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2014 (7) TMI 13 - HC - Income TaxDeduction u/s 80HHC Interest income - interest was earned from the EEFC account - assessee contended that the amount of interest is pending the utilization of the Account for the purpose of export - Held that - The proceeds of the EEFC account are to be utilized for bona fide payments by the account holder subject to the limits and the conditions prescribed. It is in these circumstances, that the interest which had arisen as a result of the deposits maintained in the EEFC account, cannot be regarded as representing the business income of the assessee. The business of the assessee consists of manufacture and export of garments. The interest income which was generated from the deposits held in the EEFC account would not fall for classification as income under the head of business and profession but would fall for classification as income from other sources - Decision in the case of Shah Originals 2010 (4) TMI 216 - BOMBAY HIGH COURT followed Decided against assessee.
Issues:
- Appeal against order of Income Tax Appellate Tribunal dated 29th July, 2011 in Income Tax Appeal No.7523/MUM/2007 for the assessment year 1997-98. - Claim of deduction under section 80HHC of the Income Tax Act, 1961 denied erroneously. - Conflict between views taken by Division Benches in different cases. - Applicability of interest earned from Export Earner Foreign Currency Account for deduction under section 80HHC. - Interpretation of interest income in the context of business activity. - Classification of interest income from EEFC account as business income or income from other sources. Analysis: 1. The appellant, engaged in manufacturing, trading, and export of pharmaceutical items, claimed deduction under section 80HHC of the Income Tax Act, 1961. The contention was that the deduction had been denied erroneously based on conflicting views of Division Benches in different cases, specifically referring to Commissioner of Income Tax V/s. Shah Originals and Commissioner of Income Tax V/s. Bangalore Clothing Co. 2. The primary issue revolved around the interest earned by the assessee from the Export Earner Foreign Currency Account (EEFC account). The appellant argued that the interest earned should qualify for deduction under section 80HHC. However, the Tribunal and authorities held that the interest earned from the EEFC account, while pending utilization, did not constitute income derived from export and therefore was not eligible for the claimed deduction. 3. The court analyzed the conflicting views of the Division Benches in the cases of Bangalore Clothing and Shah Originals. It was observed that the interest income from the EEFC account, generated for the purpose of meeting import obligations from export realizations, did not qualify as business income but rather fell under income from other sources. The judgment in Shah Originals, applied to the present case, clarified the classification of such interest income. 4. The court concluded that there was no conflict in the views of the Division Benches and emphasized that the eligibility for deduction under section 80HHC must be considered in the context of the business activity of the assessee. The judgment highlighted the distinction between income derived directly from business operations and income generated from sources outside the core business activities. 5. Ultimately, the court dismissed the appeal, stating that the interest earned from the EEFC account did not meet the criteria for deduction under section 80HHC as it did not represent business income but rather income from other sources. The decision was based on the specific circumstances and nature of the interest income in relation to the business operations of the assessee.
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