Law:

Section:

Section 80HHC of the Income-tax Act, 1961 - Deductions - Exporters - Assessment year 1994-95 - Whether even if interest received by assessee from its customer on account of delay in payment is assessed as business income, it is to be reduced therefrom for purpose of calculation of profits of business to calculate relief admissible under section 80HHC - Held, yes FACTS The assessee received interest from its customers on delayed payment of dues. The Assessing Officer held that said interest income was liable to be reduced from income for calculating relief under section 80HHC. The assessee contended that only 90 per cent of the net amount of interest could be reduced from the profits eligible for calculating relief under section 80HHC. The Assessing Officer, however, rejected the assessee's contention and reduced 90 per cent of gross interest received by the assessee from its customers from the profits eligible for deduction under section 80HHC. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On second appeal, the Tribunal held that interest received from the customers was income from business and not income from other sources. HELD In view of the provisions of section 80HHC, the assessee is entitled to deduction to the extent of profits derived from export. Explanation (baa) appended to sub-section (4) of section 80HHC defines the term 'profits of the business' as profits and gains of business or profession reduced, inter alia, by 90 per cent of sum referred to in clauses (iiia ), (iiib), (iiic), (iiid) and (iiie) of section 28 or receipts of brokerage, commission, interest, rent charges or any other receipt of similar nature included in such profits. [Para 5] Clause (baa) of Explanation talks of procedure, as to how profits of business are to be computed. It provides that in case, incomes of the kind including interest are included in the profits of business, 90 per cent thereof shall be reduced therefrom. It does not make any distinction between the interest earned from source 'A' or source 'B'. Interest, from wherever it is earned, retains the character of interest. Be it an interest from the customer on delayed payment of…

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