TMI Blog2018 (12) TMI 1211X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of income tax appeals placed at page number 130 of the paper book submitted before us. The whole contention raised by the assessee was with respect to only the interest income and there was no details furnished of the miscellaneous income earned by the assessee. In absence of nature of the income earned by the assessee, no adjudication on that aspect can be made. Assessee has also not furnished any evidences before us with respect to the nature of miscellaneous income earned by the assessee.- Decided against assessee. - ITA No. 5196/Del/2014 - - - Dated:- 20-12-2018 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri Purushottam, Adv For The Revenue : Shri Amit Katoch, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT (A), Delhi dated 26.06.2014 for the Assessment Year 2009-10. 2. The assessee has raised the following grounds of appeal:- The leaned CIT(A) has erred in law and in facts by not granting deduction under section 10A/ 10AA of the Act in respect of interest income and miscellaneous income amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, same was pending and now heard today. The solitary issue in this appeal of the assessee is that whether interest income and miscellaneous income are eligible for deduction under section 10 A of the act or not. 5. The learned authorised representative submitted that the above issue is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee s own case for assessment year 2005 06 wherein the coordinate bench has held that the interest income is treated by the assessing officer as business income of the assessee of the eligible exportoriented unit then same is also eligible for deduction under section 10 A of the income tax act. The learned authorised representative also relied upon the decision of the honourable Karnataka High Court in case of Commissioner of income tax vs Motorola India Electronics private limited 265 CTR 94 wherein it has been held that the interest received in consideration received by the sale of important to determine to is to be control construed as income of the business of the undertaking. He also relied upon the decision of the principal Commissioner of income tax vs American Express India private limited ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Gains from the export of articles but also the income from the business of the Undertaking. 4. The Division Bench held that the assessee Motorola India Electronics (P ) Ltd. was a 100% Export Oriented Unit which has exported Software and earned the income and a portion of that income is deposited in EEFC Account and yet another portion of the amount was invested within the country by way of Fixed Deposits and yet another portion was invested by way of loans to the sister concerns and on which the assessee derived interest or the consideration received from sale of Import Entitlements which was permissible in law and therefore the interest received and the consideration received by the sale of Import Entitlements was to be construed as income of the business of the Undertakings and the Division Bench held that there is a direct nexus between this income and the income of the business of the Undertaking, though it does not partake the character of a Profit and Gains from the sale of articles but it is the income which is derived from the consideration realized from export of articles. The assessee was thus held entitled to 100% deduction for the Assessment Year 2001-02 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B) Chapter IV (Computation of Total Income, providing for different Heads of Income - Part-D - Profits and Gains of Business or Profession - (Section 28 to Section 44DB) and Chapter VI-A (Deductions to be made in computing Total Income, Part A - General, comprising of Section 80-A to 80-B and Part B - Deductions in respect of certain payments, comprising of Section 80C to 80GGC and Part C - Deductions in respect of certain incomes - comprising of Section 80H to Section 80TT. 10. Out of this broad scheme of the Act, since the cited cases before us mostly pertain to Part C of Chapter VI-A which deals with the deductions to be made in computing Total Income under Section 80-H, 80HH, 80HHC etc, we would deal with these provisions when relevant case laws are discussed by us. 11. As against the Chapter VI-A relating to Deductions from Gross Total Income as provided in Chapter VI-A of the Act, Section 10-A and 10-B contained in Chapter III of the Act provide for exemptions or 100% deduction in Chapter III which deals with Incomes which do not form part of the Total Income and Section 10-A deals with Special provisions in respect of the newly established Undertakings in Free T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than the 100% export of Software projects during the Assessment Year 2001- 02 under consideration. 16. The assessee earned during the said Assessment Year 2001-02, interest income of ₹ 4,68,037/- on the Short Term Deposits made by it to the tune of ₹ 6,46,88,606/- out of its Surplus Funds temporarily parked in the Current Account held in Citi Bank, Hong Kong and also earned interest of ₹ 6,02,309/- from the Advances of loans to its staff members. The deduction in respect of both the said interest income was claimed as a 100% deduction under Section 10-A of the Act during the said relevant year as income from Profits and Gains of export business. But, the Assessing Authority under the Act held that such interest income was not entitled to 100% deduction under Section 10-A of the Act, but such interest income was taxable under Section 56 of the Act, as Income from Other Sources and that is the bone of contention between the assessee and the Revenue before us. 17. The learned counsel for the Revenue, Mr. Aravind relying upon the following judgments under Sections 80-HH, 80-HHC and 80-I of the Act which scheme of Deductions under Chapter VI-A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition. This definition was approved and reiterated in 1955 by a Constitution Bench of this Court in the decision of Mrs. Bacha F. Guzdar v. CIT (1955) 27 ITR 1 (SC). It is clear, therefore, that the words derived from is s.80HH of the IT Act, 1961 must be understood as something which has direct or immediate nexus with the appellant s industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with Electricity Board cannot be said to flow directly from the industrial undertaking itself. 20. In Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349, the Hon ble Supreme Court dealing with the controversy of profit fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances, only be said to be the export promotion scheme of the Central Government whereunder the export entitlements become available. There must be, for the application of the words derived from , a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the export promotion scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessee s industrial undertaking. 22. In Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282, which judgment was relied upon by the Division Bench of this Court for the later years also while deciding Principal CIT v. Totagar s Co-operative Societies Sales Ltd. [2017] 395 ITR 611/83 taxmann.com 140 (Kar.), the Hon ble Supreme Court held that the profits and gains of business attributable to one of the activities specified in Section 80-P(2)(a) of the Act which gave 100% deduction from tax to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h reference to Section 80-P(2)(a) or (d) of the Act for those subsequent assessment years as well. 24. Before adverting to the judgments cited by the learned counsel for the Respondent assessee and his contentions in brief, let us extract the relevant portion of the Section 10-A applicable in the facts and circumstances of the present case to its relevant extent herein below. 10A. [Special provision in respect of newly established undertakings in free trade zone, etc. 10A. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee: . . . . . . . . . . 10A. (2) This section applies to any undertaking which fulfils all the following conditions, namely:- ( i) it has begun or begins to manufacture or produce articles or things or computer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest income because the interest income of the Undertaking does not form part of Total Turnover of the assessee in contra-distinction with export turnover of the assessee because the assessee is engaged in 100% export of articles and the assessee admittedly satisfies all other relevant conditions for applicability of Section 10-A of the Act to the respondent assessee. 27. He submitted that the judgment of the Division Bench in the case of Motorola India Electronics (P.) Ltd. ( supra ) of this Court which has been differed with by the subsequent Division Bench giving rise to the present Reference to the Full Bench gives the correct interpretation of Section 10-A/10-B of the Act and the same has been consistently followed at later stages by the other High Courts. 28. The learned counsel for the Respondent assessee relied upon the following decisions in this regard. 29. In Riviera Home Furnishing v. Addl. CIT [2016] 65 taxmann.com 287/237 Taxman 520 (Delhi), the Division Bench of Delhi High Court dealing with a case of Export Oriented Undertaking, for the Assessment Year 2008-09, in respect of interest received by an assessee on Fixed Deposit Receipts (FDRs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. The opening words of Section 80A(4) read Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter .. . What is sought to be underscored, therefore, is that Section 80A, and the other provisions in Chapter VIA, are independent of Sections 10A and 10B of the Act. It appears that the object of Section 80A(4) was to ensure that a unit which has availed of the benefit under Section 10B will not be allowed to further claim relief under Section 80IA or 80IB read with Section 80A(4). The intention does not appear to be to deny relief under Section 10B(1) read with Section 10B(4) or to whittle down the ambit of those provisions as is sought to be suggested by Mr. Manchanda. Also, he is not right in contending that the decisions of the High Courts referred to above have not noticed the decision of the Supreme Court in Liberty India. The Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd. (supra) makes a reference to the said decision. That decision of the Karnataka High Court has been cited with approval by this Court in Hritnik Exports (supra) and Universal Precision Screw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by the export turnover in order to work out the percentage of the export turn over, vis- -vis the total turn over. Suppose total turn over is ₹ 100/- and total export turn over is for ₹ 10/-, then the export turn over is 10 % of the total turnover. Then one has to find out the total profit of the business of the undertaking. Suppose the total profit of the business of the undertaking is ₹ 100, in that case, deduction available to the assessee under Section 10 sub-section (1) of Section 10B shall be 10% of ₹ 100, i.e. to say ₹ 10/-. This is the formula which has been provided by subsection (4) for the purpose of working out the benefit or deduction under subsection (1). Total turnover shall naturally include receipt on account of interest. The legislature does not appear to have provided for excluding the amount of interest from the total turnover as has been done in the case of 80HHC by explanation (baa) of sub-section (4C) thereof. In that case, 90% of the income arising out of interest has to be excluded from the profits of the business for the purpose of arriving at deduction available under Section 80HHC. But an identical provision is not there. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Symantee Software India (P.) Ltd. [MANU/MH/2575/2014] rightly held, in our opinion, that the provisions of Chapter VI-A in the context of Deductions cannot be allowed to be telescoped in Section 10-A and the deduction under Section 10-A has to be given effect to at the prior stage of computing the profits and gains of the business, whereas Chapter VI-A comes in for application after the Gross Total Income is determined by adding the income under various independent Heads of Income in Chapter IV comprising of Sections 14 to 59 of the Act. 33. The relevant extract from paragraphs 19 to 21 of Bombay High Court decision is also quoted below for ready reference. 19. There is some substance in the contention of Mr. Kaka that if the deduction shall be allowed from the total income of the Assessee in the manner set out by section 10A and the computation is also provided in that provision itself namely sub-section (4), then there is a complete Code which is evolved and formulated by the Legislature. 20. In relation to this, we also find support in the judgment of this Court in the case of Black and Veatch Consulting Pvt. Ltd. This Court has observed and held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the deduction, which is permissible under section 10A falling in Chapter III, cannot be countenanced. 34. We are of the considered opinion that the above referred decisions relied upon by the learned counsel for the Revenue, Mr. Aravind do not cover the cases under Sections 10-A and 10-B of the Act which are special provisions and complete code in themselves and deal with profits and gains derived by the assessee of a special nature and character like 100% Export Oriented Units (EOUs.) situated in Special Economic Zones (SEZs), STPI, etc., where the entire profits and gains of the entire Undertaking making 100% exports of articles including software as is the fact in the present case, the assessee is given 100% deduction of profit and gains of such export business and therefore incidental income of such undertaking by way of interest on the temporarily parked funds in Banks or even interest on staff loans would constitute part of profits and gains of such special Undertakings and these cases cannot be compared with deductions under Sections 80-HH or 80-IB in Chapter VI-A of the Act where an assessee dealing with several activities or commodities may inter alia earn pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and for the object of granting such incentive to the special class of assessees selected by the Parliament, the play-inthe- joints is allowed to the Legislature and the liberal interpretation of the exemption provisions to make a purposive interpretation, was also propounded by Hon ble Supreme Court in the following cases:- [ I] In Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480, the Hon ble Supreme Court held that:- 5. . . . . . Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. But that turned out to be the, unintended, consequence of construing the clause literally, as was done by the High Court for which it cannot be blamed, as the provision is susceptible of such construction if the purpose behind its enactment, the objective it sought to achieve and the mischief it intended to control is lost sight of. One way of reading it is that the clause excludes any undertaking formed by transfer to it of any building, plant or machinery used previously in any other business. No objection could have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perience . Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as Income from other Sources under Section 56 of the Act. The incidental activity of parking of Surplus Funds with the Banks or advancing of staff loans by such special category of assessees covered under Section 10-A or 10-B of the Act is integral part of their export business activity and a business decision taken in view of the commercial expediency and the interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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