1. The assessee is a company carrying on business of export. In the accounting year relevant to the assessment year 1977-78, the assessee received interest of Rs. 56,972 from the Government under Section 214 of the Income-tax Act, 1961 ('the Act'). The assessee credited this amount in profits and loss account and treated this amount as part of the business income of the relevant years. The ITO treated this amount as income from other sources. In appeal, the Commissioner (Appeals) directed the ITO to treat this amount as business income. The department has now come in appeal before us and the contention is that the said amount should be treated as income from other sources.
2. In support of the contention that the said income was income from other sources, the learned departmental representative has relied on the decision of the Madras High Court in Smt. B. Seshamma v. CIT  119 ITR 314. On the other hand, the learned counsel for the assessee has relied on the decision of the Punjab and Haryana High Court in R.B.Jodhamal Kuthiala v. CIT  83 ITR 464 and the decision of the Supreme Court in Donald Miranda v. CIT  42 ITR 166. The Commissioner (Appeals) has also relied on these two decisions.
3. We have considered the rival submissions. We find that decision of the Madras High Court in the case of Smt. B. Seshamma (supra) is a direct authority on the point that interest received under Section 214 is taxable under the head 'Income from other sources' and not under the head 'Profits and gains of business or profession'. The learned counsel for the assessee contended that the said decision should not be regarded as an authority for the proposition that head of income under which interest under Section 214 should be brought, is 'Income from other sources' but should be regarded as authority only for the limited proposition that interest received under Section 214 is a taxable income. We do not agree with this contention. It is true that the High Court in the said case first considered the question whether the amount represented chargeable income. However, in order to decide whether it was taxable income, it had also to decide under what head it fell and the decision was that it was income from other sources and not business income. This is what the Court observed-- ...The interest paid [by the Government] under Section 214 of the Act being a statutory obligation with respect to an amount found refundable, we have to hold that though it may not be an income arising from an activity, business or investment, it would come under the head 'Other sources'. The interest is not paid as personal compensation, but it is paid for deprivation of the use of the money....
From this observation, it is clear that what has been held in the said case is that receipt of interest does not arise out of activity concerning business or investment; it arises out of the deprivation suffered by the assessee of the use of the money and as such, the amount represents 'Income from other sources' and not business income.
4. As regards the nature of payment of advance tax and nature of refund, the observations of the High Court in the said case are instructive. It is stated therein that advance income-tax is paid in respect of income chargeable to tax and as such, the liability to pay advance income-tax is with reference to income chargeable to tax. The excess amount found refundable on assessment cannot be said to be paid as tax or collected as tax; it may be said to be paid or collected by way of tax. Hence, when in the assessment, it is found that excess amount is not referable to any income chargeable to tax, the said excess amount could not be said to be tax paid and its refund could not be said to be remission or rebate in tax. In these circumstances, the interest paid on excess refunded has no connection with the business and the receipt is not a business receipt.
5. It is pertinent to note that the income-tax is not an admissible deduction in the computation of the profits and gains of the business.
Hence, when interest is received on refund of excess of income-tax paid, the same cannot be treated as business receipt.
6. The decisions on which the learned Counsel for the assessee has relied, are distinguishable. In the case of R.B. Jodhamal Kuthiala (supra), the Punjab and Haryana High Court held that interest on refundable excess profits tax was income from business. There is material difference in the nature of excess profits tax liability under the Excess Profits Tax Act, 1940, and the income-tax liability under the 1961 Act. Under Section 4 of the Excess Profits Tax Act, the levy was on the business; it was laid down therein that "there shall, in respect of any business to which this Act applies, be charged, levied and paid...a tax". Under the Income-tax Act, the levy of the tax is not in respect of any business but on chargeable income. Secondly, under Section 12 of the Excess Profits Tax Act, the tax was an allowable deduction for computation of the profits, while the income-tax under the 1961 Act is not an allowable deduction. In these circumstances, the payment of excess profits tax constituted business expenses, with the result that when the excess was refunded with interest, the whole amount was a business receipt. In the case of income-tax under the 1961 Act, the refund of the excess does not constitute a business receipt and as such, the interest imbedded in the refund also would not constitute business receipt. As already stated, the interest represents compensation received for deprivation of the use of the money which had not been laid out for business purposes. The advance income-tax is to be paid by the assessee who derives income from sources other than the business and receipt of refund of excess amount of tax together with interest would be income in their case also but not necessarily referable to those sources. In the same way, the receipt of interest under Section 214 in the present case would not be referable to the business of the assessee.
7. The other decision, viz., the case of Donald Miranda (supra), is also in respect of interest on refund of excess profits tax and for the reasons already given, the said decision would not be applicable. Thus, the principle laid down in the decisions cited by the learned Counsel for the assessee does not apply to the facts of the present case.
8. For the reasons already given, we hold that the interest of Rs. 56,972 received by the assessee under Section 214 was chargeable under the head 'Income from other sources' and not under the head 'Profits and gains of business or profession'. We, accordingly, set aside the order of the Commissioner (Appeals) and restore that of the ITO on this point.