2011 (10) TMI 371 - HC - Income Tax

Exclusion of interest income for calculating the deduction u/s.80HHC interest income earned on deposits made with bank to avail credit facilities export business assessee contending that deposit is a condition precedent to availment of credit facilities and unless the credit facilities are availed, the assessee cannot carry on business as exporters assessee treating interest income under the head business Held that - Letters of banks produced do not show that they relate to the particular A.Y. and the amount was deposited out of compulsion and mandatory. In such view of the matter, the plea made by assessee that the matter may be remanded to the Assessing Authority cannot be accepted - Substantial questions of law is answered against the Assessee.

Summary

Issues:
1. Whether interest income should be excluded for calculating the deduction u/s.80HHC of the Income Tax Act, 1961?
2. Whether the interest income should be assessed under the head "Profits & Gains of Business and Profession"?

Issue 1:
The appeals related to the assessment years 1990-91 and 1991-92, focusing on whether interest income should be excluded for the purpose of calculating the deduction under Section 80HHC of the Income Tax Act, 1961. The Assessing Authority initially accepted the interest as business income, but later rejected it based on Section 80HHC(3), which specifies that profits derived from exports must be considered as profits and gains of business profession. The Tribunal, citing various judgments, ruled that interest income should be computed as other sources, leading to the rejection of the deduction claimed under Section 80HHC.

Issue 2:
The crucial question was whether the interest income derived from a deposit with a bank should be treated as "business income" or "from other sources." The appellant argued that the deposit and interest were essential for conducting business, supported by letters from the bank emphasizing the necessity of maintaining the deposit to avail credit facilities. However, the respondent contended that there was no evidence to prove the compulsion behind the deposit. The court analyzed the letters provided by the appellant, noting that they did not specifically relate to the assessment years in question or establish the mandatory nature of the deposit for business operations. Consequently, the court upheld the Tribunal's decision, ruling in favor of the Revenue and dismissing the Tax Case Appeals.

This comprehensive analysis of the judgment delves into the issues raised, the arguments presented by both parties, the legal provisions applied, and the court's reasoning leading to the final decision.