Decided on January 19,2007



- (1.) FRAMED the following substantial question of law for determination : "Whether Tribunal was correct in law in holding that the interest amount of Rs. 65,03,390 earned by the assessee on FDRs was a business income and would qualify for relief under s. 80HHC of the Act - both parties framed an identical question of law, the only difference being that the interest amount for that year was Rs. 34,53,115. 3. We have heard the submissions of Ms. Prem Lata Bansal, senior standing counsel for the Department and Dr. S. Narayanan, advocate for the assessee. Dr. Narayanan's submissions on the issue of the nature of interest income have been noticed and dealt with in our detailed judgment in the batch of appeals, of which the present appeal forms part. We have negatived the plea of the assessee and held that interest earned on FDRs cannot be construed as business income. Therefore, the question that arises in this appeal should be answered in the negative and in favour of the Department.
(2.) HOWEVER , one other plea of Dr. Narayanan requires to be dealt with. This was on the principle of consistency. It is stated that the issue first arose in the asst. yr. 1990 -91, when in the absence of cl. (baa) the interest income could be claimed as business income. The CIT(A) had overruled the AO and held in favour of the assessee that this was "very closely connected with the export business." The Department had accepted this order and thereafter right upto asst. yr. 1996 -97 the income from the FDRs was treated as business income. However, in the asst. yr. 1997 -98 the (decision of) AO held that the interest income did not have nexus with the export business and could not be treated as business income. The CIT(A) reversed the AO and held that the past practice of allowing such interest as business income had to business income as the FDRs were made for the purpose of export business i.e. for overdraft facility and for obtaining export quota. Therefore such interest income had to be included in the profit of business under Expln. (baa) to s. 80HHC. For the asst. yr. 1998 -99 the AO once again held that interest income was not business income. This was upheld basis of the earlier orders of the Tribunal, on the principle of consistency. Dr. Narayanan has also handed over to us appeal and holding that the interest income from FDRs was business income. Thus for asst. yr. 1999 -2000 also the AO held against the assessee while the CIT(A) and the Tribunal have held in favour of the assessee.
(3.) WHILE the assessee may have a point on the issue of consistency, the change in the law brought about w.e.f. 1st interest income in the present cases should be treated as income from other sources for the purposes of s. 56 but also be allowable as deduction under Expln. (baa). That is not possible. As has been explained hereinabove, once a receipt is treated as income from other sources it goes out entirely from the ambit of s. 80HHC. In the facts of the present case, it must be held that the approach of the Department in the years previous to asst. yr. 1997 -98 was not in consonance with vs. Shri Ram Honda Power Equip. & Ors. (2007) 207 CTR (Del) 689 - -Ed.] of which these appeals formed part. We are of the view that, in the facts and circumstances of the present case, the AO was justified in taking a different view in the years 1997 -98 and 1998 -99. The Tribunal was therefore in error in allowing the deduction only on the principle of consistency. Allow both appeals with no orders as to costs. If appeal effect had already been given consequent upon the impugned order of the Tribunal, the concerned AO will now redetermine the s. 80HHC deduction in accordance with our judgment;

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