2010 (4) TMI 863 - AT - Income Tax

Summary

Issues Involved:
1. Classification of interest income on FDRs: "Income from other sources" vs. "Business income."
2. Eligibility for deduction under section 10A of the Income-tax Act, 1961.
3. Charging of interest under sections 234B and 244A of the Act.

Detailed Analysis:

1. Classification of Interest Income on FDRs:
The primary issue was whether the interest income of Rs. 44,36,745 earned on Fixed Deposit Receipts (FDRs) should be classified as "income from other sources" or "business income." The assessee argued that the FDRs were made out of business funds and kept as security for availing credit facilities, thus qualifying the interest earned as business income. However, the Assessing Officer and the CIT(A) both rejected this claim, categorizing the interest income as "income from other sources."

2. Eligibility for Deduction under Section 10A:
The assessee claimed deduction under section 10A for the interest income on FDRs, asserting that it was part of the business income. The CIT(A) held that the interest income on FDRs is not a profit from the business of the eligible undertaking but is assessable under the head "Income from other sources." The CIT(A) referenced several judgments, including CIT v. Shree Ram Honda Power Equipment and Urban Stanislaus Co. v. CIT, to support this conclusion. The Tribunal upheld this view, stating that the interest income earned on fixed deposits made out of surplus funds, without a direct link to the export business, does not qualify for deduction under section 10A.

3. Charging of Interest under Sections 234B and 244A:
The issue of charging interest under sections 234B and 244A was found to be consequential in nature. The Tribunal directed the Assessing Officer to examine and rework the actual amount of interest chargeable under these sections as per the provisions of law.

Conclusion:
The Tribunal concluded that the interest income earned on FDRs is assessable under the head "Income from other sources" and does not qualify for deduction under section 10A. The appeal was partly allowed for statistical purposes, with the issue of charging interest under sections 234B and 244A being remanded back to the Assessing Officer for reworking as per law.