paid for the machinery. The appellate authority was satisfied with the explanation put forth by the assessee. The Tribunal did not find any error in the approach of the appellate authority. That the machinery was in fact imported by the assessee is not in question. From the facts and circumstances of the present case it is clear that the inter-corporate deposits were made by the assessee from the surplus funds that were set apart for the payment of imported machinery. That the said deposits were withdrawn and payment was made towards import of the machinery is also not questioned by the Revenue. The interest earned on the short-term deposits of the money kept apart for the purpose of business has to be treated as income earned on business and cannot be treated as income from other sources.
7. We, accordingly, answer the question in favour of the assessee and against the Revenue. The tax appeal is dismissed. Since the assessee has chosen not to appear, no order as to costs.