TaxTMI 
TaxTMI 
2010 (8) TMI 785
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.... fixed deposit receipts. The question that arose was as to whether it has to be taken into consideration while computing the benefit under section 80HHC of the Income-tax Act and netting of the interest is to be allowed by deducting the same from the interest paid by the assessee on certain guarantees made by him from banks. 5. Both the parties agree that the matter is covered by the judgment of this Court in CIT v. Shri Ram Honda Power Equip [2007] 289 ITR 4751 . It is the application of the legal principle laid down in the said case, to the facts of this case, on which there is an issue between the parties. 6. In Shri Ram Honda Power Equip's case (supra) after a detailed discussion on various aspects touching the interpretation of secti....
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....atment under section 56 of the Act which is outside the ring of profits and gains from business and profession. It goes entirely out of the reckoning for the purposes of section 80HHC. (v )Interest earned on fixed deposits for the purposes of availing of credit facilities from the bank, does not have an immediate nexus with the export business and therefore, has to necessarily be treated as income from other sources and not business income. (vi)Once business income has been determined by applying accounting standards as well as the provisions contained in the Act, the assessee would be permitted to, in terms of section 37 of the Act, claim as deduction, expenditure laid out for the purposes of earning such business income. (vii)In the se....
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....he interest receipt as business income, then deduction should be permissible, in terms of Explanation (baa) of the net interest, i.e., the gross interest less than expenditure incurred for the purposes of earning such interest. The nexus between obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from section 37, will require to be shown by the assessee for application of the netting principle." 7. A conjoint reading of conclusion Nos. 1, 4, 5 and 6 and particularly No. 5 would clearly demonstrate that only in those cases where interest earned on fixed deposits have an immediate nexus with the export business would be....
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....de. This quota is obtained from AEPC and AEPC sanctions the quota only when fixed deposit receipts are pledged with it in the form of a bank guarantee. It is because of the reason that the exporter is required to meet various conditions prescribed for allowing the quota. One of the conditions is to make actual exports to the extent of quota. If the exports are deficient then penalties can be imposed and to safeguard that, guarantees are obtained. Likewise, fixed deposit receipts on EEFC account also relate to the export. 10. It would, thus, be clear that furnishing of these fixed deposit receipts is an obligation, and is a pre-condition for obtaining export quota in the absence of which exports cannot be made. In such a scenario, the furni....