Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘B’ BENCH : CHENNAI
Before: SHRI ABRAHAM P. GEORGE & SHRI DUVVURU RL REDDY]
आदेश / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER Assessee in this appeal assails an disallowance of claim under Section 10AA of the Income Tax Act, 1961 (in short ‘’the Act’’) resulting out of treatment of interest from banks, under the head ‘’income from other sources’’.
ITA No.1814 /2017 :- 2 -:
Facts apropos are that assessee a manufacturer and trader of gold and diamond jewellery, had filed its return of income for the impugned assessment year disclosing income of �17,89,501/-.
Assessee had claimed deduction of �93,01,545/- u/s. 10AA of the Income Tax Act, 1961 (in short ‘’the Act’’) for its unit in Cochin Special Economic Zone, Kerala. During the course of assessment proceedings, it was noted by the ld. Assessing Officer that assessee had received interest of �1,56,57,097/- on term deposit placed by it in Scheduled Banks. Ld. Assessing Officer was of the opinion that the net profit of �90,31,917/- on which assessee had claimed deduction u/s.10AA of the Act was after crediting the above interest. According to him, once the interest was excluded, assessee’s working result reflected a loss and therefore no deduction u/s.10AA of the Act could be allowed.
Though the assessee relied on the judgments of Hon’ble Delhi High Court in the case of PCIT vs Universal Precision Screws (2015) 94 CCH 46, and CIT vs. Shri Ram Honda Power Equipment 289 ITR 475 and that of Bombay High Court in the case of CIT vs. Punit Commercial Ltd, 245 ITR 550 ld. Assessing Officer did not accept the above contention of the assessee. According to him, by virtue of judgment of Hon’ble Jurisdictional High Court in the case of India Comnet International vs. ITO, 304 ITR 322, interest received by the assessee
ITA No.1814 /2017 :- 3 -: on deposits made in bank could not be considered as business income.
Thus, he excluded the interest from the business profits of the assessee and effectively denied exemption claimed by the assessee u/s.10AA of the Act.
Assessee’s appeal before ld. Commissioner of Income Tax 3.
(Appeals) was not successful. As per the ld. Commissioner of Income Tax (Appeals) facts of the case of the assessee were very similar to what was considered by the Jurisdictional High Court in the case of CIT vs. Menon Impex P. Ltd, 259 ITR 403. He upheld the order of the ld. Assessing Officer.
Now before us, the ld. Authorised Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that assessee was importing gold, making jewellery from such gold and exporting it back to various countries. As per the ld. Authorised Representative, assessee had to open letter of credit for purchasing gold. Contention was that the letters of credit were sanctioned by the bankers only on giving fixed deposits as security.
According to him, fixed deposits were placed by the assessee only for the purpose of raising the letter of credit and it had direct nexus with the business of the assessee. Further, according to him, judgment of Hon’ble Jurisdictional High Court in the case of both India Comnet
ITA No.1814 /2017 :- 4 -:
International (supra) and Menon Impex P. Ltd (supra) were distinguishable. Ld. Authorised Representative submitted that assessee was having with it, communication received from banks which clearly stated that giving fixed deposit was a precondition for granting letter of credit. According to him, such deposits had close nexus with the business of the assessee and therefore the interest was nothing but business income. Reliance was placed on the judgment of Hon’ble Apex Court in the case of CIT vs. Karnal Co- operative Sugar Mills Ltd. 243 ITR 2.
Per contra, ld. Departmental Representative strongly 5.
supported the orders of the authorities below.
We have considered the rival contentions and perused the orders of the authorities below. Contention of the assessee, that deposits placed with the bank, on which it earned interest was for opening letters of credit, and but for such deposits, the bankers would not have given letter of credit facility, might be true. However, Jurisdictional High Court in the case of Menon Impex P. Ltd (supra) had held as under at paras 2 to 6.
‘’The assessee had set up a new industrial undertaking in Kandla Free Trade zone for the manufacture of light engineering goods. The goods therein were exported during the assessment year 1985-86. In the course of the business
ITA No.1814 /2017 :- 5 -: of that industrial undertaking, the assessee was required to open letters of credit with banks who had as a condition for issuing such letter required the assessee to make deposits. On those deposits, the assessee earned interest. The assessee’s claim for treating that amount of interest income as income derived from the newly set up industrial undertaking and treating that income as exempt under section 10A of the Income-tax Act, 1961, was negatived by the Assessing Officer and on appeal by the Commissioner, but was allowed by the Tribunal. Section 10A of the Act provides that the profits and gains derived by an assessee from an industrial undertaking to which that section applies shall not be included in the total income of the assessee. The Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 has held that the words “derived from” are narrower in scope than the words “attributable to”. In the case of CIT v. Sterling Foods [1999] 237 ITR 579, the Supreme Court observed that (headnote) : “the word ‘derive’ is usually followed by the word ‘from’ and it means : ‘get, to trace from a source ; arise from, originate in, show the origin or formation of’”. It was pointed out that unless the source of the income is from an industrial undertaking, such income cannot be regarded as “derived from” industrial undertaking. It was held that the income derived from sale of import entitlements could only be said to be the export promotion scheme and not the industrial undertaking. It was also observed by the court that where nexus between profits and gains and the industrial undertaking was not direct, but incidental, such income could not have been regarded as having been derived from industrial undertaking. In this case the interest received by the assessee was on deposits made by it in the banks. It is that deposit which is the source of income. The mere fact that the deposit made was for the purpose of obtaining letters of credit which letters of credit were in turn used for the purpose of the business of the industrial undertaking does not establish a ITA No.1814 /2017 :- 6 -: direct nexus between the interest and the industrial undertaking.
The Tribunal, therefore, was in error in holding that there was direct nexus between the two. The question referred to us is answered in favour of the Revenue and against the assessee’’.
Facts of case before the Hon’ble Jurisdictional High Court show that interest was received by the concerned assessee also on deposits placed in the bank for opening letter of credit. Their lordships held that the deposit were the source of interest and mere fact that deposits were made for the purpose of obtaining letter of credit would be of no avail. Coming to the judgment of Hon’ble Apex Court in the case of Karnal Co-operative Sugar Mills Ltd. (supra) relied on by the ld. Authorised Representative, the letter of credit were opened for purchasing machinery required for setting up of plant and it is in such circumstances their lordships held that such receipts to be capital in nature. In our opinion facts in the case before us better tallies with what was before the Jurisdictional High Court in the case of Menon Impex P. Ltd (supra). We also find that judgment of Hon’ble Jurisdictional High Court in the case of Menon Impex P. Ltd (supra) was by necessary implication confirmed by Hon’ble Apex Court in India Comnet International vs. ITO, 354 ITR 673. We thus do not find
ITA No.1814 /2017 :- 7 -: any reason to interfere with the orders of the ld. lower authorities.
In the result, the appeal of the assessee stands dismissed. 7.
Order pronounced in the open court at the time of hearing on Tuesday, the 13th day of February, 2018, at Chennai.