2010 (8) TMI 97 - HC - Income Tax

Deduction u/s 80HHC- While computing exports profits for the purpose of deduction u/s 80HHC, the assessee had not deducted 90% of interest receipt from business profits, pleading that there was no debit balance in the interest account after netting of the interest. The AO did not allow the netting of the interest. The court decided in favour of the department, against the assessee.

Summary

Issues:
1. Interpretation of Section 80HHC of the Income Tax Act, 1961 regarding deduction for export business.
2. Whether the benefit of netting interest is permissible for deduction under Section 80HHC.
3. Applicability of the judgment in Rani Paliwal v. CIT [2004] 268 ITR 220 (P&H) to the present case.

Analysis:

Issue 1: Interpretation of Section 80HHC of the Income Tax Act, 1961
The appellant, engaged in the export business of handloom products, claimed a deduction under Section 80HHC of the Income Tax Act. The dispute arose when the Assessing Officer disallowed the benefit of netting of interest claimed by the assessee. The CIT (A) supported the appellant's plea, but the Tribunal, following the precedent set by the High Court in Rani Paliwal v. CIT, ruled against the appellant, stating that the netting of interest was not related to export income. The Tribunal emphasized that 90% of the interest income should be deducted from the business profit for calculating the deduction under Section 80HHC.

Issue 2: Benefit of Netting Interest under Section 80HHC
The primary contention in the case was whether the benefit of netting interest is permissible for deduction under Section 80HHC. The Tribunal held that the appellant's explanation regarding the absence of a net debit balance in the interest account was not in line with the provisions of Section 80HHC. The Tribunal's decision was influenced by the judgment in Rani Paliwal's case, which established that 90% of the interest should be deducted from the gross interest received by the assessee for the purpose of calculating the deduction under Section 80HHC.

Issue 3: Applicability of Precedent
The appellant's counsel acknowledged that the judgment in Rani Paliwal's case, which was also followed in CIT v. Liberty Footwear Company, was unfavorable to the appellant's case. The Court concurred that the matter was settled against the appellant by the precedent set in Rani Paliwal's case and concluded that the proposed question did not amount to a substantial question of law. Consequently, the appeal was dismissed based on the established legal interpretation and precedent.

In summary, the judgment clarified the interpretation of Section 80HHC of the Income Tax Act, emphasizing the deduction methodology for export business income. It highlighted the inapplicability of netting interest for deduction purposes and underscored the significance of adhering to established legal precedents in determining tax liabilities related to export income.