2017 (2) TMI 224 - HC - Income Tax

Interest on delayed payment not excluded for Section 80HHC deduction

The court held that the interest earned/charged by the assessee on delayed payment of sale consideration for 90 days should not be excluded for computing ... Interest charged /earned from purchasers for the period of 90 days on the delayed payment of sale consideration - whether can be said to be income from other sources and /or it can be said to have nexus with its business activities for which the assessee is allowable the deduction under Section 80HHC? - Held that:- Identical question came to be considered by the Division Bench of this Court in the case of Nirma Industries Ltd. Vs. Deputy Commissioner of Income-tax reported in [2006 (2) TMI 92 - GUJARAT High Court] wherein specifically observed and held by the Division Bench of this Court that such amount of interest received on late payment of sale consideration can be said to have been derived from business and the same is included in profits for the purpose of Section 80-I of the Income Tax Act, 1961 We are in complete agreement with the view that the interest earned /charged by the assessee on the delayed payment of sale consideration (for 90 days) is not required to be excluded for the purpose of computation of deduction under Section 80HHC of the Act. No substantial question of law arises in the present Tax Appeal. Issues:1. Whether finance charges should be excluded for computation of deduction under Section 80HHC of the Income Tax Act.2. Whether interest received for providing credit should be deducted for computation of deduction under Section 80HHC of the Income Tax Act.Analysis:1. The primary issue in this case revolves around the interest charged by the assessee on delayed payment of sale consideration by the purchaser for a period of 90 days. The Assessing Officer contended that this interest has no connection with the business activities and should be considered as income from other sources. The CIT(A) and the tribunal upheld this decision citing precedents. The revenue challenged this ruling, arguing that the interest earned does not relate to the business activities of the assessee. The advocate heavily relied on a specific case law to support this argument.2. The court delved into the question of whether the interest charged by the assessee on delayed payment of sale consideration can be classified as income from other sources or if it is linked to the business activities for which deduction under Section 80HHC of the Income Tax Act is permissible. The court referred to past judgments, notably a decision by a Division Bench regarding interest received on late payment of sale consideration. The court emphasized that the mere existence of a special provision by the assessee does not automatically establish a nexus with the business. The court differentiated this case from a Supreme Court decision involving deductions for purchasing material, asserting that the interest earned in this scenario should not be excluded for deduction under Section 80HHC.3. Ultimately, the court dismissed the appeal, concluding that the interest earned/charged by the assessee on delayed payment of sale consideration for 90 days should not be excluded for the purpose of computing the deduction under Section 80HHC of the Act. The court found no substantial question of law in the appeal and upheld the decision based on the precedent set by the Division Bench.