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2005 (5) TMI 246 - ITAT BOMBAY-GInterpretation Of Statutes - Disallowance of exemption u/s 10A - Industrial Undertaking - Free Trade Zone - Interest earned on FDs - Foreign exchange gain - business of manufacturing of gold jewellery studded with diamonds - HELD THAT:- If the provisions of section 10A and section 80HH are read in juxtaposition, it would be seen that section 10A entitles an assessee to deduction of such profits and gains as are derived from the export of articles or things. On the other hand, u/s 80HH deduction is available to an assessee in respect of profits and gains derived from an industrial undertaking. The crucial words in both the sections are "derived from". In our view, there is hardly any material difference between the legal requirements of section 80HH and section 10A. In the case of Pandian Chemicals Ltd.[2003 (4) TMI 3 - SUPREME COURT], it was observed by the Supreme Court that the words "derived from" must be understood as something, which has a direct or immediate nexus with the industrial undertaking. In that case, the assessee derived interest on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking. Thus, the deposits made by the assessee were essential requirement for carrying on the functioning of the industrial undertaking. The electricity was required for the purpose of running the industrial undertaking. Nevertheless, the Hon'ble Supreme Court held that the interest earned by the assessee on such deposit was not profit derived from the industrial undertaking and, therefore, the assessee is not entitled to deduction u/s 80HH. Thus, we do not consider it necessary to discuss the various cases, which have been relied upon by the ld. counsel for the assessee. As mentioned above, the Supreme Court decision in the case of Pandian Chemicals Ltd., was not considered in any of the cases. We, therefore, hold that the interest income is not eligible for deduction u/s 10A as such income cannot be said to be in the nature of profits and gains derived from the export of articles or things. Therefore, on this issue, we confirm the order of ld. CIT(A). Interest income can be excluded from the profits - We, direct the Assessing Officer to exclude from the profits only the net interest. The assessee may be allowed an opportunity to establish direct nexus between the interest payment and interest receipt and the interest expenditure, which is directly referable to earning of interest income may be deducted therefrom and only the net interest income, if any, may be excluded from the profits for the purpose of section 10A. Foreign exchange gain - There is no material difference between the requirement of section 80HHC and section 10A. The profit on account of foreign exchange gain is directly referable to the articles and things exported by the assessee. Such profits are, therefore, in the same nature as the sale proceeds and there is no reason while deduction u/s 10A should not be allowed in respect of such exchange gain. Therefore, we vacate the order of the ld. CIT(A) on this issue. In the result, the appeal stands partly allowed.
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