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TMI Blog2019 (2) TMI 1889X X X X Extracts X X X X X X X X Extracts X X X X ..... ightly treated the interest income to be eligible for deduction under section 10AA of the Act as per the findings noted in earlier paragraphs. Substantial merit in the action of the CIT(A) in holding the interest income from FDRs to be business income of SEZ unit consistent with the position taken by the assessee in view of the purpose and utilization of FDRs for its business operation. We profitably refer to the decision of Hewlett Packard [ 2017 (11) TMI 205 - KARNATAKA HIGH COURT] wherein it was held that interest income earned by the assessee on the deposits placed by it with banks in the ordinary goods of its business would not be taxable as income from other source under section 56 of the Act and is required to be treated as business income of the assessee regardless of the fact that assessee is not engaged in any banking/financial activity. The interest income thus is eligible for deduction under section 10AA of the Act on such income once it falls in the ambit of the business income - Thus the CIT(A) in our considered view has rightly hold interest income from FDRs to be business income and consequently eligible for deduction under section 10AA of the Act in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10AA of the Income Tax Act. 3. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance u/s 14A of ₹ 2,07,682/-. 4. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of interest on advance given for purchase of immovable property of ₹ 4,83,675/-. 3. Ground No. 1 and 2 concerns eligibility of deduction of interest on fixed deposit amounting to ₹ 9,61,73,903/- for the purposes of Section 10AA of the Act. The assessee company is engaged in the business of trading in bullion commodities etc. The return filed by the assessee company was subjected to scrutiny assessment. In the course of the scrutiny assessment, the Assessing Officer (AO) noticed that the assessee had inter alia claimed deduction under section 10AA at ₹ 1,98,09,720/- for a unit at SEZ. It was further noticed that the assessee had also included interest on fixed deposits ₹ 9,61,73,903/- as profits of the business of SEZ unit and considered it as income chargeable under the head profits and gains of business and profession for the purposes of the computation of deduction under section 10AA of the Act. It was thus noticed that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss cycle as reproduced in the order of the CIT(A) and essentially submitted that while the sales are made on spot, the purchases are obtained on credit with the help of the fixed deposits placed with the bank as margin money against such purchases. The assessee accordingly submitted before the CIT(A) that in the facts and the circumstances of the case where the fixed deposits were kept owing to mandate of the bank to get Letter of Credit to avail credit period on purchases, the interest income on such fixed deposits is directly and inextricably linked with the business of the assessee. The CIT(A) examined the submissions made by the assessee as well as long line of judicial precedents and concluded that the fixed deposits in the instant case are integral part of the business operations of the SEZ unit and consequently the incidental interest income arising from such fixed deposits are nothing but business income . For this proposition the CIT(A) took note of several decisions of the Hon ble Gujarat High Court. 3.3. The CIT(A) accordingly held that the AO was not justified in excluding the interest income earned from fixed deposits but in the nature of business income for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived from the export of articles or things or services (including computer software) shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on 16[by the undertaking]: Profit derived from export = Profit of business undertaking Export turnover of undertaking The appellant, thus, stressed the point that the word 'derived' from is missing while computing deduction u/s. 10AA which is part of computation for deduction u/s 80HHC and 80HH etc. 5.3 At the very outset it can be said that the assessee's is eligibility for deduction u/s. 10AA is not disputed. The assessee had justified its claim for deduction u/s. 10AA during the course of assessment by producing relevant documents, approvals which are required to the SEZ undertaking. The only dispute is with respect to the interest income from bank FDRs as a margin money for the purposes of business. I have perused the various case laws cited by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in Continental Construction Ltd vs CIT 195 ITR 81 wherein such observation was made in page 109 of the order by the Hon'ble Supreme Court. But we are unable to agree with him that there is an antithesis between the categories of income so specified and the expression profits and gains . It is no doubt true that, wherever the statute refers to the profits and gains of a business, it has in mind the income chargeable under the Act under that head - head D specified in Section 14 of the Act - but the other categories of income referred to in the various sections are not correlated to the head-wise classification of Section 14. It is well known that items of interest, dividends and other items of remuneration are not always referable to any particular head. They may be assessable as business income or income from other sources. In particular, the receipts by way of royalty, fee, commissions and similar payments may be derived in the course of a business or profession and constitute part of the profits and gains of such business or profession. 5.5 To proceed further, I find that in the instant case the appellant primarily has created these FDRs as a margin m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustified in making a disallowance of ₹ 1,98,09,270/-. The A.O. is directed to allow the claim of the assessee u/s. 10AA amounting to ₹ 1,98,09,270/-. Further, since deduction u/s. 10AA is fully allowed, this deduction shall be reduced by ₹ 5,l7,104/- as held by the A.O. in para-4 of his order u/s.143(3). Ground no. 3 is therefore dismissed. The CIT(A) accordingly allowed deduction under section 10AA as per the mode of computation provided in sub section 7 to section 10AA of the Act. 3.4. Aggrieved, the Revenue preferred appeal before the Tribunal. 3.5. The learned DR for the Revenue relied upon the order of the AO. 3.6. The Ld. AR for the assessee, on the other hand, relied upon the order of the CIT(A) and also the decision of Full Bench of Karnataka High Court in CIT vs Hewlett Packard Global Soft Ltd. (2017) 87 taxmann.com 182 (Karnataka)(FB) and the decision of the coordinate bench in DCIT vs Ausom Enterprise Ltd. ITA No. 1519/Ahd/2016 order dated 15/10/2018 for the proposition that interest from bank FDR kept as margin money is required to treated as business income and consequently eligible for deduction under section 10AA of the Act as per st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10AA(7) of the Act. 4.1. At this stage, we take note of section 10AA(7) of the Act which explicably expounds the profit derived from export of such articles or things to mean the amount which bears to the profits of the undertaking , the same proportion as the export turn-over bears to the total turnover of the business carried on by the eligible undertaking. Thus, what is required to be determined is whether the interest income qualifies as the profits of the business of the undertaking in contrast to whether it is profit derived from the business . In other words, for determining the scope of section 10AA(7), the reference to the expression derived from is not material. To expound further profits of the business of the undertaking is wider than profits and gains derived by an undertaking . In short, the profits derived from export have been equated with business profits of the undertaking as per the formula laid down by section 10AA(7) of the Act. Thus, the direct nexus or proximity of business income with the export activity is not necessary in view of section 10AA(7) of the Act. In view of the aforesaid discussion the CIT(A), in our view, has rightly trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n advance given for purchase of immovable property amounting to ₹ 4,83,675/-. The perusal of the order of the CIT(A) shows that the assessee had demonstrated before the first appellate authority that the advances given for purchases of immovable property is far in excess of the interest free funds. The relevant operative para of the order of the CIT(A) is reproduced hereunder for ready reference:- Decision 9. With respect to ground no. 4 relating to disallowance of ₹ 4,83,675/- vis- -vis the advances given for purchases of immovable property, the appellant has submitted a similar argument that sufficient interest free funds were available, as was observed by the AO himself. The appellant also relied on the following judgment by the Hon ble Gujarat High Court namely (a) CIT vs GSFC Ltd. 358 ITR 0323(Guj) (b) CIT vs Gujarat Narmada Valley Fertilizers Col. Ltd. 221 Taxman 479 (c) CIT vs Raghuvir Synthetics 354 ITR 222. (d) CIT vs Reliance Utilities Power Ltd. 313 ITR 340 9.1 The fundamental principle highlighted in these judgments, as pointed out by appellant, is that if there are funds available, both interest free and overdraft or loans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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