TMI Blog2006 (11) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... has specifically inserted Explanation (baa). If the Legislature intended to exclude interest from the term Profit of business of undertakings under section 10A/10B, a similar provision as in the case of section (baa) would have been inserted. No such Explanation has been introduced in section 10A/10B. Thus, we agree with the submissions of learned counsel for the assessee and direct the Assessing Officer to recompute the deduction u/s 10A and 10B of the Act on the lines indicated above for the assessment year 2001-02. In the result this ground of the assessee is allowed in the assessment year 2001-02. We have already held interest income in this case has to be assessed under the head Income from business. While doing so, the Assessing Officer has to compute separately income earned by way of interest. To compute the interest income, all connected and related expenditure has to be allowed. In this case, the assessee had to necessarily hold the funds in deposits and advances due to embargo placed by the Government, restricting prepayment of the external commercial borrowing. The assessee has to necessarily hold on to the funds, which would otherwise have been utilised t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f external commercial borrowings (ECBs in short) obtained in earlier years. The appellant has to repay this borrowing only in accordance with the repayment schedule. It is stated that the RBI has placed restriction on prepayment of instalments. The undisputed fact is that the borrowings were for the business of a STP undertaking. Under the Exchange Control Regulation, the assessee is prohibited from any prepayment of the ECBs. For any prepayment of the loan, the assessee had to seek prior permission of the Central Government. In the year 1999, the Government had formulated a policy on prepayment and the policy stated that approval for prepayment would be granted only to the extent of 10 per cent. of the outstanding loan. Hence, even after going through the regulation, the assessee would have to repay a small portion of its outstanding loans, though it had the liquidity to do so. Hence it is required to temporarily park the funds, until the date of repayment, and also keep paying the interest on the loans. 9. As the assessee had to hold these funds, and as it had to ensure that the funds were easily accessible for repayment when due, and at the same time to have the maximum possi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned Departmental Representative, on the other hand, controverted the arguments of learned counsel for the assessee and submitted oral as well as written notes of arguments. His case is that only those profits and gains that are derived by an eligible undertaking from the export of article or thing of computer software are eligible for deduction for the assessment year 2001-02. He gave extracts from the CTR Encyclopaedia of Indian Tax Laws and emphasized the point that the term derived from used in the section clearly states that the assessee' s claim is not maintainable. He relied on the hon ble Madras High Court judgment in the case of CIT v. Pandian Chemicals Ltd. reported in [1998] 233 ITR 497 as well as the decision in the case of CIT v. Sterling Foods reported in [1999] 237 ITR 579 (SC). He further relied on the decision of this Bench of the Tribunal in the case of Synopsys (India) Pvt. Ltd. v. ITO Bangalore A Bench in I.T.A. No 1100/Bang/03 order dated December 23, 2005, and submitted that the decision is in favour of the Revenue and the same may be followed. For the proposition that interest received by the assessee was on deposits made in the bank and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. v. Addl. CIT [1981] 132 ITR 70 (Delhi) ; and (iv) CIT v. Paramount Premises P. Ltd. [1991] 190 ITR 259 (Bom). 16. The jurisdictional High Court in the case of Satishchandra and Co. v. CIT [1998] 234 ITR 70 (Karn), considering a similar situation has held as follows (page 75) : The assessee had to make deposit in the bank as a condition for obtaining bank guarantee to be filed before the excise authorities as required under the Excise Rules. The interest income which arose out of transactions was totally connected to the business of the assessee and so interest income was also part of business income. If the income is assessable as business income, then the mere circumstance that the assessee had shown it as ' income from other sources' or that it was assessed under the head ' Income from other sources', should not be made the ground for denying the set off of the carried forward losses. In any case the assessee could not be precluded from establishing before the authorities that it was a business income. The predominant view of the various High Courts is that interest income arising from the transaction connected with the business would be interest inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing is given in a formula, as in the case of section 80HHC and it shall be the same proportion as the export turnover bears to total turnover in respect of such articles or things or computer software. The word shall has been used to make it mandatory. Another important feature is that the terminology is used in sub- section (4) is profits of the business of the undertaking in contradistinction to the word profits and gains derived by the assessee from a 100 per cent. export oriented undertaking. 21. In section 80-IA, the term profits and gains from the business has been used. Similar terminology has been used in many other sections such as 80JJ or 80JJA etc. Whereas under section 80-I and other sections the terminology used is profits and gains derived from industrial undertaking . The term from the business of is much wider than the term derived from industrial undertaking . Keeping this distinction in mind, we have to necessarily hold that the entire profits deriving from the business of under- taking should be taken into consideration, while computing the eligible deduction under section 10A/10B of the Act, by applying the mandatory formula. 22. The issue be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event, the jurisdictional High Court has taken a contrary view and the same is binding on us. The case of K. S. Subbiah Pillai and Co. (India) P. Ltd. v. CIT [2003] 260 ITR 304 (Mad) is on section 80HHC and does not apply to the case on hand and on the other hand, it recognized the fact that interest paid and claimed as deduction can be paid under the head Profits and gains of the business. 25. Thus, in view of the above discussion, we agree with the submissions of learned counsel for the assessee and direct the Assessing Officer to recompute the deduction under section 10A and 10B of the Act on the lines indicated above for the assessment year 2001-02. In the result this ground of the assessee is allowed in the assessment year 2001-02. 26. Ground Nos. 10 and 11 for the assessment year 1997-98 and ground No. 6 for the assessment years 1998-99 and 2001-02 are regarding the allowability of interest expenditure on the interest income. We have already held interest income in this case has to be assessed under the head Income from business. While doing so, the Assessing Officer has to compute separately income earned by way of interest. To compute the interest income, all conn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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