2007 (1) TMI 543 - HC - Income Tax

Summary

Issues involved:
1. Interpretation of deduction under section 80HHC of the Income-tax Act regarding netting of interest paid and interest received.
2. Treatment of income from the sale of scrap in computation for deduction under section 80HHC.

Interpretation of deduction under section 80HHC:
The Assessing Officer treated interest income as business income but did not allow netting of interest, directing 90% of the interest income to be deducted from business profits. The CIT(A) allowed the appeal, stating the Assessing Officer erred in reducing 90% of the interest for computing deduction under section 80HHC. The ITAT appeal focused on the calculation of deduction under section 80HHC, with the Court emphasizing that netting should be allowed when interest income is treated as business income. The Court answered the first question affirmatively, in favor of the assessee.

Treatment of income from sale of scrap:
The Court upheld the ITAT's decision that income from the sale of scrap, generated during the manufacture of goods entirely exported, was not incidental to the export activity and thus could not be treated as business income. Consequently, this income was rightly excluded from the computation for deduction under section 80HHC. The second question was also answered affirmatively, against the revenue. The appeal was dismissed with no costs awarded.