2001 (1) TMI 971

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....he incentive including Rs. 3,21,053 interest income from the profits of business for working out deductions under section 80HHC and directed to include Rs. 3,21,053 as part and parcel of total turnover for working out deduction under section 80HHC ignoring the provisions of law contained in Explanation (baa) to section 80HHC (4A)". 3. At the time of hearing before us, it is stated by the learned DR that the assessee is deriving income from export of Diamond. The assessee received interest of Rs. 3,21,043 and paid interest of Rs. 8,33,298. As per Explanation (baa) to section 80HHC, the profit of the business is to be reduced by 90% of income received by way of interest. Thus the profit of the business for the purpose of section 80HHC was ....

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....le while applying Explanation (baa), i.e., from interest received; interest paid is to be excluded and only 90% of net interest is to be reduced from the profit of the business. 5. We have carefully considered the arguments of both the sides and perused the material placed before us. 6. Section 80HHC(1) provides for deduction in respect of profits derived by the assessee from export of any goods or merchandise. Section 80HHC (3) provides various formulae for computation of profit derived from the export. Explanation to this section provides definitions of many words used in the section. Explanation (baa) which was inserted with effect from 1-4-1992 reads as under : "'profit of the business' means the profit of the business as compu....

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....fit. If we accept the contention of revenue that 90% of gross interest is to be considered ignoring interest payment, the words "included in such profit" would be redundant. Moreover if profit is computed as pleaded by learned DR it will give distorted picture of export profit. One example will make the position clear. The assessee borrowed the sum of Rs. 10 lakhs at the interest rate of 15% per annum. He advanced the said sum of Rs. 10 lakhs and earned interest at the rate of 20% per annum. Thus the receipt by way of interest income would be Rs. 2 lakhs and the assessee will be required to pay interest of Rs. 1.5 lakhs. The net interest income would be only Rs. 50,000 if the interpretation as suggested by the learned DR is accepted then th....

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....oney is utilised or giving advance on which interest is received, the transactions has the element of mutuality. Where assessee advances his own money and earns interest thereon; and borrowed money is utilised for other business purposes, interest received and interest payment has no mutuality and cannot be set off against each other. 8. Therefore, in our opinion it should be examined whether borrowed money is utilised for making advances on which interest is received. If so then interest paid on such borrowing should be reduced from interest received. The resultant amount would be net interest or interest which is included in profit and gains of business. 90% of such interest (i.e., net interest) is to be reduced from profit and gains o....