2015 (9) TMI 1520 - AT - Income Tax

Eligible for deduction u/s 10A - interest received from fixed deposits - Held that - We are of the opinion that the said interest receipts constitute business receipts and are eligible for deduction u/s 10A of the Act. Accordingly, the grounds raised by the assessee are allowed.

Summary

Issues:
1. Treatment of interest income as income from other sources under section 56(id) of the Act.
2. Reduction of profit under section 10A.
3. Disallowance of exemption under section 10A in respect of interest earned on fixed deposits (FDs) kept with the bank.
4. Whether interest received in the course of carrying out business can be considered as income from other sources.
5. Eligibility of interest receipts for deduction under section 10A.

Analysis:

Issue 1:
The appeal was against the order of the CIT (A) treating the interest income as income from other sources under section 56(id) of the Act. The assessee argued that the interest income was earned on FDs kept with the bank as margin money for the business. The Tribunal found that the interest derived on margin money for obtaining bank guarantee should be assessed as 'business income' instead of 'income from other sources'. The Tribunal relied on relevant judicial precedents and decided this part of the ground in favor of the assessee.

Issue 2:
The CIT (A) had reduced the profit under section 10A from a certain amount to a lower figure. The Tribunal, after considering the facts and arguments presented, allowed the grounds raised by the assessee, indicating that the interest receipts constituted business receipts eligible for deduction under section 10A of the Act.

Issue 3:
The dispute arose regarding the treatment of interest earned on FDs kept with the bank as margin money for the business. The assessee claimed exemption under section 10A, which was denied by the Revenue Authorities. The Tribunal, after analyzing the facts and legal aspects, concluded that the interest receipts were eligible for deduction under section 10A, as they constituted business receipts.

Issue 4:
The assessee contended that the interest received in the course of carrying out its business should not be considered as income from other sources but set off against interest paid. The Tribunal, after thorough examination and consideration of relevant precedents, agreed with the assessee's position, stating that the interest derived on margin money for obtaining bank guarantee should be assessed as 'business income'.

Issue 5:
The Tribunal, based on the settled nature of the issue and the legal principles established by relevant judgments, held that the interest receipts were business receipts eligible for deduction under section 10A of the Act. Consequently, the appeal of the assessee was allowed, affirming the eligibility of the interest receipts for deduction under section 10A.

In conclusion, the Tribunal's decision favored the assessee, establishing that the interest income derived on margin money for obtaining bank guarantee should be treated as 'business income' and not 'income from other sources', making it eligible for deduction under section 10A of the Act.