Case Law Details
Universal Precision Screws Vs JCIT (ITAT Delhi)
The assessee received interest on FDRs amounting to Rs. 16,01,196/-. On being called upon to explain as to how this amount was eligible for deduction u/s 10B, the assessee stated that the interest on FDR was received on ‘margin kept in the bank for utilization of Letter of Credit (L/C) and bank guarantee limits from bank.’ Unconvinced with the assessee’s submissions, the AO treated such interest as income from other sources and did not allow deduction u/s 10B on it. The ld. CIT(A) echoed the assessment order on this point.
7. After considering the rival submissions and perusing the relevant material on record, we find that the AO held interest income as ineligible for deduction undersection 10B(1)as it was ITA No.2034/Del/2013 not ‘derived from’ the eligible business. The view point of the AO would have been correct if there had been no further elaboration of the expression ‘such profits and gains as are derived by a hundred per cent export oriented undertaking from the export of articles or things ‘. The position under consideration is not akin to some of the sections employing this expression without any further amplification of the same. Sub-section (4) of section 10B gives meaning to the expression ‘profits derived from export of articles or things ‘ to mean the amount which bears to the ‘profits of the business’ of the undertaking the same proportion as the export turnover in respect of such articles or things, etc., bears to the total turnover of the business carried on by the undertaking. A bare perusal of sub-section (4) in juxtaposition to sub-section (1) of section 10B transpires that the expression ‘derived by” used in sub-section (1) cannot be construed in its literal sense to mean encompassing only such items of income which have direct or immediate nexus with the eligible undertaking. The meaning given to this expression in sub-section (4) as referring to ‘the profits of the business’ makes the expression more liberal to cover any income which is ITA No.2034/Del/2013 connected with ‘the business’ and should not be necessarily ‘derived from the industrial undertaking’ alone. Turning to the nature of present interest income, being arising from FDRs obtained for margin money for the purposes of availing credit limits from banks, it becomes vivid that such interest bears the requisite characteristics of a ‘business income.’ The Mumbai Bench of the Tribunal in Livingstones Jewellery (P) Ltd. Vs. DCIT (2009) 31 SOT 323 (Mum) has held that interest derived by an exporter from fixed deposits made with the bank for obtaining credit limits is eligible for the benefit u/s 10A. Similar view has been expressed in ACIT vs. Motorola India Electricals (P) Ltd. (2008) 114 ITD 387 (Bang.) by holding that the interest income having close nexus with the business activity of the assessee is assessable as income from business and, hence, eligible for the benefit u/s 10A and section 10B. In view of the above discussion, we hold that the assessee is entitled to deduction u/s 10B of the Act in respect of the interest income earned on FDRs made for the purposes of keeping margin money or for availing any other credit facility from banks.
The impugned order on the issue of deduction u/s 10B is set aside and the matter is sent back to the AO for computing deduction u/s 10B afresh in conformity with our above findings and conclusions.
FULL TEXT OF THE ITAT JUDGMENT
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