2007 (5) TMI 174 - HC - Income Tax

Deduction u/s 80HHC Assessee claim deduction of 90% of the interest income is to be reduced for computing profits an gains of business for the purpose of deduction u/s 80HHC but rejected by HC on the ground that the interest income is not assessed under business income

Summary

Issues:
1. Interpretation of Section 80HHC of the Income Tax Act regarding deduction of interest income from the profit of business.
2. Treatment of interest income under different heads for computation of deduction under Section 80HHC.
3. Applicability of deduction of 90% of interest income for calculating deductions under Section 80HHC.

Issue 1: Interpretation of Section 80HHC:
The case involved a dispute regarding the interpretation of Section 80HHC of the Income Tax Act, specifically concerning the deduction of interest income from the profit of business. The appellant challenged the order of the Income Tax Appellate Tribunal, which had directed not to reduce 10% of the interest income from the profit of business for the purpose of computation of deduction under Section 80HHC.

Issue 2: Treatment of Interest Income:
The assessee, engaged in the business of manufacturing cotton, acrylic yarn, and textiles, had filed a return for the assessment year declaring income, including interest income. The dispute arose when the interest income was assessed under the head 'Income from Other Sources' instead of being considered part of the income of business and profession. The appellant contended that the interest income should be treated as business income for the purpose of computing deductions under Section 80HHC.

Issue 3: Applicability of 90% Deduction:
The Tribunal's decision was based on the interpretation of Section 80HHC, which requires a deduction of 90% of certain receipts, including interest income, from the profits and gains of the business for calculating deductions. The Tribunal held that since the interest income was not part of the income from business, there was no justification for reducing 10% of it from the profits for the purpose of deduction under Section 80HHC.

The Tribunal referred to precedents and relevant clauses of the Act to support its decision. The Court emphasized that any enabling provision for deduction presupposes the inclusion of the entire amount under the relevant head. The judgment highlighted a similar case where the Assessing Officer had treated interest income as part of business income, leading to a different outcome in terms of deduction calculation under Section 80HHC.

In conclusion, the Court ruled in favor of the revenue, stating that since the interest income was not part of the income from business, there was no basis for deducting 10% of it from the profits for calculating deductions under Section 80HHC. The judgment clarified the importance of correctly categorizing income under different heads for accurate computation of deductions under the Income Tax Act.