2016 (2) TMI 300 - AT - Income Tax

Deduction under section 10A - Interest on Fixed Deposits - Held that - As the interest earned from fixed deposits kept apart for the purposes of business is to be treated under the head Income from Business and not under the head Income from other sources and is to be treated as profits of the business while calculating the deduction under section 10A of the Act. Exchange difference on EEFC - Held that - Following the decision of the Coordinate Bench in assessee s own case for A.Y. 2009-10 we hold that the amount is not interest earned but gain on fluctuation of foreign exchange, which are to be taxed under the head Income from Business . We direct the AO to tax the exchange gain under the head Income from Business and accordingly allow the assessee deduction under section 10A of the Act. Deduction u/s. 10A from Book Profit u/s. 115JB - Held that - Exclusion of exemption/deduction allowable under section 10A of the Act from the Book Profits taxable under section 115JB directed

Summary

Issues:
Cross appeals by assessee and Revenue against CIT(A) order for A.Y. 2010-11.

Detailed Analysis:

Assessee's Appeal:
1. Interest on Fixed Deposits - Rs. 57,563/-:
- The assessee argued that interest on fixed deposits should be included as business income for deduction under section 10A.
- Citing a previous Tribunal decision, it was held that interest earned from fixed deposits related to business should be taxed under 'Income from Business' and not 'Income from other sources'.
- The interest earned from fixed deposits kept for business purposes is considered as profits of the business for calculating deduction under section 10A.
- As per the Tribunal's decision, the interest on fixed deposits was allowed to be treated as business income for deduction under section 10A.

2. Exchange difference on EEFC - Rs. 13,39,825/-:
- The assessee contended that the amount was exchange difference on EEFC, not interest, and should be considered as such for deduction under section 10A.
- Referring to a Tribunal decision in a previous year, it was held that exchange gains should be taxed under 'Income from Business'.
- The amount of Rs. 13,39,825/- was considered as gain on fluctuation of foreign exchange and treated as business income for deduction under section 10A.

3. General Grounds:
- No adjudication was required for the general ground raised by the assessee.
- The assessee's appeal for A.Y. 2010-11 was allowed based on the above considerations.

Revenue's Appeal:
1. Deduction under section 10A from Book Profit u/s. 115JB:
- The Revenue questioned the CIT(A)'s decision to allow deduction under section 10A from Book Profit under section 115JB.
- The Tribunal referred to a previous decision where it was held that the deduction under section 10A should be excluded from Book Profits taxable under section 115JB.
- Following the precedent, the deduction under section 10A was directed to be excluded from the Book Profits calculated under section 115JB.
- The Revenue's appeal for A.Y. 2010-11 was dismissed based on the above analysis.

This detailed analysis of the judgment highlights the key arguments, Tribunal decisions, and outcomes for each issue raised in the cross-appeals by the assessee and the Revenue.