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2011 (9) TMI 468 - HC - Income TaxDeduction under 80HHC for Gross or Net Interest - Held That - In view of CIT vs V. Chinnapandi (2006 (1) TMI 65 - MADRAS High Court), 90 per cent of the interest that is deductible for the claim under section 80HHC of the Act is from the gross interest received by the assessee and that the amount of interest paid by the assessee should not be deducted therefrom. Decided against assessee. Loss of cigarette division while computing business profits from export - leather and cigarette are two independent business - Held That - In view of IPCA Laboratory (2004 (3) TMI 9 - SUPREME Court), when the assessee was exporting trading goods as well as the manufacturing goods, the loss suffered by the assessee in export of any one of the goods, cannot be ignored and it has to be taken into consideration while computing the profit for the purpose of deduction under Section 80HHC.
Issues Involved:
1. Whether only the net interest is to be taken into account for the purpose of 90% exclusion from business profits. 2. Whether the loss sustained by the Cigarette division is to be ignored while computing the business profits for the purpose of calculation of deduction under Section 80HHC. Issue-wise Detailed Analysis: 1. Net Interest for 90% Exclusion from Business Profits: The Tribunal held that only the net interest should be considered for the purpose of 90% exclusion from business profits. However, this issue had already been decided by a Division Bench of the Madras High Court in Commissioner of Income-Tax v. V. Chinnapandi (2006) 282 ITR 389 (Mad), which relied on the decisions in K.S. Subbiah Pillai and Co. (India) P. Ltd. v. CIT (2003) 260 ITR 304 (Mad) and Rani Paliwal v. Commissioner of Income Tax (2004) 268 ITR 220 (P&H). The Court observed that the receipt of interest is alone relevant for the purpose of deduction under Section 80HHC, and no expenditure or other deduction is permissible from the receipt of interest income. The intention of the Legislature was clear that there should be no attempt to deduct any expenditure from the receipts. Therefore, the Court concluded that 90% of the gross interest received by the assessee should be excluded for the claim under Section 80HHC. Based on this precedent, the substantial question of law regarding net interest was answered in favor of the Revenue and against the assessee. 2. Loss Sustained by the Cigarette Division: The Tribunal ruled that the loss from the Cigarette division should be ignored while computing the business profits for the purpose of Section 80HHC. The Revenue contended that the Tribunal should not have ignored the loss from the Cigarette division, as it would lead to anomalous results and that the Cigarette division, being part of the assessee's business, should be considered in the calculation. The Revenue relied on the Supreme Court decision in IPCA LABORATORY LTD. v. DEPUTY COMMISSIONER OF INCOME-TAX (266 ITR 521). The assessee argued that the leather and cigarette businesses were independent, and the loss in one should not affect the calculation of deduction for the other. The Tribunal supported this view based on the decision in Commissioner of Income Tax v. Madras Motors Ltd. 257 ITR 60 (Mad). However, the Court found that the relevant provisions of Section 80HHC, particularly sub-sections (1) and (3)(a) and (b), clearly indicate that if there is a loss, no deduction would be available. The profits must be calculated by considering both profits and losses, and if the net amount is positive, the deduction is allowed. Sub-section (3)(c) specifies that profits from exports must include both self-manufactured goods and trading goods, and any loss in either must be accounted for when computing profits. This interpretation was supported by the Supreme Court's ruling in IPCA Laboratory, which emphasized that losses in either self-manufactured or trading goods exports must be considered. Applying this principle, the Court concluded that the Tribunal erred in rejecting the Revenue's case. The concurrent findings of the Assessing Officer and the Commissioner of Income Tax (Appeal) were correct. Therefore, the substantial question of law regarding the loss sustained by the Cigarette division was answered in favor of the Revenue and against the assessee. Conclusion: Both substantial questions of law were answered in favor of the Revenue, and the Tax Case Appeals were allowed. No costs were awarded.
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