Interest income from fixed deposits not business income, disallowed deduction under section 80HHC. Appeal allowed.

The High Court found that the interest income from fixed deposits was not business income, leading to a negative ruling on the deduction of interest paid and received under section 80HHC of the Income-tax Act. The Court set aside the ITAT's decision and directed the matter to be reassessed by the Assessing Officer. Consequently, the appeal was allowed in favor of the revenue.

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Issues involved: Interpretation of provisions u/s 80HHC of the Income-tax Act regarding deduction of interest paid and received, classification of interest income as business income or income from other sources.

Interpretation of provisions u/s 80HHC:
The High Court admitted the appeal and framed questions of law regarding the correctness of the ITAT's decision on reducing interest paid from interest received for deduction u/s 80HHC. The Court found that the ITAT erred by not first determining if the interest income was business income. It was held that the interest received on fixed deposits was not business income, leading to a negative answer to questions (a) and (c) in favor of the revenue.

Classification of interest income:
The Court determined that the interest received on FDRs, pledged for obtaining loans, was not business income. This decision influenced the answers to the questions raised regarding the deduction under section 80HHC. The Court set aside the ITAT's order and directed the matter to be sent back to the Assessing Officer for recomputing the deductions if the appeal effect had already been given to the ITAT's order. The appeal was allowed accordingly.

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