AI Drafter 
TaxTMI 
TaxTMI 
2005 (1) TMI 16
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....is required to submit Import Performance Guarantee/Financial Security/Letter of Credit. In that connection he has to mortgage/pledge 100% security to bank in the form of FDRs. It is stated that interest accrued on the FDRs and interest charged by bank on financial securities like Letter of Credit (LC) and other incidental expenses of bank are compulsions of such business without which the business cannot be run in international competitive market. His contention is that interest accrued to him on the FDRs is his "business income" derived from the business of export by his SEZ unit. On these facts, this application under section 245Q(1) of the Income Tax Act, 1961 (for short the 'Act') is filed by him through Shri Om Prakash Tiwary, Chartere....
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....o enable the applicant to represent his case but the applicant and his authorized representative remained absent. 4. As none appeared for the applicant even today I am proceeding to decide the application after perusing Annexure-II of the application, which contains applicant's interpretation of law and facts in respect of the said questions. The applicant's plea is that the interest on FDRs is "business income" as it has connection with his SEZ business. He relies on section 56(2)(id) to assert that the interest would not fall under the head "income from other sources". He compared the provisions of Section 10A and section 80HHC to support his plea that under Section 10A the interest would form part of his business income. He relied upo....
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.... interest on security has nexus with his export business. In my view the reasoning of the applicant is fallacious. Merely because as a requirement to import precious metal he has to furnish Import Performance Guarantee/ Financial Security/ LC from a nationalized bank and for that purpose he has to mortgage FDRs with the bank, the interest accrued on the FDRs does not become income derived from export business. There is no direct nexus between the interest income accrued on FDRs and the income of the export business which is yet to commence. The applicant's reliance on Section 56(2)(id) on the assumption that it is not chargeable to income tax under the head "profits & gains of business or profession" to support the plea that interest does n....
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....0A has no relevance here. It would also be necessary to refer to section 80HHC of the Act, which is relied upon by the applicant to make out a case that interest income falls under section 10A but not in Section 80HHC. Section 80HHC is included in Chapter VIA which deals with deductions in computing total income. Like Section 10A, the provisions of 80HHC provide deductions in the case of export business. It is unnecessary to refer to the comparison of section 10A and section 80HHC made by the applicant in Annexure-II, which is not relevant to the issue. In support of his claim that interest on the FDRs is the income derived from his export business, the applicant relied upon the decision of the ITAT Hyderabad (Bench 'A') in Shiva Shankar....
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....s which were invested in short term deposits with the banks would be chargeable to tax under the head "income from other sources" or would go to reduce the interest payable by the assessee on the term loan secured by the assessee from the financial institutions which would be capitalized after the commencement of the commercial production. It was held that the interest derived by the assessee from the borrowed funds which were invested for short-term deposits with the bank, would be chargeable to tax under the head 'income from other sources' and that the same could not be adjusted against the interest payable by the assessee on the term loans secured from the financial institutions. It appears on an application made to the ITAT the lear....
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.... deductions for computing the income charged under the said head would be as specified under section 57. It is thus clear that in respect of interest income from FDRs, any reasonable sum paid by the applicant by way of commission or remuneration to a banker or any other person for the purpose of realizing such interest on behalf of the assessee is a permissible deduction. For the aforementioned reasons, I rule on question: • that the interest on FDRs cannot be treated as income derived from export business of SEZ unit; • that it will not be correct to set off the said interest on securities/FDRs etc. with expenses incurred on such securities/FDRs, however, any reasonable sum paid by way of commission or remuneration to a banker or....