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TMI Blog2011 (11) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... refer to the factual matrix in detail in view of the limited controversy and as the issue is already settled by the decision of this Court in Commissioner of Income Tax Vs. Shriram Honda Power Equip (2007) 289 ITR 475 (Del). The appellant-assessee is entitled to deduction under Section 80HHC of the Income Tax Act, 1961 (Act, for short) and the question involved pertains to computation of the said deduction. 3. The assessee had earned interest on fixed deposit receipts (FDRs). These FDRs were placed with the banks and loans were raised for the purpose of export business. The question raised is whether interest on these loans can be included and were part of the total income, which is eligible for deduction under Section 80HHC of the Act. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of section 56 and section 57 and those of the Kerala High Court in the context of section 80HHC itself, we are unable to accept the contention of the assessees based on Snam Proghetti [1981] 132 ITR 70 (Delhi) that interest earned on parked surplus funds should qualify as business income. Clearly, Snam Proghetti [1981] 132 ITR 70 (Delhi) was not rendered in the context of section 80HHC and cannot but be confined to the facts of that case. Circular No. 564, dated July 5, 1990 (see [1990] 184 ITR (St.) 137), can also not help in interpreting section 80HHC which is a 'stand alone' provision. We are, therefore, of the view that where surplus funds are parked with the bank and interest is earned thereon it can only be categorised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness and therefore has to necessarily be treated as income from other sources and not business income. Question (a) and issue (i) are answered accordingly." 5. It is accordingly held that interest on the FDRs cannot be treated as business income, which is entitled to be taken into account for purposes of computing deduction under Section 80HHC. 6. In the same decision the High Court had also examined the Clause (bba) to the Explanation to Section 80HHC and decided the question of netting of interest and it was held that the word 'interest' in Clause (bba) connotes net interest and not gross interest. It has been held in Shri Ram Honda Power Equip (supra): (v) Interest earned on fixed deposits for the purposes of availing of credit fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Tribunal in Lalsons [2004] 89 ITD 25 (Delhi) to this effect is affirmed. In holding as above, we differ from the judgments of the Punjab and Haryana High Court in Rani Paliwal [2004] 268 ITR 220 and the Madras High Court in Chinnapandi [2006] 282 ITR 389 and affirm the ruling of the Special Bench of the Income-tax Appellate Tribunal in Lalsons [2004] 89 ITD 25 (Delhi). (ix) Where, as a result of the computation of profits and gains of business and profession, the Assessing Officer treats the interest receipt as business income, then deduction should be permissible, in terms of Explanation (baa) of the net interest, i.e., the gross interest less the expenditure incurred for the purposes of earning such interest. The nexus between obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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