Bank interest not eligible for tax relief under section 80HHC

The court held that interest on deposits with a bank cannot be considered income derived from an industrial undertaking for tax relief under section 80HHC of the Income-tax Act. The court referred to precedent establishing that such interest is linked to the bank deposit, not the industrial activity. As the interest was included in the computation under the business profits, it was deemed derived from the export business, leading to the dismissal of the Revenue's appeal.

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Issues: Interpretation of section 80HHC of the Income-tax Act regarding treatment of interest on deposits as income derived from an industrial undertaking for tax relief.

Analysis:
The judgment pertains to an appeal against the order of the Income-tax Appellate Tribunal regarding the treatment of interest on deposits for tax relief under section 80HHC of the Income-tax Act, 1961. The assessee-company claimed a deduction under section 80HHC, including interest on deposits received from the State Bank of India. The Assessing Officer disallowed the deduction, leading to an appeal before the Commissioner of Income-tax (Appeals), who allowed the appeal and directed the re-computation of the deduction. Subsequently, the Department filed a further appeal before the Income-tax Appellate Tribunal, which was dismissed, resulting in the present appeal by the Revenue.

The core issue raised in the appeal was whether the interest on deposit with the State Bank of India should be considered as income derived from an industrial undertaking for the purpose of relief under section 80HHC. The court referred to a precedent in CIT v. N.S.C. Shoes [2002] 258 ITR 749 (Mad), where it was held that interest received on deposits cannot be regarded as income derived from the industrial undertaking but rather from the deposits made by the assessee with the bank. The court emphasized that the direct link is with the deposit in the bank, not the industrial undertaking.

Regarding section 80HHC, the court highlighted that sub-section (3) equated the profits derived from the export of goods with the profits of the business. Since the interest derived from bank deposits had been included in the computation and assessed under the head 'Profits and gains of business or profession,' it was deemed to be derived from the export conducted by the assessee. Consequently, the court applied this reasoning to the current case, answering the substantial question of law against the appellant/Revenue and dismissing the appeal accordingly.

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