DCIT, BANGALORE vs. M/S OCWEN FINANCIAL SOLUTIONS PVT. LTD., BANGALORE

Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.12.2.2016 of Commissioner of Income Tax (Appeals)-12, Bengaluru for the Assessment Year 2010-11.

“ 8. In the instant case, the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law. Now the question is whether the interest received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not par take the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of Income from Profits and Gains' incorporated in Sub-section (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. Therefore, the first substantial question of law raised in is answered in favour of the revenue and against the assessee and the first substantial question of law in ITA No.447/2007 is answered in favour of the assessee and against the revenue.”

Thus in case if the interest income is earned from the deposits made in connection with the business activity of the undertaking then the same is eligible for deduction under Section 10A/10B of the Act. In the case of the assessee neither the Assessing Officer nor the CIT (Appeals) has verified this fact though the assessee in its reply before the Assessing Officer has mentioned that the interest income is earned on the deposits made for securing the Bank Guarantee. Accordingly, in view of the facts and circumstances of the case, the Assessing Officer is directed to verify the fact that the interest income in question has been earned from the deposits made for securing the Bank Guarantee and then decide the issue in the light of the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Motorola India Electronics Pvt. Ltd. (supra).