2020 (3) TMI 51 - HC - Income Tax

Deduction of lease income and interest income under Section 80HHC - Whether lease income and interest income from loans and advances to the sister concerns will come in the domain of 'income from other sources'? - HELD THAT - Once it is accepted that the income from lease and interest income is income from other sources, there is no question of it being eligible under Section 80HHC of the Act. The provision deals with deductions in respect of profits retained for export business. The income earned from interest and lease money is not income under the head 'profits and gains of business or profession'. In the facts of the present case, there is no question of setting off/adjusting the interest on debit side and on the credit side of the profit and loss account. The interest paid by the assessee is directly linked with the business and would be dealt with while calculating the income from business or profession. The lease money and interest income is not income from the business, rather it is income from application of money which might have been earned from business or profession. In such circumstances, there would be no question of netting/setting off the interest paid vis-a-vis the interest received. The Tribunal rightly rejected the contention of the assessee. In the present case, the interest received and the lease money is not even includable in the profits and gains determined under the head profits and gains of business or profession . Appeal dismissed.

Summary

Issues:
1. Legality of order Annexures P-1, P-2, and P-3
2. Legality of addition of ?2,17,546 to total turnover declared
3. Legality of inclusion of interest and lease income in total turnover
4. Eligibility of interest and lease income for deduction under Section 80HHC

Issue 1: Legality of order Annexures P-1, P-2, and P-3
The appellant challenged the legality of the orders Annexures P-1, P-2, and P-3, questioning their sustainability. However, the counsel for the appellant did not press this issue during the proceedings.

Issue 2: Legality of addition of ?2,17,546 to total turnover declared
The appellant contested the addition of ?2,17,546 to the total turnover declared, arguing that it was based on presumptions and conjectures. The Tribunal had partially allowed the appeal, but the appellant sought further relief. The Tribunal's decision was based on verifying the income allegedly liable for inclusion, which the appellant claimed was not adequately done.

Issue 3: Legality of inclusion of interest and lease income in total turnover
The appellant questioned the legality of including interest income of ?21,97,071 and lease income of ?52,532 in the total turnover. The Tribunal had categorized these incomes under 'income from other sources' due to being derived from advances and deposits. The appellant sought to deduct these amounts under Section 80HHC of the Income Tax Act.

Issue 4: Eligibility of interest and lease income for deduction under Section 80HHC
The appellant argued that the interest and lease income should be considered for deduction under Section 80HHC after adjusting the interest received and paid. However, the court held that since this income falls under 'income from other sources,' it is not eligible for deduction under Section 80HHC, which specifically pertains to profits retained for export business. The court emphasized that interest and lease income do not fall under the category of 'profits and gains of business or profession,' and therefore, cannot be considered for the deduction.

In conclusion, the court dismissed the appeal, stating that the interest and lease income, being categorized as 'income from other sources,' cannot be eligible for deduction under Section 80HHC. The court highlighted that the interest paid by the appellant is directly linked to the business and should be considered while calculating income from business or profession. The court also clarified that the interest and lease income do not qualify as business income and, therefore, cannot be offset against each other for deduction purposes.