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TMI Blog2013 (12) TMI 1702X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule. It was stated that RBI has imposed restriction on prepayment of instalments. The undisputed fact is that the borrowings were for the business of STP undertaking. Under the Exchange Control Regulation, the assessee is prohibited from any pre-payment of ECBs. For any pre-payment of the loan, the assessee had to seek prior permission of the Central Government. In the year 1999, the Government had formulated a policy on pre-payment and the policy stated that approval of pre-payment would be granted only to the extent of 10% of the outstanding loan. Hence, even after going through the regulation, the assessee would have to repay a small portion of its outstanding loans, though it had the liquidity to do so. Hence, it is required to temporarily park the funds, until the date of repayrnent, and also keep paying the interest on the loans. The assessee took a business decision to place these funds with various sister concerns as inter- corporate deposits. The assessee claims that the interest derived from deposits in the EEFC account and the interest income earned orn inter-corporate deposits, have to be assessed under the head income from business. Further, the assessee claimed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 'profits and gains derived by the assessee from a 100% export oriented undertaking'. Finally, they held that the term from the business of' is much wider than the term derived from industrial undertaking . Keeping the said distinction in mind, they held that the entire profits deriving from the business of undertaking should be taken into consideration, while computing the eligible deduction under Section 10B/ 10A of the Act, by applying mandatory formula. After introducing Section 80 HHC, it was observed, that the legislature intended to exclude interest from the term profits of business of undertakings under Sections 10A and 10B of the Act and similar provision as in case of Section (baa) would have been inserted. No such explanation has been. introduced in Sections 10A and 10B and therefore, it held that the interest income is exempted from payment of tax and also their claim for allowance of 5% on scientific basis should be allowed. Aggrieved by the said order, the revenue is in appeals. 4. Learned Counsel for the revenue assailing the Impugned order contended that having regard to the Section 10B of the Act, what is to be taken into consideration is prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng deduction under - Sections 10A and 20B of the Income Tax Act? 2. Whether the Appellate Authorities were correct in holding that the management expenses attributable to the income earned by way of interest is allowable at the rate of 5% and not at the rate of 4% as computed by the Assessing Officer without assessing any cogent reasons for applying such charges? 6. Learned Counsel for the revenue in support of his contentions relied on several judgments, which are as under: The Apex Court in the case of PANDYAN CHEMICALS LTD. VS. COMMISSIONER OF INCOME TAX reported in (2003) 262 ITR 278, while dealing with Section 80HH of the Act has held as under. 6. xxxxxxXxxxx The word 'derived' is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition. 7. This definition was approved and reiterated in 1955 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l undertaking of the assessee and would only be incidental income thereto and, therefore, such interest has to be ignored from the allowable profits under Section 80 HH. Following the aforesaid judgments, the Division Bench of this Court in the Case of ANIL DANG VS. INCOME TAX OFFICER REPORTED IN (2012) a44 ITR 143 (Karn) has held that the primary condition to claim deduction under Section 80HHC would be that the assessee should have derived profits from export of goads or merchandise and bailee. The assessee would not be allowed to compute the total income by deducting profits derived from export. The Bombay High Court in the case of COMMISSIONER OF INCOME TAX VS. SHAH ORIGINALS REPORTED IN (2010) 327 ITR 19 has held that 'an assessee who is a exporter, is not under an obligation cf law to maintain the export proceeds in EEFC account but, this is a facility which is made available by the Reserve Bank of India. The transaction of export is complete in all respects upon the repatriation of the proceedings. It lies within the discretion of the exporter as to whether the export proceeds should be received in a rupee equivalent in the entirety or whether a portion should be maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided further that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub- section shall be ninety per cent of the profits 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 : Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139. (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. By Finance Act, 2001, with effect from 01.04.2001, the present Subsection (4) is substituted in the place of old Subsection (4). No doubt Subsection 10(B) speaks about ..... X X X X Extracts X X X X X X X X Extracts X X X X
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