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2016 (12) TMI 1191 - AT - Income TaxTreatment of interest income on fixed deposits while computing the deduction u/s.10A - Held that - Jurisdictional High Court in the case of M/s.India Comnet International Vs. ITO in 2007 (7) TMI 233 - MADRAS HIGH COURT wherein held that interest received on export profit deposited with bank does not qualify for relief u/s.10A of the Act. Further the Delhi High Court in the case of M/s.Thomson Press (INDIA) Ltd. Vs. CIT in 2015 (10) TMI 756 - DELHI HIGH COURT wherein held that the interest cannot be considered as profit and gain derived by assessee from the eligible undertaking as it does not bear a direct nexus with the activities of the eligible undertaking only the profit and gains of assessee which has direct nexus with the undertaking to which S.10A apply interest would be excluded from the income of assessee. Interest income earned by the assessee from the bank deposits cannot be included as profit and gain from eligible undertaking so as to grant deduction u/s.10A of the Act and it is to be excluded from profit and gains of the business undertaking. - Decided against assessee
Issues:
Treatment of interest income on fixed deposits while computing deduction u/s.10A of the Act. Analysis: The appeal concerns the treatment of interest income on fixed deposits of ?10,90,028 while computing the deduction u/s.10A of the Act. The assessee claimed the interest income as business income for the purpose of claiming the deduction. However, the lower authorities categorized it as 'income from other sources' and did not consider it for the deduction u/s.10A. The main argument presented by the assessee was that the interest income was earned from fixed deposits related to the export business proceeds, hence should be considered as part of the business income. The assessee relied on previous cases where similar interest income was taxed under 'profits and gains from business or profession' and granted exemption u/s.10B. The assessee also cited judgments emphasizing the direct nexus between such income and the business of the undertaking, supporting the claim for benefit u/s.10B. The assessee contended that the interest income should be considered as part of the business income based on the provisions of sec.10A(4) of the Act. It was argued that the profits derived from export activities should be considered in relation to the profits of the business undertaking, not just the profits and gains from export activities. The assessee highlighted the distinction between the profits of the business undertaking and the profits from export activities. Various judicial precedents and decisions were cited to support this interpretation, emphasizing that the income derived from the business of the undertaking should include all incidental incomes directly attributable to the export activity. On the contrary, the department argued that interest income from fixed deposits should not be considered as part of the export business income eligible for deduction u/s.10A. The department relied on previous cases where interest income was categorized based on the nature of income and the specific source of earnings. The department emphasized that the interest income did not have a direct nexus with the eligible undertaking as required by the Act. After considering the arguments from both parties and reviewing the relevant legal precedents, the Tribunal concluded that the interest income earned from bank deposits could not be included as profit and gain from the eligible undertaking for the purpose of granting deduction u/s.10A. The Tribunal referred to previous judgments that highlighted the importance of a direct nexus between the interest income and the activities of the eligible undertaking. Based on these considerations, the Tribunal dismissed the appeal, ruling against the inclusion of interest income from fixed deposits in the profit and gains of the business undertaking for the purpose of claiming deduction u/s.10A. In conclusion, the appeal was dismissed, and the interest income from fixed deposits was not considered as part of the profit and gain from the eligible undertaking for the purpose of claiming deduction u/s.10A of the Act.
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