9911796707
TMI Blog2005 (1) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... Sridhar, the learned counsel for the assessee submitted that the assessee has received interest income and it was included in the profit of the business for the purpose of computing eligible profit under section 80HHC. The learned counsel further submitted that the Assessing Officer excluded 90% of the gross interest while computing the eligible profit. According to the learned counsel, the assessee has also paid interest to the bank. Therefore, the interest paid by the assessee has to be deducted from the interest received. According to the learned counsel, the net interest will be a negative figure, therefore, there is no question of exclusion of any interest while computing the deduction under section 80HHC. The learned counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest paid on borrowed amount. We have also carefully gone through the order of the Special Bench of Delhi Benches of this Tribunal in the case of Lalsons Enterprises and also the judgment of the Madras High Court in the case of K.S. Subbiah Pillai Co. (India) (P.) Ltd. ( supra ). The Special Bench of this Tribunal, after considering the judgment of the Supreme Court in the case of CIT v. Dr. V.P. Gopinathan [2001] 248 ITR 449, held that the Supreme Court rejected the plea of the assessee for deducting the interest paid on the basis of the theory of real income. The Special Bench further observed that the principles of netting is not on the basis of theory of real income but on the basis of computation provisions relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest received, has alone to be excluded from the profit of the business. 6. Therefore, it is very clear that the payment of interest and receipt of interest should have a nexus. In other words, the assessee has to show that the payment of interest was an expenditure incurred for the purpose of earning the interest income. If such a nexus was shown and established, then the interest paid by the assessee has to be reduced from the interest received. In this case, such a nexus was not established by the assessee. If the assessee claims that the borrowed funds were utilized for the purpose of making deposit, and the assessee has to pay interest on the borrowed funds, then we may say that the assessee has to incur the expenditure of paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest received and computed under income from other sources. The learned counsel for the assessee made an attempt to distinguish this judgment on the ground that the interest income was classified as "business income" in the present case, therefore, it has to be set off against interest payment. We find that the submission of the learned counsel for the assessee is baseless. A similar issue arose before the Madras High Court in the case of South India Shipping Corporation Ltd. v. CIT [1999] 240 ITR 24 . The Madras High Court, after considering the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 , held that interest paid on overdraft obtained for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posit made with the bank was for the convenience and benefit of the assessee with a view to derive higher interest income. It was not a deposit made pursuant to any requirement imposed by the bank at the time of sanctioning of the facilities. The Bank s decision to extend the facilities was linked more to the business prospects of the assessee and the confidence the bank had in the integrity and entrepreneurial capacity of the partners of the firm who ran the business." 10. We have also carefully gone through the judgment of the Supreme Court in the case of Kamal Co-operative Sugar Mills Ltd. ( supra ). In the case before the Supreme Court, the assessee deposited money to open a letter of credit for the purpose of purchasing machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X
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