2004 (6) TMI 587 - AT - Income Tax

Deduction of interest income u/s 10B - Inclusion of sales tax refund - Export-oriented undertaking - Treatment of provision written back in the books of account - Eligibility of resale value of Special Import License - HELD THAT - The case of the assessee is that since the provision is written back in the accounts it has to be treated as business income and the assessee is eligible for deduction u/s 41(1). From the order of the first appellate authority it appears a remand report was called for from the Assessing Officer. It appears for the assessment years 1999-2000 and 2000-01 the assessee was allowed exemption u/s 10B fully which included the provision. Once the excess provision is withdrawn and admitted as income for the assessment year under consideration which will not automatically qualify for deduction u/s 10B. It may be an income derived in the respective assessment year after a provision was made. However for the purpose of claiming deduction u/s 10B the assessee should show that the profit was received from the export for the assessment year under consideration. In our view though by way of legal fiction the excess provision was treated as income u/s 41(1) of the Income-tax Act it cannot be treated as income derived from export. Therefore we do not find any infirmity in the order of the first appellate authority. Accordingly we confirm the same. Refund received by the assessee from sales tax authorities. As already discussed regarding the issue of excess provision the refund of sales tax may be a business income because of section 41(1) of the Income-tax Act. However it cannot be construed as income received from export of business or it would not form part of export turnover. Now coming to the special import license the assessee received this special import license because of the scheme framed by the Government of India to encourage the export business. It may be a business income because of section 28( iii ) of the Income-tax Act. For the purpose of claiming deduction under section 10B the income should be derived from export business and form part of export turnover. The immediate source for special import license may be the scheme framed by the Government of India and not the export. As held by the Madras High Court in the case of Menon Impex (P.) Ltd . 2002 (9) TMI 75 - MADRAS HIGH COURT the income should be derived from the export business. In view of the above we do not find any infirmity in the order of the first appellate authority. Accordingly we confirm the same. In the result both the appeals filed by the assessee stand dismissed.

Summary

Issues Involved:
1. Deduction of interest income u/s 10B.
2. Treatment of provision written back in the books of account.
3. Inclusion of sales tax refund for deduction u/s 10B.
4. Eligibility of resale value of Special Import License for deduction u/s 10B.

Summary:

1. Deduction of Interest Income u/s 10B:
The assessee claimed that interest income from bank deposits, made to obtain a guarantee for duty-free imports, should be treated as business income eligible for deduction u/s 10B. The Tribunal referred to the Madras High Court judgment in CIT v. Menon Impex (P.) Ltd. [2003] 259 ITR 403, which held that interest income from bank deposits does not have a direct nexus with the industrial undertaking and thus is not eligible for deduction u/s 10B. The Tribunal also considered the Supreme Court judgment in CIT v. Sterling Foods [1999] 237 ITR 579, reinforcing that the interest income does not qualify for deduction under the said section.

2. Treatment of Provision Written Back in the Books of Account:
The assessee argued that the reversal of excess provisions for incentives and bonuses should be treated as business income and eligible for deduction u/s 10B. The Tribunal noted that the provision was already allowed as an exemption in earlier years. Therefore, the excess provision written back cannot be treated as income derived from export for the current assessment year, and thus, it is not eligible for deduction u/s 10B.

3. Inclusion of Sales Tax Refund for Deduction u/s 10B:
The assessee contended that the sales tax refund should be included for computing relief u/s 10B. The Tribunal held that while the sales tax refund might be business income under section 41(1), it does not qualify as income derived from export business and thus is not eligible for deduction u/s 10B.

4. Eligibility of Resale Value of Special Import License for Deduction u/s 10B:
The assessee claimed that the resale value of the Special Import License should be included for deduction u/s 10B. The Tribunal referred to section 28(iii) and the judgment in Menon Impex (P.) Ltd., concluding that the income from the sale of the import license does not derive directly from export business and is not eligible for deduction u/s 10B.

Conclusion:
Both appeals filed by the assessee were dismissed, affirming that the interest income, provision written back, sales tax refund, and resale value of the Special Import License do not qualify for deduction u/s 10B.