Interest income vs export profit deduction under s. 80HHC: excluded from "business profits" in export formula; appeal allowed.

Whether interest income could be included in "business profits" for computing export profits under s. 80HHC was the dominant issue. The HC held that where the Assessing Officer recorded a factual finding that interest was assessable as "income from other sources", it could not fall under "profits and gains of business" within ss. 28-44D and therefore could not enter the s. 80HHC formula; the appeal was allowed on this basis. The HC further held that even assuming the interest were "business income", it was still not includible in "business profits" for the s. 80HHC computation; the appeal was allowed, with no costs.

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Issues involved:
The classification of interest income as business income or income from other sources for the assessment year 1989-90, and its impact on the deduction under section 80HHC.

Judgment Details:

Assessment Year 1989-90:
- The assessee received Rs. 35,000 as interest on fixed deposits during this year.
- The Department treated the interest income as income from other sources, while the Tribunal included it in the business profits for the purpose of claiming deduction under section 80HHC.
- The court referred to previous cases where receipts unrelated to export activities were excluded from business profits calculations.
- The court highlighted the introduction of clause (baa) in the Explanation to section 80HHC from April 1, 1992, excluding receipts without nexus to export activities.
- Emphasized that interest income from fixed deposits cannot be considered as part of business profits.
- Reiterated that even before April 1, 1992, receipts lacking nexus with export activities should not be included in business profits calculations.
- The Assessing Officer found the interest income to be from other sources, which cannot be included in business profits under section 28 to section 44D of the Income-tax Act.
- The court held that the interest income, if considered business income, still could not be included in business profits.
- Ultimately, the appeal was allowed as the interest income was deemed taxable as income from other sources, not falling under profits and gains of business.

Conclusion:
The appeal was allowed with no costs, emphasizing that the interest income from fixed deposits could not be included in business profits for the assessment year 1989-90.

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