TaxTMI 
TaxTMI 
2018 (1) TMI 1146
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....Act [Act]. 2. Briefly stated, assessee is a firm engaged in the business of development and export of software and has earned income of Rs. 62,62,81,648/-. After claiming deduction of Rs. 62,55,84,569/- u/s. 10A of the Act. Assessee filed its return of income declaring total income at Rs. 6,62,225/-. The Assessing Officer (AO) has noticed that assessee has earned interest income of Rs. 4,62,35,101/- and other income of Rs. 41,39,680/-. Considering that these amounts are not derived from the export of software and following the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Sterling Foods [237 ITR 579] (SC) and CIT Vs. Pandian Chemicals Ltd., [262 ITR 278], AO excluded the above amounts from the computation u....
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....t income and other income, it was contended that these incomes are incidental to the business and are to be treated as 'business profits'. Referring to the provisions before the amendment to Section 10B from 01-04-2001 and subsequent to amendment brought on 01- 04-2001, it was submitted that the profits of the undertaking are to be considered while allowing the deduction u/s. 10B. It was submitted that the Hon'ble High Court of Karnataka (Full Bench) in the case of CIT Vs. Hewlett Packard Global Soft Ltd., [87 taxmann.com 182] (Karnataka) (FB) has examined the legal position including the decision of Hon'ble Supreme Court and came to the following conclusion: "37. On the above legal position discussed by us, we are of the o....
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....Sourcing P. Ltd) Vs. ACIT in ITA No. 3743/Mum/2013 dt. 29-02-2016; iii. Order of ITAT, Mumbai in the case of M/s. J.P. Morgan Services India Pvt. Ltd., Vs. The DCIT in ITA No. 5547/Mum/2009 dt. 23-04-2013; iv. Judgment of Hon'ble High Court of Delhi in the case of Pr.CIT Vs. Universal Precision Screws in ITA No. 392/2015, dt. 06- 10-2015; v. Judgment of Hon'ble High Court of Delhi in the case of Riviera Home Furnishing Vs. Addl. CIT in ITA No. 459/2015, dt. 19-11-2015; vi. Order of ITAT, Hyderabad in the case of Shiva Shankar Granites (P.) Ltd., Vs. ITO [81 ITD 106] (Hyderabad); vii. Order of ITAT, Bangalore in the case of ABB Global Industries and Services Limited (Formerly known as ABB ....
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....ources does not apply, as the AO has treated the above incomes as part of business income itself. However, the issue is whether there is nexus between the earning of interest income and other incomes with the undertaking which is in the business of export of software. There is no finding by the AO that there is a nexus or not to the extent of interest income is concerned. In fact the AO has not discussed even the nature of interest income earned. As far as the other incomes are concerned, we have perused the details placed on record and it is noticed that the other incomes are of following nature: Rs. 1. Excess provisions reversed 27,57,647 2. Bad debts recovered 6,85,965 3. Miscellaneous Receipts 6,96,068 ....
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....e. As already stated, there is no examination of nature of interest income earned by assessee. Assessee also had not placed on record the details of interest income earned, so as to examine whether it has any nexus with the business. In all the case law relied upon by assessee, there is a finding that amount of interest received is having a direct nexus with that of business in the sense that - (i) the deposits are short term which are not immediately required for the business; (ii) the interest earned is from the Exchange Earners Foreign Currency Account (EEFC A/c). The decision relied on by the Ld. Counsel in the case of CIT Vs. Hewlett Packard Global Soft Ltd., (supra), wherein the issue involved is with reference to interest income on t....
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.... the interest income has a nexus with the business of the 'undertaking'. Just because the assessee has earned interest income out of the business it may not be eligible for deduction unless it has nexus with the business of undertaking. Consider a situation in which an assessee who has surplus amounts and earns substantial income by way of interest along with the business of undertaking, for example, export of software nominally. In these circumstances, it cannot be stated that Legislature intended to exclude the entire income of interest even though the business of undertaking is very much less, compared to the investments made for earning the interest income. The intention of Legislature cannot be misused or misutilised by simply undertak....