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TMI Blog2016 (5) TMI 1627X X X X Extracts X X X X X X X X Extracts X X X X ..... HELD THAT:-As respectfully following the order of the earlier years we direct the AO to allow the deduction u/s. 10A before setting off of the brought forward unabsorbed depreciation. Treating the interest income on deposits with banks and other receipts as chargeable to income-tax under the head 'Income from other Sources' - assessee's claim that such interest income and other receipts are chargeable to tax under the head "Profit and Gains of Business or Profession" and eligible for deduction u/s 10A of the Act - HELD THAT:- As relying on assessee own case or A.Ys. 2006-07 & 2007-08 [2015 (12) TMI 296 - ITAT MUMBAI] this issue is decided in favour of the assessee and interest income is directed to be held as assessable under the head income from business. Computation of deduction of 10A - HELD THAT:- A careful reading of provisions of section 10A suggest that nothing has been excluded from the definition of 'profit of the business of the undertaking" and deduction has been stipulated to be allowable on the amount of the profits of the business of the undertaking in the proportion of the export turnover to total turnover of the business carried on by the undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 13,09,31,171/- to the income of the Appellant by rejecting the submissions of the Appellant which state that it is engaged in provision of back office support services which are in the nature of information Technology Enabled Services (ITES) as per the instructions, guidance, training and standard operating procedures of group entities in India and overseas and wrongly characterizing the appellant as a knowledge process outsourcing (KPO) company: 2. The reference to the Addl. CIT transfer Pricing 1(5), Mumbai (TPO) under section 92CA by the DCIT was bad in law, in excess of jurisdiction and/void in law. 2.1. the appellant prays that the book value of the international transactions of provision of ITES, be held to be the arm's length price of the said transactions as per the Appellants Transfer Pricing Documentation, and therefore, the aforesaid addition made by the DCIT be deleted. 3. On the facts, in law and in the circumstances of the case, the DCIT erred in holding that unabsorbed depreciation of Rs. 19,89,361 has emanated from exempt unit and accordingly set off of the same against the taxable income computed after allowing exemption under section 10A is denied. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel relied upon the order of the Tribunal. On the other hand, Ld. CIT-DR relied upon the orders of the lower authorities and submitted that decision of the MAP was pertaining to only transactions done with its US-AE and therefore, the same cannot be applied on transactions done with other AE's. 4.2. We have gone through the orders of the lower authorities as well as order of the Tribunal of A.Ys. 2006-07 and 2007-08 and find that this issue is squarely covered by the order of the Tribunal; relevant portion of the same is reproduced below: "3.6 We have gone through the arguments made by both the sides and also the material placed before us for our consideration. It is noted that letter dated 9th April 2015 in F-no. 480/13/2010-FTD-1 has been issued in the case of the assessee company under MAP proceedings for A.Y. 2006-07 to 2010-111 by the DCIT(OSD), APA-I on behalf of the Foreign Tax and Tax Research Division -I, Central Board of Direct Taxes, New Delhi wherein it has been confirmed that for A.Y. 2006-07, for US related transactions, the margin has been determined at 14.38% as against margin of 21.58%, as was determined by the Transfer pricing officer (TPO). It has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue has been arising in earlier years i.e. in assessment years 2005-06, 2006-07 & 2007-08, wherein this issue has been decided by the tribunal in the favour of the assessee. 6.2. We have gone through the orders of the lower authorities of the impugned year as well as earlier years. It is noted that in the order passed for A.Ys. 2006-07 & 2007-08, the Tribunal has relied upon its order for A.Y. 2005-06 and directed the AO to allow the deduction u/s. 10A before setting off the brought forward unabsorbed depreciation. The relevant portion of the order of the tribunal is reproduced below: "4.2. We have gone through, with the assistance of the parties, the order of Hon'ble Tribunal for A.Y. 2005-06 in ITA No. 5547/Mum/2009 dated 23.04.2013, in assessee's own case. The relevant Para's of the Tribunal's order are reproduced herein. "12. The grievance relates to the setting off of the unabsorbed depreciation. It is the contention of the assessee that in computing income under the head "Profits & gains of business or profession" deduction u/s. 10A should be allowed before setting off of brought forward business loss and unabsorbed depreciation and the same should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the context of the deduction which is allowable under section 10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. In the circumstances, the decision of the Tribunal would have to be affirmed since it is plain and evident that the deduction under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance. So construed, the appeal by the Revenue would not give rise to any substantial question of law and shall accordingly stand dismissed. There shall be no order as to costs." Respectfully following the decision of the Hon'ble Jurisdictional High Court, we direct the AO to allow deduction u/s. 10A before setting of the brought forward unabsorbed depreciation and business loss. Ground No. 5 to 9 taken together is allowed." 4.3. It is noted that none of the parties have disputed that facts of both the years are simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under such situations the immediate source of interest is deposit/FDRs/loans and the same cannot be termed as 'derived from' export oriented undertaking. The connotation 'derived from' is much narrower than that of the phrase 'attributable to'. He placed reliance on following judgments: "i. Liberty India 317 ITR 218 (SC) ii. Pandian Chemicals 262 ITR 278(SC) iii. Sterling Foods 237 ITR 579(SC) iv. Shah Originals 327 ITR 19(SC) and v. Swani Spice 332 ITR 288 (SC)." 7.4. The Ld. CIT-DR made an alternative argument also that in case impugned interest income is considered as business income then quantification of the amount of deduction allowable should be done strictly in accordance with the mechanism of computation provided under sub-section (4) of section 10A, and thus, the assessee cannot be provided 100% deduction on the total amount of interest income of Rs. 8.19 crores. The deduction can at the most be allowed proportionately as envisaged u/s. 10A(4). In the rejoinder, Ld. Counsel of the assessee relied upon the judgment of Hon'ble Supreme Court in the case of CIT v. Lakshmi Machine Works 290 ITR 667 for the proposition that amount of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commercial Ltd. (supra) has held that where an assessee was 100% exporter, deduction u/s. 80HHC had to be given on the entire business income including interest on fixed deposit. According to the Hon'ble Jurisdictional High Court, entire profits of 100% exporter was entitled for deduction u/s. 80HHC of the Act. Again the Hon'ble Delhi High Court in the case of CIT v. Eltek S.G. (supra) has held that the term "derived by an undertaking from export of articles of things or computer software" used in section 10A was neither as broad as "attributable to' nor as narrow as "derived from". Though section 80HHC of the act used the term derived from, Hon'ble jurisdictions High Court in the case of Punit Commercial Ltd. (supra) held that the whole for the business income was eligible for deduction u/s. 80HHC of the act. Further to this, we also find that Hon'ble Jurisdictional High Court in the case of CIT v. Lok Holding (supra) has clearly held that if surpluses were deposited by the assessee out of its business proceeds interest there from could only be considered as part of profits and gains of business of the assessee. Therefore, we are inclined to allow the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reat the interest from fixed deposits as income falling under the head "Profits & gains of business or profession" eligible for deduction u/s. 10A of the Act. Ground Nos. 3 & 4 are accordingly allowed. 5.5. The perusal of the order of the Tribunal shows that income of interest was assessed as income from business in earlier years. There is no change in facts in the impugned year as nothing could be brought on record by Ld. CIT-DR to show that there was change in facts in this year. Therefore, respectfully following orders of coordinate bench of earlier years in assessee's own case, we hold that interest income, would be assessable under the head income from business." 7.7. During the course of hearing before us, Ld. CIT-DR did not make out any distinction in the facts of the impugned year as compared to the facts of the earlier years with regard to the nature of interest income earned by the assessee in these years. Thus, we have no option but to follow the orders of the earlier years. Therefore, this issue is decided in favour of the assessee and interest income is directed to be held as assessable under the head income from business. 7.8. With regard to second issue also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculously pondered over this issue. In case, clear mandate of sub-section (4) is not followed and full deduction is allowed u/s. 10A on the interest income, then it may yield absurd results and also provide benefits to assessees which were not intended to have been provided by the legislature, keeping in view objective of enactment of section 10A. At times, there may be situations where interest income would be of sizeable amount, sometimes even more than amount of profits, and in such a situation, if 100% deduction is granted to the assessee, on the interest income or any other similar income, without following mandate of sub-section (4), it may frustrate the objective of section 10A. Therefore, to avoid any such situation, clear mechanism has been provided under sub-section (4) for computation purposes. Therefore, our decision is in line with express as well as implied provisions of section 10A." 7.9. From the perusal of the above, it comes out that object of section 10A as is embedded in section 10B/10A is to provide the tax concessions to those assessees who are exporting goods out of India and bringing foreign exchange into India. Under these circumstances in case 100% deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has to give a schematic interpretation to that expression. There is one more reason for giving schematic interpretation. The various amendments to Section 80HHC show that receipts by way of brokerage, commission, interest, rent etc. do not form part of business profits as they have no nexus with the activity of exports. If interest or rent was not regarded by the legislature as business profits, the question of treating the same as part of the total turnover in the above formula did not arise. In fact, Section 80HHC had to be amended several times since the formula on several occasions gave a distorted figure of export profits when receipts like interest, rent, commission etc. which did not have the element of turnover got included in the profit and loss account and consequently became entitled to deduction. This was clarified by the above amendment to Section 80HHC commencing from 1.4.92. The said amendment made it clear that though commission and interest emanated from exports, they did not involve any element of turnover and merely for the reason that commission, interest, rent etc. were included in the profit and loss account, they did not become eligible to deduction. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In that formula the entire business profits is not given deduction. It is the business profit which is proportionately reduced by the above fraction/ratio of export turnover w total turnover which constitute 80HHC concession (deduction). Income in the nature of "business profits" was, therefore, apportioned. The above formula fixed a ratio in which "business profits" under Section 28 of the Act had to be apportioned. Therefore, one has to give weightage not only to the words "total turnover" but also to the words "export turnover", "total export turnover" and "business profits". That is the reason why we have quoted hereinabove extensively the illustration from the Direct Taxes (Income tax) Ready Reckoner of the relevant word. In the circumstances, we cannot interpret the words "total turnover" in the above formula with reference to the definition of the word "turnover" in other laws like Central Sales Tax or as defined in accounting principles. Goods for export do not incur excise duty liability. As stated above, even commission and interest formed a part of the profit and loss account, however, they were not eligible for deduction under Section 80HHC. They were not eligible eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso excise duty and sales tax did not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded. Commission, interest, rent etc. do yield profits, but they do not partake of the character of turnover and, therefore, they were not includible in the "total turnover". The above discussion shows that income from rent, commission etc. cannot be considered as part of business profits and, therefore, they cannot be held as part of the turnover also. In fact, in Civil Appeal No. 4409 of 2005, the above proposition has been accepted by the A.O. [See: page No. 24 of the paper book], if so, then excise duty and sales tax also cannot form part of the "total turnover" under Section 80HHC(3), otherwise the formula becomes unworkable." Emphasis supplied by underlying the relevant observations. 7.11. We have gone through the provisions of section 80HHC. It is noted that various types of receipts of the nature of brokerage/commission, interest, rent, etc are excluded from the amount of business profits at the very threshold, and thereafter by way of a formula, which is peculiar to section 80HHC alone, these types of receipts are b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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