By TIOL News Service

AHMEDABAD, FEB 08, 2017: THE ISSUE IS - Whether interest charged by assessee on delayed payment of sale consideration is required to be excluded for purpose of computation of deduction u/s 80HHC. NO is the verdict.

Facts of the case:

The assessee during the subject year had charged interest on delayed payment of sale consideration by the purchaser. The AO held that the interest charged by the assessee for a period of 90 days on the delayed payment of sale consideration had no nexus with the business activities, and therefore, had no nexus with the profit of assessee. Accordingly, the same was included as income on other sources and not as business income.

On appeal, the HC held that,

++ the question, which is posed for the consideration of this Court is, whether the interest charged /earned by the assessee from its purchasers for the period of 90 days on the delayed payment of sale consideration can be said to be income from other sources and /or it can be said to have nexus with its business activities for which the assessee is allowable the deduction u/s 80HHC. As such, identical question came to be considered by the Division Bench of this Court in the case of Nirma Industries Ltd. Vs. Deputy CIT, wherein it was held that such amount of interest received on late payment of sale consideration can be said to have been derived from business and the same is included in profits for the purpose of Section 80-I. The submissions on behalf of the revenue that as in the present case as the special provision has been made by the assessee with respect to the interest charged /earned for a period of 90 days from the purchaser on delayed payment of sale consideration, and therefore, the same cannot be stated to have any nexus with the business is concerned, it is required to be noted that merely because some special provision is made by the assessee, it cannot be said that interest earned on late payment of sale consideration would be the amount derived from business. Therefore, the interest earned /charged by the assessee on the delayed payment of sale consideration is not required to be excluded for the purpose of computation of deduction u/s 80HHC.

(See 2017-TIOL-261-HC-AHM-IT)