2018 (10) TMI 1105 - AT - Income Tax

Deduction u/s 10B - Treating the interest income from GEB as Business Income OR Income from other sources - Held that - Refering to the case of CIT AND DCIT, BANGALORE VERSUS M/S MOTOROLA INDIA ELECTRONICS PVT LTD 2014 (1) TMI 1235 - KARNATAKA HIGH COURT the provisions of section 10B(4) of the Act mandates to claim the deduction for the profit of the business of the undertaking registered as 100% EOU. Therefore, the profit earned in the form of interest income by the assessee from such eligible unit in the course of the business is eligible for deduction u/s 10B of the Act. Therefore, we find no infirmity in the order of ld CIT(A). Hence, the ground of appeal of the Revenue is dismissed. e Reducing the amount of freight and insurance from the export turnover / total turnover for working out the deduction u/s 10B - Held that - Amount of freight and insurance needs to be excluded from the export turnover as well as from the total turnover while calculating the amount eligible for deduction u/s 10B of the Act. Hence, we find no infirmity in the order of ld CIT(A). The ground of appeal of the Revenue is dismissed. Calculating the amount eligible for deduction u/s 10B of the act without reducing the interest on capital and remuneration to partners - Held that - As relying on ALIDHRA TEXSPIN ENGINEERS VERSUS THE ACIT, VAPI CIRCLE, VAPI 2016 (5) TMI 202 - ITAT AHMEDABAD we hold that the assessee was very much eligible to work out the quantum of deduction u/s 10B of the Act without reducing the amount of interest on capital and remuneration to the partners. Hence, we do not find any infirmity in the order of ld CIT(A). Thus, the ground of appeal of the Revenue is dismissed.

Issues Involved:
1. Classification of interest income from Gujarat Electricity Board (GEB) as business income or income from other sources.
2. Exclusion of freight and insurance from export turnover and total turnover for calculating deduction under Section 10B.
3. Calculation of eligible deduction under Section 10B without reducing interest on capital and remuneration to partners.

Detailed Analysis:

1. Classification of Interest Income from GEB:
The first issue raised by the Revenue is whether the CIT(A) erred in treating the interest income from GEB as business income, thereby allowing the deduction under Section 10B of the Income Tax Act. The assessee, a partnership firm registered as a 100% Export Oriented Unit (EOU), earned interest income on deposits made with GEB for obtaining a new high tariff connection for business expansion. The assessee argued that the interest income should be treated as business income, citing the judgment of the Karnataka High Court in CIT vs. Chinna Nachimuthu Constructions and ACIT vs. Motorola India Electronics Pvt. Ltd. The Assessing Officer (AO) disagreed, treating the interest income as income from other sources and denying the Section 10B exemption. The CIT(A) reversed this decision, stating that the deposit was made in the course of business activity and had a direct nexus with the business, thus qualifying as business income. The Tribunal upheld the CIT(A)'s decision, referencing the Karnataka High Court's ruling in CIT vs. Motorola India Electronics Pvt. Ltd., which supports treating such interest income as business income eligible for Section 10B deduction.

2. Exclusion of Freight and Insurance from Turnover:
The second issue pertains to whether freight and insurance should be excluded from both export turnover and total turnover when calculating the deduction under Section 10B. The assessee excluded these amounts from export turnover and total turnover, arguing that there is no definition of total turnover in Section 10B, and to maintain parity, the exclusions should apply to both. The AO disagreed, stating that the exclusions apply only to export turnover, not total turnover. The CIT(A) sided with the assessee, referencing judgments from the Bombay High Court, Calcutta High Court, and the Supreme Court, which support excluding such expenses from both export and total turnover to avoid anomalies. The Tribunal upheld the CIT(A)'s decision, citing the Special Bench ruling in ITO vs. Saksoft Ltd. and the Karnataka High Court's judgment in CIT vs. Tata Elxsi Ltd., which mandate excluding these expenses from both export and total turnover for Section 10B calculations.

3. Calculation of Deduction without Reducing Interest and Remuneration:
The third issue involves whether the deduction under Section 10B should be calculated without reducing the interest on capital and remuneration to partners. The assessee did not claim these deductions, arguing that the partnership deed was amended to deny such payments from 01.04.2009, and thus, they should not reduce the profit for Section 10B calculations. The AO contended that this was a tactic to claim higher deductions. The CIT(A) found that the partnership deed explicitly denied interest and remuneration, and thus, these amounts should not reduce the eligible profit. The Tribunal supported the CIT(A)'s decision, referencing the Gujarat High Court's ruling in CIT vs. Mundra Packaging Industries and the ITAT Ahmedabad's decision in Alidhara Taxspin Engineers vs. ACIT, which upheld similar claims where partnership deeds did not mandate such payments.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decisions on all three issues. The interest income from GEB was correctly treated as business income, freight and insurance were rightly excluded from both export and total turnover, and the deduction under Section 10B was appropriately calculated without reducing interest on capital and remuneration to partners.

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