Section 80-IA deduction denied for refund and deposit interest, while depreciation on terminal rights was allowed at the prescribed rate.

Interest on income-tax refunds and fixed deposits was held not to qualify for deduction under section 80-IA because profits must be "derived from" the eligible business and require a direct, first-degree nexus; such interest had an independent source and the deduction claim was rejected. Terminal rights were treated as an intangible asset, and depreciation was allowed at the prescribed rate of 25% rather than being amortised over the licence period, so the disallowance was deleted.

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Issues: (i) Whether interest income from income-tax refund and fixed deposits with banks was eligible for deduction under section 80-IA; (ii) Whether depreciation on terminal rights was to be allowed at the prescribed rate of 25% or amortised over the licence period.

Issue (i): Whether interest income from income-tax refund and fixed deposits with banks was eligible for deduction under section 80-IA.

Analysis: Deduction under section 80-IA is confined to profits and gains derived from the eligible business. The expression "derived from" is narrower than "attributable to" and requires a direct, first-degree nexus with the business. Interest on income-tax refund arose from statutory entitlement on excess tax payment and not from the conduct of the eligible port business. Interest on fixed deposits arose from investments of surplus funds with banks and its immediate source was the deposits, not the undertaking.

Conclusion: The claim for deduction under section 80-IA on both items of interest income was rejected and the additions were sustained.

Issue (ii): Whether depreciation on terminal rights was to be allowed at the prescribed rate of 25% or amortised over the licence period.

Analysis: The terminal rights were treated as an intangible asset, and the issue was covered by the Tribunal's earlier view in the assessee's own case. Since the prescribed depreciation rate was applicable, the asset could not be compulsorily spread over the full licence period for depreciation purposes.

Conclusion: Depreciation was held allowable at 25% and the disallowance was deleted.

Final Conclusion: The appeal succeeded only on the depreciation issue, while the claims for deduction on interest income failed.

Ratio Decidendi: For section 80-IA, only income having a direct and immediate nexus with the eligible business qualifies as profits "derived from" that business, whereas interest earned from tax refunds or bank deposits retains an independent source and does not qualify.

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