- (1.) BENCH , Chandigarh, in ITA No. 563/Chd/2004, for the asst. yr. 1994 -95, proposing following substantial question of law : "Whether on the facts and circumstances of the case, the Hon'ble Tribunal was right in holding that for the purposes of deduction under s. 80HHC, gross amount of interest has to be deducted while excluding 90 per cent of interest income earned by the assessee except interest received from customers on account of late payment, which is to be considered as business income -
(2.) WITH the consent of learned counsel for the parties, we have taken the appeal for final disposal for determination of above referred substantial question of law.
(3.) THE AO held that income of interest received by the assessee from customers was liable to be reduced from income for calculating relief under s. 80HHC of the IT Act, 1961 (for short, 'the Act'). Stand of the assessee was that only 90 per cent of the net amount of interest could be reduced from the profits eligible for calculating relief under s. 80HHC of the Act. This plea was rejected and 90 per cent of gross interest received by the assessee from its customers was reduced from the profits eligible for deduction under s. 80HHC of the Act. This view was upheld by the CIT(A). The Tribunal accepted the plea of the assessee, following judgment of the Hon'ble Supreme Court in CIT vs. Govinda Choudhury & Sons (1994) 116 CTR (SC) 61 : (1993) 203 ITR 881 (SC), holding that interest received from the customers was income from business and not from other sources. Relevant provisions of s. 80HHC of the Act read as follows : "80HHC. Deduction in respect of profits retained form export business. - -(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise........ (3) For the purpose of sub -s. (1), - - (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) ** (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall, - - (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under cl. (a) or cl. (b) or cl. (c) of this sub -section shall be further increased by the amount which bears to ninety per cent of any sum referred to in cl. (iiia) (not being profits on sale of a licence acquired from any other person), and cls. (iiib) and (iiic) of s. 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation. - -.................... (4) The deduction under sub -s. (1) shall not be admissible unless the assessee furnishes in the prescribed form along with the return of income, the report of an accountant, as defined in the Explanation below sub -s. (2) of s. 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section. ** ** ** (b) 'export turnover' means the sale proceeds received in, or brought into India, by the assessee in convertible foreign exchange in accordance with cl. (a) of sub -s. (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962); (ba) 'total turnover' shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) : shall have effect as if it also excluded any sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28; (baa) '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 - - (1) ninety per cent of any sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India;" ;