TMI Blog2017 (5) TMI 1640X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal preferred by the assessee confirming the order of AO as well as CIT(A). 2. This Court while admitting the matter framed the following question of law:- 1. Whether on the facts and in the circumstances of the case, the ld. ITAT is justified in disallowing the deduction claimed under section 80HHC of the Act in respect of interest income forming part of profits of the business ? 3. Five questions were framed by the counsel for the appellant but considering the matter question No. 2 4 were reframed by the Court. 3. Counsel for the appellant Mr. Jhanwar has taken us to para 1 6 of the Tribunal which reads under:- 1. The assessee has questioned first appellate order on the ground that the ld. CIT (A) has erred in holding the action of the AO that the interest amounting to ₹ 3,90,832/- is chargeable to tax under the head Income from other source and would not qualify as export income for claiming deduction under Section 80HHC and in not giving any direction/finding on the netting off of interest receipt with the interest expenses. 6. After considering the arguments advanced by the parties in view of the orders of the lower authorities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act,1961 is to promote exports. Income earned by way of interest from fixed deposits or advance given on loan is not an income from exports, since as per the decision of Hon ble Supreme Court in the case of Pandian Chemicals ltd. vs. CIT(Supra), though the deposit may be required to be made as a collateral security for the purpose of export business but the deposit required for the business is a step removed from the export business and derivation of profits on such deposit or on advances made to the third party cannot be said to flow directly from the export business itself. We, thus, decide the Issue No.(1) under consideration in favour of the Revenue that interest earned on the deposits, FDRs or advances made to the third party is not a business income for the purpose of computation of deduction under section 80HHC of the Act. The AO is, thus, directed to treat and assess this income as income from other sources and not entitled for the purpose of computation of deduction under section 80HHC of the Act. So far as issue no.2 is concerned, the finding of the Tribunal in order dated 10.03.2006 (supra) has been given in para nos. 2.4 to 2.7 are reproduced here under for rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) can only be to the profits of the business computed under the head profits and gains of business or profession. The addition of the prefix the to profits in clause (baa) while referring to the profits and gains of business or profession makes it clear that it is only the amounts already included in that computation which are now to be reduced to the extent of 90 percent of those items that are included in sub-clause(1) of that definition. Interest paid and claimed as deduction in the computation of profits and gains of business, cannot be set off against interest received and computed under income from other sources . What has been said about interest is equally applicable to rent and commission included in the computation under the head Profits and gains of business or profession. 2.6 In the case of CIT vs. Dr. V.P. Gopinathan, 248 ITR 249 (SC), the assessee had put money in fixed deposit with a bank and had earned interest of ₹ 1,17,444/- on the security of the amount so deposited, the assessee took a loan from the bank and paid in respect of the loan interest of ₹ 90,410/-. The question was whether the assessee could be taxed only on the difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Deposits/FDRs or advances made to third party. In our view even if the FDRs are made as a compulsion of business in absence of which it was not possible to run the export business, the requirement of the provisions laid down under section 80HHC does not fulfill since as per the decision of Hon ble Supreme court in the case of Pandian Chemicals Ltd. Vs. CIT (supra) the expression derived from is required to be strictly followed because the intention of the legislature behind the same is to give a restricted meaning and not wider import, namely, attributable to . Thus when the income has not been derived immediately from the export in the present case because earning of interest on FDR is not the export business of the assessee, hence the interest earned on FDRs in the present case for the reason whatever may be cannot be treated as income from the business of export which is the foremost requirement of granting deduction under section 80HHC of the Act. Even in the case of P.R. Prabhakar vs. CIT (supra) relied upon by the ld. A/R, the issue was altogether different hence it is not helpful to the assessee. In that case before the Hon ble Supreme court, the issue was as to whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. vs. Commissioner of Income Tax, Central-IV, Mumbai reported in [2012] 343 ITR 89 (SC), more particularly in para 9, 10, 11 15 which reads as under:- 9. Explanation (baa) extracted above states that profits of the business means the profits of the business as computed under the head Profits and Gains of Business or Profession as reduced by the receipts of the nature mentioned in Clauses (1) and (2) of the Explanation (baa). Thus, profits of the business of an Assessee will have to be first computed under the head Profits and Gains of Business or Profession in accordance with provisions of Section 28 to 44D of the Act. In the computation of such profits of business, all receipts of income which are chargeable as profits and gains of business under Section 28 of the Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under Sections 30 to 44D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the Assessee computed under the head Profits and Gains of Business or Profession from w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the plain natural meaning of the words used by the legislature and so construed the words such income by way of dividends in Sub-section (1) of Section 80M must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. Similarly, Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head Profits and Gains of Business or Profession referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in Clause (1) of Explanation (baa) has not been included in the profits of business of an Assessee as computed under the head Profits and Gains of Business or Profession , ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Mr. Sanjay Jhanwar has relied upon para 40 of Full Bench decision of this Court in DB Income Tax Appeal No. 13/2002 which reads as under:- 40. In Commissioner of Income-Tax Vs. Shri Ram Honda Power Equip(supra), the Delhi High Court held that the word interest in clause (baa) of the Explanation to Section 80HHC of the Act, is indicative of net interest i.e. gross interest as reduced by expenditure incurred by the assessee in earning such interest. 11. Taking into consideration the provisions of Section 57(iii) and both the judgments of the High Court and the Hon ble Supreme Court, we are of the opinion that interest income, as reduced by the expenses incurred for the purpose of such income is required to be exclused or deducted for arriving at the figure of income u/s 80IB. 7. Counsel for the respondent Mr. Mathur relied upon the decision of this court in case of Dhadda Exports vs. ITO, Jaipur in Tax Appeal No. 62/2003 decided on 8th September, 2016 wherein this Court has decided the matter against the assessee by observing as under:- 4. He has also relied upon the decision of the Gujarat High Court in case of Deputy Commissioner of Income Tax (Asstt.) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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