2006 (6) TMI 89 - HC - Income Tax

Computing deduction under section 80HHC - Whether, Tribunal was right in holding that interest and other income was includible under the head Profits and gains of business and were to be taken into consideration for computing deduction under section 80HHC of the Income-tax Act, 1961? held that Tribunal was wrong in giving the benefit under section 80HHC of the Act, and in computing the income earned as interest for the purpose of computing deduction under section 80HHC

Summary

Issues:
Interpretation of Section 80HHC of the Income-tax Act, 1961 regarding the inclusion of interest and other income under the head 'Profits and gains of business' for computing deduction.

Analysis:
The High Court judgment addressed the issue of whether interest and other income totaling Rs. 451.4 lakhs should be considered under the head 'Profits and gains of business' for calculating deduction under section 80HHC of the Income-tax Act, 1961. The Tribunal initially allowed the appeal of the assessee, including the interest and other income in question under the said head. However, the Revenue contested this decision, leading to the reference to the High Court.

The court examined the provisions of section 80HHC of the Act, emphasizing that the income to be computed under this section must be derived from the export of goods or merchandise. As the interest and other income in question were not derived from such export activities, the Tribunal's decision was deemed incorrect by the court. The court also cited judgments from other High Courts, including the Kerala High Court, to support this interpretation.

Furthermore, the court referred to a case involving reassortment charges received by an assessee from local parties in India, ruling that such income could not be included in business profits under section 80HHC of the Act. The court highlighted the importance of income being directly related to the export activity for eligibility under this provision.

The judgment also discussed a clarificatory amendment to section 80HHC, emphasizing that receipts like interest and commission, without a nexus to export activities, were excluded from business profits calculation. Various other judgments from different High Courts were cited to illustrate the principle that income must have a direct connection to the business activity to qualify for deduction under section 80HHC.

In conclusion, the High Court held that the Tribunal erred in granting the benefit under section 80HHC to the interest income of Rs. 451.40 lakhs, as it was not derived from export activities. The judgment favored the Revenue and ruled against the assessee based on the interpretation of the relevant provisions and precedents cited.