Court held that the amendments made to section 80HHC of the Income-tax Act, 1961 by the Finance (No. 2) Act, 1991, substituting sub-section (3) of section 80HHC and prescribing a different formula, are applicable with effect from April 1, 1992. The amendments do not have retrospective effect, that the judgment of the High Court applying the substituted and amended provisions of section 80HHC(3) was unsustainable.

Court also held that  for the AY. 1989-90 on the head under which income from sale of shares was taxable, which finding had attained finality, the income from sale of shares should be treated as “income from business” for computation of deduction under clause (b) of section 80HHC(3) of the Act. Once the income from sale of shares was included under the head “income from business”, the amount was also to be included in the total turnover of the business. Held that interest income should be taxed as “income from other sources”. The finding of the Commissioner (Appeals) that the surplus funds were “transitory surplus funds” and utilisation thereof for earning interest income could not take away its character as “business income”, was fallacious and wrong. The surplus funds, when deposited in a bank or otherwise to earn interest, were not taxable under the head “income from business”, but under the head “income from other sources”. This income did not have direct nexus nor was it earned by way of business activity. Accordingly, the interest income was not to be treated as “income from business” for computation of the deduction in terms of clause (b) of section 80HHC(3) of the Act. Followed  Prabhakar P. R  v. CIT  (2006)284 ITR 548 (SC)  (AY. 1989-90 to 1991-92)