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2023 (4) TMI 901 - SCH - Income TaxComputation of deduction u/s 80-HHC - Deduction in respect of profits retained for export business - amendments made to Section 80-HHC(3) vide Finance (No. 2) Act, 1991, substituting sub-section (3) to Section 80-HHC of the 1961 Act and prescribing a different formula - HELD THAT - Computation of deduction u/s 80-HHC would be made as per clause (b) to sub-section (3) to Section 80-HHC of the 1961 Act, as it existed before substitution and amendment by Finance (No. 2) Act, 1991; Treatment/head of income from sale of shares - As for assessment year 1989-1990 for the purpose of Section 80-HHC(3) of the 1961 Act, income/profit earned from sale of shares would be included in the amount which bears to the profits of the business as computed under the head profits and gains of business or profession . The receipt/gross amount from sale of shares would be included in the total turnover; and Income by way of interest in the assessment years 1989- 1990, 1990-1991 and 1991-1992, being income taxable under the head income from other sources , would be compulsorily excluded for the purpose of computation of deduction under Section 80-HHC(3) of the 1961 Act.
Issues involved:
The judgment pertains to the computation of deduction under Section 80-HHC of the Income Tax Act, 1961 for assessment years 1989-1990, 1990-1991, and 1991-1992. Computation of deduction under Section 80-HHC: The Supreme Court held that the amendments made to Section 80-HHC(3) of the Income Tax Act, 1961, are applicable from 01.04.1992 and do not have a retrospective effect. The Court found that the impugned judgment of the Delhi High Court applying the substituted and amended provisions of Section 80-HHC(3) is unsustainable. The Court proceeded to decide the appeals on merits by applying the provisions of the 1961 Act as applicable to the assessment years in question. Treatment of income from sale of shares: The assessing officer had excluded income from the sale of shares while computing the deduction under Section 80-HHC. The Court accepted the plea that income from the sale of shares should be treated as 'income from business' for the purpose of computation under Section 80-HHC(3) of the 1961 Act. It was clarified that once included, the amount would also be included in the total turnover of the business. Treatment of interest income: The Court agreed with the Revenue that interest income should be taxed as 'income from other sources' and not as 'income from business'. It was held that interest income earned from surplus funds deposited to earn interest does not have a direct nexus with business activities and should be taxed separately. This reasoning was applied to the assessment years 1990-1991 and 1991-1992 as well. Judgment and directions: The Civil Appeals pertaining to the assessment years were partly allowed with specific directions: 1. Computation of deduction under Section 80-HHC to be made as per the provisions before the amendments. 2. Income/profit earned from the sale of shares to be included in the total turnover. 3. Interest income to be excluded from the computation of deduction under Section 80-HHC and taxed separately as 'income from other sources'. Pending applications were disposed of as per the judgment.
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