Law:

Section:

Section 80HHC, read with section 28(i), of the Income-tax Act, 1961 - Deductions - Exporters - Assessment year 2001-02 - Whether interest earned by an exporter on fixed deposits kept by it with bank as margin money or security for bank guarantee in order to avail of credit facility for its export business has to be treated as 'income from other sources' and not as 'business income', inasmuch as it does not have an immediate nexus with export business - Held, yes - Whether, therefore, such interest income cannot be considered for computing deduction under section 80HHC - Held, yes Section 80HHC of the Income-tax Act, 1961 - Deductions - Exporters - Assessment year 2001-02 - Whether where assessee is a 100 per cent manufacturer and exporter eligible for deduction under section 80HHC and there is a loss in one activity and profit in other, then assessee would be entitled to benefit of provision of section 80HHC by netting result of two activities and while doing so, export incentives are also to be taken into consideration - Held, yes FACTS The assessee, a 100 per cent manufacturer/exporter of readymade garments, claimed deduction under section 80HHC. It had earned interest income from the FDRs kept as margin money or security for bank guarantee and claimed the same as business income for the purpose of deduction under section 80HHC. The Assessing Officer, however, was of the opinion that the interest income from FDRs was income from other sources and, therefore, could not be included while computing the deduction under section 80HHC. He also found that the profit from business, after deducting 90 per cent of duty drawbacks, was determined at negative figure and, therefore, the assessee was not entitled to deduction under section 80HHC. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On second appeal, the Tribunal set aside the order of the Assessing Officer holding that the interest received on FDRs partook the character of the business receipt and same could not be treated as 'income from other sources'. On appeal to the High Court : HELD Merely because the assessee is engaged in a business would not ipso facto mean that all…

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