TMI Blog2013 (10) TMI 1488X X X X Extracts X X X X X X X X Extracts X X X X ..... India alone ought to have been excluded from the Export turnover. 3. The assessee is a company. It is engaged in the business of software development services for industrial IT and deployment for group companies. In the course of assessment proceedings, the AO noticed that while claiming deduction u/s. 10A of the Act, the assessee had included a sum of ₹ 40,79,921 which was expenses incurred on telecommunication for delivery of software outside India as part of the export turnover. According to the AO, the definition of export turnover as given in Expln.2(i) to Sec.10A of the Act means consideration in respect of articles of things or computer software, received in or brought into India by the assessee in convertible foreign exchange in accordance with sub-rule (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of articles or things or computer software outside India. In terms of the aforesaid Explanation 2(i)(b) of section 10A of the Act, the AO held that while computing deduction u/s. 10A of the Act, the export turnover should be reduced by telecommunication expenses and deduction u/s. 10A recomputed. Accordingly ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid section to mandate that what is excluded from the numerator and would nevertheless form part of the denominator. The principle laid out in judgements rendered in context of section 80HHC of the Act will equally apply while interpreting section 10A of the Act since the principle underlying both these provisions is the same. 8. In view of the aforesaid decision of the Hon ble High Court of Karnataka, we are of the view that the grievance of the assessee projected in the additional ground would get redressed, if the AO is directed to reduce the telecommunication expenses from the export turnover as well as the total turnover, while computing deduction u/s. 10A of the Act. We hold and direct accordingly. 9. In view of the fact that the alternate contention raised by the assessee is supported by the decision of the Hon ble jurisdictional High Court in the case of Tata EIxsi Ltd. (supra) and in view of the fact that the sum involved in Gr.No.1 was very small having insignificant tax implications, the ld. counsel for the assessee submitted that the main ground raised in ground No.1 is not pressed for adjudication. 10. Ground No.2 raised by the assessee reads as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A of the Act. Our attention was drawn to the notes given to the said Form which reads thus:- a) The Amount reported in point 11, 12, 17 includes bank Interest earned on the short term deposit maintained with banks foreign exchange gain, the assessee submits that these are in the nature of business profits and thus entitled for exemption U/s. 10A of the Income Tax Act, 1961. Assessee with regards to the foreign exchange gain has relied upon decision of the Supreme Court of India in M/s. Sutlej Cotton Mills Limited v Commissioner of Income Tax, West Bengal reported in volume 116 ITR 1. 16. Our attention was also drawn to the letter dated 18.08.2009 filed by the assessee before the AO in which the assessee had contended as follows:- .. The Interest on deposit is part of the business activities as it is relating to remittance received from abroad and kept temporarily as deposit in the Bank. As the remittances received from abroad forms part of the Business Income and gets accumulated as part of working capital, this working capital cannot be kept idle and needs to be put to revenue earning use. Since bank deposits facility are available for a flexible period of time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount paid by the foreign buyer by way of advance amount to the assessee for the part performance of the agreement for export of the goods. The assessee, instead of keeping that amount idle, since it did not require the same for its immediate business activity, had deposited that amount by way of short-term deposit in the bank and the amount so deposited is only the funds which it had received towards the export to be made by it and the amounts so deposited in the bank and the interest income derived because of such deposit have close link with the business activity of the assessee-company and therefore, in our opinion, the first appellate authority and the Tribunal were justified in holding that the interest on bank deposits was assessable as business income. 19. The ld. DR, on the other hand, pointed out that in the present case, the AO has treated interest income as income from other sources , whereas in the decisions cited by the ld. counsel for the assessee, the AO had treated interest income as income from business, but when it came to allowing deduction u/s. 10A, treated interest income as income from other sources. The ld. DR thus submitted that the decisions relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deduction. There is no requirement for the purposes of s. 10B to establish direct nexus between the income and the undertaking. The entire business income of the 100 per cent EOU will be the profits of the business of the undertaking . The interest earned on temporarily surplus business funds of the 100 per cent EOU deposited with banks for short periods is business income and has in fact been so assessed. It is not in dispute that the surplus funds were of the 100 per cent EOU. As such, the interest earned thereon has to be regarded as part of the profits of the business of the undertaking . The AO was directed to treat the interest of ₹ 28,74,473 as part of the profits of the business of the 100 per cent EOU eligible for deduction under s. 10B and compute the deduction accordingly The Tribunal also distinguished the decision of the Hon ble Supreme Court in the case of CIT Vs. Sterling Foods 237 ITR 579 (SC). So also, the decision of the Bangalore Bench of ITAT in the case of ACIT v. Motorola Electronics Pvt. Ltd., (supra), supports the plea of the Assessee. The question that arose for consideration in the aforesaid case was as to whether interest income derived from dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. 10A and 10B on the lines indicated above for the asst. year 2001-02. 23. In light of the aforesaid decisions, we are of the view that the claim made by the assessee deserves to be accepted. As far as the decision of Bangalore Bench of Tribunal in the case of Keane India Ltd. (supra) is concerned, we find that in the aforesaid decision, the assessee himself excluded interest income from business income while computing deduction u/s. 10A of the Act. More over, the decision of the Tribunal was only restricted to carving out foreign exchange gain, which is included in the interest income and miscellaneous income and treat the same as part of the profits of the business for allowing deduction u/s. 10A of the Act. We are therefore of the view that the decision in the aforesaid case will not be of any assistance to the stand taken by the revenue. Thus ground No.2 raised by the assessee is allowed. 24. Ground No.3 with regard to charging of interest u/s. 234B 234C of the Act is purely consequential, the AO is directed to give consequential relief. 25. Ground No.4 raised by the assessee reads as follows:- 4. The Learned CIT(A) erred in not giving clear direction to the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has referred to Schedule-8 to the accounts in which the break-up of the personnel cost debited to the P L account is given. The break-up so given is as follows:- 31-Mar-06 31-Mar-05 Rs. 000 Rs. 000 Schedule 8: Personnel Cost Salaries, wages and bonus 104,902 49,961 Contribution to provident and other funds 7,332 3,543 Gratuity 1,975 1,085 Staff welfare expenses 5,950 2,201 Staff training and seminars 2,864 761 Recruitment and relocation 3,890 2,584 126,993 60,135 30. Based on the above, the CIT(A) came to the conclusion that the assessee had incurred and spent on recruitment and relocation a sum of ₹ 38,90,000 for sendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was in the business of manpower deployment are perverse and cannot be sustained. Without prejudice to the above submission, it was submitted that the following decisions and circulars will show that the assessee was entitled to deduction u/s. 10A even in respect of recruitment fees:- - CBDT Notification No. 11521, dated 26-9-2000 - ACIT v Meridian Enterprises Computing Solutions P Ltd Mumbai ITAT, (2011) 5 Taxcorp (A.T.) 24096 (Mumbai) - M L Outsourcing Services P Ltd v ITO, Delhi Tribunal ITA No.1204/Del/11 dtd. 27.5.2011. - ITO v Accuram India P Ltd [2010] 126 lTD 69 (Chennai Tribunal) 32. The ld. DR relied on the order of the CIT(A). It was submitted by him that alternatively the issue should be sent back to the CIT(A) for fresh consideration for affording due opportunity to the assessee. 33. We have considered the rival submissions. In our view, the order of the CIT(A) does not give any basis for coming to the conclusion that the assessee was in the business of manpower deployment. It is not understandable as to how such conclusion can be arrived at on the basis of perusal of P L account and the composition of personnel cost found in the P L account. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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