Interest income from banks and deposits deemed business income for Section 80HHC deduction

The Court upheld the decision of the ITAT, ruling that the interest income earned from banks and intercorporate deposits should be considered as business income for the purpose of deduction under Section 80HHC. The Court found that the income was part of the Assessee's business activity and not related to export activities, thus affirming the taxation of interest income as business income. The appeal challenging this taxation was dismissed, with the Court emphasizing that the lower authorities' findings were based on evidence and in accordance with relevant legal provisions.

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Issues:
Challenge to judgment and order of ITAT regarding taxation of interest income as business income for deduction under Section 80HHC.

Analysis:
1. The Assessee filed a return of income declaring an amount after set off of unabsorbed investment allowance. The Assessing Officer assessed interest income as income from other sources and included miscellaneous income, dispatch income, and insurance claim in total turnover for computing deductions under Section 80HHC.

2. The CIT(A) allowed the appeal directing the Assessing Officer to assess interest from banks as business income and exclude a certain sum from total turnover. The ITAT dismissed the Department's appeal, holding the interest income as earned from business activity and taxable as business income. The substantial question of law raised was whether the interest received from banks and intercorporate deposits was business income for Section 80HHC deduction.

3. The Appellant argued that the interest income should not be considered business income as it was not related to export activities. Citing precedent, the Appellant contended that interest income from fixed deposits should not be included in business profit. The Respondent, however, supported the impugned orders, highlighting that the activity of earning interest on deposits was a business activity.

4. The Court found that the activity of earning interest on deposits was part of the Assessee's business activity, thus the income earned was rightly taxed as business income. The Court held that the findings of the lower authorities were based on evidence and not perverse, citing relevant legal provisions and judgments to support the decision.

5. The Court distinguished previous judgments where income was not related to business activities, emphasizing that in the present case, the interest income was part of operational income and assessed under business profits. Referring to a Division Bench judgment, the Court upheld the decision that interest income could not be excluded from business profits for Section 80HHC deduction.

6. Ultimately, the Court dismissed the appeal, finding no merit in challenging the taxation of interest income as business income for the purpose of deduction under Section 80HHC. No costs were awarded in the matter.

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