Case Law Details
Barclays Shared Services Private Limited Vs ACIT (ITAT Pune)
Conclusion: Amount of income which qualifies for deduction is the profits of the business of the undertaking and not any income earned by assessee de hors the business of the undertaking. If the relevant items of income are held to be falling under the head `Income from other sources’, the same will not qualify for deduction under sectio 10A, 10AA.
Held: Assessee was engaged in the business of providing IT Enabled services. It filed its return declaring total income at Nil under regular provisions and at Rs.45,85,14,327/-u/s.115JB. In the computation of income under the regular provisions, assessee claimed deduction u/ss. 10A and 10AA. AO, during the course of assessment proceedings, observed that assessee claimed deduction, inter alia, on five items totalling Rs.1,20,86,914/- which were clubbed under the main head of ‘Other income’, viz., (1) Interest on Short Term Fixed Deposits – Rs.99,02,569/-; (2) Recovery/Reimbursement of expenses from group companies – Rs.20,23,083-; (3) Gain on sale of Fixed Assets – Rs.1,000/-; (4) Sale of Scrap – Rs.1,31,005/-; and (5) Other income – Rs.29,257/-. On being called upon to explain as to how assessee was eligible for deduction u/ss.10A and 10AA on the interest income, assessee submitted that it placed its unutilized funds in short term fixed deposits with banks in order to effectively manage the working capital requirements of its business. It was held that an item of income, in order to be covered under the qualifying amount, must have some nexus with the business of the undertaking, which need not necessarily be derived from it. What we need to appreciate is that the amount of income which qualifies for deduction is the profits of the business of the undertaking and not any income earned by the assessee de hors the business of the undertaking. Assessee accepted that if the relevant items of income were held to be falling under the head `Income from other sources’, the same will not qualify for deduction. Thus, the nature of income ad seriatim was to be determined so as to find out the head of income under which they fall and their consequential treatment as qualifying income. Interest on fixed deposits amounting to Rs.99.02 lakh would not be included in the qualifying amount for the purposes of granting deduction u/ss.10A/10A. Once the amount had been included in the expenses which had gone to reduce the ‘profits of the business of the undertaking’, its re-imbursement as a sequitur, would obviously be a part of the qualifying amount for the purposes of deduction under the sections. Therefore, deduction was granted on such recovery/reimbursement of expenses from group companies. Where the assessee did not include the amount in the qualifying amount, there could be no question of reducing it. It was not disputed that the scrap emanated from the normal working items of the assessee company, whose costs were debited to the Profit and loss account. On sale of such scrap, against which the expenses were booked in the computation of the qualifying amount, the receipt would form part of the qualifying amount. Assessee did not explain the nature of this income before the authorities below as to how it was in relation to the ‘profits of the business of undertaking’. Same position continues before the Tribunal as well. In view of the fact that even the nature of income was not known to the assessee, it could not form part of the ‘profits of the business of undertaking’.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee is directed against the order dated 17-11-2017 passed by the CIT(A)-5, Chennai in relation to the assessment year 2010-11.
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