2015 (6) TMI 58 - AT - Income Tax

Exemption u/s.10B - Income from Profits and Gains - interest received and the consideration received by sale of import entitlement - Held that - the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law. Now the question is whether the interest received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not par take the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of Income from Profits and Gains incorporated in Subsection (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We respectfully following the aforesaid decision of Hon ble Karnataka High Court in the case of Motorola India Electronics Pvt. Ltd (2006 (11) TMI 541 - ITAT BANGALORE), hold that Assessee is eligible for deduction u/s. 10B of the Act on the interest received on deposits placed with Electricity Department. We thus direct accordingly. - Decided in favour of assesse.

Summary

Issues:
- Deduction u/s. 10B of the Act on interest income from FDRs and deposits with Electricity Board.

Analysis:
1. The appeals were against the order of CIT(A)-V, Surat for A.Y. 2006-07. The Assessee, a partnership firm engaged in diamond business, filed its return declaring income. The assessment determined a higher income, leading to appeals by both Assessee and Revenue.

2. The main issue was the deduction u/s. 10B on interest income. The Assessee claimed deduction on interest from FDRs and deposits with Electricity Board. The A.O. disallowed the deduction, stating the interest was not directly related to export income. The CIT(A) partially allowed the Assessee's claim based on precedent.

3. The Assessee's grounds challenged the partial confirmation by CIT(A) regarding the interest income from FDRs. The Revenue contended that interest income had no bearing on export income, thus not eligible for deduction u/s. 10B.

4. The A.O. disallowed the interest income for deduction u/s. 10B, leading to appeals. The CIT(A) partially allowed the Assessee's claim based on precedent, deleting the addition on FDR interest but confirming the addition on interest from the Electricity Board.

5. The Assessee and Revenue's grounds were interconnected, leading to a joint consideration of both appeals due to the similar nature of issues raised.

6. The A.O. disallowed interest income from FDRs and Electricity Board deposits for deduction u/s. 10B. The CIT(A) partially allowed the Assessee's claim based on precedent, deleting FDR interest addition but confirming the Electricity Board interest addition.

7. Aggrieved by the CIT(A)'s order, both Assessee and Revenue appealed.

8. In a related case for A.Y. 05-06, the Tribunal confirmed the order of CIT(A) partly in favor of the Assessee regarding interest income disallowance u/s. 10B. The Assessee argued for a similar decision in the current year based on the precedent.

9. The issue regarding FDR interest was decided in favor of the Assessee in an earlier year. The Assessee sought a similar ruling for the current year. The Revenue opposed, relying on the A.O.'s decision.

10. The Tribunal found in favor of the Assessee regarding FDR interest based on precedent. However, for interest from Electricity Board deposits, the Tribunal referred to a High Court decision, granting the Assessee the deduction u/s. 10B.

11. Following the High Court decision, the Tribunal held that the Assessee was eligible for deduction on interest from Electricity Board deposits. No contrary binding decision was presented, leading to a favorable ruling for the Assessee.

12. Consequently, the Assessee's appeal was allowed, and the Revenue's appeal was dismissed, based on the Tribunal's decision regarding the deduction u/s. 10B on interest income from deposits.