Treatment of interest received against FDR in respect to units covered u/s 10AA in SEZ

[KISHOR DATTANI]

My querry is assessee is manufacturer and exporter of jewellery and unit is situated in SEZ covered U/S 10AA. For obtaining various facilities from bank such as advance Gold loan against export order assessee have to make FDR as margin money against LC.Said FDR is directly related with gold procurment from Bank itself and have direct nexus with business carried on. ITO wants to treat such interest received against FDR as Income from Other source and not Profit from industrial unit. Kindly through some light and legal decisions directly related.

CA KISHOR DATTANI

[Surender Gupta]

It is question of fact to determine the nature of investment. In your case, as I understand the query, your have created FD under compulsion as margin money against LC. This FD can not be held as FD of surplus funds. Any activity which is done for the purpose of business, has to be held as business income and not as income from other sources. In other words it is nexus between interest on FDR and business would determine the head under which it would fall.

AI Summary

Nexus to business determines whether interest on compulsory FDR linked to exports is treated as business income.
Characterisation of interest on an FDR created as margin money for export-linked bank facilities depends on factual determination of its relationship to the commercial operations: an FDR made under compulsion and directly tied to procurement and export activity has a nexus with the business and is treated as business income, whereas an FD of surplus funds yields interest classified as income from other sources.