- (1.) All these appeals were admitted on the following questions of law:- "(1) Whether the assessee is entitled for deduction under section 80 HHC on interest income of Rs.1,76,930/- as per law as existing at the relevant assessment year (2) Whether the amendment in section 80 HHC, by way of insertion of sub-section (4B) excluding interest income for the purpose of deduction under section 80 HHC will affect the deduction of interest income under section 80 HHC for the period prior to amendment (3) In case the assessee is not earning income in convertible foreign exchange by way of an interest on the money advanced, even then, whether the assessee is eligible for deduction under section 80 HHC of the Act -
(2.) And vide order dated 21.07.2003, the appeals were referred to a Larger Bench for decision of the questions of law.
(3.) A Larger Bench after elaborate discussion, vide order dated 01.05.2015 has answered the questions of law as under:- "The question No.1 is, thus, answered in favour of the Revenue, and against the assessee. So far as question No.2 is concerned, on the aforesaid discussion, we are also of the view that the amendment in Section 80HHC, by way of insertion of sub-section (4B), excluding interest income for the purposes of deduction under Section 80HHC of the Act, will also affect the deduction of interest income under Section 80HHC of the Act, for the period prior to the amendment, inasmuch as the applicability of the principle of direct and proximate nexus to the business income, will apply both, to the provisions of the Act prior to, and after the amendment, which came into effect by the Finance Act, 1992, with effect from 01.04.1992. The question No.2, is thus decided in favour of the Revenue and against the assessee. On the question No.3, we hold that the earning of the income convertible from foreign exchange by way of interest, is not necessary so long as the interest is derived from business of export, and has direct and proximate nexus, with the income earned out of the profits retained for the export business. The earning of the income convertible from foreign exchange, is not a test for determining, as to whether deduction is allowable in respect of the income derived from the profits retained for export business. The question No.3, is also decided in favour of the Revenue and against the assessee.";