TaxTMI 
TaxTMI 
2019 (8) TMI 361
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....gross or net interest is excludable?" 3.The assessee is a firm engaged in the business of manufacture, sale and export of handloom towels and other items. The assessee filed its return of income for the assessment year under consideration (2004- 05), on 11.10.2004, declaring a total income of Rs. 1,67,29,196/-, which was processed under Section 143(1) of the Act, on 23.02.2005. The case was selected for scrutiny and after hearing the assessee's authorised representative, the assessment was finalized under Section 143(3) of the Act, on 27.12.2006, determining the total income at Rs. 3,01,57,640/-. 4.The assessee filed appeal before the Commissioner of Income-tax (Appeals)-I, Madurai (for brevity, "the CIT(A)"), contending that the Assessing Officer has included sales tax and excise duty as part of total turnover for the purposes of working out the eligible deduction under Section 80HHC of the Act contrary to the facts, as there was no such collection in the assessee's case. It was further contended that the Assessing Officer has excluded gross interest receipts assessed under the head "profits and gains of business" which has a nexus with the export activity and which has ....
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....g that interest income assessed as business income is to be excluded from the "profits and gains of business" for purposes of Section 80HHC and if so whether gross or net interest is excludable. 8.Before the Tribunal, the assessee contended that the interest earned bears direct nexus with the business of the assessee and it should be treated as business income. Further, only net interest is to be considered, since in the assessee's case, no interest was negative figure and no amount should be considered for exclusionary purpose. 9.The Tribunal applied the decision in the case of Dollar Apparels vs. ITO reported in [2007] 294 ITR 484 (Mad.) and held that interest on deposit is not entitled for special deduction under Section 80HHC, as it bears no nexus with the export earning. 10.Mr.R.Srinivasan, learned counsel appearing for the assessee contended that the Tribunal ought to have noted that since the deposit made with the bank is obligatory in terms of the certificate issued by the bank, the interest income has to be treated as a business income and the decision in the case of A.S.Nizar Ahmed & Co. (supra) ought to have been applied by the Tribunal. In support of his contenti....
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....he Central Bank of India to the assessee stating that they are advancing loans to the assessee for their export business and to ensure the safety of advances, the bank diverts some of the export sale proceeds on realisation towards Fixed Deposits in the name of the assessee being additional security for the loan as has been the practice right from the beginning. 15.The question would be as to whether this interest has any direct nexus to the business activity of the assessee, viz., exports. 16.In Bangalore Clothing Co. (supra), similar issue arose for consideration and the Court held that the Department cannot invoke Explanation (baa) in every matter involving receipts by way of brokerage, commission, interest, rent, labour charges, etc., and these items of income have to be seen in the context of the business activity of the assessee. It was pointed out that the Assessing Officer will have to ascertain whether the receipt of interest, commission, labour charges, etc., were a part of operational income. It was further pointed out that the Court cannot lay down any standard test for deciding what would constitute operational income and the Department will have to consider the memo....
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....he business of export of goods and merchandise, the assessee was earning foreign exchange our of that export and the disputed income is earned by the assessee for its fees towards development work and the developmental work is intimately connected with the business of manufacture and sale of goods by the assessee and there is immediate nexus between the activity of export and the developmental work. Thus, it was held that the Tribunal was justified in holding that the said consideration received for developmental work is not liable to be deduced under Clause (baa) in computing the profits of the business. 18.Similar view was taken in Aurobindo Pharma Ltd. (supra) by placing reliance on the decision in Bangalore Clothing Co. (supra). 19.In TTK LIG Ltd. (supra), it was held that the Tribunal was right in holding that exchange fluctuation, provision written back should be treated as income derived out of business for computation of deduction under Section 80HHC. 20.In Abdul Rahman Industries (supra), the substantial question of law, which fell for consideration was whether the assessee was entitled to deduction under Section 80HHC in respect of a sum being unclaimed balances writte....
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...., the question was whether the Tribunal was legally correct in holding that the claim for deduction in respect of income from Fixed Deposit Receipts (FDRs) was not substantial, despite contrary and consistent view having been expressed by the Bombay High Court in the cases of CIT vs. Paramount Premises (P.) Ltd., reported in [1991] 190 ITR 259 (Bom); and CIT vs. Nagpur Engg. Co. Ltd., reported in [2000] 245 ITR 806 against which, the Special Leave Petition of the Department was dismissed. 25.On perusing the judgment, we find the issue before the Tribunal in the said case was not as to whether the interest income received from the Fixed Deposits had any bearing on the business of the assessee. In any event, the appeal filed by the assessee was dismissed on the ground that there is no substantial question of law arising in the appeal. Therefore, this decision cannot be cited as a precedent by the Revenue. 26.The decision in the case of Rani Paliwal (supra) was followed in Liberty Footwear Co. (supra) and on facts, it was found that in the said case also, there is no contention placed before the Court as to whether the interest income had direct nexus with the business activity of ....