TMI Blog2002 (5) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 14 of the Industries (Development and Regulation) Act, 1951 and Rules made thereunder. (b) The Ld. CIT(A) ought to have accepted the submission of the assessee that the Central Government has conferred authority on the Department of Electronics, to grant approval under section 14 of the Industries (Development and Regulation) Act, 1951 and Rules made thereunder pursuant to which the approval was given to the Nagarjuna Hills unit and as such benefit of exemption under section 10B in respect of the income therefrom was available to the assessee. He ought to have given an opportunity to the assessee to produce necessary evidence in this behalf. (c) The CIT(A) ought to have held that the benefit of exemption from tax in respect of income from STP unit at Nagarjuna Hills was available to it under section 10A by virtue of the fact that under letter dated 26-6-1995 of the Department of Electronics, the said unit was approved as its initial plant at Maithrivanam Complex which was approved as 100% Export Oriented Unit under letter dated 26-6-1991 of the said Department. (d) The CIT(A) erred in holding that the benefit of section 10A cannot be extended to the income at Nagarjuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exp. disallowed Under Rule 6D - as per annexure - 1 11045 2761 3935793 Gross Income before depreciation 24313189 Less: Depreciation as per IT Rules 3685244 Gross Total income before deduction under Chapter VIA 20627944 1. U/s 80-HHE Total Turnover - Domestic - 6.64% 3899544 6.64 - Exports - 93.36% 54867492 93.36 -------- 58767036 Deduction u/s 80HHE @ 93.36% 19258249 Gross Total income after 80HHE 1369096 2. U/s 80-IA @ 3096 of 1369696 410909 Taxable income 958787 Tax @ 43% 412278 Less: TDS/Advance/Self asst. tax/tax 2628702 payable/refund - 22164 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 41,18,367. It has separately claimed deductions under section 80HHE and under section 80-I in respect of the balance of the profits of the assessee. This was the computation which was considered by both the Assessing Officer (A.O.) and the CIT(Appeals). 3. It has, however, been mentioned before us that the assessee has filed before the A.O. a revised computation of income claiming deduction under sections 10A and 10B of the Act and the said revised computation allegedly filed reads as under: "Revised computation of taxable income Profit as per P L A/C Rs. 2,44,95,763 Add : Inadmissible Exp./allowances to be considered separately 1. Depreciation as per books of account 3844638 2. Provision for Bonus 582000 Less: Paid before filing of IT return 487339 94661 3. Entertainment Allowed Rs. 165727 Upto Rs. 10,000 - 100% Balance Rs. 158679 - 50% 79340 4. Travel Exp. disallowed under Rule 6D-As per Annexure-I 11045 2761 4021400 Gross income before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of Software using data communication channels. I am directed to inform you, that your case has been considered by the Inter-Ministerial Standing Committee of Department of Electronics on Mini-computer / Micro processor based items and Computer Software in its meeting held on September 24, 1991 and the committee has approved the same under the Software Technology Park Scheme subject to the enclosed terms and conditions as applicable. Yours faithfully, sd/= (S.C. Dey) Encl: As above Sr. Scientific Officer It may be mentioned that the above approval is accompanied by a copy of the terms and conditions for establishment of units under STP Scheme. The relevant terms and conditions of STP Scheme read as under: "1. The party shall undertake to export the entire production (100%) for a period of 10 years. For this purpose, the party will furnish the requisite legal agreement/bank guarantee. 2. The technology parks will be utilised only for the development and 100% export of software through the medium of satellite earth station connected to computers/computer based equipment/computer related equipment linked through appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as limited to the income from the operations at Nagarjuna Hills, Hyderabad. The A.O. denied the claim of the assessee for exemption under section 10A on the ground that the exemption under section 10A(2)(1)(b) is available only to an industrial undertaking which has begun its manufacture of articles or things during the previous year relevant to the assessment year commencing on or after 1-4-1994 in any STP Scheme and the assessee commenced its manufacturing operations at Maithrivanam as early as in 1991 as evidenced by the letter of Department of Electronics dated September 26, 1991 which we extracted hereinabove. It was also held that the assessee was not eligible for exemption of the income from operations even at Nagarjuna Hills, Hyderabad as it was not a new unit. In other words, he held that the operations at Nagarjuna Hills were only an expansion of original operations at Maithrivanam started by the assessee in the year 1991 and so, according to the A.O. the assessee was not entitled for exemption of income from operations at Nagarjuna Hills. He also held that the assessee was not entitled for exemption of this income under section 10B of the Act as the assessee was not an 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 which reads as under: "Subject : Tax holiday under sections 10A and 10B for units producing computer software in Export Processing Zones (EPZs), *Software Technology Parks (STPS) or 100% Export Oriented Units (EOUS) - certain clarification thereon. Section 10A of the Income-tax Act provides for a five year total tax holiday to industrial undertakings which manufacture or produce any article or thing and are set up in notified Free Trade Zones (FIZs). This provision was introduced by the Finance Act, 1981. 2. Similarly, section 10B of the Income-tax Act allows a five year tax holiday to approved 100% Export Oriented Undertakings (EOUs), which manufacture or produce any article or thing. This provision was introduced by the Finance Act, 1988. 3. Finance Act, 1993 extended the tax holiday under section 10A to industrial units in approved Electronic Hardware Technology Parks (EHTP) or Software 'Technology Parks (STP). This provision is applicable to undertakings that begin production in a previous year relevant to the assessment year 1994-95 or after. By the same Finance Act, an Explanation of the term "produce" was inserted to state that "produce" includes production of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee came into existence as a unit set up under STP Scheme vide letter dated 26th Sept., 1991 by the Department of Electronics, Software Development Division extracted above, by virtue of above Circular of CBDT, units set up before 1994 also became eligible for exemption of income under section 10A of the Act. Finally, it has been pleaded that a 100% export oriented unit set up under the STP Scheme can also a 100% EOU and vice versa So it is claimed that there is no reason to withhold the benefits of section 10B from the assessee. 7. The learned Departmental Representative, on the other hand, mentioned that section 10A granted exemption initially only for the units set up in free trade zone and such free trade zone has been defined in clause (i) of Explanation to section 10A of the Act. The assessee admittedly has not been set up in any free trade zone and its claim for exemption under section 10A depended upon only the extension of the benefit to the units set up in any electronic hardware technology park or as the case may be, software technology park mentioned in clause (i)(b) of sub-section (2) of section 10A of the Act by virtue of the amendment brought about by Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ammes on any disc, tape, perforated media or other information storage device; (iv) "electronic hardware technology park" means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce; (v) "Software Technology Park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce, (vi) "produce", in relation to articles or things referred to in clause (1) of sub-section (2) includes production of computer programmes." Clauses (iv) to (vi) of the Explanation which includes the definition of the term "produce" had been inserted by Finance Act, 1993 with effect from 1-4-1994. 9. Because the definition of the word 'produce' as including the production of software programmes was inserted only w.e.f. 1-4-1994, some A.Os took the view that STP units even if they were under free trade zones within the meaning of section 10A of the Act and even software units qualifying as EOUs mentioned in section 10B, were not eligible for the benefit of section 10A or 10B, as the case may be, of the Act for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operations in Maithrivanam are eligible for exemption under section 10B and whether the said unit under Maithrivanam can qualify as 100% export oriented undertaking within the meaning of section 10B of the Act. It may be observed that the definition of "100% export oriented undertaking" given in clause (1) of Explanation to section 10B of the Act refers to an undertaking which has been approved as such by the Board appointed in this behalf by the Central Government in exercise of its powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951, and the rules made under that Act. Section 14 of IDR Act, 1951 reads as under: "Procedure for the grant of licence or permission - 14. Before granting any licence or permission under section 11, section 11A (section 13 or section 29B), the Central Government may require such officer or authority as it may appoint for the purpose, to make a full and complete investigations in respect of applications received in this behalf, and report to it the result of such investigation and in making any such investigation, the Officer or authority shall follow such procedure as may be prescribed," Sections 11, 11A and 13 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial Undertaking Rules, 1952 itself refers to the various Committees appointed under Rule 10 of RLIU Rules, 1952 and they are the following : (i) Project Approval Board (ii) Licensing/MRT Committee (iii) Licensing Committee (iv) Special Committee and Fertilizer Projects (v) Board of approval - 100% Export Oriented Undertakings (vi) Special Approval Committee (MRI) The above Committees consist of high level functionaries and most of the officers are of and above the level of Joint Secretaries drawn from various Ministries like Department of Industrial Development, Department of Company Affairs, Planning Commission, Ministry of Finance, Ministry of Commerce, Department of Science and Technology, Technical Development, DGTD and Administrative Ministry concerned or its nominee etc. As we are mainly concerned with the Board of Approval for 100% Export Oriented Undertaking, its composition and functions and powers etc., which are relevant for our purpose are reproduced hereunder from paper book of the assessee. "Board of approval for hundred per cent export-oriented undertaking Chairman (1) Secretary, Ministry of Commerce Members (2) Secretary, Department o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (54 of 1969) and report to the Central Government in regard to notices of applications under sections 21 and 22 of the said Act." The Scheme relating to the setting up of 100% Export Oriented Units is given in Annexures to RLIU Rules, 1952 and the said annexure reads as under: ANNEX "100 per cent export-oriented units" In order to bridge the increasing deficit in the balance of trade and running down of exchange reserves, it has become necessary to step up the growth of our exports. Accordingly, the Government have decided to implement a scheme to facilitate the setting up of 100% export-oriented units. It has been decided to give such units certain concessions to enable them to meet rigours of foreign demand in terms of pricing, quality precision, etc. 2. A 100 per cent export-oriented unit would imply an industrial unit offering for exports its entire production excluding permitted levels of rejects. An agreed time-phasing for achieving 100% export will be permissible on merits of each case. Such a unit would belong to an industry in respect of which the export potential and export targets have been considered by the relevant Export Promotion Council. The product c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Large Houses/MRTP units may be permitted to borrow from financial institutions at normal debt/equity ratio. (ix) Indigenously available capital goods, components and raw materials will be allowed without payment of Central Excise Duty. (x) Rejects upto 5% or such percentage as may be fixed by the Board may be allowed to be sold in the domestic tariff area on payment of customs duty on imported inputs and Central Excise Duty on the indigenous inputs and also Central Excise Duty on the rejects for an amount equal to the aggregate of such duties. (xi) Time phasing for achieving 100 per cent exports may be considered on merits. However, in such cases exports shall have to be at least three-fourths or more of the production. (xii) The gestation period for achieving export targets shall not be more than two years and the period of export obligation in terms of the approval shall commence after the gestation period. (xiii) The condition of export obligation shall be subject to review by the Board and the question whether the unit can be allowed to be debonded after completion of export obligation period and thereafter allowed to produce for domestic market shall be decided in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Refractories 2.4 Plastic and Linoleum products 3. Furniture 4. Leather and sports goods 4.1 Finished leather and leather manufactures, including footwear and paint brushes 4.2 Sports goods 5. Food, agriculture and forest products 5.1 Canned and frozen marine products 5.2 Processed foods, fruits, vegetables and alcoholic and soft beverages 5.3 Meat and allied products 5.4 packaged tea, i.e., tea packed in consumer packs of a size up to 1kg. and instant tea 5.5 Instant and packaged ground coffee 5.6 Tobacco manufacturers 5.7 Deoiled rice bran and cotton seed cakes, sal seed fats and animal foods 5.8 Mango kernel extraction and mango kernel oil 6. Textiles 1. Carpets 2. Readymade garments, knitwear, made-up articles. Annex 3. Rubberised coir and curled coir 4. Khadi 5. Natural silk fabrics, garments and made-up articles 6. Hosiery 7. Handloom fabrics, made-up articles and garments 7. Miscellaneous 1. Handicrafts 2. Silver and gold jewellery 3. Fabricated mica. We have reproduced the entire annexure because the main claim of the assessee before us has been that it is an 100% EOU whithin the definition of EOU given in clause (i) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme is a 100% export oriented scheme for undertaking of software development for export using data communication link or in the form of physical exports including export of professional services. 2.2 A Software Technology Park (STP) may be set up by the Central Government, State Government, public or Private sector undertaking or any combination thereof. An STP may be an individual unit by itself or it may be one of such units located in an area designated is STP complex by the Department of Electronics. 2.3 The Scheme is administered by the Department of Electronics, Government of India through Directors of respective Software Technology Parks which form part of the Software Technology Parks of India, a society established by the Department of Electronics, Government of India and registered under the Societies Registration Act, 1860. An application in the prescribed format for establishing a Software Technology Park unit is to be submitted to the Chief Executive of Software Technology Park Complex along with the details of the Software project. Such application will be considered by an Inter-Ministerial Standing Committee (IMSC) constituted under the Chairmanship of Secretary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t foreign exchange for this purpose will be defined as below: "Net foreign exchange earned for this purpose is defined as foreign exchange inflow as a result of software export loss foreign exchange outflows on account of all expenditure whatsoever other than initial hardware" 2.12 Use of computer system in STP for training purpose is also allowed subject to the condition that no computer terminal will be installed outside the STP for this purpose. 3.0 This Scheme is separate from the EOUIEPZ Scheme incorporated in Chapter-IX of the Export and Import Policy (1992-97). The provisions of STP Scheme contained in this notification shall not be applicable to the software units established in accordance with the EHTP Scheme notified, vide Notification No. 42 (N-8) 1992-97, dated 14th September, 1992, and software units established in an EPZ or as an EOU. This issued in public interest" We have provided the emphasis on those points which have been taken up by the learned counsel for the assessee and the Ld. DR in the course of their arguments. The learned counsel for the assessee also invited our attention to the copy of the Notification dated 22-2-1993 issued by the Ministry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of capacity. (iii) The committee shall consider and make a report, on policy questions arising from applications received under the said scheme or from the implementation of individual proposals thereunder in accordance with the policy laid down by the Central Government from time to time. (iv) The Committee may refer any matter in its discretion for the consideration and decision of the Central Government in respect of matters falling within its competence". (S. Behura) Joint Secretary to the Govt. of India In the light of above Notification dated 22-2-1993 and the subsequent Notification dated 22-3-1994 detailing the STP Scheme, the learned counsel for the assessee argued that Inter- Ministerial Standing Committee was originally constituted on 13-8-1991 and it was reconstituted on 22-2-1993. It is also claimed that the said Inter-Ministerial Standing Committee was constituted by the Ministry of Industry and the approval letter dated 26-9-1991 under which the unit at Maithrivanam was approved as a 100 per cent E.O.U. under the STP Scheme, was granted by the said Inter-Ministerial Standing Committee constituted under section 14 of IDR Act, 1951 by the Ministry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ronics will function as an effective instrument for single point clearance and for coordination of action of all cases of software development and software export. 2. For software export project, the entrepreneur will apply to CCI Wing of DOE in the form prescribed in appendix II-C of Handbook of Import and Export Procedures, 1985-88. The proposal will be considered in IMSC and the decision will be conveyed directly by ISC to the applicant within a period of six weeks. For cases under Exim Bank Scheme applications should be directly submitted to the Exim Bank. 3. All applications for import licence/custom clearance permit in format prescribed by CCI E will be sent directly to CCI-Wing of DOE. The import licence/custom clearance permit for import of the computer/computer based systems will be issued by JCCI E at Headquarters who will be ...... For cases under Exim Bank Scheme applications ....... of IMSC. He will be a member of IMSC. 4. In the case involving foreign collaboration and foreign investment, IMSC will examine and recommend the case direct to Chairman, FIB, for necessary approval. 5. Software exports will be eligible to all direct tax benefits as available to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at of the assessee which were established in earlier years. As it is a unit set up under the STP Scheme and not a 100% Export Oriented Unit within the meaning of clause (i) of Explanation to section 10B of the Act, it is not eligible for exemption even under section 10B. The Inter Ministerial Standing Committee (IMSC) even if appointed under RLIU Rules, 1952 read with section 14 of IDAR Act, 1951, is separate from the Board which was specifically meant for granting licences to 100 per cent Export Oriented Units which is a scheme quite separate from the STP Scheme. Admittedly, the assessee did not have specific approval of the Board constituted under RLIU Rules, 1952 read with section 14 of the IDR Act. The learned DR pointed out that the learned counsel for the assessee was referring to bits and pieces of various notifications/resolutions of Government of India relating to Software Units and was relying on such bits and pieces to state that the assessee qualified as a 100% EOU whereas the requirement of the section is that it must have a specific approval of the Board constituted under RLIU Rules, 1952, which was missing. In the absence of compliance with the requirements of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that does not mean that the Board that has been appointed for granting licences and approval for 100% EOUs has been replaced. The plea taken by the learned counsel for the assessee that the Inter Ministerial Standing Committee has been replaced by the Board on the basis of the contents of para 2 of the Notification of the Ministry of Commerce dated 22-3-1994 which we have extracted hereinbefore, to our mind, is misconceived. The said Notification states that for the purpose of paragraphs 111 to 117 of Chapter IX of the Export and Import Policy (1992-97), Board of approval shall be substituted by the Inter Ministerial Standing Committee. It is worthwhile to see the paragraphs 111 to 117 of Chapter-IX of Export and Import Policy (1992-97) and they read as under : "Sub-Contracting 111. The EOU/EPZ units may be permitted to sub-contract part of their production for job work to units in the DTA on a case to case basis. Requests in this regard will be considered by the concerned Customs authorities on the basis of factors such as feasibility of bonding, fixation of input and output norms, and furnishing of undertaking/bonds by the concerned units. Sale of imported materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import; (b) Customs duty on unused raw materials and components on the value on the dates of import and at rates in force on the dates of clearance." It is apparent that the Notification in question dated 22-3-1994 extended some incentives given to the EOUs to the units set up under the STP Scheme. Some of the above paragraphs like 114 talk of permission to be granted by the Development Commissioner subject to guidelines laid down by the 'BOA' that is, Board, para 117 refers to the approval by the Board and para 116 refers to bonding period under EOU Scheme. It is quite relevant that the EOU Scheme was very much in operation and under this Scheme, units had to be approved by the Board. It is only that, by the said Notification dated 22-3-1994, some of the facilities available to EOUs vide paragraphs 111 to 117 of the Export Import Policy (1992-97) have been extended to the units under the STP Scheme. The said Notification only clarified that wherever the Board was mentioned in the Export and Import Policy in its paras, it was substituted by the Inter Ministerial Standing Committee as STP Units were under the control of IMSC and EOUs were under the control of the Board. 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schemes like EOU /EPZ STP are different from each other. Para 9.1 of Export and Import Policy 1997-2002 clarified the matter further as under : "Chapter 9 Export Oriented Units (EOUS) Units in Export Processing Zones (EPZ), Electronic Hardware Technology Park Units (EHTP) and Software Technology Park Units (STP). 9.1 Eligibility - Units undertaking to export their entire production of goods and services may be set up under the Export Oriented Unit (EOU) Scheme, Export Processing Zone (EPZ) Scheme, Electronic Hardware Technology Park (EHTP). Such units may be engaged in manufacture, production of software, agriculture, acquaculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry and sericulture. Units engaged in service activities will also be considered on merits. Commensurate with the policy to give a special thrust to export of computer software, such units would be encouraged to be set up under any of the aforementioned export oriented schemes software units may undertake exports using data communication links or in the form of physical exports (which may be through courier service also), including export of professional services." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption under section 10B of the Act also. Perhaps, the assessee was aware of this position, that is how, it did not claim exemption under sections 10A and 10B in the original computation filed by it. Such a claim was not advanced in any of the earlier years. The new unit at Nagarjuna Hills was set up in the year of account relevant for assessment year 1997-98 and it was only from 1997-98 onwards that a claim under section 10A or 10B of the Act was made at some stage or other. The A.O. has granted exemption under section 80HHE for 1997-98 and 1998-99 and there is no dispute about the allowability of deduction under section 80HHE. So far as the exemption under sections 10A and 10B of the Act is concerned, for the reasons mentioned hereinabove, the assessee according to us, is not entitled for the same. 23. Before we close this part of the discussion, we want to reiterate that the grounds taken before us in the form No. 36 are different from those taken in the course of hearing. We have considered the grounds taken-in the course of hearing. Even other-wise, we mention that income from the operations from Nagarjuna Hills unit are not entitled for exemption under sections 10A and 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarificatory definition is not there in section 80-I. Accordingly, the appellant will not be entitled to deduction under section 80-I in respect of domestic sales." Normally, we would have set aside the orders of Revenue authorities on this issue as the claim of the assessee has been considered under section 80-I of the Act and not under section 80-IA(2)(iv)(a), but we do not find it necessary to set aside the same as what is involved is only a question of law and no enquiry into fresh facts in this regard is required. 26. The first question that is to be decided is whether the production of software qualifies as 'manufacture' or 'production' of article or thing within the meaning of section 80-IA(2)(iv)(a) of the Act. It may be observed that both the words 'manufacture' and 'produce' figure in sections 10A and 10B of the Act and the latter word has been specifically defined in both these sections by virtue of insertion effected by Finance Act, 1993 w.e.f. 1-4-1994. A plea has been taken by the learned counsel for the assessee that the said definition of 'produce' should be imported into other sections of the Act and in this context, reliance is placed upon the decision of Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 80-IA(2)(iv)(a) of the Act to the assessee. Further, we may mention here that there is no merit in the observations of the A.O. that the assessee cannot be granted deduction under section 80-IA because it is granted deduction under section 80HHE of the Act. The two sections operate in different spheres. Section 80HHE operates in respect of export income and 80-IA(2)(iv) in respect of income from domestic sales. Even if no separate books of account are maintained for export and domestic sales, when export profits are excluded as done by the A.O., what remains is the income from domestic sales. Accordingly, we hold that the assessee is entitled for deduction under section 80-IA(2)(iv)(a) of the Act and it may be granted. 27. The next ground is that the CIT(Appeals) was not justified in confirming the disallowance of expenditure of Rs. 58,175 and Rs. 7,92,601 on foreign travel and training fees of Sri B.G.V. Krishna, son of Managing Director of the assessee-company. The assessee added back these two amounts with the following observations : "Scrutiny of the books reveals that during the year Sri BGV Krishna the son of the M.D. had undertaken tours to USA in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce (Electrical Engineering) in Purdue University, USA. Sri BGV Krishna is the son of the Managing Director and he is not connected to the appellant company in any way. The case of Sri BGV Krishna is an isolated case where the appellant company has sponsored somebody for course in foreign university. There is no guarantee that Sri Krishna will complete the course and after completion, he will serve the appellant company. I therefore agree with the Assessing Officer that the expenditure was entirely personal in nature and had no connection with the business of the appellant. The disallowance of Rs. 58,175 and Rs. 7,92,601 are therefore confirmed." Before us, the learned counsel for the assessee has filed a letter dated 14-2-2000 addressed to the A.O. which reads as under: "Sub: Your letter No. Nil dated 14th Feb. 2000. With reference to your letter cited above, we wish to inform you that we have verified the minutes books of the company for the financial year 1996-97 in respect of Education of Mr. BGV Krishna in USA and the amount of Rs. 6,46,669 made under the head Training Expenses. We confirm that no resolution was available in this respect. This is for your information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of Managing Director of the Company. That does not bar the disallowance of the expenditure as not constituting a legitimate business expenditure in the hands of the company. For these reasons, we uphold the order of the CIT(Appeals). 29. In the light of the above, the appeal for assessment year 1997-98 is partly allowed. 30. Next, we will take up the matter for assessment year 1998-99. The grounds taken up before us read as under: "I. The order of the CIT(A) is erroneous in so far as it is opposed to provisions of law and facts on record. 2. (a) The CIT(A) erred in holding that benefit of section 10B cannot be allowed in respect of income from new STP unit set up at Nagarjuna Hills, Punjagutta as it was not approved by the Board appointed by the Central Government in exercise of the powers conferred by section 14 of the Industries Development and Regulation Act, 1951 and Rules made thereunder. (b) The Ld. CIT(A) ought to have accepted the submission of the assessee that the Central Government has conferred authority on the Department of Electronics, to grant approval under section 14 of the Industrial Development Regulation Act, 1951 and Rules made thereunder pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act cannot be extended even to the operations at Nagarjuna Hills as this unit is an extension of earlier unit of Maithrivanam. 31. The next effective ground is that the CIT(A) erred in holding that the interest earned on fixed deposit of Rs. 32,15,465 interest on staff loan at Rs. 51,403 and income from miscellaneous receipts of Rs. 55,625 are not income derived from the business of the assessee. Alternatively, it is claimed that the CIT(A) should have allowed an amount of 29,29,215 being interest payments made by the assessee during the year from the foregoing receipts before excluding the same from business income for working out the deduction under section 80HHE of the Act. No arguments have been advanced before us as to why the interest on FDs and interest on staff loan and misc. receipts should not be treated as income not falling under the head "business". We however find merit in the alternative contention that the CIT(appeals) ought to have allowed the interest payments from the foregoing receipts and thus excluded only the net interest receipts from the business income for the purpose of working out the relief under section 80HHE of the Act. 32. We find this issue is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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