AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (2) TMI 1955
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....n under section 10AA of the Income-tax Act, 1961('the Act') on interest income earned on short term deposits 1. The learned CIT(Appeals) erred in excluding interest income earned of INR 1,79,01,588 on short term deposits for the purpose of computation of deduction under section 10AA of the Act by holding that it cannot be classified as 'profits of business of the undertaking' 2. The learned CIT(Appeals) erred in holding that interest income earned of INR 1,79,01,588 on short term deposits is liable to be taxed under the head 'Income from Other Sources' as against 'Profits of business' as claimed by the Appellant. 3. The learned CIT(Appeals) erred in placing reliance on Jurisdictional Hon'ble Pune Tribunal's decision in the case of Barclays Shared Services Private Limited¹ without appreciating that: The Hon'ble Pune Tribunal has distinguished the favorable decision of the Hon'ble Karnataka High Court in the case of CIT vs. Hewlett Packard Global Soft Ltd by stating that it not the Jurisdictional High Court decision and it has been delivered in the context of section 10A/108 of the Act and not se....
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....ted to books, journals and catalogues. 1.2. For the assessment year ("AY") 2017-18, the Appellant filed its return of income on November 29, 2017 declaring a total income of INR 3,61,10,090 and book profits of INR 17,11,69,436 The Appellant's case was selected for scrutiny vide notice dated September 21, 2018 issued under section 143(2) of the Act and the assessment was completed vide order dated December 05, 2019, assessing the total income to be INR 6.54,05,110 under normal provisions of the Act and book profit of INR 17,11,69,436 1.3. The said difference of INR 1,13,93,425 is taxable income under normal provisions of the Act is on disallowance of claim of deduction under section 10AA on the interest income on fixed deposit amounting to INR 1,79,01,588. Further, the AO has assessed the said interest income of INR 1,79,01,588 as 'Income from Other Sources'; however he has not reduced the same from Income from Profits and Gains from Business or Profession', thereby resulting in double taxation. 1.4. The following additions/disallowances have been made by the AO in the assessment order 2.1 In this regard, it is respectfully submitt....
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....have been classified into two categories, where the maturity period is less than 3 months and the maturity period is more than 6 months. In the present case, the term deposits created by the Appellant range from 3 months to 12 months, hence, the fixed deposits are temporary in nature (refer page 126/PB) Thus, based on the term of the deposits it can be ascertained that the intention of making the said term deposits is not to make investments in order to earn interest income as they are made for a short duration out of the surplus funds available with the Appellant. Accordingly, the said interest income can be considered to be earned in ordinary course of business and therefore be a part of the profits of business of the undertaking eligible for deduction as per provisions of section 10AA(1) read with 10AA(7) of the Act. 2.13 The above position has been affirmed in the full bench decision of the Hon'ble Karnataka High Court in the case of CIT vs Hewlett Packard Global Soft Ltd.: [2018] 403 ITR 453 Relevant extract of the decision is reproduced below: 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was....
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....arting point and not reducing the aforesaid interest income of INR 1,79,01,588 from the head of "Income from favourable judgements on this specific issue have been rendered by various High Courts subsequently. Profits and Gains of Business or Profession, thereby leading to double taxation of the same income (refer page 57 of the appeal set). The relevant extract of the calculation has been reproduced below. Particulars Income computed by AO Income computed by the Appellant Returned income from business before deduction u/s 10AA of the ca (ref. pg 49/PB) 18,55,44,673 18,55,44,673 Less : Interest Income already included in above income as per the return computation 0 1,79,01,588 Less : Deduction under section 10AA of the Act as computed by the AO 13,67,30,313 13,67,30,313 Business Income 4,88,14,360 3,09,12,772 Income from Other Sources 1,79,01,588 1,79,01,588 Gross total Income 6,67,15,948 4,88,14,360 Less : Deduction under Chapter VIA 13,10,843 13,10,843 Total assessed Income (Rounded Off) 6,54,05,110 4,75,03,520 3.3. The CIT(A) erred in observing that if the revised deduction under s....
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.... Services Private Limited dated 09/03/2021, which is the jurisdictional ITAT. Ld.DR submitted that as per Rule of Judicial Precedence, this bench is bound to follow the decision of ITAT, Pune(supra). Ld.DR for the Revenue relied on the decision of Hon'ble Supreme Court in the case of India Comnet International Vs. ITO [2013] 354 ITR 673 dated 06.09.2012. Ld.DR submitted that once Hon'ble Supreme Court in the case of India Comnet International Vs ITO (supra) has upheld the view taken by Hon'ble Madras High Court in the case of Menon Impex P Ltd(supra) then the law on this issue is settled and Hon'ble ITAT has to follow the law laid down by Hon'ble Supreme Court in the case of India Comnet International P Ltd (supra). 3.1 Ld. Departmental Representative for the Revenue relied on the following decisions as under : * India Comnet International v. ITO (SC) * PCIT vs Wipro Ltd (SC) [2022] 446 ITR 1 * Thomson Press (India) Ltd. v. Commissioner of Income-tax-II (Delhi HC) * Polaris Software Lab v. Addl. CIT, Co. Range V (ITAT, Chennai) * Tessitura Monti India (P.) Ltd. v. ITO-8(3)(3), Mumbai (ITAT, Mumbai) * Cyber Pearl Information t....
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....ration, the Assessee has claimed deduction under section 10AA of the Act totaling to Rs. 14,78,23,737/- in respect of the above two units. Issue in the Assessment Order : 4.1.1 During the scrutiny proceedings, Assessing Officer noted that Assessee has claimed Rs. 1,79,01,588/- which was interest on fixed deposits as profits of business and claimed deduction under section 10AA of the Act. It is mentioned in the Assessment Order that Assessee has kept certain term deposits in RBL Bank, Pune. The said interest has been earned from the Term Deposits kept with RBL Bank, Pune. It has been mentioned in the Para 6.7 of the Assessment Order that Assessee could not establish whether Assessee's SEZ units have to keep fix deposits under any circumstances or compulsions. It is further mentioned that the Assessee failed to prove the purpose and direct utility of the FDRs for its business operation. Assessing Officer in the assessment order mentioned that the Character of the receipt changes to Income from Other Sources. Assessing Officer also mentioned in the assessment order that interest on surplus amount in bank deposit do not have any first-degree nexus with the eligible business activity....
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.... from the export, of such articles or things or from services for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services, as the case may be, and fifty per cent of such profits and gains for further five assessment years and thereafter; (ii) for the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the "Special Economic Zone Re-investment Reserve Account") to be created and utilized for the purposes of the business of the assessee in the manner laid down in sub-section (2). ^22[Explanation.-For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not excee....
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....l Soft Ltd., 403 ITR 453 dated 30.10.2017. It is noted that as per paragraph 16 of the said order, for A.Y.2001-02, interest income of Rs. 4,68,037/- on short term deposits of Rs. 6,46,88,606/- temporarily park in the CURRENT Account held in Citi Bank, Hong-Kong was claimed as profit of the business and eligible for exemption under section 10A of the Act. Thus, the most important fact in the case of Hawlett Packard Global Soft Ltd.,(supra) is that the interest was earned from the Current Account maintained with Citi Bank, Hong-Kong, it means it was earned in Foreign Currency. 4.6.1 However, in the case of the Assessee, interest has been earned from the Fixed Deposits kept with RBL Bank in India. Current Account mentioned in the case of Hawlett Packard Global Soft Ltd., is a running account, wherein business receipts are credited, the Current Account was maintained outside India in Citi Bank, Hong-Kong. Therefore, the case relied by ld.AR for the Assessee is distinguishable on facts. For claiming deduction under section 10AA Act, one of the primary conditions is that the amount should be received inconvertible foreign exchange. Admittedly, the interest income was earned from Fixe....
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....e assessee claimed exemption in respect of the said amount of Rs 92,06,402/- under Section 10A of the Act. The assessee has lost throughout in the proceedings. 4. The impugned judgment of the High Court is based on the judgment of the Madras High Court in the case of CTT Menon Impex (P) Ltd (2003) 259 ITR 403/128 Tasman 11 wherein a similar question arose as to "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest income derived by the assessee from funds in connection with Letter of Credit is income derived from the profits of business of the industrial undertaking so as to be entitled to get the benefit of Section 10A of the Income Tax Act, 19617 In that case, the Madras High Court examined in detail the transaction in question and found that the assessee had set up a new industrial undertaking in Kandla Free Trade zone for manufacturing light engineering goods. The goods therein were exported during the Assessment Year 1985-1996. In the course of business, the assessee was required to open a Letter of Credit. On such Deposit, the assessee earned interest. Under the said circumstances, the High Court held,....
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....nding precedence for us. Our Analysis & Conclusion : 5. In the case of the Assessee, Springer Nature Technology and Publishing Solutions Pvt. Ltd admittedly the Interest has been earned from the Fixed Deposits kept with the RBL bank in India. Therefore, in the case of the Assessee, the source of the impugned Interest is Fixed Deposits kept with the bank. The Fixed Deposits kept with the Bank and the export activity of SEZ unit do not have any Direct Nexus. Therefore, respectively following the decision of Hon'ble Supreme Court in the case of India Comnet International Vs. ITO (supra) which in-turn has referred to the decision of Hon'ble Madras High Court in the case of Menon Impex P Ltd, it is held that the Interest Earned by the assessee from the Fixed deposits kept with the Bank is not eligible for exemption under section 10AA of the Act. Also, following the Stricter Interpretation as explained by Hon'ble Supreme Court in the case of Wipro Ltd (supra). 5.1 We also find support from the decisions of ITAT referred by Ld.DR, on identical issue where in ITAT held that Interest earned is not eligible for exemption under section 10A/10B of the Act. Regarding Case Laws relie....