2009 (6) TMI 677 - AT - Income Tax

Deduction u/s 10A - export proceeds - convertible foreign exchange within six months of the date of invoice - relayed receipt of realization of computer software export - HELD THAT - The Regulation by itself not only speaks of this deeming date of export, but also mention, various periods for realization of export value of goods or software as 12 and 15 months. In fact, there is no mention of any six months in such regulation and this only clearly implies that Regulation 9 was only for the purpose of Foreign Exchange Management and not for the purpose of application of tax provisions. It is clear from paper book page No. 21 that on account of half yearly closing of accounts, there was no conduct of normal business in banks on 30-9-2004. There is also no dispute that sum as received on 1-10-2004 by the assessee, as clear from the certificate of M/s. J.P. Morgan dated 8-5-2007 (placed at paper book page 19). The period of six months from the end of the previous year comes to 30-9-2009. Application of General Clauses Act when a date prescribed is a holiday has been succinctly summarized by Hon ble Kerala High Court in the decision of Kerala State Industrial Development Corpn. Ltd. v. Addl. CIT 2006 (10) TMI 91 - KERALA HIGH COURT . Therefore, remittance received by the assessee on 1-10-2004 has to be deemed as received within six months period from the end of the relevant previous year. Therefore, insofar as the sum as received above has to be allowed. However, the balance amount which was received on 26-11-2004 would not be eligible for the purpose of computing deduction u/s 10A. Ground partly assessee is allowed. Treating the interest from fixed deposit and interest on staff loan as income falling under the head Profits and gains from business or profession eligible for deduction under section 10A - HELD THAT - The Hon ble Delhi High Court in the case of Eltek SGS (P.) Ltd. 2008 (2) TMI 17 - DELHI HIGH COURT has held that the term derived by an undertaking from export of articles or things or computer software used in section 10A was neither as broad as attributable to nor as narrow as derived from . Though section 80HHC used the term derived from , Hon ble jurisdictional High Court in the case of Punit Commercial Ltd. 2000 (8) TMI 71 - BOMBAY HIGH COURT held that the whole of the business income was eligible for deduction u/s 80HHC. Further to this, we also find that Hon ble jurisdictional High Court in the case of Lok Holding 2008 (1) TMI 365 - BOMBAY HIGH COURT has clearly held that if surpluses were deposited by the assessee out of its business proceeds, interest therefrom could only be considered as part of profits and gains of business of the assessee. Therefore, we are inclined to allow the claim of the assessee for treating the interest from fixed deposit and interest on staff loan as income falling under the head Profits and gains from business or profession eligible for deduction u/s 10A. As far as the contention of the learned DR that section 10A was an exemption provision whereas section 80HHC is a deduction provision, we find that section 10A as substituted by Finance Act, 2000, with effect from 1-4-2000 clearly mentions it to be a deduction from profits and gains derived by an undertaking from export of articles or things or computer software. Therefore, it cannot be deemed as an exemption provision for the impugned assessment year. Ground No. 2 of the assessee is, therefore, partly allowed.

Issues Involved:
1. Non-consideration of export proceeds amounting to Rs. 53,62,637 while computing deduction under section 10A of the Income-tax Act, 1961.
2. Classification of interest amounts totaling Rs. 11,60,652 as 'income from other sources' instead of 'profits and gains from business or profession.'

Detailed Analysis:

Issue 1: Non-consideration of Export Proceeds
Facts:
The assessee, a company engaged in the development and export of computer software and IT-related services, claimed a deduction under section 10A for the assessment year 2004-05. The total export sale proceeds were Rs. 25,53,82,275, out of which Rs. 53,62,637 was realized after 30-9-2004. The Assessing Officer (AO) did not consider this amount as part of the export turnover for the relevant previous year, arguing it was not realized within the due date specified under section 10A.

Assessee's Argument:
The assessee contended that the Reserve Bank of India (RBI) allowed a general approval whereby the date of export for non-physical forms was considered the date of the invoice. The sum of Rs. 53,62,637 was received as convertible foreign exchange within six months from the date of the relevant invoices, making it eligible for deduction under section 10A. The assessee also argued that the period of six months should be extended by virtue of the general approval granted by the RBI.

Tribunal's Decision:
The Tribunal found that the amounts were received within six months from the date of the invoice but beyond six months from the end of the relevant previous year. The Tribunal noted that Regulation 9 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, deemed the date of export as the date of invoice for non-physical exports. However, this regulation applied only to foreign exchange management, not tax provisions. Therefore, the Tribunal did not accept the assessee's contention that the amounts should be deemed received within the period allowed by the RBI.

Alternative Argument:
The assessee argued that Rs. 49,10,904 was credited to the bank account on 1-10-2004, and since 30-9-2004 was a closed banking holiday, the receipt on 1-10-2004 should be deemed received within six months from the end of the previous year.

Tribunal's Acceptance:
The Tribunal accepted this alternative argument, citing the General Clauses Act, which allows an act to be done on the next working day if the prescribed date is a holiday. Thus, Rs. 49,10,904 was deemed received within the period, but Rs. 4,51,733 received on 26-11-2004 was not eligible for deduction under section 10A.

Issue 2: Classification of Interest Income
Facts:
The assessee claimed deduction under section 10A on interest income totaling Rs. 11,60,652, which included interest on income-tax refund, fixed deposits, and staff loans. The AO classified this income as 'income from other sources' and not 'profits and gains from business or profession.'

Assessee's Argument:
The assessee argued that the interest earned on surplus funds from export activities should be considered business income eligible for deduction under section 10A. For interest on fixed deposits, the assessee relied on the jurisdictional High Court decisions in CIT v. Punit Commercial Ltd. and CIT v. Lok Holding, which held that interest from surplus business proceeds should be considered business income.

Tribunal's Decision:
The Tribunal noted that the jurisdictional High Court had ruled that the entire business income, including interest on fixed deposits, was eligible for deduction under section 80HHC for 100% exporters. The Tribunal also cited the Delhi High Court's decision in CIT v. Eltek SGS (P.) Ltd., which held that the term "derived by an undertaking from export" was broader than "derived from." Therefore, the Tribunal allowed the assessee's claim for treating interest on fixed deposits and staff loans as business income eligible for deduction under section 10A.

Conclusion:
The Tribunal partly allowed the appeal, granting the assessee's claim for Rs. 49,10,904 as part of the export turnover for deduction under section 10A and treating interest on fixed deposits and staff loans as business income. However, the balance amount of Rs. 4,51,733 was not eligible for deduction, and interest on income-tax refunds was not considered business income.

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