TMI Blog2004 (6) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, for the purpose of claiming deduction u/s 10B, the assessee should show that the profit was received from the export for the assessment year under consideration. In our view, though by way of legal fiction, the excess provision was treated as income u/s 41(1) of the Income-tax Act, it cannot be treated as income derived from export. Therefore, we do not find any infirmity in the order of the first appellate authority. Accordingly, we confirm the same. Refund received by the assessee from sales tax authorities. As already discussed regarding the issue of excess provision, the refund of sales tax may be a business income because of section 41(1) of the Income-tax Act. However, it cannot be construed as income received from export of business or it would not form part of export turnover. Now coming to the special import license, the assessee received this special import license because of the scheme framed by the Government of India to encourage the export business. It may be a business income because of section 28( iii ) of the Income-tax Act. For the purpose of claiming deduction under section 10B, the income should be derived from export business and form part of export turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the assessee. 3. The learned counsel for the assessee further submitted that the assessee is 100 per cent export-oriented unit and, therefore, eligible for deduction under section 10B. In the course of its business, the assessee deposited money in the bank in order to obtain guarantee in favour of the Government of India as per the Notification issued by the Customs Department. According to the learned counsel, unless and until the assessee deposits the money and obtain guarantee in favour of the Government of India, the assessee will not be permitted to import goods free of duty for the purpose of manufacturing and re-export. If the guarantee is not provided, the assessee has to pay customs duty on import. So the deposit made by the assessee reduces the expenditure incurred by the assessee in exporting goods. Therefore, the learned counsel submitted that the interest income received from the bank is directly connected with the business of the assessee. The learned counsel placed his reliance on the judgment of the Apex Court in the case of CIT v. Karnal Co-operative Sugar Mills Ltd. [2000] 243 ITR 2 and submitted that interest received from bank deposit which is made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on also. 5. The learned counsel for the assessee further submitted that the sales tax which was paid in the earlier year was refunded when the assessee filed the proof of export. The refund of sales tax is nothing but a reduction to purchase price of the goods. Therefore, it is an income under section 41(1) and it is closely connected with the business activity of the assessee. Therefore, the sales tax refund received by the assessee should also be included for the purpose of computing relief under section 10B. 6. The learned counsel for the assessee further submitted that the assessee has received Special Import License on the basis of the scheme framed by the Government of India. The sale value of the special import license was given to the exporter as compensation. This income is also taken into account by quoting the price for exports. Therefore, this income is also eligible to be included for the purpose of relief under section 10B. The learned counsel further submitted that sale value of special import license is an income in view of under section 28( iii ) of the Income-tax Act. 7. On the contrary, Mr. S. Ganapathy Iyer, the learned Departmental Representative (D.R.) submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as allowed exemption under section 10B in the respective assessment years, namely, 1999-2000 and 2001-02 which included the provision disallowed by the assessee as stated in the written submission. Since the expenditure which was disallowed was fully allowed as exemption under section 10B, the disallowance was treated as business income of the respective assessment year. Therefore, any excess provision withdrawn and made as income for the assessment year under consideration has to be taxed on the ground that the income relating to earlier years are not taxable under section 10B. According to the learned D.R., the entire provision deducted under section 10B was granted in respect of the year in which the provision was made. 9. Coming to the sales tax refund, the learned D.R. submitted that the assessee has received a refund of Rs. 1,15,212 after producing a proof for export. The refund of sales tax is nothing but business income. The assessee is entitled for deduction in respect of income derived from export business. The refund received by the assessee may be closely connected with the business activity of the assessee, but it does not mean that the assessee derived the income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10A says that a deduction shall be allowed from the total income of the assessee in respect of profit and gains derived by an undertaking from the export of article or thing or computer software. Section 10B also speaks of deduction from the total income of the assessee in respect of profit and gain derived by hundred per cent export-oriented unit from the export of article or thing. Sub-clause (4) in both sections 10A and 10B says the method of computation. The languages used in both the sections are identical and same. The Madras High Court considered section 10A in the case of Menon Impex (P.) Ltd. ( supra ). After referring to the judgment of the Supreme Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579, the Madras High Court held that the interest received by the assessee on deposit made for the purpose of obtaining letters of credit which letters of credit would in turn used for the purpose of business of the assessee does not establish a direct nexus between the interest and industrial undertaking. In this case also, the assessee has obtained bank guarantee in favour of Government of India for the purpose of importing goods without duty. In other words, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras High Court held the interest received by the assessee from the bank deposit has been included in the computation and assessed as income from profits and gains of the business. Therefore, this has to be regarded as having been derived from the export effected by the assessee. In this case, the Madras High Court has not considered the judgment of the Supreme Court in the case of Sterling Foods ( supra ). In the case of Menon Impex (P.) Ltd. ( supra ), the Madras High Court after considering the judgment of the Apex Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 and also the judgment of the Apex Court in the case of Sterling Foods ( supra ), came to the conclusion that the interest received by the assessee does not establish direct nexus between the interest and industrial undertaking. Furthermore, the language of section 10A is similar and identical when compared to section 10B. Therefore, in our view, we are bound to follow the judgment of the Madras High Court in the case of Menon Impex (P.) Ltd. ( supra ). Since Madras High Court held that the interest income received from bank deposit is not eligible for deduction under section 10A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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