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TMI Blog2016 (2) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 82,31,002/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 17.08.2011 granted partial relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee and Revenue both are now in appeal before us. The effective ground raised by the Revenue in its appeal in ITA No. 2720/Ahd/2011 reads as under:- 1. The learned CIT(Appeals) has erred in law and on facts in deleting the addition on scarp income of Rs. 23,64,835/-. 4. On the other hand, the grounds raised by the Assessee in its appeal in ITA No. 2665/Ahd/2011 reads as under:- 1.The order passed by the Learned CIT(A) is erroneous and requires to be modified. It is submitted that it be so done now. 2. The learned CIT(A) has erred in rejecting Appellant's contention that the term "derived by" as prescribed u/s 10B(1) of the Act is defined u/s 10B(4) of the Act to mean "profit of the business of the undertaking". It is submitted it be so held now. 2.1.Learned CIT(A) has erred in relying upon the decisions rendered by the judiciaries u/s. 80I / 80IB instead of decisions rendered u/s. 80HHC whereas provisions of Section 10B is in pari materia with pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various grounds but the issue which is to be decided is the availability of deduction u/s.10B of the Act and that the ground raised by the Revenue in its appeal is also connected with the grounds raised by Assessee. Ld. D.R. did not object to the aforesaid submission of ld. A.R. We therefore proceed to dispose of both the appeals together. 6. During the course of assessment proceedings and on perusing the Profit and Loss account, A.O noticed that Assessee had other income which comprised of the following:- (a) Incremental turnover & connectivity incentive Subsidy from government Rs. 50,47,078/- (b) Interest income Rs. 3,56,813/- (c) Sale of scrap Rs. 23,64,835/- (d) Exchange rate of fluctuation Rs. 58,37,896/- (e) Sales tax refund Rs. 4,40,360/- (f) Sundry Balance written off Rs. 21,916/- 7. He noticed that the aforesaid other income aggregating to Rs. 1,40,68,898/- has been claimed as exempt u/s. 10B of the Act. The Assessee was asked to show cause as to why the different constituents of other income not be treated as "other income" and therefore being not eligible for deduction u/s. 10B. The submissions of the Assessee were not found acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.2 The third ground is that the AO has erred in law and on facts in not considering Interest of Rs. 3,56,813, received on deposits kept with banks out of surplus funds generated from the EOU (the only unit of the Appellant), as part of profits & gains derived from EOU and consequently erred in not including the same in profits eligible for exemption u/s 10B of the Act. Here, the interest is not even the business profits. The interest earned on surplus funds is income from other sources. It is neither derived from Industrial undertaking nor even profits and gains of business, CFT Vs. Menon Impex (P) Ltd reported at 259 ITR 403 (Mad); Sham Tabrez Vanti, In RE reported at (2005) 273 ITR 299 (MR); India Commet International Vs. ITO reported at (2008) 304 FTR 322 are relied upon and it is held that no deduction u/s. 10B is allowable on this interest income. 7. Next ground of appeal is against considering Scrap sale of Rs. 23,64,835, generated out of manufacturing process at the EOU as not part of profits and gains derived from EOU and consequently not including the same in profits eligible for exemption u/s.10B of the Act. 7.1 I have gone through the facts of the case, The gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derived from export or article or thing shall be eligible for deduction for the period of ten consecutive years and the computation of deduction is governed by Section 10B(4) and Section 10B(4) prescribes the formula as to how the deductible amount of export profits needs to be computed. He further submitted that deduction allowed u/s. 10B is proportion of "profits of the business of the undertaking" to the export turnover compared to total turnover. He further submitted that Section 10B does not states that the profits should be derived from the business of Industrial undertaking but merely states that the profits to be of the business of undertaking. He therefore submitted that the reliance placed by the A.O on the decision of Liberty India (supra) was misplaced because it was in the context of deduction u/s. 80IB and the language used u/s. 80IB and deduction 10B are different. With respect to the Government subsidy that was granted to the Assessee, he submitted that it relates to the incremental turnover achieved by EOU and that the disbursement of the subsidy was directly linked to the achievement of incremental turnover and was thus derived from the business of undertaking. Wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that Assessee is a 100% EOU and its only business is of export of printed circuit board. During the year under consideration, Assessee had received Government subsidy and earned income from interest, sale of scrap, sales tax refund which were held to be not eligible for deduction u/s. 10B of the Act by the A.O and for which A.O mainly relied on the decision of Hon'ble Apex Court in the case of Liberty India (supra) We find that before Hon'ble Special Bench of Tribunal in the case of Maral Overseas Ltd. (supra) one of the question for consideration was as to whether the undertaking is eligible for deduction on export incentive received by it in terms of provisions of Section 10B(1) r.w.s. 10B(4) of the Act. The Hon'ble Special Bench, after considering the decision of the Apex Court in the case of Liberty India (supra) held that provisions of Section 10B are different from the provisions of Section 80IA. The relevant portion of the decision reads as under:- 77...................It is clear from the plain reading of section 10B(1) of the Act that the said section allows deduction in respect of profits and gains as are derived by a 100% EOU. Further, section 10B(4) of the Act stipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking.Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction u/s 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the "profits of the business" which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinction, sub-section (4) of section 10A/10B of the Act is a complete code providing the mechanism for computing the "profits of the business" eligible fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the business of the Undertaking X Export turnover Total turnover of business carried out by the undertaking 79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, not-with-standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 2014 passed in ITA 438/2014, Commissioner of Income Tax-VII versus XLNC Fashions in which this court has held as under :- "Deduction under Section 10B of the Income Tax Act, 1961 (Act, in short) is to be made as per the formula prescribed by Sub-Section (4), which reads as under: "10B. Special provision in respect of newly established hundred per cent export- oriented undertakings- ......... ........... (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 undertaking". Sub-section (4), therefore, is the special provision which enables the assessee to compute the profits derived from the export of articles or things or computer software. We do not see any conflict between Sub- section (1) and Sub-section (4) to Section 10B, as Subsection (1) states that deduction of such profits and gains as are derived by a hundred percent export-oriented undertaking from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, it excludes profit and gains from export of articles. But Sub-section (4) explains what is says that profits derived from export of articles or things or computer software shall be the account which bares to the profits of the business of the undertaking and not the profits and gains from export of articles. Therefore, profits and gains derived from export of articles is different from the income derived from the profits of the business of the undertaking. The profits of the business of the undertaking includes the profits and gains from export of the articles as well as all other incidental incomes derived from the business of the undertaking. It is interesting to note that similar provisions are not there while dealing with computation of income under Section 80HHC. On the contrary there is specific provisions like Section 80HHB which expressly excludes this type of incomes. Therefore, in view of the aforesaid provisions, it is clear that, what is exempted is not merely the profits and gains from the export of articles but also the income from the business of the undertaking." In view of the aforesaid position, the appeals have to be dismissed. We order accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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