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TMI Blog2006 (11) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... and C.Os. for the sake of convenience, they are heard together and disposed of by way of this common order. 3. I. T. A. Nos. 1134 and 1153/Bang/03, the appeals are for the assessment year 1997-98. 4. In ground Nos. 2 to 9, the main issue is as to whether the interest income is to be included while computing deduction under sections 10A and 10B of the Income-tax Act, 1961. 5. The facts of this issue are as follows : 6. The assessee has earned interest income from the following sources : (i) deposits lying in the EEFC account, and (ii) advancing of intercorporate loans out of the funds of the under taking. 7. The assessee had to deposit in the EEFC account certain amount with the bank. It is stated that the RBI placed certain restrictions as to the maximum amount that can be held in the EEFC account. 8. Further, the assessee had outstanding borrowings by way of external commercial borrowings (ECBs in short) obtained in earlier years. The appellant has to repay this borrowing only in accordance with the repayment schedule. It is stated that the RBI has placed restriction on prepayment of instalments. The undisputed fact is that the borrowings were for the business of a STP u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emises P. Ltd. [1991] 190 ITR 259 (Bom) ; (vi) Snam Progetti S. P. A. v. Addl. CIT [1981] 132 ITR 70 (Delhi) ; and (vii) State of West Bengal v. Ghusick and Muslia Collieries Ltd. [1987] 163 ITR 592 (SC). 10. For the proposition that the entire income should be exempted, as the assessee is a 100 per cent. exporter, i.e. the entire business of the assessee consists of development and export of software, he relied on the decision of the Bombay High Court in the case of CIT v. Punit Commercial Ltd. [2000] 245 ITR 550. 11. For the assessment year 2001-02, he relied on the words in the section as well as similar wording in section 80HHC and the Explanation given in the Memorandum Explaining the Provisions of the Finance (No. 2) Bill, 1991, reported in [1991] 190 ITR (St.) 270 at page 300. He pleaded that the claim of the assessee should be allowed. 12. The learned Departmental Representative, on the other hand, controverted the arguments of learned counsel for the assessee and submitted oral as well as written notes of arguments. His case is that only those profits and gains that are derived by an eligible undertaking from the export of article or thing of computer software are e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, as the interest in question arose on deposits which are held in the EEFC account from export profits and as the Government by regulation has stipulated the maximum amount that can be held in the EEFC account and as the assessee had advanced amounts to sister concerns from out of monies available with it, for the reason that it was prevented by the Government regulations from prepaying external commercial borrowings, the income in question can definitely be considered to have close nexus with the business activity of the assessee and thus assessable under the head "Income from business." In this regard, we draw support from the following decisions : (i) CIT v. Tirupati Woollen Mills Ltd. [1992] 193 ITR 252 (Cal) ; (ii) CIT v. Tamil Nadu Dairy Development Corporation Ltd. [1995] 216 ITR 535 (Mad) ; (iii) Snam Progetti S. P. A. v. Addl. CIT [1981] 132 ITR 70 (Delhi) ; and (iv) CIT v. Paramount Premises P. Ltd. [1991] 190 ITR 259 (Bom). 16. The jurisdictional High Court in the case of Satishchandra and Co. v. CIT [1998] 234 ITR 70 (Karn), considering a similar situation has held as follows (page 75) : "The assessee had to make deposit in the bank as a conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking." 20. Other sub-sections of this section are not relevant for the issue in dispute. The above section supports the argument of learned counsel for the assessee. The section has undergone a change. Earlier it was an exemption section and income from these undertakings which are covered by this section did not form part of total income. From this particular year, though the section appears in Chapter 3, which classifies income which do not form part of total income, a deduction from business income from the undertaking is granted by including the special provision. Another important feature is in sub-section (4) is that the methodology of arriving at the export profits of the business of the undertaking is given in a formula, as in the case of section 80HHC and it shall be the same proportion as the export turnover bears to total turnover in respect of such articles or things or computer software. The word "shall" has been used to make it mandatory. Another important feature is that the terminology is used in sub- section (4) is "profits of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch incomes to account for these expenses." 23. The decisions relied upon by the Revenue i.e., in the case of Menon Impex P. Ltd. [2003] 259 ITR 403 (Mad) pertains to the assessment year 1985-86 as the law has undergone change. This view is in conformity with the following orders of the Tribunal : (i) Asst. CIT v. Maxcare Laboratories Ltd. [2005] 273 ITR (AT) 1 (Cuttack) ; [2005] 92 ITD 11 (Cuttack) ; (ii) ITO v. Kiran Enterprises [2005] 92 TTJ 104 (Chandigarh) ; and (iii) DLF Power Limited v. ITO (I. T. A. No. 1195/Del/2002 : assess ment year 1988-89, dated February 17, 2006). 24. Coming to the decision of the Authority for Advance Rulings in the case of Shams Tabrez Vanti, In re [2005] 273 ITR 299, that interest income is assessable as income from other sources, the same is not binding on this Bench. In any event, the jurisdictional High Court has taken a contrary view and the same is binding on us. The case of K. S. Subbiah Pillai and Co. (India) P. Ltd. v. CIT [2003] 260 ITR 304 (Mad) is on section 80HHC and does not apply to the case on hand and on the other hand, it recognized the fact that interest paid and claimed as deduction can be paid under the head "Profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance as 4 per cent. The assessee claims that he has made a claim on a scientific basis. The assessee has not demonstrated his claim, with any further evidence. 30. Under the circumstances, consistent with the view taken earlier by this Bench, we direct that the expenses claimed by the assessee should be allowed as proportionate expenditure for earning this income subject to a maximum limit of 5 per cent. In the result this ground of the assessee is allowed to the extent indicated above. 31. For the assessment year 1997-98, the assessee has disputed the levy of interest under section 234B. This is consequential in nature and in view of the decision of the hon'ble Supreme Court in the case of CIT v. Anjum M. H. Ghaswala reported in [2001] 252 ITR 1, this ground of the assessee is rejected. 32. Coming to the Department appeals in I. T. A. Nos. 1134 and 1139/Bang/ 03, the issue is inclusion of income from sale of import licences, for the purpose of computing deduction under section 10A/10B of the Income-tax Act. We find that the first appellate authority has relied on the decision of this Bench of the Tribunal, in the case of Wipro Information Technologies v. Deputy CIT (Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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