Tribunal Grants Deductions for CST Refund and Interest Incomes under Section 10B

The tribunal allowed the appellant's claims for deduction under section 10B for Central Sales-tax (CST) refund, interest earned on term deposits, and interest earned on deposits with Gujarat Electricity Board. The tribunal held that these incomes were part of the business income of the Export Oriented Undertaking (EOU) and thus eligible for deduction under section 10B. The decision in Maral Overseas Ltd. was cited to support the claim regarding CST refund. The tribunal consolidated two appeals with common issues and allowed the appeals for both assessment years, emphasizing the eligibility of the incomes for deduction under section 10B.

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Issues:
1. Disallowance of claim of deduction u/s. 10B for Central Sales-tax (CST) refund.
2. Disallowance of claim of deduction u/s. 10B of interest earned on term deposits.
3. Disallowance of claim of deduction u/s. 10B of interest earned on deposit with Gujarat electricity board.

Issue 1 - CST Refund:
The appellant, a partnership firm, claimed deduction under section 10B for CST refund, interest earned on term deposits, and interest earned on deposits with Gujarat Electricity Board. The Assessing Officer disallowed the deduction on the grounds that these incomes did not constitute first-degree profit of the 100% Export Oriented Undertaking (EOU) and were not received in convertible foreign exchange. The CIT(A) upheld the AO's decision. The appellant argued that the CST refund, being related to the EOU unit, should be eligible for section 10B benefits. The Special Bench's decision in Maral Overseas Ltd. was cited to support the claim. The tribunal held that the income of the EOU was eligible for deduction under section 10B as the incomes were part of the business income of the EOU.

Issue 2 - Interest on Term Deposits:
The appellant claimed deduction under section 10B for interest earned on term deposits required by the bank as margin money. The AO disallowed this claim, stating that such interest income was not directly related to the EOU's business. The appellant argued that as the interest income was assessed as business income, it should be eligible for deduction under section 10B. The tribunal, considering the legal position and the decision in Motrola India Electronics (P) Ltd., allowed the appellant's claim for deduction under section 10B.

Issue 3 - Interest on Deposit with Gujarat Electricity Board:
The appellant claimed deduction under section 10B for interest earned on a deposit with Gujarat Electricity Board. The AO disallowed this claim, contending that the deposit was not for business purposes. The appellant argued that such deposits were kept for business purposes and should be eligible for deduction under section 10B. The tribunal, after considering the legal position and precedents, allowed the appellant's claim for deduction under section 10B.

The tribunal consolidated two appeals involving common issues for convenience. The appellant's claims for deduction under section 10B were upheld by the tribunal, emphasizing that the incomes in question were part of the business income of the EOU and thus eligible for deduction. The tribunal's decision in the appeal for the assessment year 2007-08 was held to apply mutatis mutandis to the appeal for the assessment year 2008-09. Consequently, the appeals filed by the appellant were allowed.

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