2006 (7) TMI 151 - HC - Income Tax

Deduction under section 80HHC - Whether Tribunal was correct in law in directing the Assessing Officer to allow netting in interest for computing deduction under section 80HHC of the Income-tax Act? - held that it is the gross interest received by the assessee which is to be considered in terms of Explanation (baa) to section 80HHC of the Act and not the net interest for the purpose of arriving at the profits of the business.

Summary

Issues:
1. Interpretation of Explanation (baa) to subsection (4C) of section 80HHC of the Income-tax Act for computing deduction.

Analysis:
The judgment pertains to an appeal by the Revenue against an order passed by the Income-tax Appellate Tribunal, New Delhi, regarding the computation of deduction under section 80HHC of the Income-tax Act for the assessment year 1992-93. The substantial question of law raised was whether netting in interest should be allowed for computing the deduction. The court proceeded with the case in the absence of the respondent and considered the issue as it had already opined on a similar matter in a previous case. The primary issue was whether 90% of the gross interest received should be reduced from the profits of the business or the net interest as per Explanation (baa) to subsection (4C) of section 80HHC of the Act.

The court analyzed the relevant Explanation which defines "profits of the business" and includes the reduction of 90% of certain receipts, including interest, from the profits. The court highlighted that the provision refers to "receipts by way of interest," indicating that it is the amount of interest shown in the receipt side without provisions for netting interest by deducting interest paid. Referring to a previous case, the court emphasized that gross interest should be considered for reducing 90% thereof to arrive at the profit of the business, as per the statutory provision. Despite the Tribunal's decision against the assessee in a previous case, the court ruled in favor of the assessee in the present appeal, emphasizing the significance of considering gross interest for calculation under the provision.

The court noted that even after a rectification application by the Revenue was rejected by the Tribunal, the judgment of the court in a previous case should have been considered. The court held that it is the gross interest received by the assessee that should be taken into account for determining the profits of the business under Explanation (baa) to section 80HHC of the Act, not the net interest. Consequently, the appeal was allowed, and the Tribunal's order was set aside, affirming the calculation based on gross interest for deduction under the provision.