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2015 (7) TMI 1062 - AT - Income TaxExclusion of labour charges received from the profits of the business while calculating deduction u/.s 10A - Held that - Respectfully following the decision of the Special Bench in the case of Maral Overseas 2012 (4) TMI 345 - ITAT INDORE it can be safely concluded that the labour charges received are eligible for calculation of deduction u/s. 10A of the Act. Exclusion of interest received on fixed assets as profit of the business while calculating deduction u/s. 10A Held that - A perusal of the balance sheet of the assessee shows that the fixed deposit account is shown as secured against bank guarantee which shows that the fixed deposits have a direct nexus with the business of the assessee. In our considered view the interest earned from such deposits of the money kept apart for the purpose of business is to be taxed under the head Income from business and cannot be taxed under Income from other sources . We draw support from the decision of the Hon ble Bombay High Court in the case of Indo Swiss 2005 (9) TMI 47 - BOMBAY High Court . We accordingly direct the AO to treat the interest income under the head Profits and gains of the business and for the reasons given in ground No. 1 of this appeal we direct the AO to allow deduction u/s. 10A of the Act Exclusion of interest received on EEFC while calculating deduction u/s. 10A - Held that - It is not in dispute that 35, 86, 248/- is not interest earned but gain on the fluctuation of foreign exchange. From the chart exhibited at page-24 we find that the assessee has suffered losses on foreign exchange fluctuation which have been accepted by the Revenue authorities. We therefore do not find any reason for giving differential treatment to the exchange gains. In our considered opinion the exchange gains should be taxed under the head business income. We accordingly direct the AO to tax the exchange gain under the head business income and accordingly allow deduction u/s. 10A of the Act. Excluding the exemption allowable u/s. 10A from the Book Profit taxable u/s. 115JB - Held that - Income of units located SEZ will not be included while computing book profit for the purpose of MAT as per section 115JB(6) of the Act. In view of above we are of the considered view that there is merit in the contention of ld A.R. that irrespective of the fact that amendment has been made in clause (f) of Explanation (1) to section 115JB(2) of the Act to apply the provisions of MAT in respect of units which are entitled to deduction u/s.10A or 10B but the units which are in SEZ will continue to get benefits from the applicability of provisions of MAT in view of sub-section(6) of the Act. We also observe that benefit given to SEZ unit from the applicability of provisions of section 115JB has been withdrawn by the Finance Act 2011 by inserting a proviso to section 115JB(6) of the Act. Thus we direct the AO to exclude the exemption allowable u/s/.10A from the Book Profit taxable u/s. 115JB of the Act. Non-exclusion of the Fringe Benefit Tax from the book profit taxable u/s. 115JB - Held that - FBT is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However subclause( ic) of clause (a) of Sec. 40 of the IncomeTax Act expressly prohibits the deduction of the amount of FBT paid for the purposes of computing the income under the head Profits and gains of business or profession . This prohibition does not apply to the computation of Book profit for the purpose of Sec. 115JB. Accordingly the FBT is an allowable deduction in the computation of Book Profit u/s 115JB of the Income-tax Act Levy of interest u/s. 234C - Held that - A perusal of Sec. 234C of the Act shows that the interest has to be charged on the tax due on the returned income. The AO is accordingly directed to charge interest on the returned income of the assessee.
Issues Involved:
1. Inclusion of labor charges in business profits for deduction under Section 10A. 2. Inclusion of interest on fixed deposits in business profits for deduction under Section 10A. 3. Treatment of exchange difference on EEFC as business income for deduction under Section 10A. 4. Exclusion of Section 10A exemption from book profit taxable under Section 115JB. 5. Exclusion of Fringe Benefit Tax (FBT) from book profit taxable under Section 115JB. 6. Charging of interest under Section 234C on returned income. Issue-wise Detailed Analysis: 1. Inclusion of Labor Charges in Business Profits for Deduction Under Section 10A: The assessee contested the exclusion of Rs. 7,82,196/- in labor charges from business profits for Section 10A deduction. The Assessing Officer (AO) excluded these charges based on the Supreme Court decisions in CIT Vs Sterling Foods and Pandian Chemicals Ltd. The assessee argued that labor charges should be included as per Sections 10A(1) and 10A(4). The Tribunal, referencing the Special Bench decision in Maral Overseas Ltd. Vs ACIT, concluded that labor charges have a direct nexus with the business and should be included for Section 10A deduction. The AO was directed to allow the deduction. 2. Inclusion of Interest on Fixed Deposits in Business Profits for Deduction Under Section 10A: The AO excluded Rs. 1,10,314/- in interest on fixed deposits from business profits, treating it as income from other sources, supported by Supreme Court rulings in Pandian Chemicals Ltd. and Liberty India. The assessee argued that the fixed deposits were business-related. The Tribunal, citing the Bombay High Court decision in Indo Swiss, held that interest from business-related deposits should be taxed as business income. The AO was directed to treat the interest as business income and allow the Section 10A deduction. 3. Treatment of Exchange Difference on EEFC as Business Income for Deduction Under Section 10A: The AO treated Rs. 35,86,248/- as interest on EEFC and excluded it from business profits for Section 10A deduction, arguing it lacked direct nexus with export activities. The assessee clarified this amount was from exchange fluctuations, not interest. The Tribunal found that exchange gains, like losses, should be treated as business income. The AO was directed to treat the exchange gain as business income and allow the Section 10A deduction. 4. Exclusion of Section 10A Exemption from Book Profit Taxable Under Section 115JB: The assessee argued that Section 10A exemption should be excluded from book profit under Section 115JB. The Tribunal agreed, referencing the Mumbai Bench decision in Genesys International Corpn. Ltd. Vs ACIT, which held that SEZ units' income should not be included in book profit for MAT purposes. The AO was directed to exclude the Section 10A exemption from book profit. 5. Exclusion of Fringe Benefit Tax (FBT) from Book Profit Taxable Under Section 115JB: The assessee contended that FBT should be excluded from book profit under Section 115JB. The Tribunal referred to CBDT Circular No. 8 of 2005, which clarified that FBT is an allowable deduction in computing book profit under Section 115JB. The AO was directed to exclude FBT from book profit. 6. Charging of Interest Under Section 234C on Returned Income: The assessee argued that interest under Section 234C should be charged on the returned income. The Tribunal agreed, directing the AO to charge interest based on the returned income. Conclusion: The appeal by the assessee was allowed, with the Tribunal directing the AO to make the necessary adjustments as detailed above. The order was pronounced on 15th July 2015.
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