2013 (1) TMI 774 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility of interest income from short-term deposits for deduction u/s 10B of the Income-tax Act, 1961.
2. Classification of interest income as "business income" or "income from other sources."

Summary:

Issue 1: Eligibility of Interest Income for Deduction u/s 10B

The assessee, a proprietor of a 100% Export Oriented Undertaking (EOU) engaged in the export of SURIMI, claimed a deduction u/s 10B of the Income-tax Act, 1961, including interest income from short-term deposits with the Bank. The Assessing Officer excluded this interest income from the deduction, classifying it as "income from other sources" and not derived from the export of sea food. The Commissioner of Income-tax (Appeals) upheld this exclusion but allowed the netting of interest paid on working capital loans against the interest income.

Issue 2: Classification of Interest Income

The Tribunal examined whether the interest income from short-term deposits should be classified as "business income" or "income from other sources." The assessee argued that the surplus funds were temporarily parked in short-term deposits for business needs, thus the interest should be considered as business income. The Tribunal referred to various precedents, including the decisions of the Hon'ble Bombay High Court in CIT v Lok Holdings and CIT v Paramount Premises (P) Ltd, which supported the classification of such interest income as business income.

Judgment:

The Tribunal held that the interest income from short-term deposits is assessable as business income, following the reasoning in the case of Kataria Shewani Developers v Dy. CIT and other relevant judgments. The Tribunal also referred to the Bangalore Bench's decision in ACIT v Motorola India Electronics (P) Ltd, which held that interest income is eligible for deduction u/s 10B, considering the amendments to the section effective from assessment year 2001-02. The Tribunal concluded that the assessee is eligible for the deduction u/s 10B for the interest income earned on short-term deposits with the Bank.

The appeal of the assessee was allowed, and the Assessing Officer was directed to allow the claim of deduction u/s 10B in relation to the interest income earned on short-term deposits with the Bank.

Pronouncement:

The judgment was pronounced in the open court on January 31, 2011.