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TMI Blog2018 (1) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... ce period payments recovered from the employees who retired or resigned, recovery of salary advances etc., and also includes sale of scrap. These amounts are part of business income and has a direct nexus with the activity of assessee. Therefore, since these amounts have a direct nexus (under the Company Law, these are to be reported as other incomes), We are of the opinion that these amounts are to be considered as part of business income and cannot be excluded for the purpose of deduction u/s. 10A of the Act. For interest income it is not known in the present facts of the case whether the interest income is earned on short term deposits out of surplus funds or long term deposits which has no connection with the business activity of assessee. Even though the AO has treated the income as ‘business income’, there is no finding whether the interest income has a nexus with the business of the ‘undertaking’. Just because the assessee has earned interest income out of the business it may not be eligible for deduction unless it has nexus with the business of undertaking. Thus in the interest of justice, we restore the issue to the file of AO to give proper findings on the nature of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d additional grounds that AO has erred in not excluding the above incomes from total turnover while excluding from export turnover. It is noticed that AO has not excluded the above incomes from the export turnover and export turnover was taken as admitted by assessee itself. Therefore, the additional grounds raised does not arise on the facts of the case and after being pointed out Ld. Counsel did not press the same. 6. Coming to the issue of treating the interest income and other income, it was contended that these incomes are incidental to the business and are to be treated as business profits . Referring to the provisions before the amendment to Section 10B from 01-04-2001 and subsequent to amendment brought on 01- 04-2001, it was submitted that the profits of the undertaking are to be considered while allowing the deduction u/s. 10B. It was submitted that the Hon'ble High Court of Karnataka (Full Bench) in the case of CIT Vs. Hewlett Packard Global Soft Ltd., [87 taxmann.com 182] (Karnataka) (FB) has examined the legal position including the decision of Hon'ble Supreme Court and came to the following conclusion: 37. On the above legal position discussed by us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 (Bang)/2010, dt. 31-01- 2011; ix. Judgment of Hon'ble High Court of Calcutta in the case of CIT Vs. Hindustan Gum Chemicals Ltd., [241 Taxman 401] (Calcutta); x. Judgment of Hon'ble High Court of Karnataka in the case of CIT Vs. Motorola India Electronics (P) Ltd., [46 taxmann.com 167] (Karnataka); 7. In reply, Ld.DR relied on the principles laid down by the Hon'ble Supreme Court in the case of Liberty India Vs. CIT (supra) and further in the case of Pandian Chemicals Ltd., Vs. CIT [262 ITR 278] (SC). Ld.DR also placed on record the decision of Hon'ble High Court of Madras in the case of CIT Vs. Menon Impex (P.) Ltd., [259 ITR 403] (Madras) which was followed in India Comnet International Vs. ITO [304 ITR 322] (Madras). It was the submission that there was no nexus between interest earned and industrial undertaking. Therefore, assessee is not entitled for deduction u/s. 10A. 8. We have considered the rival contentions and perused the various case law placed on record. As seen from the order of the AO, AO has not treated the interest income and other incomes as income from other sources . So, some of the principles laid down by various courts that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cannot be excluded for the purpose of deduction u/s. 10A of the Act. 8.3. That leaves us with the issue of interest income. As already stated, there is no examination of nature of interest income earned by assessee. Assessee also had not placed on record the details of interest income earned, so as to examine whether it has any nexus with the business. In all the case law relied upon by assessee, there is a finding that amount of interest received is having a direct nexus with that of business in the sense that (i) the deposits are short term which are not immediately required for the business; (ii) the interest earned is from the Exchange Earners Foreign Currency Account (EEFC A/c). The decision relied on by the Ld. Counsel in the case of CIT Vs. Hewlett Packard Global Soft Ltd., (supra), wherein the issue involved is with reference to interest income on the short term deposits made by it, out of its surplus funds temporarily parked in the current a/c and also interest earned from the advance of loans to the staff members. On those facts, the Hon'ble High Court of Karnataka in the Full Bench decision, held that all profits and gains of 100% EOU including incidental i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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