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TMI Blog2009 (12) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... ble income as per return at Nil but added to the business income on account of denial of deduction u/s 10B. CIT(A) confirm the disallowance made by the AO on account of appellant s claim u/s 10B. HELD THAT:- The ld counsel for the assessee has vehemently argued that in this case interest from deposit was offered as business income and was also assessed as business income and therefore, automatically once it is assessed as business income then the same becomes eligible for deduction u/s 10B. On careful consideration we find that though these arguments look attractive but not correct. For this we have to refer to the famous decision of the Hon ble Supreme Court in the case of Sterling Foods (supra). In that case the question arose whether receipt from sale of import entitlements was eligible for deduction u/s 80HH. The Hon ble Supreme Court noted that identical question came before the Hon ble High Court for an earlier year and the High Court had answered the question against the assessee in Sterling Foods v. CIT [ 1984 (6) TMI 41 - KARNATAKA HIGH COURT] held that once the income from sale of import license was to be treated as business income under the Act in view of clause ( iiia ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT v. Baby Marine Exports [ 2007 (3) TMI 206 - SUPREME COURT] for the proposition that section 10A was beneficial provisions and, therefore, should be construed liberally. But these submissions were not accepted by the Court. From the above, it is clear that at present only one decision is available and whereby interest income was held to be not eligible for deduction u/s10A/10B. Therefore, we are bound to follow this decision as the ld counsel simply tried to distinguish this and could not point out to a different decision from the Apex Court or other Courts. In these circumstances, we find nothing wrong with the order of the ld CIT(A) and confirm the same. In the result, the appeal is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (4) of section 10B provides as overleaf : 10B. Special provisions in respect of newly established hundred per cent export-oriented undertakings. (1) to (3) ****** (4) For the purposes of sub-section (1), 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 proportions 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. 2.4 Therefore a plain reading of sub-section (4) of section 10B makes it clear that the deduction is allowable in respect of the profit "derived from" export of articles or things or computer software. It is settled law that the usage of the term "derived from" requires a direct and proximate connection between eligible activity and income. The yardstick to be applied, therefore, to income arising on account of interest or miscellaneous income is whether or not the source of income is integrally connected with the eligible activity. In the present case, the appellant is parking the surplus with tanks money market instruments for convenience and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these sections have been prescribed as an amount of 'profits derived from units/undertakings':, whereas in sections 10A, 10B and 80HHC in addition to use of expression 'derived from' a further formula has been prescribed for determination of deduction. He submitted that section 10B(1) of the Act, prescribes that income derived from export would be eligible for deduction but further section 10B(4) provides that for the purpose of sub-section (1) profit derived from articles or things for computer software shall be the amount which bears to the profits of the business of undertaking the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of business of the undertaking. 6. The above provision clearly shows that a separate formula has been given for allowing deduction under section 10B(4) and therefore, it would not be correct to test each and every item of income on the anvil of phrase "derived from" in order to find out the eligibility thereof. Instead formula given under section 10B(4) has to be followed. In this respect he referred to the decision of Bombay Bench of the Tribunal in the case of Living Stones ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not on statute and therefore, this decision cannot be followed. 9. We have considered the rival submissions carefully. In the light of the material on record as well as the written submissions filed by the learned counsel for the assessee and citations quoted by both the parties. Sections 10B(1) and 10B(4) reads as under : "10B(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee." "10B(4) For the purposes of sub-section (1) 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of Sterling Foods (supra). In that case the question arose whether receipt from sale of import entitlements was eligible for deduction under section 80HH. The Hon'ble Supreme Court noted that identical question came before the Hon'ble High Court for an earlier year and the High Court had answered the question against the assessee in Sterling Foods v. CIT [1984] 150 ITR 292 (Kar.). It was further noted that in this year, the Hon'ble High Court has taken a different view. If we go through the decision of Hon'ble Karnataka High Court in the case carefully, which is reported at Sterling Foods v. CIT [1991] 190 ITR 275, then we find that a different view has taken by the Hon'ble Karnataka High Court because section 28 had itself been amended by the Finance Act, 1990 with effect from 1-4-1962 by insertion of clause (iiia) and clause (iiib) with effect from 1-4-1967. After noting this amendment the Hon'ble High Court reproduced the provisions of clauses (iiia) and ( iiib) and then observed as under : "Section 28 provides for what income shall be chargeable to income-tax under the head "Profits and gains of business or profession". Therefore, by the ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view has been taken by the Hon'ble Supreme Court again in the case of Liberty India (supra). In this case the question was whether profit from Duty Entitlement Pass Book Scheme (DEPB) and Duty Draw Back Scheme could be said to be profit derived from business of industrial undertaking eligible for deduction under section 80-IB of the Income-tax Act, 1961. It can be seen that DEPB and Duty Drawback etc., are covered by clause (iiid) to section 28 which means necessarily they have to be treated as business income under the provisions of the Act, still the deduction was denied under section 80-I/80-IA/80-IB because these items were held to be not derived from the business of industrial undertaking/export activity. 14. Therefore, it is clear that merely because the income has been assessed as business income will not automatically confer the benefits of a particular deduction once there is a rider provision that such income should be derived from a particular source. In the case before us admittedly the interest income was generated from interest on FDRs etc., from the surplus funds and, therefore, the same cannot be held to have been derived from the export of I.T. Services. 15. We a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome de hors the main business activity, the interest resulting therefrom cannot assume the character of business income but would fall under the head "Income from other sources" and only the deductions permissible under section 57 will be permissible. In order to qualify for deduction under clause (iii) of this section which is the residual clause, the expenditure must be wholly and exclusively laid out for earning such income." The Tribunal held as under : "Held accordingly, on the facts, that the interest income could not be considered for deduction under section 80HHC. Nothing had been shown that there was some business exigency necessitating the deployment of funds. It was a case of simple parking of surplus funds with third parties and the bank, having no relation with the export business. The interest income had been rightly taxed under the last head of income and no amount was deducible against this income. Hence, it was also ineligible for deduction under section 80HHC." Therefore, it cannot be said that in the case of Topman Exports (supra) the Special Bench has already held that once a separate formula for giving deduction is there, then expression "derived from" would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign exchange is deposited in EEFC account and withdrawal is made later on then perhaps the gains could be attributed to the interest portion also because once the foreign exchange is deposited for a particular period, at the time of withdrawal it would have two elements, viz., interest as well as profits/loss on account of fluctuation in the rate of exchange. It has been clearly held in this case that on a later withdrawal from EEFC such gain could not be said to have been derived from export of goods. This means interest portion was also found to be not eligible for deduction under section 10B because the same was not derived from export of goods. 19. We are unable to agree with the submission of the learned counsel for the assessee that after insertion of section 10B(4) by the Finance Act, 2000 with effect from 2001, the decision in the case of Menon Impex (P.) Ltd. (supra) would not be applicable. This is so, because section 10B(4) merely gives the formula to make the deduction proportionate. Say if there is export turnover of Rs. 50 and total turnover is also Rs. 100 then the total business profit has to be divided by 50/100, because the total turnover (i.e., export turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X
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