TaxTMI 
TaxTMI 
2006 (12) TMI 267
X X X X Extracts X X X X
X X X X Extracts X X X X
....s appeal is as follows : "The learned Commissioner of Income-tax (Appeals) erred in holding that the interest earned on funds retained in Exchange Earners Foreign Currency Account does not represent income derived from the business of exports and thereby earned in directing that the interest amounting to Rs. 1,01,894 be taxed under the head "Income from other sources". 3. Facts of the case leading to this dispute briefly are that the assessee company was engaged in the business of manufacturing of plain and studded jewellery and export thereof. The assessee claimed that during the year it had earned total income of Rs. 2,15,28,067 and the entire income was exempt from tax under section 10B because the assessee was 100 per cent Export ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved by the assessee on funds lying idle or unused in the form of deposits with banks. Such interest income was assessable under the head "Income from other sources". In support of these contentions the learned Assessing Officer placed reliance on the judgments in Sterling Foods v. CIT [1984] 150 ITR 292 (Kar.); CIT v. Madras Motors Ltd./M.M. Forgings Ltd. [2002] 257 ITR 60 (Mad.); CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497 (Mad.) and CIT v. N.S.C. Shoes [2002] 258 ITR 749 (Mad.). The learned Assessing Officer, therefore, assessed this sum of Rs. 1,78,086 as assessee's income from other sources and accordingly, did not hold the same as exempt under the provisions of section 10B of the Act. 4. During the course of hearing befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt of these contentions of the assessee placed reliance on the decisions in Asstt. CIT v. Sharda Gums & Chemicals Industrial Area [2001] 76 ITD 282 (Jodh.); Dy. CIT v. Diamond Creak [2002] 82 ITD 291 (Mum.); Leatherage v. ITO [2003] 86 ITD 482 (Luck.); Pink Star v. Dy. CIT [2000] 72 ITD 137 (Mum.) and Alfa Leval India Ltd. v. CIT [2003] 133 Taxman 740 (Bom.). The assessee argued that the case law relied upon by the Assessing Officer was not concerned with the question of netting out of income against credits and debits. In the case of the assessee there was no net interest income and there was only net interest expenditure. The learned CIT(A) considered these arguments of the assessee. He held that here was no dispute that there was interes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see that was fully exempt under the provisions of section 10B of the Act. The learned counsel emphasised that expression used under the provisions of section 10B was "derived by" and not "derived from". The learned counsel also strongly emphasised the provisions of Explanation to section 10B(3). He pointed out that the assessee's account was maintained abroad because Explanation 2 deemed deposit of EEFC Account to be convertible foreign exchange received in India. For that reason also interest earned on that account had to be treated as an integral part of the sale proceeds received by the assessee. 6. In the alternative the learned counsel argued that the learned CIT(A) erred in not netting interest earned by the assessee from EEFC Acco....