QUINTILES RESEARCH INDIA PVT. LTD.,,BANGALORE vs. DCIT, BANGALORE

The present appeal is instituted by the assessee, challenging the directions issued by the DRP vide order dt.15.09.2011, for the assessment year 2007-08.

The Ld. AR for the assessee has submitted that the issues in ground nos.1, 2, 3, 5 and 6 have been resolved bilaterally through the process of MAP between India and USA and the AO had issued a letter dt.18.08.2017 giving effect to the resolution and therefore the assessee seeks to withdraw the ground nos.1, 2, 3, 5 and 6.

The Ld. DR has no objection for allowing the assessee to withdraw the above grounds.

Ground no.4 of the assessee reads as under : Ld. AO erred in law and on facts in making addition of interest earned of Rs.1,16,38,296/- being not eligible for deduction u/s.80IB(8A) of the Act. Ld. AO ought to have appreciated the view taken by various judicial authorities that claim of deduction u/s.80IB on the interest income earned as part of regular business of the appellant be allowed.

In support of the above ground, it was submitted by the Ld. AR for the assessee that the interest income earned by the assessee is eligible for deduction u/s.80IB(8A) of the Act and for that purpose, the Ld. AR relied upon the judgment of the Bombay High Court in the case of CIT v. V. S. Dempo & Co., [(2015) 53 taxmann.com 41], wherein the Hon’ble Bombay High Court held as under :

Thus, after taking into consideration the settled legal position as enumerated from the aforesaid citations and as stated earlier, in the present case also as per the own findings of the Assessing Officer, the Assessee is utilizing deposits for giving security to the banks and opening IT(TP)A.1162/Bang/2011 Page - 3 Letters of Credit etc. As per the records, investing surplus funds in the call money market or short term deposit in favour of the banks for providing security for obtaining short term loans or as a deposit towards LC opening is one of the business activities of the Assessee and this had come for the scrutiny of the Tribunal for the Assessment Years 1967-68 to 1972-1973 and it was held in favour of the Assessee that the interest income accrued therefrom is a business income. The record is very clear that there is no material to demonstrate the substantial change in the said view for years which were followed thereafter. It was after substantial consistent following of the said view, it appears that the Assessing Officer took a distinct and separate view thereby treating the interest income as income from other sources in the year 1991-92 and thereafter. The department has not established in any case that the said interest has been spent for any other purpose except the business purpose. The important aspect which is to be considered here is that the Respondent/Assessee is earning this interest income for last many years and it was always treated as business income. In view of the ratio laid down by the Supreme Court in the case of Radhasoami Satsang (supra) and by applying the said rule of consistency, we hold that, in the absence of any material change justifying the Department/Assessing Officer to take a different view from that taken in earlier proceedings, the question of the exemption of Respondent/Assessee should not have been reopened. 06. On the other hand, the Ld. DR has submitted that the assessee is not entitled to deduction u/s.80IB(8A) for the above, on account of fixed deposit made by the assessee and our attention was drawn to Section 80IA(8A), to the following effect : - - - - -

We have heard the rival contentions and perused the material on record. In the present case the assessee had received interest income on FD of Rs.1,16,38,296/-. However, the said amount was not offered to tax. It was submitted by the assessee that the interest income is part of the regular business of the assessee and therefore eligible for IT(TP)A.1162/Bang/2011 Page - 4 deduction u/s.80IB(8A) of the Act. We find that the assessee has kept the FD of Rs.27,20,00,000/- as term-deposit with the bank and has earned interest income of Rs.1,16,38,296/-. The assessee has not shown any business purpose for keeping the term-deposit , as the mandatory condition for doing any business and the assessee has also failed to demonstrate as to how the term deposit of Rs.27,20,00,000/- was essential or integral part of the business activities undertaken by the assessee and how the said amount was directly related to the business of the assessee.

In our view, for the purpose of qualifying for deduction u/s.80IB(8A), it is the gross total income of the assessee that is to be included in the profit and gains derived from any business of the assessee. _____ In the present case, the interest income has not been derived from the business of the assessee as the deposit of the amount in term-deposit has no correlation with that of the business of the assessee. Further the Hon’ble Supreme Court in the matter of Liberty India _____ [183 taxmann.com 34] has explained the meaning of ‘derived from’, and held as under : Para 14 to 16 - - - - -

Respectfully following the judgment of the Hon’ble Supreme Court rendered in the matter of Liberty India _____ (supra), we do not find any merit in the submissions of the assessee. Accordingly ground no.4 is dismissed.

In the result, appeal of the assessee is partly allowed.