SPRINGER NATURE TECHNOLOGY AND PUBLISHING SOLUTIONS PRIVATE LIMITED,PUNE vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), PUNE

ORDER \nPER DR. DIPAK P. RIPOTE, AM:\nThis is an appeal filed by the assessee against the order of\nld.Commissioner of Income Tax(Appeals) [NFAC] for\n Assessment Year 2017-18 dated 14.02.2023 passed u/sec.250 of\nthe Income Tax Act, 1961, emanating from assessment order\nunder section 143(3) of the Act, dated 05.12.2019 for A.Y.2017-\n18. The Assessee has raised the following grounds of appeal :\n“The Appellant objects to the order dated February 14, 2023 passed\nby the learned Commissioner of Income-tax (Appeals), National\nFaceless Appeal Centre, New Delhi [learned CIT (Appeals)"] for the\naforesaid assessment year on the following amongst other grounds:\nDisallowance of claim of deduction under section 10AA of the\nIncome-tax Act, 1961('the Act') on interest income earned on short\nterm deposits\n1. The learned CIT (Appeals) erred in excluding interest income\nearned of INR 1,79,01,588 on short term deposits for the purpose of\ncomputation of deduction under section 10AA of the Act by holding\nthat it cannot be classified as 'profits of business of the undertaking'\n2. The learned CIT (Appeals) erred in holding that interest income\nearned of INR 1,79,01,588 on short term deposits is liable to be\ntaxed under the head 'Income from Other Sources' as against 'Profits\nof business' as claimed by the Appellant.\n3. The learned CIT (Appeals) erred in placing reliance on\nJurisdictional Hon'ble Pune Tribunal's decision in the case of\nBarclays Shared Services Private Limited' without appreciating that:\nThe Hon'ble Pune Tribunal has distinguished the favorable\ndecision of the Hon'ble Karnataka High Court in the case of\nCIT vs. Hewlett Packard Global Soft Ltd by stating that it not\nthe Jurisdictional High Court decision and it has been\ndelivered in the context of section 10A/108 of the Act and not\nsection 10A/10AA of the Act which are the sections under\nappeal.\nThe Hon'ble Pune Tribunal while pronouncing its decision\nrelied on the decision of the Hon'ble Madras High Court in\nthe case of Menon Impex (P) Ltd.) by referring it as\njurisdictional High Court decision.\nTherefore, the basis for distinguishing the decision of the\nHon'ble Karnataka High Court in the case of Hewlett Packard\nGlobal Soft Ltd (supra) is factually incorrect Double taxation\nof interest income on short term deposits\n4. Without prejudice to above, the learned CIT (Appeals) has erred\nin confirming the double disallowance of the interest income\namounting to Rs.17,901,588 by not appreciating that it was already\nincluded as profits of business and profession while computation of\ndeduction under section 10AA of the Act by the Appellant and the\nassessing officer has also taxed the same as income from other\nsources.\nOthers\n5. Each one of the above grounds of appeal is without prejudice to\nthe other\n6. The Appellant craves leave to add, to amend, to alter, to\nsubstitute, and draw any or all of the above grounds of appeal.\"\nSubmission of ld.AR :\n2. The ld.Authorised Representative(ld.AR) for the Assessee\nsubmitted that the only issue is interest on fixed deposits whether\neligible for deduction under section 10AA or not! Ld.AR\nsubmitted that the interest has been earned by Parking Surplus\nFunds with the Bank. Ld.AR submitted that it is a covered issue\nby the decision of Hon'ble Karnataka High Court in the case of\nCIT Vs. Hewlett Packard Global Soft Ltd., [2018] 403 ITR 453.\n2.1 In the rebuttal to submission of Ld.Departmental\nRepresentative, ld.AR submitted that ld.DR's reliance on the\ndecision of Hon'ble Supreme Court in the case of India Comnet\nInternational Vs. ITO [2013] 354 ITR 673 is misplaced as\nHon'ble Supreme Court merely set-aside the issue to the ITAT.\nThus, Hon'ble Supreme Court has not laid down any Law on the\nissue.\n2.2 Ld.Authorised Representative(ld.AR) submissions is as\nunder :\n

1. Springer Nature Technology and Publishing Solutions Private\nLimited ('Appellant') is a company engaged in providing IT enabled\nand computer software development services for a variety of work\nsuch as pre-media, prepress, copy editing, design and typesetting,\ngraphics and content transformation services related to books,\njournals and catalogues.\n12. For the assessment year (\"AY\") 2017-18, the Appellant filed its\nreturn of income on November 29, 2017 declaring a total income of\nINR 3,61,10,090 and book profits of INR 17. 11,69.436 The\nAppellant's case was selected for scrutiny vide notice dated\nSeptember 21, 2018 issued under section 143(2) of the Act and the\nassessment was completed vide order dated December 05, 2019,\nassessing the total income to be INR 6.54,05,110 under normal\nprovisions of the Act and book profit of INR 17,11,69,436\n1.

3. The said difference of INR 1,13,93,425 is taxable income under\nnormal provisions of the Act is on disallowance of claim of deduction\nunder section 10AA on the interest income on fixed deposit\namounting to INR 1.79,01,588. Further, the AO has assessed the\nsaid interest income of INR 1,79,01,588 as 'Income from Other\nSources'; however he has not reduced the same from Income from\nProfits and Gains from Business or Profession', thereby resulting in\ndouble taxation.\n1.

4. The following additions/disallowances have been made by the\nAO in the assessment order\n2.1 In this regard, it is respectfully submitted that the appellant\noperates from three Special Economic Zone (SEZ), and out of these\nthree SEZ units the appellant company claimed the benefit under\nsection 10AA of the Act for the following two units:-\na) SEZ unit T8-the impugned AY being 6th year of the claim under\nsection 10AA of the Act (Wing B. Upper Ground Level. Tower VIII,\nMagarpatta Township Development Construction Company Limited-\nSEZ, village Hadapsar, Taluka- Haveli, Pune)\nb) SEZ Unit T9-the impugned AY being 4th year of the claim under\nsection 10AA of the Act (Wing A and B (Part 1), L1 and Wing A L5,\nTower XI, Magarpatta Township Development and Construction\nCompany Limited- SEZ Village Hadapsar, Taluka-Haveli, Pune).\n2.2\nIt is submitted that the appellant claimed deduction u/s 10AA\nof the Act of INR 14,81.23.737 in respect of SEZ unit T8 and SEZ\nunit T9. The details of claim made and disallowance thereon as per\nbelow\nSno.\nParticulars\nSez Unit T8 Sez Unit T9 Total\nA\nProfit\nof\nthe 7,51,71,191\n11,05,38,142 | 18,57,09,333\nundertaking\nB\nTotal Turnover\n26,14,36,572 | 79,01,66,238\n1,05,16,02,810\nC\nExport Turnover\n26,14,36,572 | 79,01,66,238 | 1,05,16,02,810\nD\n% of Deduction 50%\n100%\nunder section 10AA\nof the Act\nE\nQuantum\nof 3,75,85,595\n11,05,38,142 | 14,81,23,737\nDeduction\nunder\nsection\n10AA[(A*C)*D]\nF\nInterest income 1,30,16,326 48,85,262 1,79,01,588\nincluded\nin the\nprofit\nof\nthe\nundertaking\nG\nDeduction denied 65,08,163 48,85,262 1,13,93,425\nby the AO / CIT(A)\n(F*D)\nDuring the year under consideration, the Appellant has earned\ninterest income of INR 1,79,01,588 from the short-term fixed\ndeposits made in the RBL Bank and Kotak Mahindra Bank (refer\npages 148-152 of the PB). The term of such deposits range from 3\nmonths to 12 months and the appellant has offered the said interest\nincome to tax as 'profits and gains from business' as said deposits\nhave been made from the surplus generated from proceeds received\nfrom the export business activity and has claimed a deduction\namounting to INR 1.13.93.425 under section 10AA of the Act on the\nsame\nFixed deposits are temporary in nature\nIt is submitted that the term deposits by the Appellant were made out\nof the surplus export proceeds and were temporary in nature. The\nfixed deposits have been classified into two categories, where the\nmaturity period is less than 3 months and the maturity period is more\nthan 6 months. In the present case, the term deposits created by the\nAppellant range from 3 months to 12 months, hence, the fixed\ndeposits are temporary in nature (refer page 126/PB)\nThus, based on the term of the deposits it can be ascertained that the\nintention of making the said term deposits is not to make investments\nin order to earn interest income as they are made for a short\nduration out of the surplus funds available with the Appellant.\nAccordingly, the said interest income can be considered to be earned\nin ordinary course of business and therefore be a part of the profits\nof business of the undertaking eligible for deduction as per\nprovisions of section 10AA(1) read with 10AA(7) of the Act.\n2.13 The above position has been affirmed in the full bench decision\nof the Hon'ble Karnataka High Court in the case of CIT vs Hewlett\nPackard Global Soft Ltd.: [2018] 403 ITR 453 Relevant extract of\nthe decision is reproduced below:\n37. On the above legal position discussed by us, we are of the\nopinion that the Respondent assessee was entitled to 100%\nexemption or deduction under Section 10-A of the Act in respect of\nthe interest income earned by it on the deposits made by it with the\nBanks in the ordinary course of its business and also interest earned\nby it from the staff loans and such interest income would not be\ntaxable as 'Income from other Sources under Section 56 of the Act.\nThe incidental activity of parking of Surplus Funds with the Banks or\nadvancing of staff loans by such special category of assessees\ncovered under Section 10-A or 10-B of the Act is integral part of\ntheir export business activity and a business decision taken in view of\nthe commercial expediency and the interest income earned\nincidentally cannot be de-linked from its profits and gains derived by\nthe Undertaking engaged in the export of Articles as envisaged\nunder Section 10-A or Section 10-B of the Act and cannot be taxed\nseparately under Section 56 of the Act.\"\n(emphasis supplied)\n2.

16. Similar principle has been upheld in following judicial rulings\namongst others that interest income on short term temporary\ndeposits from surplus funds is eligible for deduction under section\n10AA/10A/10B of the Act\nL Camiceria Apparels India (P) Ltd. vs ACIT & 1973\nof 2008 (Madras)\nPCIT vs NTT Data Global Delivery Services Ltd. ITA No 392/2022\n(Delhi)\nPCIT vs Dishman Pharmaceuticals & Chemicals Ltd. [2019] 417\nITR 373 (Guj)\nIV CIT vs Hycron India Ltd. [2009] 308 ITR 251 (Raj)\nV Allstate India Pvt. Ltd. vs DCIT ITA No. 257/Bang/2023 (Bang. -\nTrib.)\n3. Ground no.

4. \"Interest income considered under head of \"Income\nfrom Other Sources\" without corresponding reduction of the same\nfrom the head 'Income from Profits and Gains of Business or\nProfession\"\n3.1 Without prejudice to the above grounds, it is submitted that the\nAO has denied the deduction under section 10AA on interest income,\nby treating the same as 'Income from Other Sources Having assessed\nthe said interest income of INR 1,79.01,588 as 'Income from Other\nSources the AO ought to have reduced the same from Income from\nProfits and Gains from Business or Profession' while considering the\nreturned income from business before deduction under section 10AA\nof the Act (refer page 49 of the PB).\n3.2 The AO has erred in taking the returned income of the Appellant\nas the starting point and not reducing the aforesaid interest income\nof INR 1,79.01,588 from the head of \"Income from favourable\njudgements on this specific issue have been rendered by various\nHigh Courts subsequently.\nProfits and Gains of Business or Profession, thereby leading to\ndouble taxation of the same income (refer page 57 of the appeal set).\nThe relevant extract of the calculation has been reproduced below.\nParticulars\nIncome\ncomputed\nby\nAO\nIncome computed\nby the Appellant\nReturned income from business\nbefore deduction u/s 10AA of theca\n(ref. pg 49/PB)\n18,55,44,673\n18,55,44,673\nLess : Interest Income already\nincluded in above income as per the\nreturn computation\n0\n1,79,01,588\nLess: Deduction under section 10AA\nof the Act as computed by the AO\n13,67,30,313\n13,67,30,313\nBusiness Income\n4,88,14,360\n3,09,12,772\nIncome from Other Sources\n1,79,01,588\n1,79,01,588\nGross total Income\n6,67,15,948\n4,88,14,360\nLess : Deduction under Chapter VIA\n13,10,843\n13,10,843\nTotal assessed Income (Rounded Off)\n6,54,05,110\n4,75,03,520\n3.

3. The CIT(A) erred in observing that if the revised deduction\nunder section 10AA of the Act and interest income is adjusted, there\nwill be no difference to the assessed income. It is to be appreciated\nthat he lost sight of the fact that the starting point of the AO was the\nincome as per return of income in which the interest income was\nalready included and thus, was leading to double addition (refer\npage 49 of the PB and page 44 of the appeal set).\n3.4 Thus, if the contrary view is to be taken, then the interest income\nof INR 1,79,01,588 ought to be reduced from the head 'Income\nfrom profits and gains of business or profession' and must re-\ncompute the corrected assessed total income of the Appellant.\"\nSubmission of ld.DR:\n3. Mr.Keyur Patel, IRS -ld.Commissioner of Income Tax(DR)\nfor the Revenue filed a Written Submission. Mr.Keyur Patel\ntook us through Section 10AA of the Act and submitted that\nSection 10AA of the Act specifically talks about total income of\n\"the unit\" which begins manufacture or produce article or\nprovide any service during the previous year. Thus, ld.DR\nsubmitted that the Section is about Profit derived from\nmanufacturing activity of “the eligible unit\" or profit derived from\nproviding services by “the eligible unit\". The deduction is only\navailable when the amount is received in foreign currency. In this\ncase, interest income has not been earned in foreign currency.\nLd.DR distinguished the case law in the case of CIT Vs. Hewlett\nPackard Global Soft Ltd.(supra) relied by Assessee, ld.DR\nsubmitted that in the case of Hewlett Packard Global Soft\nLtd.(supra), it is categorically mentioned in Para-16 that term\ndeposit was kept in the Current Account of Citi Bank, Hongkong.\nThus, the interest earned was in convertible foreign exchange.\nHowever, in the case of the present assessee, interest has been\nearned in Indian Rupees. Ld.DR also submitted that the decision\nin the case of CIT Vs. Hewlett Packard Global Soft Ltd.(supra) is\ndistinguishable on facts as in that the Hon'ble Karnataka High\nCourt has not considered the decision of Hon'ble Madras High\nCourt in the case of CIT Vs Menon Impex P Ltd (2003) 203 ITR\n403, which has been upheld by Hon'ble Supreme Court in the\ncase of India Comnet International [2013]354 ITR 673. Hence,\nthe case law relied by Assessee distinguishable and not\napplicable. Ld.DR also submitted that ld.CIT(A) has relied on the\ndecision of ITAT Pune in Barclays Shared Services Private\nLimited dated 09/03/2021, which is the jurisdictional ITAT.\nLd.DR submitted that as per Rule of Judicial Precedence, this\nbench is bound to follow the decision of ITAT, Pune(supra).\nLd.DR for the Revenue relied on the decision of Hon'ble\nSupreme Court in the case of India Comnet International Vs. ITO\n[2013] 354 ITR 673 dated 06.09.2012. Ld.DR submitted that once\nHon'ble Supreme Court in the case of India Comnet International\nVs ITO (supra) has upheld the view taken by Hon'ble Madras\nHigh Court in the case of Menon Impex P Ltd(supra) then the law\non this issue is settled and Hon'ble ITAT has to follow the law\nlaid down by Hon'ble Supreme Court in the case of India Comnet\nInternational P Ltd (supra).\n3.1 Ld.Departmental Representative for the Revenue relied on\nthe following decisions as under :\nIndia Comnet International v. ITO (SC)\nPCIT vs Wipro Ltd (SC) [2022] 446 ITR 1\nThomson Press (India) Ltd. v. Commissioner of Income-tax-II (Delhi\nHC)\nPolaris Software Lab v. Addl. CIT, Co. Range V (ITAT, Chennai)\nTessitura Monti India (P.) Ltd. v. ITO-8(3)(3), Mumbai (ITAT,\nMumbai)\nCyber Pearl Information technology Park (P). Ltd v. ITO, Company\nward 1(1) Chennai, (Madras HC)\nCommissioner of Income-tax v. Allen Career Institute (Rajasthan\nHC)\nCommissioner of Income-tax v. Swani Spice Mills (P.) Ltd. (Bombay\nHC)\nCommissioner of Income-tax v. Menon Impex (P.) Ltd. (Madras HC)\nFindings & Analysis :\n4. We have heard both the parties and perused the records.\nBrief Facts of the Case :\n4.1 In this case, Assessee has e-filed its original return of\nincome for A.Y.2017-18 on 29.11.2017 declaring total income of\nRs.3,61,10,090/-. The Assessee's case was selected for scrutiny.\nNotice under section 143(2) and notice under section 142(1) were\nduly served on the Assessee. As per the Assessment Order, the\nassessee company was incorporated under the Companies Act.\n1956 on 25/08/2006. The assessee company is engaged in the\nbusiness of premedia, information Technology Enabled services\nand Software Development. The assessee company is registered\nunder Software Economic Zone, Act 2005, engaged in business of\nexport of Computer Software and the profit derived from the said\nbusiness is claimed exemption u/s.10AA of the IT Act. The\nassessee has started two SEZ units at Hadapsar Pune, engaged in\nsoftware development, which are eligible units u/s 10AA of Act.\nThe first undertaking is located at Wing 'B' Upper Ground Level,\nTower-VIII, Magarpatta Township Development & construction\ncompany limited-SEZ, Village-Hadapsar, Taluka-Haveli, Pune-\n411013, was registered on 12th July 2011 and the manufacturing\nor production of this unit was started on 19/08/2011 and the\npresent year being 6th year for claiming deduction u/s.10AA.\nThe second undertaking is located at Wing-A and Wing-B.\nLevel-1 and Wing-A, Level 5, Tower-XI. Magarpatta Township\nDevelopment & Construction Company Limited-SEZ, Village-\nHadapsar, Taluka-Haveli, Pune 411013, registered under SEZ on\n21/12/2012 and started manufacture or production from\n15/04/2013. Hence, the present year being 4th consecutive year\nof claim 10AA of the Act. The new undertaking at said address\nhas been granted approval as SEZ unit on 21/12/2012 by the\nDevelopment commissioner, SEEPZ-SEZ, Mumbai Vide its letter\nno. SEEPZ-SEZ/MIDCCL-SEZ/CPSPL/25/2012-2013 and has\nbegun business of Premedia, Information Technology Enabled\nServices and Software Development form 15/04/2013. During\nthe year under consideration, the Assessee has claimed deduction\nunder section 10AA of the Act totaling to Rs.14,78,23,737/- in\nrespect of the above two units.\nIssue in the Assessment Order :\n4.1.1 During the scrutiny proceedings, Assessing Officer noted\nthat Assessee has claimed Rs.1,79,01,588/- which was interest on\nfixed deposits as profits of business and claimed deduction under\nsection 10AA of the Act. It is mentioned in the Assessment Order\nthat Assessee has kept certain term deposits in RBL Bank, Pune.\nThe said interest has been earned from the Term Deposits kept\nwith RBL Bank, Pune. It has been mentioned in the Para 6.7 of\nthe Assessment Order that Assessee could not establish whether\nAssessee's SEZ units have to keep fix deposits under any\ncircumstances or compulsions. It is further mentioned that the\nAssessee failed to prove the purpose and direct utility of the FDRs\nfor its business operation. Assessing Officer in the assessment\norder mentioned that the Character of the receipt changes to\nIncome from Other Sources. Assessing Officer also mentioned in\nthe assessment order that interest on surplus amount in bank\ndeposit do not have any first-degree nexus with the eligible\nbusiness activity of the assessee to claim deduction under section\n10AA of the Act. Finally, in the assessment order, the Assessing\nOfficer disallowed Assessee's claim of deduction under section\n10AA of the Act, for the interest earned on fixed deposits.\nAggrieved by the assessment order, Assessee filed appeal before\nld.CIT(A).\nAssessee relied on various case laws during\nproceedings before ld.CIT(A). Ld.CIT(A) confirmed the addition\nfollowing the decision of ITAT Pune in Barclays Share Services\nPrimate Limited in for A.Y.2010-11.\nAggrieved by the order of the ld.CIT(A), Assessee filed appeal\nbefore this Tribunal.\n4.1.2 It is important to mention here that in the Form 56F\nfiled by the assessee as per Rule 16D of the Income Tax\nRules the assessee has shown export turnover separately and\nit does not include Interest. In the FORM 56F the Auditor\nhas certified that FULL CONSIDERATION IS RECEIVED\nIN CONVERTIBLE FOREIGN EXCHANGE. (page 144-\n147 of the paper book)\n4.1.3 The Assessee in its Audited Profit & Loss Account,\nhave shown the impugned Interest Income under the head\n“Other Income\", which is different from the Income shown\nunder the head 'Revenue from Operations'. The Other\nIncome is shown in Schedule 14 of the Audit Report. Thus,\nthe assessee itself has differentiated between the Revenue\nfrom Operations and Other Income. It shows that the\nAuditor as per the Accounting Policies has classified the\nimpugned interest as ‘Other Income'. (page 108-145 of\npaper book)\n4.2 Thus, the only issue for our consideration is whether interest\nearned on fixed deposit kept with RBL Bank in India is eligible\nfor deduction under section 10AA or not! We are reproducing\nhere Section 10AA of the Act, for ready reference as under :\nSpecial provisions in respect of newly established Units in Special\nEconomic Zones.\n10AA. (1) Subject to the provisions of this section, in computing the\ntotal income of an assessee, being an entrepreneur as referred to in\nclause (j) of section 2 of the Special Economic Zones Act, 2005, from\nhis Unit, who begins to manufacture or produce articles or things or\nprovide any services during the previous year relevant to any\n assessment year commencing on or after the 1st day of April, 2006,\nbut before the first day of April, 2021, the following deduction shall\nbe allowed-\n(i) hundred per cent of profits and gains derived from the\nexport, of such articles or things or from services for a\nperiod of five consecutive assessment years beginning with the\n assessment year relevant to the previous year in which the Unit\nbegins to manufacture or produce such articles or things or provide\nservices, as the case may be, and fifty per cent of such profits and\ngains for further five assessment years and thereafter;\n(ii) for the next five consecutive assessment years, so much of the\namount not exceeding fifty per cent of the profit as is debited to the\nprofit and loss account of the previous year in respect of which the\ndeduction is to be allowed and credited to a reserve account (to be\ncalled the \"Special Economic Zone Re-investment Reserve Account\")\nto be created and utilized for the purposes of the business of the\nassessee in the manner laid down in sub-section (2).\n22[Explanation. For the removal of doubts, it is hereby declared\nthat the amount of deduction under this section shall be allowed from\nthe total income of the assessee computed in accordance with the\nprovisions of this Act, before giving effect to the provisions of this\nsection and the deduction under this section shall not exceed such\ntotal income of the assessee.]\n(2) The deduction under clause (ii) of sub-section (1) shall be\nallowed only if the following conditions are fulfilled, namely :—\n(emphasis supplied)\n4.3 Thus, the plain reading of section 10AA explains that Profit\nand Gains Derived from Export of Articles or Services is eligible\nfor exemption under section 10AA subject to other conditions\nmentioned in the Section 10AA of the Act.\n4.4 The Hon'ble Supreme Court in the case of CIT Vs. Sterling\nFoods (AIR 1999 Supreme Court 2036). has held as under :\nQuote, “There must be for the application of the words \"derived\nfrom\", a direct nexus between the profits and gains and the industrial\nundertaking...\" Unquote.\n4.5 Thus, the Hon'ble Supreme Court held that Derived From\nmeans there must be a direct nexus between the Profits and\nIndustrial Undertaking. The decision in the case of CIT vs\nSterling Foods (supra) was rendered in the context of Section\n80HH of the Income Tax Act. The relevant Section 80HH is\nreproduced as under :\n[Deduction in respect of profits and gains from newly established\nindustrial undertakings or hotel business in backward areas.\n80HH. (1) Where the gross total income of an assessee includes any\nprofits and gains derived from an industrial undertaking, or the\nbusiness of a hotel, to which this section applies, there shall, in\naccordance with and subject to the provisions of this section, be\nallowed, in computing the total income of the assessee, a deduction\nfrom such profits and gains of an amount equal to twenty per cent\nthereof......\nThe relevant part of Section 10AA is reproduced here under\nagain:\n“..hundred per cent of profits and gains derived from the export,\nof....\"\n4.5.1 It can be observed by comparing the section 80HH and\nSection 10AA of the Act that both the section has used the word\n\"Derived from\". We have already stated that the word Derived\nfrom has been explained by Hon'ble Supreme Court as having\ndirect nexus.\n4.5.2 We are only referring to the meaning of the word\n“Derived from\" explained by the Hon'ble Supreme Court.\n4.6 Distinguishing Hon'ble Karnataka High Court's\ndecision in Hawlett Packard Global Soft Ltd :\nThe Assessee has relied on the decision of Hon'ble\nKarnataka High Court in the case CIT Vs. Hawlett Packard\nGlobal Soft Ltd., 403 ITR 453 dated 30.10.2017. It is noted\nthat as per paragraph 16 of the said order, for A.Y.2001-02,\ninterest income of Rs.4,68,037/- on short term deposits of\nRs.6,46,88,606/- temporarily park in the CURRENT\nAccount held in Citi Bank, Hong-Kong was claimed as\nprofit of the business and eligible for exemption under\nsection 10A of the Act. Thus, the most important fact in the\ncase of Hawlett Packard Global Soft Ltd.,(supra) is that the\ninterest was earned from the Current Account maintained\nwith Citi Bank, Hong-Kong, it means it was earned in\nForeign Currency.\n4.6.1 However, in the case of the Assessee, interest has been\nearned from the Fixed Deposits kept with RBL Bank in\nIndia. Current Account mentioned in the case of Hawlett\nPackard Global Soft Ltd., is a running account, wherein\nbusiness receipts are credited, the Current Account was\nmaintained outside India in Citi Bank, Hong-Kong.\nTherefore, the case relied by ld.AR for the Assessee is\ndistinguishable on facts. For claiming deduction under\nsection 10AA Act, one of the primary conditions is that the\namount should be received inconvertible foreign exchange.\nAdmittedly, the interest income was earned from Fixed\nDeposits kept in India in Indian Rupees, in the case of Assessee.\n4.6.2 In the case of CIT Vs. Hawlett Packard Global Soft\nLtd., 403 ITR 453 dated 30.10.2017, the Revenue has failed\nto bring it to the notice of the Hon'ble Karnataka High\nCourt, decision of the Hon'ble Supreme Court in the case of\nIndia Comnet International dated 6/9/2012 (supra) wherein\nHon'ble Supreme Court has referred to the decision of\nHon'ble Madras High Court in the case of CITvs Menon\nImpex P Ltd (supra). Therefore, the decision of Hon'ble\nKarnataka High Court in CIT Vs. Hawlett Packard Global\nSoft Ltd., (supra) is distinguishable.\n4.6.3 Further, the decision of Hon'ble Karnataka High\nCourt in the case of Hawlett Packard Global Soft Ltd (supra)\nis distinguishable on facts and law, as the Hon'ble Karnataka\nHigh Court in paragraph 34 has specifically noted that the\nInterest Income is Incidental, however, the Hon'ble\nKarnataka High Court invoked Purposive Construction\nrule and Liberal Construction rule and held that Interest\nIncome earned incidentally cannot be delinked from its\nprofit. However, subsequently, Hon'ble Supreme Court in\nthe case of PCIT Vs. Wipro Ltd. 446 ITR 1(SC)[11-07-\n2022] held that Exemption provisions are to be strictly and\nliterally complied with. Thus, over the period, law has\nevolved and now the Hon'ble Supreme Court has\nemphasized on Stricter Construction of exemption\nprovisions. Therefore, the case relied by the Assessee is\ndistinguishable.\n4.7 Hon'ble Supreme Court's Decision-India Comnet\nInternational :\n4.7.1 The Hon'ble Supreme Court in the case of India Comnet\nInternational Vs. ITO(supra) has discussed the issue of interest\nearned and its eligibility for exemption under section 10A of the\nAct. The relevant paragraph of the Hon'ble Supreme Court's\ndecision is reproduced as under :\n“3. In civil appeal arising out of S.L.P(C) No.12756 of 2008, the\nfacts are as under:\nThe assessee is a 100% Export Oriented. Unit, which develops and\nexports software. It earns foreign exchange. It has earned interest\nincome amounting to Rs.92,06,602 on Foreign Currency Deposit\nAccount Permitted by FERA under Banking Regulations. The\nassessee was asked to explain why the said sum should not be\nassessed under the Head ‘Other Sources' in Section 36 of the Income\nTax Act, 1961 [Act, for short] This query was raised because, in its\nReturn of Income, the assessee claimed exemption in respect of the\nsaid amount of Rs 92.06 402-under Section 10A of the Act. The\nassessee has lost throughout in the proceedings.\n4. The impugned judgment of the High Court is based on the\njudgment of the Madras High Court in the case of CTT Menon Impex\n(P) Ltd (2003) 259 ITR 403/128 Tasman 11 wherein a similar\nquestion arose as to \"Whether, on the facts and in the circumstances\nof the case, the Tribunal was right in law in holding that the interest\nincome derived by the assessee from funds in connection with Letter\nof Credit is income derived from the profits of business of the\nindustrial undertaking so as to be entitled to get the benefit of\nSection 10A of the Income Tax Act, 19617 In that case, the Madras\nHigh Court examined in detail the transaction in question and found\nthat the assessee had set up a new industrial undertaking in Kandla\nFree Trade zone for manufacturing light engineering goods. The\ngoods therein were exported during the Assessment Year 1985-1996.\nIn the course of business, the assessee was required to open a Letter\nof Credit. On such Deposit, the assessee earned interest. Under the\nsaid circumstances, the High Court held, following the judgment of\nthis Court in the case of CIT Sterling Foods [1999] 237 ITR 579/\n104 Taxman 204, that the interest received by the assessee was on\ndeposit made by it in the Banks, that such deposit was the source of\nincome, and that, the mere fact that the deposit was made for\nobtaining Letter of Credit which Letter was, in turn, used for the\npurpose of business undertaking did not establish a direct nexus\nbetween the interest and industrial undertaking. Thus, the judgment\nof the Madras High Court in Menon Impex (P) Lad (supra) was\nbased on the examination of the transaction in detail which exercise\nhas not been undertaken in the present case\nFor the above reasons, we set aside the impugned judgment and\nremit the cases to the Income Tax Appellate Tribunal [ITAT, for\nshort) for deciding the matter afresh after examining the transaction\nin question, as done by the Madras High Court in the case of Menon\nImpex (P) Lid (supra).\"\n4.8 Thus, Hon'ble Supreme Court set-aside the issue to the\nITAT for examination of the transaction in the light of decision of\nHon'ble Madras High Court in the case of CIT Vs. Menon Impex\n(P.) Ltd., [2003] 259 ITR 403. It means, in principle, Hon'ble\nSupreme Court has upheld the proposition of law explained by\nHon'ble Madras High Court in the case of CIT Vs. Menon Impex\nP Ltd (supra) that for the Interest source was Fixed deposit, hence\nit did not establish direct nexus between Interest and Industrial\nUndertaking, hence the Interest earned on fixed deposit was not\neligible for exemption u/s 10A of the Act. Hon'ble Madras High\nCourt has categorically held that there has to be a Direct Nexus\nbetween the Interest and Industrial undertaking. Section 10A and\nsection 10AA of the Act, are identical, hence the decision of\nHon'ble Supreme Court is applicable to the case of the assessee.\n4.9 The Hon'ble Supreme Court has held in the case of The\nPeerless Gen.Fin And Investment Co. Ltd Vs. Commissioner Of\nIncome Tax on 9 July, 2019 (AIRONLINE 2019 SC 511) :\nQuote, “We reiterate that though the Court's focus was not directly\non this, yet, a pronouncement by this Court, even if it cannot be\nstrictly called the ratio decidendi of the judgment, would certainly be\nbinding on the High Court. \"Unquote.\n4.10 Therefore, the decision of Hon'ble Supreme Court in the\ncase of India Comnet International Vs. ITO (supra) is a binding\nprecedence for us.\nOur Analysis & Conclusion :\n5.\nIn the case of the Assessee, Springer Nature Technology and\nPublishing Solutions Pvt. Ltd admittedly the Interest has been\nearned from the Fixed Deposits kept with the RBL bank in India.\nTherefore, in the case of the Assessee, the source of the impugned\nInterest is Fixed Deposits kept with the bank. The Fixed Deposits\nkept with the Bank and the export activity of SEZ unit do not\nhave any Direct Nexus. Therefore, respectively following the\ndecision of Hon'ble Supreme Court in the case of India Comnet\nInternational Vs. ITO (supra) which in-turn has referred to the\ndecision of Hon'ble Madras High Court in the case of Menon\nImpex P Ltd, it is held that the Interest Earned by the assessee\nfrom the Fixed deposits kept with the Bank is not eligible for\nexemption under section 10AA of the Act. Also, following the\nStricter Interpretation as explained by Hon'ble Supreme Court in\nthe case of Wipro Ltd (supra).\n5.1 We also find support from the decisions of ITAT referred by\nLd.DR, on identical issue where in ITAT held that Interest earned\nis not eligible for exemption under section 10A/10B of the Act.\nRegarding Case Laws relied by the Assessee :\n6. In the paper book the assessee has relied on several case\nlaws. We have already at length distinguished the decision in the\ncase of CIT Vs. Hewlett Packard Global Soft Ltd (supra). Another\ndecision relied by the Assessee is PCIT Vs. NTT Data Global\nDelivery Services Ltd., ITA 392/2022 Hon'ble Delhi High Court.\nWe have carefully studied the said decision and it is noted that\nHon'ble Delhi High Court has referred the decision of Hon'ble\nKarnataka High Court in the case of CIT vs Hewlett Packard\nGlobal Soft Ltd (supra). We have already distinguished the said\ndecision. Also, we have noted that Revenue has failed to bring it\nto the notice of Hon'ble Delhi High Court the decision of Hon'ble\nSupreme Court in the case of India Comnet International (supra).\nTherefore, the decision of Hon'ble Delhi High Court is\ndistinguishable.\n6.1 Similarly, other case laws relied by the Assessee are\ndistinguishable on facts and law, hence not applicable to the case\nof the assessee.\n7. Accordingly, Ground Number 1, 2 and 3 raised by the\nassessee are dismissed.\nGround No.4 :\n8. Vide Ground No.4, Assessee submitted that there has been\ndouble disallowance of the interest. We direct the Assessing\nOfficer to verify Assessee's claim of double disallowance and\nallow the relief if found correct. Accordingly, Ground No.4 is\nallowed for statistical purpose.\n9. Ground No.5 & 6 are general in nature, needs no\nadjudication. Hence, dismissed as unadjudicated.\n10. To sum up, the appeal of the Assessee is Partly Allowed for\nStatistical Purpose.\nOrder pronounced in the open Court on 10th February, 2025.\nSd/-\n(VINAY BHAMORE)\nJUDICIAL MEMBER\nSd/-\n(DR. DIPAK P. RIPOTE)\nACCOUNTANT MEMBER\nपुणे / Pune; दिनांक / Dated: 10th Feb, 2025/ SGR*\nआदेशकीप्रतिलिपिअग्रेषित /