2013 (1) TMI 381 - AT - Income Tax

Quantification of relief u/s 10A - interest income with respect to FDs placed as margin money with banks for obtaining credit facilities - Income From Business or Income From Other Sources - Held that - Following the decision of CIT vs. Indo Swiss Jewels Ltd. (2005 (9) TMI 47 - BOMBAY HIGH COURT) & Jewelex International P Ltd. 2010 (9) TMI 906 - ITAT MUMBAI wherin held that the interest earned on the short-term deposits of the money kept apart for the purpose of business has to be treated as income earned on business and cannot be treated as income from other source. As decided Gem Plus Jewellery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT the purposes of sub-ss (1) and (1A) of s. 10A, that the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking - As decided in Mysodet (P) Ltd. v/s CIT 2008 (9) TMI 7 - SUPREME COURT wherein held that if assessee is doing export business exclusively hence export turnover & total turnover would be identical, if the entire sale proceeds are brought into India in convertible foreign exchange within the prescribed time limit - against revenue . Exclusion of expenditure incurred on account of insurance, internet charges, telephone charges, from the term export turnover for the purpose of computation of relief u/s 10A - Held that - this ground is misconceived, as the Commissioner (Appeals) has directed that the expenditure in question are required to be reduced both from export turnover as well as from total turnover in line with the judgment of Gem Plus Jewellery India Ltd 2010 (6) TMI 65 - BOMBAY HIGH COURT - appeal decided in favour of assessee.

Summary

Issues Involved:
1. Assessability of interest income under the head "Income From Business" or "Income From Other Sources."
2. Exclusion of certain expenditures from "export turnover" for the computation of relief under section 10A.

Issue-wise Detailed Analysis:

1. Assessability of Interest Income:
The primary issue was whether the interest income earned on fixed deposits placed as margin money with banks for obtaining credit facilities should be assessed under "Income From Business" or "Income From Other Sources." The Tribunal considered the facts that the interest was received from margin monies kept as deposits with banks for borrowing money for business purposes. The Tribunal relied on the jurisdictional High Court's judgment in CIT v/s Indo Swiss Jewels Ltd., which held that interest earned on short-term deposits kept apart for business purposes should be treated as business income. Similarly, the Tribunal referenced its own decision in ITO v/s M/s. Jewelex International P. Ltd., where it was held that interest income forms part of the profits of the business of the undertaking, and thus, should be considered as having been derived from the export of articles. The Tribunal concluded that the interest income should be assessed as part of the business profits, and therefore, the assessee is entitled to relief under section 10A.

2. Exclusion of Certain Expenditures from "Export Turnover":
The second issue involved whether expenditures on insurance, internet charges, and telephone charges should be excluded from the "export turnover" for computing relief under section 10A. The Tribunal referred to the jurisdictional High Court's judgment in Gem Plus Jewellery India Ltd., which clarified that the term "export turnover" should not include freight, telecommunication charges, or insurance attributable to the delivery of articles outside India. The Tribunal emphasized that the definition of "export turnover" should remain consistent when it forms a part of the total turnover for applying the statutory formula under section 10A. The Tribunal also cited the Supreme Court's decision in Mysodet (P) Ltd. v/s CIT, which supported the statutory formula for computing deductions based on the proportion of export turnover to total turnover. The Tribunal upheld the Commissioner (Appeals)'s decision to exclude these expenditures from both export turnover and total turnover, aligning with the High Court's judgment.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming that the interest income should be assessed as business income and that certain expenditures should be excluded from "export turnover" for computing relief under section 10A. The Tribunal's decision was consistent with the jurisdictional High Court and Supreme Court judgments, ensuring a correct statutory interpretation and avoiding any absurdity in the application of the law. The grounds raised by the Revenue were found to be misconceived, and hence, the appeal was dismissed in its entirety.