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2007 (4) TMI 211 - HC - Income TaxExpenses incurred towards repairs, depreciation and salary paid to staff looking after the transit house indirectly - Whether is not allowable as deduction while computing the income from business solely because of the provision in section 37(4A) of the Income-tax Act, 1961? Dis allowance of relief under section 80HH of the Act on the whole of interest receipts of ₹ 3,11,86,442 without setting off the interest payments of ₹ 2,35,38,917 by ITAT Held that:- First question of law is no longer res integra as settled against the assessee by the hon'ble Supreme Court in the case of Britannia Industries Ltd. v. CIT [2005 (10) TMI 30 - SUPREME Court] 278 and in view of such determination, question No.1 need not be answered. Any interest earned by the assessee which has direct or immediate nexus with either manufacture or sale of its product has to be accepted to be an income which qualified as an income under section 80HH. Thus interest earned by the assessee from its customers for delayed payment and for bill discounting, such interest income does bear a direct and immediate nexus with the industrial undertaking of the assessee and therefore, interest earned from the customers, for delayed payment and bill discounting, are held to be income "derived" from the petitioners industrial undertaking and therefore, entitled for relief under section 80HH. Applying the provisions of Pandian Chemicals Ltd.[2003 (4) TMI 3 - SUPREME Court] it is of the view that interest earned by the assessee from the deposits made in bank and inter-corporate deposits, though attributable to the business of the assessee, is a step removed from the assessee's industrial undertaking and therefore, cannot be held to have been "derived from" the industrial undertaking in order to qualify for relief under section 80HH. Thus the interest earned by the assessee from the deposits with banks or intercorporate deposits (items Nos. 1 and 2) do not qualify for relief under section 80HH. The Income-tax Appellate Tribunal erred in disallowing relief under section 80HH of the Act in so far as interest received of ₹ 1,63,04,937 is concerned and the Tribunal also erred in disallowing "set off" of interest payment of ₹ 2,35,38,917 against interest income of ₹ 1,48,81,505. Appeal partly allowed.
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