TaxTMI 
TaxTMI 
2011 (10) TMI 15
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....t received from FDR should not be reduced from the business income of the assessee for computing deduction under Section 80HHC? b) Whether the Ld. ITAT was correct in law in holding that the interest on FDR should not be reduced from the business profits since the interest income is not assessed by the assessing officer under the head „Income from other sources‟?" 2. The respondent-assessee is a company engaged in the business of manufacturing and sale of bulk drugs. It is also exporting drugs manufactured by them. 3. For the assessment year 2003-04, return of income declaring income of Rs.4,81,84,570/- was filed on 2nd December, 2003. The respondent-assessee had claimed deduction under Section 80HHC of t....
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....cepting the contention of the assessee has recorded as under:- "1. Interest on FDR: After examination of the documents filed by the assessee before me and as well as with the assessing officer I found that FDRs are purchased by assessee out of the borrowed fund and kept with Bank under security under their lien for the opening of letter of credit. Since the FDRs are purchased for business compulsion therefore, in view of various legal pronouncement made and has also referred by the assessee about the considered view that assessee should be allowed, Netting of the interest received and paid for computing the business profit. Since interest on borrowed fund is higher than interest received therefore, 90% of the gross interest ....
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.... of surplus funds, there should be no dif ficulty at all. In view of the large number of the decisions of the hon‟ble Supreme Court in the context of section 56 and section 57 and those of the Kerala High Court in the context of section 80HHC itself, we are unable to accept the contention of the assessees based on Snam Proghetti [1981] 132 ITR 70 (Delhi) that interest earned on parked surplus funds should qualify as business income. Clearly, Snam Proghetti [1981] 132 ITR 70 (Delhi) was not rendered in the context of section 80HHC and cannot but be confined to the facts of that case. Circular No. 564, dated July 5, 1990 (see [1990] 184 ITR (St.) 137), can also not help in interpreting section 80HHC which is a "stand alone" provision. W....
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....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. Question (a) and issue (i) are answered accordingly." 10. Thereafter, the Division Bench examined the question of netting of interest under Clause (bba) of the Explanation to Section 80HHC. Learned counsel for the Revenue is, therefore, right in his contention that interest income earned from the FDRs does not qualify for deduction under Section 80HHC of the Act, but has ignored the findings of the Division Bench in Shri Ram Honda Equip (supra) on the question of netting of interest....
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....r nature included in such profits ; and (c) profits of any branch, office, warehouse or any other establishment of the assessee situate outside India. (viii) The word "interest" in clause (baa) of the Explanation connotes "net interest" and not "gross interest". Therefore, in deducting such interest, the Assessing Officer will take into account the net interest i.e., gross interest as reduced by expenditure incurred for earning such interest. The decision of the Special Bench of the Income-tax Appellate Tribunal in Lalsons [2004] 89 ITD 25 (Delhi) to this effect is affirmed. In holding as above, we differ from the judgments of the Punjab and Haryana High Court in Rani Paliwal [2004] 268 ITR 220 and the Madras High Court in C....
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....f availing of credit facilities from the bank, it did not have such a nexus with the export business and therefore, had to be necessarily treated as income from other sources and not the business income. 8. Thus, insofar as earning of interest on fixed deposit is concerned, the determinative test is as to whether such interest has "immediate nexus" with the export business." 13. In the present case we are concerned with the situation where the Assessing Officer himself has treated interest earned on the FDRs, which were given to the bank as security to avail of the credit facility, as business income and exports. The Assessing Officer has himself held that the FDRs were used to avail the working capital limits. In the assess....