1994 (7) TMI 104 - AT - Income Tax

Summary

Issues:
1. Interpretation of section 10A for exemption of interest income derived from an industrial undertaking in a Free Trade Zone.
2. Whether interest income constitutes "profits and gains of business or profession" for eligibility of exemption under section 10A.
3. Application of precedents in determining the eligibility of interest income for exemption under section 10A.

Analysis:
1. The case involved a dispute regarding the eligibility of interest income of Rs. 4,50,000 for exemption under section 10A of the Income Tax Act. The assessee, a company operating in a Free Trade Zone, earned interest from surplus funds advanced to a sister-concern. The Assessing Officer denied the exemption, stating that interest income did not constitute "profits and gains of business or profession" as required by section 10A.

2. The CIT (Appeals) upheld the Assessing Officer's decision, citing precedents and emphasizing that interest income cannot be considered as derived from the industrial undertaking of the assessee for exemption under section 10A. The CIT relied on judgments such as CIT v. Cochin Refineries Ltd. and Cambay Electric Supply Industrial Co. Ltd. v. CIT to support this position.

3. The assessee contended that there was a nexus between the interest income and the industrial undertaking, arguing for the eligibility of exemption under section 10A. The counsel relied on the judgment in CIT v. Tirupati Woollen Mills Ltd. to support this argument. However, the authorities maintained that interest income from deposits with a sister-concern did not qualify for exemption under section 10A, as it was not incidental to the production of goods at the industrial undertaking in the Free Trade Zone.

4. The Tribunal, after considering the submissions and the legislative intent behind section 10A to promote export-oriented industries in Free Trade Zones, ruled that exemption under section 10A would not apply to interest income on deposits with a sister-concern. The Tribunal emphasized strict interpretation of the statute and held that the interest income did not align with the objectives of section 10A, which aimed to boost exports and earn foreign exchange.

5. The revenue also raised an appeal challenging the exemption granted to the assessee's total income from the manufacture and sale of pharmaceutical products under section 10A. However, the Tribunal cited a previous order that favored the assessee on the same issue, leading to the dismissal of the revenue's appeal.

6. Ultimately, the Tribunal dismissed both appeals, upholding the decision that interest income from deposits with a sister-concern did not qualify for exemption under section 10A, and confirming the exemption of the assessee's total income from pharmaceutical products under section 10A based on a previous order.