Allstate India Private Limited Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that the interest income received on temporary Fixed Deposits is eligible for exemption under section 10AA of the Income Tax Act.
Facts- The assessee has entered into an Advance Pricing Agreement with the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Govt. of India on 27.7.2020 and the agreement covers the period of F.Y. 2016-17 to F.Y. 2020-21. In pursuance to the Advance Pricing Agreement, the assessee has filed a modified ITR u/s. 139 r.w.s. 92CD of the Income Tax Act,1961 declaring income of Rs.23,19,09,830/-.
The assessee company is engaged in providing software development services including testing, infrastructure support and other related services. The assessee company also provides information technology-enabled services to Allstate group companies.
On perusal of the financial year statement, the assessee has earned interest income of Rs.5,85, 16,568/ – and in this regard, the assessee was issued show cause notice as to why the same should not be taken out while computing the income u/s 10AA of the Act.
AO observed that the assessee is eligible for claim of exemption u/s 10AA of the Act only on the profits derived from export of IT & IT enabled services. The interest received on short term fixed deposits parked in the bank is to be treated as income from other sources and the income must be directly connected with the export of IT & ITeS. Accordingly, the assessed income was determined at Rs.27,67,20,3 19/- and completed assessment. CIT(A) also upheld the order of the AO and dismissed the appeal of the assessee. Being aggrieved, the assessee has filed the present appeal.
Conclusion- Hon’ble Karnataka High Court in the case of CIT vs. Hewllett Packard Soft Ltd. has held that the Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as ‘Income from other Sources’ under Section 56 of the Act.
Held that the interest income received on temporary Fixed Deposits is eligible for exemption, accordingly, we allow the grounds raised by the assessee on this issue regarding exemption u/s 10AA of the Act.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee against order passed by NFAC Delhi dated 5.9.2021 DIN & Order No.ITBA/NFAC/S/250/ 202223/1049345371(1) DATED 2.2.2023 on the following grounds of appeal:
1. That the learned Commissioner of Income Tax (Appeals’) VCIT(A)1 — National Faceless Appeal Centre has erred on facts and circumstances of the case and in law so far as the first appellate order passed by him / her is prejudicial to the interest of the Appellant.
2. The learned CIT(A) has erred on facts and in circumstances of the case and in law by confirming the order of the learned Assessing Officer who has held that the interest income earned by the Appellant from short-term deposits is not eligible for deduction under section 10AA of the Income Tax Act, 1961 (`the Act’).
3. The learned CIT(A) has erred on facts and in circumstances of the case and in law by confirming the order of the learned Assessing Officer who has reduced the MAT credit to the extent of Rs 1,55,08,015 consequent to disallowance of deduction under section 10AA of the Act for interest income earned by the
4. That the learned CIT(A) has erred in the facts and circumstances of the case by –passing the impugned Order without following the judicial Precedence on this matter.
2. The brief facts of the case are that the assessee filed return of income on 29.11.2018 declaring income at Rs.21,72,88,740/-. The case was selected for scrutiny under CASS and statutory notices were issued to the assessee. The assessee has entered into an Advance Pricing Agreement with the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Govt. of India on 27.7.2020 and the agreement covers the period of F.Y. 2016-17 to F.Y. 2020-21. In pursuance to the Advance Pricing Agreement, the assessee has filed modified ITR u/s 139 r.w.s. 92CD of the Income-tax Act,1961 [‘the Act’ for short] on 19.10.2020 declaring income of Rs.23,19,09,830/-. The other statutory notices were issued to the assessee.
2.1 The assessee company is engaged in providing software development services including testing, infrastructure support and other related services. The assessee company also provides information technology enabled services to Allstate group companies.
2.2 On perusal of the financial year statement, the assessee has
earned interest income of Rs.5,85, 16,568/ – and in this regard, the assessee was issued show cause notice as to why the same should not be taken out while computing the income u/s 10AA of the Act. The assessee filed reply as under:
“6.2 In response to the above notice. the assessee vide response dated 08.09.2021 submitted its reply in this regard. The reply of the assessee is being reproduced herewith:-
“During the previous year 201 7-18, Company has earned interest of Rs. 58.516,568!- on short team fixed deposit made out of surplus funds temporarily parked available in the current account held in Bank. Company has carried out its entire operation from Special Economic Zone Units located at Bangalore and Pune and approved by Development Commissioner of Cochin SEZ and SEEPZ Mumbai SEZ. Approval copies are provided in our earlier submission dated 31st August 2021.
Breakup of interest between two SEZ units are as below:-
