Law:

Section:

Section 80HHC of the Income-tax Act, 1961 - Deductions - Exporters - Assessment years 1989-90 and 1990-91 - Assessee, carrying on export business, had made deposits of a large sum with bank which had extended credit facilities to it - Deposits had not been made pursuant to any requirement imposed by bank at time of sanctioning credit facilities and interest charged by bank for such facilities was at a rate lower than one which assessee was receiving on its deposits - Whether making of deposit could be regarded as being inextricably linked to running of business of assessee so as to enable assessee to regard interest derived on deposit as being part of its business income - Held, no - Whether, therefore, interest income was to be excluded for purpose of calculating deduction under section 80HHC - Held, yes FACTS The assessee-firm was doing business in export of tanned and finished leather. It had obtained credit facilities from bank. The assessee had made deposits to the tune of Rs. 139.14 lakhs with same bank on which it received interest at the rate of 10 per cent. The assessee claimed that the interest received by it on those deposits should be treated as business income and should be included for the purpose of calculating deduction under section 80HHC. However, the assessee could not produce the letter from the bank indicating that making of deposits was a pre-condition for the assessee for enjoying those credits and other facilities from the bank. The assessee only produced a letter which stated that the investment in the fixed deposit was made at the instance of the bank. The Assessing Officer as well as the Commissioner (Appeals) did not attach any value to said letter and negatived the assessee's claim. However, the Tribunal took the view that said letter was sufficient to hold that the making of the deposit and the facilities enjoyed from the bank were inextricably linked and to provide relief under section 80HHC. On reference : HELD The view of the Tribunal could not be sustained. The Commissioner had rightly pointed out that the deposits kept by the assessee in the bank in a large sum of over Rs. 130 lakhs was to the assessee's own advantage,…

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