TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) Whether the assessee was entitled to deduction under section 10AA on income from trading and re-export of imported diamonds in its SEZ unit; (ii) Whether interest earned on fixed deposits kept as margin money for letters of credit constituted business income eligible for deduction under section 10AA.
Issue (i): Whether the assessee was entitled to deduction under section 10AA on income from trading and re-export of imported diamonds in its SEZ unit.
Analysis: The assessee carried on trading activity of imported diamonds in a Special Economic Zone and the question was whether such activity, though not involving manufacture, was covered by the statutory scheme for deduction. The Tribunal applied the overriding effect of section 51(1) of the Special Economic Zones Act, 2005 and accepted that trading for re-export is treated as a service within the SEZ framework. Following earlier coordinate bench decisions on identical facts, it held that the SEZ law prevails over any inconsistent understanding of section 10AA in the Income-tax Act, 1961.
Conclusion: The assessee was entitled to deduction under section 10AA on income from trading and re-export activity, and the Revenue's challenge failed.
Issue (ii): Whether interest earned on fixed deposits kept as margin money for letters of credit constituted business income eligible for deduction under section 10AA.
Analysis: The fixed deposits were made as margin money pursuant to banking requirements for the assessee's export business, and were not independent surplus investments. The Tribunal found a direct nexus between the deposits and the business of import and export trading. Relying on earlier coordinate bench authority, it held that such interest retains the character of business receipts and is not to be assessed as income from other sources for the present purpose.
Conclusion: The interest on fixed deposits was business income and was eligible for deduction under section 10AA; this issue was decided in favour of the assessee.
Final Conclusion: The Revenue's appeal was rejected, while the assessee succeeded on the principal substantive issues in its cross-appeal, resulting in a partial allowance of the assessee's appeal.
Ratio Decidendi: Income derived from SEZ trading activity covered as a service under the SEZ regime, and interest on fixed deposits maintained as margin money for business requirements, retains business character for deduction purposes where the requisite business nexus is established.
TaxTMI 
