Court rules interest income not included in business profits for tax relief under Section 80HHC

The Court held that interest income received from customers, even if considered as business income, must be reduced from the profits of the business for calculating the relief under Section 80HHC of the Income Tax Act, 1961. The judgment favored the revenue, emphasizing that interest income, including that from delayed payments, should be excluded from the calculation of profits for claiming deductions under Section 80HHC. The decision clarified the treatment of interest income for deduction purposes, stressing the accurate computation of business profits for determining relief under the Act.

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Issues:
Interpretation of Section 80HHC for deduction of profits for export business based on interest income received from customers.

Analysis:
1. The appeal was filed by the revenue challenging the order passed by the Income Tax Appellate Tribunal regarding the deduction under Section 80HHC of the Income Tax Act, 1961 for the assessment year 1994-95. The main question was whether the gross amount of interest should be deducted while excluding 90% of interest income earned by the assessee except interest received from customers on account of late payment.

2. The Assessing Officer held that the interest income received by the assessee from customers should be reduced from the income for calculating relief under Section 80HHC. However, the assessee contended that only 90% of the net interest amount should be reduced from the profits eligible for the deduction under Section 80HHC. The CIT(A) upheld the view of the Assessing Officer.

3. The Tribunal sided with the assessee, citing the judgment of the Supreme Court in CIT v. Govinda Choudhury and Sons, (1993) 203 ITR 881, which stated that interest received from customers is considered income from business and not from other sources. The relevant provisions of Section 80HHC were analyzed to determine the profits derived from the export of goods or merchandise.

4. The Tribunal emphasized that the interest received from customers, even on delayed payments, is part of the business income and should be assessed as such. The profits of the business, as per the provisions of Section 80HHC, should be computed by excluding the interest component to adhere to the true intent of the law.

5. The Court concluded that the interest received from customers, even if considered as business income, must be reduced from the profits of the business for calculating the relief under Section 80HHC. The judgment favored the revenue, emphasizing that the interest income, including that from delayed payments, should be excluded from the calculation of profits for the purpose of claiming deductions under Section 80HHC.

6. In summary, the judgment clarified the treatment of interest income received from customers for the purpose of deduction under Section 80HHC, highlighting the importance of correctly computing the profits of the business to determine the relief admissible under the Income Tax Act, 1961.

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