TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 144
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....t of Rs. 5,20,16,070/- as under: [Rs.] Interest on FDRs 3,82,03,086/- Interest on ICD and other deposits and advances - Out of surplus from export proceeds 77,83,788/- Interest on FDRs 5,929,196/- - Out of IPO Funds [Public Issue, 2006] 52,016,070/- 3. Out of the above, interest on FDR and interest on IPO funds were kept out of the purview of 'business income' and offered for tax as "Income from other sources". During the course of assessment proceedings, the assessee requested the Assessing Officer to rework the interest component and consider the interest on FDR out of surplus from export proceeds amounting to Rs. 3,83,03,086/- under the head "Business income" in the light of the provisions of section 10A(4) of the Income tax Act, 1961 [hereinafter referred to as 'the Act'] 4. The Assessing Officer was not convinced with the contention of the ld. counsel for the assessee and treated the interest of Rs. 3.83 crores as "Income from other sources". 5. Aggrieved, the assessee carried the matter before the ld. CIT(A), but without any success. 6. Before us, the ld. counsel for the assessee drew our attention to the provisions of section 10A(4) of th....
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....f claiming deduction under Section 10A of the Income Tax Act, 1961?" 11. The relevant findings of the Hon'ble High Court read as under: "29. In Riviera Home Furnishing v. Addl. CIT [2016] 65 taxmann.com 287/237 Taxman 520 (Delhi), the Division Bench of Delhi High Court dealing with a case of Export Oriented Undertaking, for the Assessment Year 2008-09, in respect of interest received by an assessee on Fixed Deposit Receipts (FDRs.) which were under lien with Bank for facilitating Letter of Credit and Bank Guarantee facilities held that such interest received on FDRs would qualify for deduction under Section 10-B of the Act. The relevant paragraphs 9 and 15 of the said decision are quoted below. "9. The question as to what can constitute as profits and gains derived by a 100% EOU from the export of articles and computer software came for consideration before the Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd. (2014) 46 Taxmann.com 167 (Kar). The said appeal before the Karnataka High Court was by the Revenue challenging an order passed by the ITAT which held that the interest payable on FDRs was part of the profits of the business of the undertaking an....
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.... to be suggested by Mr. Manchanda. Also, he is not right in contending that the decisions of the High Courts referred to above have not noticed the decision of the Supreme Court in Liberty India. The Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd. (supra) makes a reference to the said decision. That decision of the Karnataka High Court has been cited with approval by this Court in Hritnik Exports (supra) and Universal Precision Screws (supra). In Hritnik Exports (supra) the Court quoted with approval the observations of the Special Bench of the ITAT in Maral Overseas Ltd. (supra) that "Section 10A/10B of the Act is a complete code providing the mechanism for computing the 'profits of the business' eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act." 30. The said judgment, in our opinion, rightly distinguishes the judgments on the interpretation of Section 80-HH, 80-IA etc. under Chapter VI-A of the Act in view of Section 80-A (4) of the Act which, wi....
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....unt of interest. The legislature does not appear to have provided for excluding the amount of interest from the total turnover as has been done in the case of 80HHC by explanation (baa) of sub-section (4C) thereof. In that case, 90% of the income arising out of interest has to be excluded from the profits of the business for the purpose of arriving at deduction available under Section 80HHC. But an identical provision is not there. Therefore, that provision cannot be imported by implication. The submission that the amount earned from interest was not intended to be taken into account for the purpose of giving benefit under subsection (1) of Section 10B may be correct. But the amount of deduction available to a 100% export oriented undertaking is necessarily dependent upon the formula provided in subsection (4). There is, as such, no scope for any controversy that part of the money was earned from interest and not from export. This question came up before the Karnataka High Court and was answered in the case of CIT v. Motorola India Electronics (P.) Ltd. [2014] 46 taxmann.com 167/225 Taxman 11 (Kar.)(Mag.) as follows: In the instant case, the assessee is a 100% EOU, which has exp....
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....ed from the total income of the Assessee in the manner set out by section 10A and the computation is also provided in that provision itself namely sub-section (4), then there is a complete Code which is evolved and formulated by the Legislature. 20. In relation to this, we also find support in the judgment of this Court in the case of Black and Veatch Consulting Pvt. Ltd. This Court has observed and held as under: "Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasized in a judgment of a Division Bench of this Court, while construing the provisions of Section 10B, in Hindustan Unilever Ltd. v. Deputy Commissioner of Income Tax MANU/MH/0417/2010: [2010] 325 ITR 102 (Bom.) at paragraph 24. The submission of the Revenue placed its reliance on the literal reading of Section 10A under which a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years is to be allowed from the total income of the assessee. The deduction under Section 10A, in our view, has to be given effect to at the stage of computing the profits ....
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....s and therefore incidental income of such undertaking by way of interest on the temporarily parked funds in Banks or even interest on staff loans would constitute part of profits and gains of such special Undertakings and these cases cannot be compared with deductions under Sections 80-HH or 80-IB in Chapter VI-A of the Act where an assessee dealing with several activities or commodities may inter alia earn profits and gains from the specified activity and therefore in those cases, the Hon'ble Supreme Court has held that the interest income would not be the income "derived from" such Undertakings doing such special business activity. 35. The Scheme of Deductions under Chapter VI-A in Sections 80-HH, 80-HHC, 80-IB, etc from the 'Gross Total Income of the Undertaking', which may arise from different specified activities in these provisions and other incomes may exclude interest income from the ambit of Deductions under these provisions, but exemption under Section 10-A and 10-B of the Act encompasses the entire income derived from the business of export of such eligible Undertakings including interest income derived from the temporary parking of funds by such Undertaki....
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....on of income of each such undertaking. In other words, the profits of the business of the undertaking cannot be computed in isolation. The profits are computed under the head "Profits and gains of business or profession", as under the above head, the income from business as a whole has to be computed. The phrase "total income" used in section 10A(1) is, therefore, to be understood as the total income of the STP unit. This is clear from the first proviso to section 10A(1) which makes a reference to the total income of the undertaking and not to the total income of the assessee. The definition of any tern: given in section 2 will apply only when the context does not otherwise require. The placement, language and setting of section 10A cannot mean the total income computed in accordance with the provisions of the Act. Instead, such a phrase in the context of section 10A, means profits and gains of the STP undertaking as understood in its commercial sense. 16. Chapter VI deals with the computation of total income under various heads of income. Section 14 provides for classification of income under various heads of income for the purpose of charge of income tax and computation of tot....
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....g conversant with the implications of this Chapter, has consciously chosen - to retain. section 0A in Chapter III. 18. If. section 10A is to be given effect to as a deduction from the total income as defined in section 2(45), it : mean that section 10A is to be considered after Chapter VI-A deductions have been exhausted. The deduction under Chapter VI-A are to be given from out of the gross total income. The term "gross total income is defined in section 80B(5) to mean the total income computed in accordance with the provisions of Act. before making any deduction under this Chapter. As per the definition of gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include section 10A. In other words, the gross total income would be arrived at after considering section 10A deduction also. Therefore, it would be inappropriate to conclude that section 10A deduction is to be given effect to after Chapter VI-A deductions are exhausted. 19. It is after the deduction under Chapter VI-A that the total income of an assessee as arrived at. Chapter VI- A deductions are the last sta....