2015 (11) TMI 67 - AT - Income Tax

Deduction under section l0A - profits derived by the eligible undertaking would be computed after set-off of brought forward unabsorbed depreciation from prior years - Held that - This is settled principle of law that even after amendment to Section 10A by the Finance Act 2000 w.e.f. 01.04.2001, Section 10A continues to be an exemption provision, though it is termed as provision providing deduction. CIT Vs TEI Technologies (P) Ltd. 2012 (9) TMI 47 - DELHI HIGH COURT held that Section 10A as it stands though decided as deduction provision is essential and in substances exemption provision. The ratio of the judgement in the case cited as Yokogawa India Ltd. (2011 (8) TMI 845 - Karnataka High Court) is inter alia that the profits and gains u/s 10A were not to be included in the income of the assessee at all and as such the question of setting off of loss of assessee of any profits & gains of business against such profits and gains of undertaking does not arise; that under Section 72(2) of the Act, unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year depreciation u/s 32(2) is to be first set off; that since deduction u/s 10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profits & gains of the undertaking does not arise. The case at hand is squarely covered by the judgement (supra) and as such, the A.O. and Ld. CIT(A) have erred in holding that the deduction u/s 10A of the Act in respect of the profits by the eligible undertaking would be computed after set off of brought forward unabsorbed depreciation from prior year. - Decided against revenue. Interest earned from mere parking the funds in the fixed deposits - eligibility of deduction u/s 10A - Held that - For claiming the benefit of deduction available u/s 10A of the Act, there must be direct nexus between deposits and business activities. Since, this is a benefit given to the industrial activities only, interest earned from mere parking the funds in the fixed deposits is not eligible for exemption u/s 10A of the Act. So, the judgements relied upon by the Ld. A.R., are inapplicable to the facts and circumstances of the case. Even the Ld. A.R. has failed to point out as to how the surplus money deposited with the bank amounts to activities in the course of business and the interest accrued thereon is to be treated as income from business activities. So, the interest income has been rightly declared as income from other sources by the A.O. and affirmed by Ld. CIT(A). - Decided against assessee.

Summary

Issues Involved:

1. Computation of deduction under Section 10A of the Income-tax Act, 1961.
2. Set-off of brought forward unabsorbed depreciation against interest income.
3. Classification of interest income from fixed deposits.
4. Levy of interest under Section 234B of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Computation of Deduction under Section 10A:

The appellant challenged the computation of deduction under Section 10A of the Income-tax Act, 1961, arguing that the deduction should be computed without setting off brought forward unabsorbed depreciation of Rs. 36,70,496 from prior years. The Tribunal referred to the judgment in CIT Vs Yokogawa India Ltd. 341 ITR 385 (Kar.), which clarified that profits and gains under Section 10A are not to be included in the total income of the assessee, and thus, the question of setting off losses against such profits does not arise. Consequently, the Tribunal held that the Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) [CIT(A)] erred in their computation, and decided this issue in favor of the assessee.

2. Set-off of Brought Forward Unabsorbed Depreciation Against Interest Income:

The appellant contended that the CIT(A) erred in denying the set-off of brought forward unabsorbed depreciation against interest income of Rs. 7,91,145 earned on inter-corporate deposits. Given that this issue is consequential to the first, the Tribunal also decided this issue in favor of the assessee, aligning with the principles laid down in the aforementioned judgments.

3. Classification of Interest Income from Fixed Deposits:

The appellant argued that interest income of Rs. 2,45,479 earned from surplus funds kept as short-term deposits should be treated as business income and allowed for deduction under Section 10A. However, the Tribunal upheld the CIT(A)'s view that such interest income constitutes "income from other sources" under Section 56(1) of the Act. The Tribunal cited the Supreme Court judgment in Pandian Chemicals Ltd. Vs CIT, which held that interest income from deposits does not have a direct nexus with the industrial undertaking's business activities. Therefore, this issue was decided against the appellant.

4. Levy of Interest under Section 234B:

The appellant contested the levy of interest under Section 234B amounting to Rs. 1,15,146. The Tribunal noted that the levy of interest under the Income-tax Act, 1961, is consequential. Thus, this issue was determined accordingly, without specific relief granted to the appellant.

Conclusion:

The Tribunal partly allowed the appeal, setting aside the CIT(A)'s findings on grounds related to the computation of deduction under Section 10A and the set-off of unabsorbed depreciation (grounds No.1.1, 1.2, and 3). However, it affirmed the CIT(A)'s decision on the classification of interest income from fixed deposits (ground No.2). The order was pronounced in the open court on 16.10.2015.