Section 80HHC computation permits business interest income in profits for earlier years; later exclusion clause applies prospectively.

For assessment year 1991-92, interest receipts assessed as business income could form part of the "profits of the business" for deduction under Section 80HHC, and they could not be excluded merely because the domestic activity had no export nexus. The statutory formula in Section 80HHC(3) had to be applied as it stood for the relevant year. Clause (baa) of the Explanation, which excludes receipts such as interest lacking a turnover element, operated only prospectively from assessment year 1992-93 and did not govern earlier years. The issue was answered in favour of the assessee and against the revenue.

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Issues: Whether, for assessment year 1991-92, interest receipts assessed as business income could be included in the "profits of the business" for computation of deduction under Section 80HHC without excluding domestic profits merely because the domestic activity had no nexus with export business.

Analysis: The deduction under Section 80HHC was to be computed on the statutory formula then in force. The later amendment introducing clause (baa) to the Explanation below Section 80HHC, which excludes receipts such as interest that do not have an element of turnover, operated only prospectively from assessment year 1992-93. For earlier years, it was not permissible to exclude interest receipts from the profits of the business merely because the source activity had no turnover or no export nexus. The formula prescribed by Section 80HHC(3) had to be applied as it stood for the relevant assessment year.

Conclusion: The question was answered in the affirmative, in favour of the assessee and against the revenue.

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