Tribunal Allows Deduction Under Section 10A for Interest Income from Fixed Deposits, Citing Business Nexus

Livingstones Jewellery (P.) Ltd. Versus Deputy Commissioner of Income-tax, Range 5 (2), Mumbai

Livingstones Jewellery (P.) Ltd. Versus Deputy Commissioner of Income-tax, Range 5 (2), Mumbai - [2009] 31 SOT 323 (MUM.) Issues:
1. Denial of claim for deduction under section 10A on interest income.

Analysis:
The appeal arose from the Commissioner of Income-tax (Appeals) order concerning the assessment year 2003-04. The primary issue raised was the denial of the assessee's claim for deduction under section 10A on interest income amounting to Rs. 9,00,961. The Assessing Officer disallowed the deduction, stating that the interest earned on fixed deposits was not derived from the export of goods and merchandise. The Assessing Officer relied on the distinction between "derived from" and "attributable to," as interpreted in various judgments, to support the denial of the deduction. The first appeal also did not grant any relief to the assessee.

The learned Counsel for the assessee argued that the interest income from fixed deposits should be eligible for deduction under section 10A because parking funds in FDRs were necessary to avail credit facilities from the bank. The Counsel referred to a case where a similar deduction was allowed. The Departmental Representative opposed this, contending that the interest income from FDRs was not business income and thus not eligible for section 10A deduction.

Upon considering the arguments and relevant precedents, the Tribunal analyzed section 10A(1), which allows deduction for profits and gains derived from the export of articles. The Tribunal observed that the term "derived from" necessitates a direct connection to the export activity for eligibility. The Tribunal cited cases where the Supreme Court clarified the interpretation of "derived from" in similar contexts. The Tribunal further examined section 10A(4), which defines "profits derived from export" as a proportion of total business turnover, expanding the scope of eligible profits beyond direct export earnings.

The Tribunal concluded that the interest income from FDRs, linked to obtaining credit for business operations, had a direct nexus with the business undertaking and qualified as "profits and gains of business or profession." Relying on the interpretation of "derived from" and the expanded scope under section 10A(4), the Tribunal held that the assessee was entitled to the deduction under section 10A for the interest income. Consequently, the denial of the deduction was overturned, and the appeal was allowed.