TMI Blog2005 (1) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Shri S. Rahman Addl. CIT, Noida Present for the Applicant - RULING (By Mr. Justice Syed Shah Mohammed Quadri) - The applicant is a non-resident individual. He proposes to set up a Jewellary Unit in Special Economic Zone (SEZ) in Noida, UP. He says that, for purposes of his business, he has to import precious metal to India for which he is required to submit Import Performance Guarantee/Financial Security/Letter of Credit. In that connection he has to mortgage/pledge 100% security to bank in the form of FDRs. It is stated that interest accrued on the FDRs and interest charged by bank on financial securities like Letter of Credit (LC) and other incidental expenses of bank are compulsions of such business without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2004, the application was allowed under sub-section (2) of Section 245R of the Act for pronouncement of ruling under sub-section (4) thereof and the case was listed for pre pronouncement hearing on 6.10.2004. Neither the applicant nor his authorized representative (Mr. Om Prakash Tiwary, C.A) appeared on that date. The case was adjourned from time to time to enable the applicant to represent his case but the applicant and his authorized representative remained absent. 4. As none appeared for the applicant even today I am proceeding to decide the application after perusing Annexure-II of the application, which contains applicant's interpretation of law and facts in respect of the said questions. The applicant's plea is that the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1988 w.e.f. 1.4.1989. Now interest on securities is assessable under section 28(i) where such interest forms part of business profits; this would happen when securities are held as stock-in-trade or trading assets otherwise it will be chargeable under section 56(2)(id) of the Act. The applicant has endeavoured to bring interest under head 'D' on the ground that interest on security has nexus with his export business. In my view the reasoning of the applicant is fallacious. Merely because as a requirement to import precious metal he has to furnish Import Performance Guarantee/ Financial Security/ LC from a nationalized bank and for that purpose he has to mortgage FDRs with the bank, the interest accrued on the FDRs does not become income d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the said section. It does not speak of interest income from security/FDRs. It only speaks of the income derived from the export of articles or things or computer software. It has already been held above that interest accrued on FDRs cannot be said to be the business income derived from the export of any articles or things or computer software, so section 10A has no relevance here. It would also be necessary to refer to section 80HHC of the Act, which is relied upon by the applicant to make out a case that interest income falls under section 10A but not in Section 80HHC. Section 80HHC is included in Chapter VIA which deals with deductions in computing total income. Like Section 10A, the provisions of 80HHC provide deductions in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s but they cannot be said to be activities of the business. That apart the order of the ITAT was rendered in ignorance of the decision of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT 227 ITR 172 (SC). In that case the question before the Hon'ble Supreme Court was whether interest derived by the assessee from the borrowed funds which were invested in short term deposits with the banks would be chargeable to tax under the head "income from other sources" or would go to reduce the interest payable by the assessee on the term loan secured by the assessee from the financial institutions which would be capitalized after the commencement of the commercial production. It was held that the interest derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realizing such interest on behalf of the assessee is an allowable deduction in computing the income under the head " income from other sources". As the interest income in the present case is held to fall under the head "income from other sources" the permissible deductions for computing the income charged under the said head would be as specified under section 57. It is thus clear that in respect of interest income from FDRs, any reasonable sum paid by the applicant by way of commission or remuneration to a banker or any other person for the purpose of realizing such interest on behalf of the assessee is a permissible deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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