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TMI Blog2013 (1) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... and returning a positive finding of the deposits not serving merely as a collateral, but extended as a part of a normative business arrangement by the bank with its clients for allowing such non-fund facilities for their business, the assessee's claim is allowed. Interest on FD and bank on surplus funds - Held that:- Even as admitted by the assessee during hearing, the same is only on surplus funds for the time being and, therefore, cannot be said to be derived from the assessee's business. The same stands rightly excluded. Sales tax refund and excise duty draw back - Held that:- The same represents refund of sales-tax on purchases for an earlier period, being not payable by an export unit. The said benefit is only a part of the receipt of the business. No doubt, it arises from a government policy toward non-levy of tax on the purchases meant for export, is yet only to provide an incentive to the export business by making it more competitive in the international market, by reducing the input cost. The same would, thus, have to be regarded as an eligible receipt of the eligible business. Likewise for the duty draw back. It is not the business of the undertaking per se but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )' for short) dated 10.08.2010, partly allowing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act' hereinafter) for the assessment year (AY) 2005-06 vide order dated 27.03.2008. 2. The only issue in appeal is the eligibility of various incomes, credited to the account head other income' by the assessee in its books of accounts, for being considered as part of the profits derived by the assessee from an eligible undertaking from export of articles or things or computer software for the relevant year and, thus, subject to deduction u/s.10B of the Act. The same stood excluded by the Assessing Officer (A.O.) relying on the decisions by the hon'ble apex court, as in the case of Pandian Chemicals Ltd. vs. CIT (2003) 262 ITR 278 (SC); CIT vs. Sterling Foods Ltd. (1999) 237 ITR 579 (SC) and Indian Leather Corporation Ltd. vs. CIT 222 ITR 552 (SC). In appeal, the same stood confirmed by the ld. CIT(A), discussing each of the incomes in detail and distinguishing the case law relied upon by the assessee, while at the same time also adverting to certain decisions. Aggrieved, the assessee is in second appeal. 3.1 Before us, the learned AR woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of other incomes excluded in the instant case, are rendered under pre-amended section 10B. The only decision relied upon in relation to the post amended law, i.e., in the case of India Comnet International vs. ITO (Mad) 304 ITR 322, though being in relation to A.Y. 2002-03, is yet not based on the same, i.e., the law post amendment, as the change in section 10A (a corresponding provision, also containing - w.e.f. 01.04.2001 - a statutory formula as specified in section 10B(4), in section 10A(4)) was not brought to the notice of the hon'ble court, which only followed its earlier decision in case of CIT vs. Menon Impex Pvt. Ltd. (2003) 259 ITR 403, wherein the assessment year involved was A.Y. 1985-86. 3.2 The ld. DR, on the other hand, would submit that all the clauses of section 10B, other than section 10B(1), are only procedural in nature, and would not go to alter or detract from the basic premise of section 10B(1), the core provision, which provides or lays down the foundation as well as the ambit of the deduction, which would, thus, continue to be governed thereby (i.e., section 10B(1)). The said sub-sections, including section 10B(4), must, therefore, be read in harmony and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits and gains derived by an undertaking from the export of such articles or things or computer software: Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years: (2) This section applies to any undertaking which fulfils all the following conditions, namely:- (i) it manufactures or produces any articles or things or computer software; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B , in the circumstances and within the period specified in that section ; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.- The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio of ET' to TT' is toward further limiting the profits of the business of the undertaking to that derived from exports only. This is as the eligible profits must be firstly derived by the undertaking and, secondly, from its exports (s. 10B(1)). And it is this, the third step, that sec. 10B(4) is toward. Also, as a 100% E.O.U is licensed to undertake only exports, the other element of TT would normally include either the export proceeds that are not brought into India within six months (or such extended period as may be allowed) or the sale proceeds of a part of its production that it could under the terms of the 100% EOU license sell in the domestic market, or the sale of other products (of the assessee's undertaking) which arise incidentally to its operations in the domestic market. In fact, the second proviso to the provision is only by Finance Act 2002, w.e.f. 01/4/2003; its earlier version, since omitted, bearing a tolerance of up to 25% of the total sales for domestic turnover. Coming to the second step afore-said, the words business of the undertaking' are wider in ambit than the words profit of the undertaking' and could only have been so provided with a purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as for the reason that the entire income stood exempt, while the later version contemplates a deduction based on the relevant (export) turnover, and which we have found to be the sum and substance of sec. 10B(4). Further, the amended provision, per sub-section (3), specifies the condition of the export being in convertible foreign exchange and bringing the export proceeds into India within six months (from the end of the relevant previous year) as a condition precedent for the application of the section itself. In fact, section 10B(4), as it now stands, is itself as substituted by Finance Act, 2001, w.e.f. 1/4/2001, prior to which it read as: 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, 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 assessee. The subsequent amendment, though, comes into effect from the same date (01/4/2001), so that sub-section (4) of sec. 10B, as substituted earlier by Finance Act, 2000 never came to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the tribunal in the matter, that if agricultural land stood offered as a collateral security, going by the tribunal's logic, the agricultural income there-from would be assessable as business income! (pg. 560). Though the issue here is not of the head of income under which the income would be assessable, its boils down to ascertaining if the interest income under reference is an independent receipt (which the income from the collateral security was found to be) or not. Subject to verification on this count by the AO, and returning a positive finding of the deposits not serving merely as a collateral, but extended as a part of a normative business arrangement by the bank with its clients for allowing such non-fund facilities for their business, the assessee's claim is allowed. b) Interest on FD and bank on surplus funds (Rs.2,71,217/-) : Even as admitted by the ld. counsel during hearing, the same is only on surplus funds for the time being and, therefore, cannot be said to be derived from the assessee's business. The same stands rightly excluded. c) Sales tax refund (Rs. 25,91,659) and excise duty draw back (Rs.5,92,095) : The same represents refund of sales-tax on purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing profit derived there-from. We find ourselves fully supported by the decision in the case of Liberty India (supra), as well as by the tribunal in the case of ITO vs. V. J. Homes Pvt. Ltd. [2009] 125 TTJ (Jodhpur) 215, rendered under a cognate provision (section 10BA), also relied upon by the Revenue. In fact, no contrary decision has also been brought to our notice. d) Scrap sale (Rs.32,54,701/-)- : The appellant's case was found not acceptable in view of the decisions in the case of CIT vs. Sundaram Industries Ltd. [2002] 253 ITR 396 (Mad) and Fenner India Ltd. vs. CIT (2000) 241 ITR 803 (Mad), wherein the claim qua scrap sales stood disallowed in the context of sec. 80HH on the ground that the same could not be said to be part of the profits derived from the industrial undertaking. However, the qualifying profits per that provision are as derived from the assessee's industrial undertaking, the ambit of which could only be considered as enhanced by the use of the words profits of the business of the undertaking'. The scrap, as explained by the ld. AR, arises out of the manufacturing operations, and only goes to reduce the cost of production. In fact, the same, even where not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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