TMI Blog2015 (11) TMI 1139X X X X Extracts X X X X X X X X Extracts X X X X ..... ack as eligible for deduction then there was no justification for excluding the freight subsidy. Even as regards the interest on FDR, the Court has been shown a note of the balance sheet of the Assessee which clearly states that “fixed deposit receipts (including accrued interest) valuing ₹ 15,05,875 are under lien with Bank of India for facilitating the letter of credit and bank guarantee facilities.” In terms of the ratio of the decisions of this Court both in Hritnik Exports (2015 (10) TMI 1009 - DELHI HIGH COURT) and Universal Precision Screws (2015 (10) TMI 951 - DELHI HIGH COURT), the interest earned on such FDR ought to qualify for deduction under Section 10B of the Act. - Decided in favour of the Assessee. - ITA 459/2015 - - - Dated:- 19-11-2015 - S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Mr. Ved Jain and Mr. Pranjal Srivastava, Advocates For the Respondent : Mr. Ashok Manchanda, Senior Standing counsel ORDER S. Muralidhar, J. 1. The present appeal by the Appellant Assessee under Section 260A of the Income Tax Act ( Act ) is directed against the impugned order dated 27th February 2015 passed by the Income Tax Appellate Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax (Appeals) [ CIT (A) ] on 11th January 2012. The Assessee thereafter filed an appeal before the ITAT which came to be decided by the impugned order. 7. The ITAT in the impugned order agreed with the contention of the Assessee as regards the deemed export drawback forming part of the income eligible for deduction under Section 10B of the Act. However, as regards other three items, viz., customer claims, freight subsidy and interest on FDRs made for business purposes, the ITAT concurred with the view of the AO and the CIT (A). This is how the Assessee is in appeal before this Court. 8. This Court has heard the arguments of Mr. Ved Jain, learned counsel for the Assessee and Mr. Ashok Manchanda, Senior standing counsel for the Revenue. 9. The question as to what can constitute as profits and gains derived by a 100% EOU from the export of articles and computer software came for consideration before the Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd. (2014) 46 Taxmann.com 167 (Kar).The said appeal before the Karnataka High Court was by the Revenue challenging an order passed by the ITAT which held that the interest payable on FDRs was part of the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned from the loans given to sister concerns, it was held that although it did not partake the character of profit and gains from the sale of an article it is income which is derived from the consideration realized by export of articles. 11. The decision of the Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd. (supra) was followed by this Court in its decision in CIT v. Hritnik Exports Pvt. Ltd. (decision dated 13th November 2014 in ITA Nos. 219 and 239 of 2014). This Court also referred to its earlier decision dated 1st September 2014 in ITA No. 438 of 2014 (CIT v. XLNC Fashions). While declining to frame a question of law in the Revenue s appeal, this Court in CIT v. Hritnik Exports Pvt. Ltd. (supra) quoted with approval the observations of the Special Bench of the ITAT in Maral Overseas Ltd. v. ACIT (decision dated 20th March 2012) on the interpretation of Section 10B (4) of the Act as under: 79. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, not-with-standing the fact that sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kar; 284 ITR 584 had approved the principle laid down in the Special Bench decision in International Research Park Laboratories v. ACIT (supra). In the assessee's own case the I.T.A.T. in the preceding years, after considering the decision in the case of Liberty India held that provisions of section 10B are different from the provisions of section 80IA wherein no formula has been laid down for computing the eligible business profit. 12. Recently, in a decision dated 6th October 2015 in ITA NO. 392 of 2015 (Principal Commissioner of Income Tax v. Universal Precision Screws), this Court had occasion to again consider whether interest earned on fixed deposits kept by an Assessee which was eligible under Section 10B of the Act, as a condition for utilization of letter of credit and bank guarantee limits, would qualify for deduction. That question was decided in favour of the Assessee and against the Revenue. The Court held as under: 9. On the question of interest on the FDRs, the ITAT has referred to Section 10B (4) which states that for the purposes of Section 10B (1), the profits derived from export of articles or things or computer software shall be the amount which b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading C-Deductions in respect of certain incomes , where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be. 14. Mr. Manchanda s attempt was to show that Section 80A (4), which inter alia stated that any deduction allowable under Section 10B cannot in any case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be made it clear that a unit seeking deduction under Section 10B would be eligible to do so only in so far as such income was directly attributable to the business of export. Any income that might be merely incidental to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court quoted with approval the observations of the Special Bench of the ITAT in Maral Overseas Ltd. (supra) that Section 10A/10B of the Act is a complete code providing the mechanism for computing the profits of the business eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. 16. This then brings us to the questions framed for consideration in the present case and the decision of the ITAT in not accepting the Assessee s plea in regard to customer claims freight subsidy and interest on fixed deposit receipts even while it accepted the Assessee s case as regards deemed export drawback . 17. The contention of the Assessee as regards customer claims was that it had received the claim of ₹ 28,27,224 from a customer for cancelling the export order. Later on the cancelled order was completed and goods were exported to another customer. The sum received as claim from the customer was non-severable from the income of the business of the undertaking. The Court fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
