TMI Blog2019 (3) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... ates that the assessee imports raw materials under a letter of credit. The sanctioning bank mandates that a percentage of the amount be maintained as margin money and retained as a Time deposit. The deposit is created out of the working capital limits sanctioned by the bank. Interest is paid on the working capital assistance and processing charges and earned on the lien marked deposits. Both the componants of interest have a direct nexus to the business activity carried on by the assessee. There the sole activity engaged in by the assessee is export, all incomes generated by the conduct of the business of the unit would be eligible to the benefits under section 10A/10B. The orders of the authorities below are reversed and the issue answered in favour of the assessee - Tax Case (Appeal) Nos.1972 and 1973 of 2008 - - - Dated:- 4-2-2019 - Dr. Justice Vineet Kothari And The Dr. Justice Anita Sumanth For the Appellant : Mr.Vikram Vijayaraghavan for M/s.Subbaraya Aiyar Padmanabhan For the Respondent : Mr.T.Ravikumar Sr. Standing Counsel COMMON JUDGMENT Dr.ANITA SUMANTH,J. These Tax Case (Appeals) are filed by the assessee challenging orders of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit account and is drawn only from out of the working capital limits sanctioned by the Bank. The deposits are not made out of surplus funds. Interest is paid by the appellant on working capital assistance and processing charges towards opening of Letter of Credit and interest is earned by the appellant on the term deposits that are marked by a lien. The components of interest, both earned and paid, have a direct nexus to the business activity. 6. Reliance was placed on the following decisions: 1. CIT V. Karnal Co-operative Sugars Mills Ltd. (243 ITR 2 (SC) 2. CIT V. Bokaro Steels Ltd. (236 ITR 315 (SC)) 3. CIT V. Shri Rama Multiteck Ltd. (403 ITR 426 (SC)) 4. CIT V. Lakshmi Machine Works (290 ITR 667 (SC)) 5. Arul Mariamman Textiles V. ACIT (TCA No.909 of 2008 dated 07.08.2018) 6. CIT V. Hewlett Packard Global Soft Ltd. (403 ITR 453) 7. CIT V. Motorola India Electronics P Ltd. (2014 TIOL 87 Kar) 8. Principal CIT V. Universal Precision Screws (94 CCH 46 Del) 9. Riviera Homes Furnishings Vs. Addl. CIT (2015-TIOL-2729-HC Del) 10.CIT V. Hritnik Exports P. Ltd. (2014-TIOL-2507 (HC-Del)) 11.CIT V. Dee Kay Knitwears (85 CCH 336 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of the undertaking'. 11. Export quota is mandatory for the activity of export and the APEC has been constituted as a nodal body to facilitate and regulate the formation of the quotas and the rate at which they are to be transacted in. The Central Board for Direct Taxes (CBDT) has issued a circular considering the position with regard to classification of income from quota sales stating as follows: 'The undersigned is directed to refer to PMO s DO No. 247/JS(5)/98 dated Feb 2, 1998 on the subject cited above. In the representation enclosed therein, a clarification has been sought by AEPC as to whether the premium received for the transfer of export quota would be treated as a part of export profit eligible for deduction u/s 80HHC of the Income Tax Act or not. (ii) deduction u/s 80HHC is allowed on export profits with a view to encourage earnings in convertible foreign exchange. Since the premium payment on export quotas under electronic transfer system does not involve any earnings in foreign exchange, this amount does not qualify for deduction u/s 80HHC. (iii) Technically, export premium can be equated with the items mentioned in section 28(iiia) (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lew of decisions. The decisions relied upon by the learned counsel for the Revenue are in the context of section 80IA of the Act falling under Chapter VI. 16. We are of the view that the basis of computation of the deductions enumerated under Chapter VI A is different from that set out for special deductions like section 10A and 10B. Section 80IA provides for a deduction of profits and gains derived by an undertaking or an enterprise from an eligible business. The provisions of section 80IA(1) state that where the gross total income of an assessee includes profits and gains derived by an undertaking or an enterprise from any eligible business, there shall, in accordance with and subject to the provisions be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100% of the profits and gains derived from such business for a demarcated period. Relief under section 10A, on the other hand, is granted in respect of profits derived from the eligible activity of export, computed as a proportion of the profits of the business of the undertaking. 17. The above distinction has been noted by the Full Bench of the Karnataka High Court in the case of Hew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the eligible profits for the purpose of computing deduction u/s 10B of the Act. 18. A similar view has also been taken by the Calcutta High Court in the case of Commissioner of Income Tax, Kolkata-IV Vs. Hindustan Gum Chemicals Ltd [(2016) 72 Taxmann.com.90 (Calcutta)]. 19. The relief provided for in terms of Sections 10A, 10B and other special provisions addresses relief to be granted to specified categories of undertakings, specified either by the activilities carried on by them or their location (in STPI/FTZ/EOU). The provision is attracted to the entire income derived from the 'busisness of the eligible undertaking', as contradistinguished from the provisions of Section 80 IA falling under Chapter VI A, which provides for a deduction only in respect of the income 'derived from/by the eligible undertakings'. The use of the word 'business' in the context of the grant of the relief widens the scope of such benefit encompassing all incomes generated by such business activities. 20. Such special deduction is intended as a benefit to a special class of undertakings and as stated by the Supreme Court in the case of Bajaj Tempo LTD. Vs. Commis ..... 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