2002 (9) TMI 75 - HC - Income Tax

whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the interest income derived by the assessee from funds in connection with letter of credit is income derived from the profits of the business of the industrial undertaking so as to be entitled to get the benefit of section 10A of the Income-tax Act, 1961? . - In this case the interest received by the assessee was on deposits made by it in the banks. It is that deposit which is the source of income. The mere fact that the deposit made was for the purpose of obtaining letters of credit which letters of credit were in turn used for the purpose of the business of the industrial undertaking does not establish a direct nexus between the interest and the industrial undertaking. - The Tribunal, therefore, was in error in holding that there was direct nexus between the two. The question referred to us is answered in favour of the Revenue and against the assessee.

Summary

The High Court of Madras ruled that interest income from funds related to a letter of credit is not derived from the profits of the business of an industrial undertaking. The Tribunal's decision to allow the income as exempt under section 10A of the Income-tax Act was overturned. The court emphasized the need for a direct nexus between the income and the industrial undertaking for it to be considered derived from the business.