2020 (8) TMI 618 - HC - Income Tax

Deduction / exemption u/s 10A - including the interest on bank deposits for the purpose of claiming deduction / exemption - HELD THAT - It has been brought to the notice of this Court that there is a judgment of the Full Bench of the Karnataka High Court M/S. HEWLETT PACKARD GLOBAL SOFT LTD. 2017 (11) TMI 205 - KARNATAKA HIGH COURT wherein as held that the interest on bank deposits is also eligible to be included in the profits of 100% Export Oriented Units for the purpose of claiming deduction under Section 10A / 10B. - Decided in favour of assessee.

Summary

Issues:
- Whether the Assessee is entitled to include interest on bank deposits for claiming deduction/exemption under Section 10A of the Income Tax Act.
- Whether the Assessee is eligible for setoff of business loss under Section 10A against other income like interest income.

Issue 1: Inclusion of Interest on Bank Deposits for Deduction under Section 10A:

The High Court analyzed a judgment by the Full Bench of the Karnataka High Court regarding the eligibility of interest on bank deposits in the profits of Export Oriented Units for claiming deductions under Section 10A/10B of the Income Tax Act. The Full Bench held that interest income derived from bank deposits or staff loans is part of the profits of eligible undertakings and is eligible for 100% deduction under Section 10A/10B. The Court emphasized the dedicated nature of business for export and the special geographical locations of such undertakings, making them entitled to incentives under these sections. The judgment highlighted that interest income arising from bank deposits is integral to the export business activity and should not be taxed separately under other provisions like Section 56 of the Act.

Issue 2: Setoff of Business Loss under Section 10A against Other Income:

The High Court examined whether the Assessee was eligible for setoff of business loss under Section 10A against other income, including interest income, under the same head. The Court considered the provisions of Section 70 of the Income Tax Act, which allow for the setoff of losses for one source against income from another source under the same head of income. The Assessee had adjusted and set off other income, including interest income, with the business loss under Section 10A. The Court referred to relevant judicial decisions and the provisions of Section 70 to conclude that the Assessee was eligible for such setoff. The Court directed the Assessing Officer to allow the setoff of other income with the business loss determined under Section 10A of the Act.

Conclusion:

The High Court dismissed the appeal filed by the Revenue, ruling in favor of the Assessee on both issues. The Court upheld the eligibility of interest on bank deposits for deduction under Section 10A and allowed the setoff of business loss under Section 10A against other income like interest income. The judgment provided detailed analysis and references to legal provisions and precedents, affirming the Assessee's entitlement to the deductions and setoffs as per the Income Tax Act.