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Income Tax Appellate Tribunal, DELHI BENCH ‘I-2’ : NEW DELHI
Before: SHRI R.S. SYAL & SHRI KULDIP SINGH
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘I-2’ : NEW DELHI) BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER and SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No.2712/Del./2014 (ASSESSMENT YEAR : 2005-06) American Express India Private Ltd., vs. DCIT, Metropolitan Saket, 7th Floor, Circle 1 (1), Office Block, District Centre, Saket, New Delhi. New Delhi – 110 017. (PAN : AAACA8163F) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/Shri Nageswar Rao, Sandeep Karhail and Parth, Advocates REVENUE BY : Shri A.M. Govil, CIT DR Date of Hearing : 28.04.2016 Date of Order : 16.05.2016
O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, American Express India Private Ltd. (hereinafter referred to as ‘the assessee’), by filing the present appeal sought to set aside the impugned order dated 16.12.2006 passed by the CIT(A)/TPO/AO qua the assessment year 2005-06 on the grounds inter alia that :-
“1. Based on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) - XX ("learned CIT(A)") has erred in upholding the orders passed by the Deputy Commissioner of Income-tax, Circle 1 (1), New Delhi ("learned AO") and Joint Director of Income Tax, Transfer Pricing Officer-II(I), New Delhi ("learned TPO") which are bad in law and void ab-initio to the extent of addition confirmed by the learned CIT(A).
Transfer Pricing Grounds of Appeal 2. That on facts of the case and in law, the CIT(A)/TPO/AO have erred in rejecting the economic analysis undertaken by the Appellant by conducting a fresh economic analysis for export of data processing and back office support services ("impugned transaction") to find new comparable companies.
3. That on facts of the case and in law, the CIT(A)/TPO/AO have erred in rejecting certain companies and adding certain companies to the final set of alleged comparable companies on an ad-hoc basis, thereby resorting to cherry picking of comparable companies for benchmarking of the international transaction pertaining to export of data processing and back office support services.
4. That on facts of the case and in law, the CIT(A)/TPO/AO have erred in functionally different companies in the final set of alleged comparables for the benchmarking of the international transaction pertaining to export of data processing and back office support services.
5. That on facts of the case and in law, the CIT(A)/TPO/AO have erred in rejecting companies identified by the Appellant on account of arbitrary filters.
6. That on facts and in law, the CIT(A) and TPO/AO have failed to make appropriate adjustments to account for varying risk profiles of the Appellant vis-a-vis the alleged comparables and in the process inter-alia neglected the Indian transfer pricing regulations, international guidelines on transfer pricing and judicial precedence in this regard.
7. That on facts and in law, the CIT(A) and TPO/AO have erred by not considering that the adjustment to the arm's length price, if any, should be limited to the lower end of the 5 percent range as the Appellant has the right to exercise this option under the second proviso to section 92C(2) of the Act.
8. That on facts of the case and in law, the CIT(A)/ TPO/AO have erred in using single year data for financial year (UFY") 2004-05 of alleged comparable companies without considering the fact that the same was not available to the Appellant at the time of complying with the transfer pricing documentation requirements and disregarding the Appellant's claim for use of multiple year data for computing the arm's length price.
9. That on facts and in law, the CIT(A)/AO has erred in confirming that TPO has discharged his statutory onus by establishing that the conditions specified in clause (a) to (d) of Section 92C (3) of the Act have been satisfied before disregarding the arm's length price determined by the Appellant and proceeding to determine the arm's length price.
10. That on facts of the case and in law, the CIT(A)/TPO/AO erred and vitiated the principle of natural justice by not giving due cognizance to the detailed analysis and technical arguments submitted by the Appellant.
Corporate Tax Grounds of Appeal
11. That the Learned CIT(A) has erred on facts and in law in taxing the sum of Rs.24,855,294 being interest on short-term deposits and Rs.1,027,284 being interest on income-tax refund as "Income from Other Sources", even though the same is inextricably linked with the business of the appellant.
12. That the Learned CIT(A) has erred on facts and in law in not accepting that interest on short-term deposits of Rs. 24,320,234 and interest on income tax refund of Rs. 1,027,284 is income derived from the business of the undertaking and accordingly eligible for deduction under section 10A/10B of the Act.
13. That the Learned CIT(A) has erred on facts and in law in not netting off the such interest income against the interest expense for the purpose of computing deduction under section 10A/10B of the Act.”
Briefly stated, the facts of this case are : assessee company, namely, American Express India Private Ltd. (AIPL), is a wholly owned subsidiary of American Express International Inc. (AEII), USA into the business of providing IT-enabled services to its group companies i.e. transaction processing, data management, information management and control. During the year under assessment, assessee company carried out its business through FC East Unit, a 100% Export Oriented Unit (EOU), AEGSC Unit at Gurgaon registered as Software Technology Park (STP) Unit with STPI Authorities entitled to deduction u/s 10A of the Income-tax Act, 1961 (short ‘the Act’) from assessment year 2003-04 and FCE-GGN at Gurgaon, again registered as STP Unit with STPI Authorities but has not claimed any deduction u/s 10A of the Act.
Assessee company entered into 10 numbers of international transactions duly recorded in para 3 of the TP order, during the year under assessment, out of which, 6 numbers of international transactions of Category No.1 are under challenge for TP adjustment. Assessee company by adopting the “cost plus method” business model charged its Associated Enterprises (AEs) for the service on cost plus certain mark-up. Assessee company in benchmarking its Category No.1 transaction adopted approach of aggregation of international transactions referred at Sl.No.1 to 6 and adopted the Transactional Net Margin Method (TNMM) as the most appropriate method to benchmark its international transactions of Category No.1. Assessee compared its Operating Margin / Operating Cost (OP/OC) for the year under assessment by choosing 14 comparable companies having mean average at 14.30% as against assessee’s own mean margin at 9.44%. The ld. TPO, after applying various filters, finally chosen 10 comparables referred in para 6.7 of the TP order with mean margin of 17.81and computed the difference at Rs.29,00,51,046/- and thereby enhanced the income of the assessee by an amount of Rs.29,00,51,046/- being the difference between the Arm’s Length Price (ALP) and the price charged by the assessee from its AEs for rendering services to them. Assessing Officer passed the assessment order in consonance with the TP order and assessed the total income at Rs.51,37,85,750/-.
Assessee carried the matter before the ld. CIT (A) who has partly allowed the appeal. Feeling aggrieved, the assessee has approached the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Assessee, in order to benchmark its international transaction of Category No.1, adopted TNMM method being the most appropriate method as Operating Profit / Total Cost as Profit Level Indicator (PLI), which is not disputed by the TPO/AO. Assessee, for its transfer study to benchmark the international transaction, identifies 14 comparable companies engaged in functionally similar activities whose profit margins have been calculated on weighted average basis by relying upon the data of previous year / multiple years. However, in order to meet with the objection raised by the ld. TPO for use of multiple years data, the assessee used data for the year ending March 2005 and the arithmetic mean of these 10 comparable companies was shown at 10.41%.
7. Ld. TPO on the basis of analysis of transfer pricing study adopted by the assessee as well as filter applied by him chosen 10 comparable companies having mean of 17.81 and proposed transfer pricing adjustment to the tune of Rs.29,00,51,046/- by returning the following findings :-
“6.7 After carrying out the above additions and eliminations, the following companies are left in the list of comparables :- Sr. Name of the Company Operating Profit No. on Operating cost (%) 2005 1. Ace Software Exports Limited 13.69 2. C S Software Enterprise Limited 4.99 3. Allsec Technologies Limited 25.66 4. Fortune Infotech Limited 9.79 5. Spanco Telesystems and Solutions 8.77 Ltd. 6. Nucleus Netsoft & Gis India Limited 40.66 Transworks Information Services Ltd. 7. 0.94
8. Vishal Information Technologies Ltd. 35.59 9. Tylsyan Technologies Ltd. 15.90 10. Wipro BPO Solutions Ltd. 22.14 Mean 17.81
Adjustments
Rule 10B (1)(e)(iii) of the Income Tax Rules provides that while applying TNMM the Net Profit Margin arising in Comparable Uncontrolled Transactions is to be adjusted to take into account the differences, if any, between the international transactions and comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market.
7.2 The assessee company in Transfer Pricing documentation has indicated the admissibility of adjustments on account of factors like market risk, product risk, technologies risk, financial risk etc. However, AIPL has recognized the fact that it is difficult to quantify impact of the differences on which adjustments are sought. A perusal of documentation submitted by the assessee for Transfer Pricing proceedings for immediately two preceding years it was seen that AIPL has quantified and claimed working capital adjustment which was provided during Transfer Pricing proceedings. A consistent approach was intended to be followed during the year under consideration also and therefore, working capital adjusted figures, as given in Annexure 5 are being considered.
In the manner discussed above, the arithmetic mean of adjusted operating profit over the total cost margins of the comparables for the financial year works out to 17.8l %. The arm' s length price of tile international transactions entered into by the assessee with its various associated enterprises is worked out as under.
Total Cost of provision of services by the assessee: Rs.346,40,40,210/- (as per Appendix F of TP Report)
Margin @ 17.81 % of the above: Rs.61,69,45,561/-
Operating Margin calculated by assessee Rs.32,68.94,515/- (as per Appendix F of TP Report)
Difference Rs.29,00,51,046/-
9. Since the price charged by the assessee varies by more than 5% from the Arm's Length Price, an adjustment of Rs.29,00,51,046/- is to be made to the income of the assessee,
being the difference between the arm's length price and the price charged by the assessee from its AEs for rendering services to them. i.e., the Assessing Officer shall enhance the income of the assessee by an amount or Rs.29,00,51,046/- while computing its total income. No exemption u/s 10B shall be admissible on such adjustment in accordance with proviso of Sub-Section (4) of Section 92C.”
8. AO passed the assessment order in consonance with the directions issued by the ld. TPO. Ld. CIT (A) declined to interfere with the findings returned by the TPO/AO.
Ld. AR for the assessee being aggrieved with the addition made by the TPO/ AO contended that the ld. TPO has arbitrarily included M/s. Vishal Information Technologies Ltd., M/s. Nucleus Netsoft & GIS India Limited as comparable companies and has arbitrarily not included Mercurry Outsourcing Management Ltd. in the final set of comparable companies and categorically sought the exclusion of M/s. Vishal Information Technologies Ltd. and M/s.
Nucleus Netsoft & GIS India Limited and inclusion of Mercurry Outsourcing Management Ltd. in the final set of comparables for benchmarking its international transaction.
In order to examine the contentions raised by the ld. AR, we find it necessary to scan the profile and function performed by the assessee in its international transaction of Category No.1 in question.
First transaction to the tune of Rs.3,77,87,17,224/- is qua export of business processing and support and back office support, duly discussed in the transfer pricing study report, undertaking data management, information analysis and control activities, providing tele-servicing and transaction processing report for export to AMEX Group. Assessee received inputs in the form of data in electronic form to carry out business processes and exports its output to the concerned group companies world-wide. All these services are basically in the nature of Information Technology Enabled Services (ITES).
Second international transaction is qua charges of Consolidated Data Network (CDN) / Central Processing Unit (CPU) to the tune of Rs.19,31,46,113/-. This transaction is duly explained in the TP study as it maintains world-wide information processing telecommunication centre at Phoenix in USA and it utilizes CDN/CPU and technology services of AETRS and the charges are linked to CDN/ CPU facility and technology; third such international transaction is charges for Global Max Software to the tune of Rs.49,60,670/- which is explained as usage for Global Max Software by the assessee in its TP study; fourth such international transaction is secondment of personnel to the tune of Rs.6,28,15,881/-. Under this transaction, assessee reimburses on cost to cost basis an amount equivalent to the compensation and other benefit actually incurred by AEs from time to time on the seconded employee, which includes remuneration, allowances, insurance and royalty amount as expended by AEs, which also includes actual traveling and reasonable incidental expenses; fifth such international transaction is relocation of expenses which is expenditure as reimbursement of an amount on cost to cost basis equivalent to the expenditure incurred by AEs on relocation of employees seconded to the assessee company; sixth and last such international transaction is reimbursement of the expenses to the tune of Rs.21,303/- being the reimbursement of expenses by assessee company to its AEs.
On scrutiny of the aforesaid international transactions in totality, it goes to indicate that assessee company is a routine data processing and back office support company and all the aforesaid transactions are in the nature of rendering ITES. It is not disputed that the assessee company has provided ITES to its AEs under Category No.1 transactions. In order to examine the validity of the benchmarking made by the TPO/AO qua international transactions undertaken by the assessee company, we hereby confine ourselves to the objections raised by the assessee for exclusion of M/s. Vishal Information Technologies Ltd. and M/s. Nucleus Netsoft & GIS India Limited and inclusion of Mercurry Outsourcing Management Ltd. from the final list of comparables.
However, ld. DR for the revenue opposed the exclusion of Vishal Information Technologies Ltd. and Nucleus Netsoft and GIS India Limited and inclusion of Mercurry Outsourcing Management Ltd. from/in the final list of comparable for TP adjustment of international transaction by contending inter alia that the comparables, namely, M/s. Vishal Information Technologies Ltd. and M/s. Nucleus Netsoft & GIS India Limited now sought to be excluded by the assessee, were initially chosen by the assessee in its TP study and now it cannot be allowed to pick one company or the other in order to reduce the margin for benchmarking; that these comparables have been included for benchmarking by the TPO as valid comparable on the basis of TP study submitted by the assessee; that this is prerogative of the TPO only to pick and drop the comparables for correct benchmarking and the authority above him are only empowered to see their correctness.
No doubt, both the aforesaid comparables were chosen by the assessee for TP study and detailed TP study is available at pages 339 to 342 of the paper book. However, in view of the settled principle of law laid down by the ITAT, Chandigarh Special Bench in case of M/s. Quark Systems Pvt. Ltd. vs. ITO, Chandigarh - (2010) TIOL – 31 – ITAT – Chd – SB, we are of the considered view that assessee can reject the comparable company even if chosen by it in its transfer study due to some mistake or some wrong interpretation of the evidence adduced by the taxpayers, because in order to advance the cause of justice, the assessee cannot be restrained from seeking rejection of the comparable otherwise chosen by it. Even otherwise, it does not amount to cherry picking and correct benchmarking is to be done on the basis of numerous factors like functional similarity and OP/OC of the comparable company vis-à-vis assessee company etc.
Similar argument has been addressed by the ld. DR against the inclusion of Mercurry Outsourcing Management Ltd., having been rejected by the TPO on the ground of low turnover filters which have been applied by the assessee company itself. But, again, it is settled principle of law that any comparable company cannot be included or excluded merely on the basis of low or high turnover as has been held in the case of Chrys Capital Investment Advisors (India) P. Ltd. vs. DCIT – (2015) 93 CCH 29 DelHC.
So this comparable has already been ordered to be included in the list of comparable for benchmarking as per discussion in the preceding paras.
In view of the decision rendered by ITAT, Chandigarh Special Bench in the case of M/s. Quark Systems Pvt. Ltd. (supra), , the assessee is entitled to raise new ground even if not raised before TPO/DRP due to some mistake on its part. So, the contentions of the ld. DR not to raise this ground before the Tribunal are not sustainable.
EXCLUSION OF COMPARABLE COMPANY SOUGHT FOR BY THE ASSESSEE COMPANY :
(i) VISHAL INFORMATION TECHNOLOGIES LTD. :
Initially, this comparable company was adopted by the assessee company for its TP study and has not been disputed even before AO. Ld. CIT (A), even without going into the merits of the arguments raised by the assessee company, accepted it as a valid comparable in the light of the findings given by the ld. TPO.
However, now this comparable is sought to be excluded by the assessee company on the grounds inter alia that it is engaged in varied and complex activities which are not comparable to ITES; that it renders high end services like IT consultancy services. We are not inclined to agree with the contention raised by the ld. DR not to exclude any company as comparable if initially adopted by the assessee for its TP study because this question is to be determined in the light of the annual report of the comparable company and its functional profile brought on record and not at the mere asking and refusal of the assessee as well as revenue.
Ld. AR for the assessee by relying upon the order passed by Income Tax Appellant Tribunal, Delhi Bench I-2, New Delhi in case contended that this comparable company has already been excluded by the Tribunal in assessee’s own case on the ground that this company outsourced a significant part of its operation and its outsourcing charges constitute 78% of the total cost.
Ld. CIT (A) has not returned any findings on this aspect which is apparent form the annual report of this company available on the paper book. Bare comparability of the assessee company vis-à-vis comparable company goes to prove that the assessee’s outsourcing cost is roughly 6.32% whereas comparable company’s outsourcing cost is 78% and in our view, this is an important factor to impact overall profitability of the company. Furthermore, there is a vast difference of employee’s cost of the assessee company as well as comparable company. Page 32 of the paper book goes to prove that the assessee’s employee cost is Rs.1.73 crores whereas as per annual report of the comparable company, its employee cost is roughly Rs.19.70 lakhs which makes it incomparable with the assessee company. So, by respectfully following the order passed by the Tribunal in case entitled American Express India Pvt. Ltd. (supra), in assessee’s own case and in view of the factual dis- similarities, we hereby order the exclusion of this company from the list of comparables.
(ii) NUCLEUS NETSOFT & GIS INDIA LIMITED :
This comparable is chosen by the assessee in its TP study and included by the TPO in his final list of comparables. Now, the assessee sought to exclude this comparable on the ground that profit before tax of this company has been increased by 347% during the year under assessment and this company outsourced its work to the third party to the tune of 16.04% of the total cost and has earned super-normal profit.
There is no dispute as to the functional similarity of this company. This comparable company has been excluded by the coordinate Bench in case entitled American Express India Pvt. Ltd. (supra), in assessee’s own case, for the AY 2006-07, by returning following findings :-
“7.2. We have heard the rival submissions and perused the relevant material on record. The assessee has not disputed the functional dissimilarity of this company. The only reason taken by the assessee in seeking its exclusion is the amalgamation of another company with it during the year. This fact is borne out from the Annual report of this company, a copy of which has been placed on record. The Annual report of this company provides that: The Scheme of Amalgamation (“the Scheme”) of erstwhile Nucleus and GIS (India) Ltd., the Transferor Company, with your Company was sanctioned by Hon’ble High Court of Judicature of Bombay on 22nd February, 2006. On complying with the requisite formalities, the Scheme became effective and operative retrospectively from the appointed date of 1 April 2005 as per the Scheme. In the accompanying financial statements, results of the transferor company have been incorporated and the figures given herein and elsewhere in this Annual Report are not strictly comparable with those of previous year.” It is clear from the above extraction that the amalgamation took place in the year in question and the financial results of this company include those of the amalgamating company as well. In our considered opinion, the factor of amalgamation or merger or acquisitions, etc., has its own implications on the financial results of a company as these are abnormal financial characteristics which distort the normal profitability. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. Vs. DCIT (2013) 154 TTJ (Mum) 176, has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers. Similar view has been bolstered by the Delhi Bench of the Tribunal in several cases including Ciena India Pvt. Ltd. Vs. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015. In view of the fact that there was a merger by way of amalgamation during the year itself, we hold that Nucleus Netsoft and GIS (India) Ltd. cannot be considered as comparable due to this extraordinary financial event. Accordingly, we direct to eliminate this company from the final set of comparables.”
By following the decision rendered by the coordinate bench, we hereby order to exclude this company from the list of comparable on two grounds - one : that there is vast difference in the outsourcing of work because assessee company outsourced its work to the extent of 6% vis-à-vis 16.4% by the comparable company; two : due to amalgamation the financial result of the comparable company has been substantially impacted in earning super-normal profit to the tune of 347%.
COMPARABLE COMPANY SOUGHT TO BE INCLUDED BY THE ASSESSEE :
MERCURRY OUTSOURCING MANAGEMENT LTD. :
This comparable company being engaged in ITE Services in the field of management of outsourced business service and for the period ending March, 2004 and March 31, 2003, 100% of the operating revenues has been derived by this company from ITES.
However, this comparable has been rejected by the TPO on the ground that its sales in the relevant financial year stood at Rs.61,00,000/- only.
Assessee’s objection in rejecting this comparable that the turnover criteria is not applicable in case an entity operates on cost plus operating model and the issue if it is a risk mitigated contract service provider has neither been decided by the TPO nor ld. CIT (A). Ld. AR while referring to page 342 of the paper book contended that the donation amount of Rs.25,44,124/- given by the company has not been accounted for to work out the working margin. The ld. AR for the assessee further contended that this comparable company has already been ordered to be included by the coordinate Bench of the Tribunal in assessee’s own case entitled American Express India Pvt. Ltd. (supra).
For ready reference, findings returned by the coordinate Bench of the Tribunal in judgment cited as entitled American Express India Pvt. Ltd. (supra) are reproduced as under :-
“9.2. We have heard the rival submissions and perused the relevant material on record. We find that the TPO has accepted the functional comparability of these companies on segmental level. The ld. DR was also fair enough to candidly accept the functional similarity of the relevant segment of these companies. In such circumstances, the question arises as to whether the relevant segment of these companies can be excluded from the list of comparables merely on the ground that the revenue from this segment is very limited? In our considered opinion, the quantum of turnover can be no reason for the exclusion of a company, which is otherwise comparable. The Hon’ble jurisdictional High Court in the case of ChrysCapital Investment Advisors (India) P. Ltd vs. DCIT (2015) 93 CCH 29 DelHC has held that high turnover or high profit can be no reason to eliminate an otherwise comparable company. The same applies with full force in the converse manner as well to a low turnover/low profit company. We, therefore, hold that a company cannot be excluded from the list of comparables on the ground of its low turnover. In principle, we direct the inclusion of the relevant segment of these companies in the list of comparables. The TPO is directed to include the operating profit/operating costs of the ITES segment of these companies in the final set of comparables, after due verification of the necessary figures for determination of their operating profit margin etc.”
By respectfully following the decision rendered by coordinate Bench in assessee’s own case, referred to above, we are of the considered view that this company is qualified to be included in the list of comparable and the TPO to include the partial profit/operating cost of the ITES segment of this company in the final set of comparables after verification of the necessary figures for determining their operating profit margin etc. TPO is also directed to verify their operating profit margin etc. and to also verify the donation of Rs.25,44,124/- for the purpose of determining of the operating profit margin.
In view of what has been discussed above, the impugned order, so far as transfer of pricing grounds are concerned, is hereby set aside and file is restored to the file of the AO/TPO for fresh computation of ALP of the international transaction under Category No.1 in pursuance to the observations made hereinbefore by the Bench by providing an opportunity of being heard to the assessee.
CORPORATE GROUND :
The only corporate ground raised
by the assessee company is “as to taxing the amount of Rs.2,48,55,294/- being interest on short term deposits and Rs.10,27,284/- being interest on income tax refund as income from other sources?”
31. Undisputedly, this issue was dealt with in assessee’s own case in AY 2004-05 and ITA No.1832/Del/2010 for AY 2004-05 order dated 28.08.2015, wherein the coordinate Bench of the Tribunal has returned the findings in favour of the assessee as under :-
“11.2 Before us, the ld. AR submitted that interest income earned on short term deposit is eligible for deduction u/s 10A/10B of the Act. For the above proposition, the ld. AR relied on assessee’s own case in for AY 2002-03. It was further submitted that the issue in question is squarely covered by the following judgments/orders of the Hon’ble High Court and the Tribunal :- (i) CIT vs. Motorola India Electronics (P) Ltd. – ITA No.428 and 447 of 2007 (Karnataka High Court); (ii) CIT vs. Hritnik Exports Pvt. Ltd. – ITA No.219 and 239 of 2014 (Delhi High Court); and (iii) Mercer Consulting (India0 Private Limited vs. DCIT – ITA No.966/Del/2014 (Delhi ITAT). 11.3 It was also submitted in this context that the judgment of Hon’ble jurisdictional High Court in the case of Hritnik Exports delivered on November 2014 refers to and relies upon decision of Hon’ble Karnataka High Court in the case of Motorola India Electronics (P) Ltd. and deals with the issues of entitlement of interest from surplus funds under section 10A/10B of the Act. 11.4 On the other hand, the ld. DR relied on the judgment of Hon’ble Supreme Court in the case of M/s. Liberty India Ltd. Vs. CIT (the judgment relied upon by the ld. CIT (A)) and also in the judgment of Hon’ble jurisdictional High Court in the case of Marubeni India Private Limited vs. Director of Income-tax reported in 354 ITR 638. 11.5 After hearing the rival submissions, we notice that in assessee’s own case for assessment year 2002-03, the matter has been decided by the Tribunal in favour of the assessee. It has been brought to our notice that this order of the Tribunal is subject matter of appeal to the Hon’ble jurisdictional High Court u/s 260A of the Act. It was submitted that appeal before the Hon’ble High Court is pending adjudication. For the sake of consistency, we decide the matter in favour of the assessee by holding that interest on surplus business funds kept with short term deposits is to be treated as ‘income from business’ entitled to the benefit of deduction u/s 10A/10B of the Act. It is ordered accordingly.”
So, by respectfully following the decision rendered by the coordinate Bench, we are of the considered view that the amount of Rs.2,48,55,294/- cannot be taxed being interest on the short term deposits. However, interest income of Rs.10,27,287/- generated in favour of the assessee from IT refund is to be treated as income from “other sources”, hence not eligible for deduction. So, corporate ground is partly determined in favour of the assessee.
In view of what has been discussed above, we hereby partly allow the present appeal filed by the assessee for statistical purposes. Order pronounced in open court on this 16th day of May, 2016.