TMI Blog2007 (10) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... nswered against the assessee in view of the categorical pronouncement in Shri Ram Honda Power Equip. s case that interest earned on FDRs kept for availing credit facilities is not business income but income from other sources. The decision in Punjab Stainless Steel Ind. s [ 2007 (1) TMI 543 - DELHI HIGH COURT] case where the AO had held the interest income to be business income and which finding was not challenged is, therefore, of no assistance to the assessee. Also, in view of the finding by the AO in the instant case that there is no nexus between the interest paid and the interest earned by the assessee, the second question will also have to be answered against the assessee. Thus, the question of law as re-framed by us, is answ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the orders in the present matter and hearing submissions of counsel, we find that the question ought to be re-formulated in the following manner: Whether the Income-tax Appellate Tribunal was justified in declining to entertain the rectification application and consequently the assessee s contention that it is entitled to reduce the interest paid by it from the interest received by it, while calculating deduction under section 80HHC(3A) read with Explanation (baa) of the Income-tax Act, 1961? 2. The facts relevant for the present appeal are that for the assessment year 1993-94 the assessee, which is in the business of exporting carpets, filed a return on 12-10-1993 showing an income of ₹ 12,04,030. Later on 3-9-1995 the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixed deposits, there was no correlation between the loan taken by the assessee from the bank and the fixed deposits kept with the bank. Accordingly the Assessing Officer directed that the amount of ₹ 8,50,858 constituting the interest received on FDRs should be deducted from the profits and gains of the business in terms of Explanation (baa)(1) to sub-section (4A) of section 80HHC. 5. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) [ CIT(A) ]. The CIT(A) by his order dated 18-3-1997 held that since interest was paid and received from the same bank, the net amount of the two transactions has to be considered while computing business income under sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o succeed. Since according to him the Assessing Officer had held that the interest income was business income, netting had to follow. 9. We are unable to accept the submission made on behalf of the assessee. We find that the decision of the Special Bench of the Tribunal in Lalsons Enterprises case (supra) as explained and modified by this Court in Shri Ram Honda Power Equip. s case (supra) does not help the assessee at all. We may recall what was said in the said decision: ....we entirely agree with the following formulation of the Special Bench of the Tribunal in Lalsons (ITD, p. 62): If the interest received is found to have a nexus with the business, still it remains to be excluded from the profits of the business by virtue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing for the purposes of section 80HHC. (v)Interest earned on fixed deposits for the purposes of availing of credit facilities from the bank, does not have an immediate nexus with the export business and, therefore, has to necessarily be treated as income from other sources and not business income. (vi)and (vii) xxxxxxxxxxxx (viii)The word interest in clause (baa) of the Explanation connotes net interest and not gross interest . Therefore, in deducting such interest, the Assessing Officer will take into account the net interest i.e., gross interest as reduced by expenditure incurred for earning such interest. The decision of the Special Bench of the Income-tax Appellate Tribunal in Lalsons Enterprises to this effect is affirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest paid on the credit facilities availed from the Bank and the interest earned on the FDRs kept with the Bank. Nowhere in the assessment order has the Assessing Officer found that the interest earned by the assessee was business income. Therefore, the first question stands answered against the assessee in view of the categorical pronouncement in Shri Ram Honda Power Equip. s case that interest earned on FDRs kept for availing credit facilities is not business income but income from other sources. The decision in Punjab Stainless Steel Ind. s case where the Assessing Officer had held the interest income to be business income and which finding was not challenged is, therefore, of no assistance to the assessee. Also, in view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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