High Court confirms net interest inclusion for Section 80HHC deduction, following ACG Associated Capsules.

The High Court affirmed that net interest should be considered for computing deduction under Section 80HHC, aligning with the Supreme Court's precedent in ACG Associated Capsules (P.) Ltd. v. CIT. The Tribunal's decision, which upheld the netting of interest for Section 80HHC purposes, was upheld, rejecting the revenue's plea for modification. Consequently, the court ruled in favor of the assessee, dismissing both appeals and answering the substantial question of law against the revenue.

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Issues involved: Interpretation of net interest for computing deduction u/s 80HHC of the Income Tax Act, 1961.

Issue 1: Facts and findings of the case

The assessee, a private limited company involved in manufacturing and export of textile products, received interest income on fixed deposits during the assessment year. The Assessing Officer reduced 90% of the interest income under Clause (baa) of Explanation to Section 80HHC. The CIT(A) and Tribunal had differing views on the treatment of interest income for deduction under Section 80HHC.

Issue 2: Legal interpretation

The main issue revolved around whether net interest should be considered for computing deduction under Section 80HHC. The Hon'ble Supreme Court in ACG Associated Capsules (P.) Ltd. v. CIT clarified that only the net interest included in the profits of the business should be deducted for determining the profits of the business under Section 80HHC.

Issue 3: Tribunal's decision

The Tribunal, in its order, acknowledged the net interest earned by the assessee and directed the Assessing Officer to follow the decision in Lalsons Enterprises case, upholding the netting of interest for explanation (baa) purposes under Section 80HHC. The Tribunal rejected the revenue's miscellaneous application seeking modification of the order, affirming that net interest should be considered for deduction under Section 80HHC.

Conclusion:

The High Court upheld the Tribunal's decision, stating that the net interest should be taken into consideration for computing deduction under Section 80HHC, in line with the Supreme Court's ruling. Consequently, the substantial question of law was answered against the revenue and in favor of the assessee, leading to the dismissal of both appeals.

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