Case Law Details
Tech Mahindra Business Services Ltd Vs DCIT (ITAT Mumbai)
Undisputedly, the assessee has earned the interest income from the deposit made towards bank guarantee and temporary parking of surplus funds. It is evident, the assessee has no other activity of earning income except export of ITES through its 10A unit. Thus, it can be safely concluded that the deposits on which the assessee had earned interest income were on account of its business activity. There cannot be any doubt that deposits made towards bank guarantee is purely in connection with its business activity. As far as the interest on fixed deposit is concerned, it is an accepted factual position that the surplus fund available with the assessee and not immediately required for business was temporarily invested in fixed deposit. Thus, this activity of parking surplus funds in the fixed deposit has to be construed to be in the course of its regular business activity. Our aforesaid view is fully supported by the Full Bench decision of the Hon’ble Karnataka High Court in the case of CIT vs Hewlett Packard Global Soft. Ltd (supra), wherein, it is held that all profits and gains including incidental income of an export oriented unit even in the nature of interest on bank deposits or soft loans would be entitled for deduction under section 10A or 10B. In case of Cybertech Systems & Software vs. DCIT (supra), though the Hon’ble jurisdictional High Court was dealing with a case relating to imposition of penalty under section 271(1)(c) of the Act due to disallowance of deduction claimed under section 10B of the Act; however, the Hon’ble Court, following the decision of the Hon’ble Karnataka High Court in case of CIT vs Hewlett Packard Global Soft Ltd (supra) has given a categorical finding that benefit of deduction under section 10B of the Act would be available on the interest income. Keeping in view the ratio laid down in the aforesaid decisions, we hold that the assessee is eligible to claim deduction under section 10A of the Act in respect of the interest income.
As regards deduction claimed in respect of foreign exchange gain, it is noticed that both the assessing officer and learned DRP have disallowed assessee’s claim relying upon the decision of the Hon’ble jurisdictional High Court in the case of CIT vs Shah Originals (supra). However, on a careful reading of the said judgement, it is noticed that the decision of the Hon’ble jurisdictional High Court was rendered in the context of deduction claimed under section 80HHC of the Act. Whereas, in the present case, assessee has claimed deduction under section 10A of the Act. On going through the relevant statutory provisions, we find a marked difference in the language used in both the provisions. While, as per section 80HHC(1), the deduction is available on profits derived by the assessee from the export of goods or merchandise, in case of section 10A the deduction is available on profits and gains derived by an undertaking from the export of articles, things, etc. Taking note of the difference in the language used in both the provisions, the Hon’ble Karnataka High Court in CIT vs Motorola India Electronics (P) Ltd (supra) has held that unlike section 80HHC of the Act, which expressly excluded certain types of income such as foreign exchange gain in EEFC account, etc; however, no such express provision is there in sections 10A / 10B of the Act. The Hon’ble Court has held, what is exempted is not merely the profits and gains of the export of articles, but also the income from the business of the undertaking. Proceeding further, the Hon’ble Court has observed that since the export proceeds kept in the EEFC account are the income of the business undertaking; hence, the claim of deduction would be allowable. In our considered opinion, the aforesaid decision of the Hon’ble Karnataka High Court clinches the issue in favour of the assesseee. Hence, we direct the assessing officer to allow assessee’s claim of deduction on the foreign exchange gain.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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