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2019 (8) TMI 361 - HC - Income TaxDeduction u/s 80HHC - whether 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 the gross or net interest is excludable? - HELD THAT:- The bank from which the assessee availed loans for their export business, in no uncertain terms had mentioned that from and out of the export sale proceeds, they (bank) would divert some of it upon realisation of the sale proceeds towards Fixed Deposits in the name of the assessee being additional security for the loans. Thus, it is seen that the conversion of a portion of the export sale proceeds on realisation as Fixed Deposits was not on the volition of the assessee, but by a unilateral act of the bank over which, the assessee had no control. Furthermore, the bank had made it explicitly clear that the Fixed Deposits are created for being treated as additional security for the loans availed by the assessee. The Revenue does not dispute the fact that the loans availed by the assessee was for their export business. In such circumstances, there can be no dispute to the fact that these receipts have a direct and immediate nexus to the activity of export done by the assessee and in such circumstances, the said income is not deductible from the said profits of business. The Revenue cannot dispute the immediate nexus between the activity of export and the creation of Fixed Deposits to be retained by the bank as additional security towards the loan availed for the export business. Fixed Deposits have been created by the bank themselves by carving out a portion of the export sale proceeds on realisation and retaining them as Fixed Deposits in the name of the assessee to be retained by the bank as additional security for the loan availed by the assessee for their export business. As mentioned earlier, the conversion of a portion of the sale proceeds as Fixed Deposits was done by the bank themselves and not on the volition of the assessee. Therefore, we are fully convinced that the transaction was connected and closely linked with the assessee's business activity. Tribunal erred in dismissing the assessee's appeal.
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