The assessee, a housing finance institution, claimed deduction under section 36(1)(viii) at 40 per cent. of income from its housing finance business, including interest from residential loans of tenure less than five years, from non-residential unit loans, and from temporary deployment of surplus funds, which claims were partly denied by the Revenue; exemption was also claimed under section 10(33) for dividend income, restricted by the AO on the ground that related expenses exceeded the dividend earned; and the CIT(A) directed application of section 14A to tax-exempt interest on tax-free bonds. On appeal, the Tribunal held that interest income from residential loans of tenure less than five years, being from the assessee’s core business of long-term housing finance and not from any other business activity, could not be excluded while computing the deduction under section 36(1)(viii); that interest from loans for non-residential purposes, not being an integral part of residential financing, was rightly held ineligible for the deduction; that income earned from surplus funds temporarily parked in approved Government securities, arising from the time gap between mobilisation and disbursement of housing loans, had a direct nexus with the core business and was “derived from” it, and was accordingly eligible for deduction, with recomputation directed; that since the assessee had own funds exceeding investments yielding dividend income, no interest cost was to be adjusted against such dividend income, though administrative expenditure was to be reallocated based on the ratio of exempt-income-yielding investments to total average assets; and that since own funds exceeded the investment in tax-free bonds, no disallowance under section 14A was warranted. (AY.  1998-99)