ACIT, Cir.7, Pune, Pune V. Veritas Software (I) Pvt.Ltd., Pune

ITA 1278/PUN/2009

• Counselvise Citation: 127824514 RSA 2009
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 06-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C SHIVGANDE
• Keywords: Business income
• Section: 10B; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI G.S. PANNU, AM. I.T.A. NO. 1278/PN/2009 : A.Y. 2001-02 ASSTT. CIT CIR. 7 PUNE .. APPELLANT VS. VERITAS SOFTWARE (I) PVT. LTD., SYMPHONY, 210/A/1 RANGE HILLS, PUNE-411 020 PAN AAACY 6015 F .. RESPONDENT APPELLANT BY: SHRI S.C. SHIVGANDE RESPONDENT BY: SHRI NIKHIL PATHAK ORDER PER SHAILNDRA KUMAR YADAV, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT (A)III PUNE DATED 11-8-2009 FO R A.Y. 2001-02 ON THE GROUND THAT THE CIT(A) ERRED IN ALLO WING THE EXEMPTION U/S 10B OF THE ACT IN RESPECT OF INTE REST INCOME OF RS. 22,36,437/- AND FOREIGN EXCHANGE GAIN OF RS. 6,98,838/-. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING RESEARCH AND DEVELOPMENT SERVICES TO THE CUSTOMERS IN ORDER TO ASSIST THEM IN DESIGNING AND DEVELOPING SOFTWARE PRODUCTS. THE ASSESSEE IS A 10 0% EXPORT ORIENTED UNIT AND IS A MEMBER OF SOFTWARE TECHNOLOGY PART OF INDIA. THE ASSESSEE CLAIMED ITA NO. 1278/PN/2009 VERITAS SOFTWARE A.Y. 2001- 02 2 DEDUCTION U/S 10B AMOUNTING TO RS. 6,51,01,058/- WHICH IS MORE THAN THE INCOME OF THE YEAR, HENCE INCOME HAS BEEN REDUCED TO NIL. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER IN H OLDING THAT THE ASSESSEE WAS NOT ELIGIBLE FOR CLAIMING DED UCTION U/S 10B OF THE ACT IN RESPECT OF THE FOLLOWING INCO MES. INTEREST RS. 22,36,437 FOREIGN EXCHANGE GAIN (NET) RS. 6,98,838/- MISCELLANEOUS INCOME RS. 36,135/- PRIOR PERIOD INCOME RS. 2,840/- ------------------ RS. 29,74,250/- ============ 3. ON APPEAL, IT WAS SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ASSESSING THE RECEIPTS AS INCOME FROM OTHER SOURCES INSTEAD OF ASSESSING THEM AS PROFITS AND GAINS FROM THE BUSINESS. IT WAS ALSO SUBMITTED THAT ALL THE RECEIPTS WERE INEXTRICABLY L INKED TO THE BUSINESS OF THE ASSESSEE AND HAD TO BE ASSES SED AS BUSINESS INCOME. FOREIGN EXCHANGE GAIN, INTERES T INCOME AND MISCELLANEOUS INCOME WERE EARNED DURING THE COURSE OF ASSESSEES BUSINESS AND WERE CLEARLY LINKED TO THE ASSESSEES BUSINESS. ACCORDING TO TH E ASSESSEE, IT IS A COMPANY WITH 100% EOU AND WHATEVE R INCOME EARNED BY IT WAS RELATED ONLY TO THE BUSINES S ACTIVITY. ITA NO. 1278/PN/2009 VERITAS SOFTWARE A.Y. 2001- 02 3 THE CIT(A) FOUND THAT THE ISSUE RELATING TO THE ELI GIBILITY OF DEDUCTION U/S 10B PERTAINING TO THE INTEREST INC OME AND FOREIGN EXCHANGE GAIN ARE COVERED PARTLY IN FAV OUR OF THE ASSESSEE AND PARTLY IN FAVOUR OF THE REVENUE BY THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN TH E ASSESSEES OWN CASE IN ITA NO. 135/PN/2006 FOR A.Y. 2002-03 AND 1374 & 1366/N/2006 FOR A.Y. 2002-03 DATED 30-4-2009. THE CIT(A) THEREFORE, DIRECTED TH E ASSESSING OFFICER TO CONSIDER THE CLAIM OF THE ASSE SSEE IN THE LIGHT OF THE AFORESAID ORDER OF THE TRIBUNAL CITED SUPRA. THE SAME HAS BEEN CHALLENGED BEFORE US BY T HE REVENUE. 4. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE RELATING TO EXEMPTION U/S 10B IN RESPECT OF INTEREST INCOME OF RS. 22,30,437/- IS COVERED BY THE DECISION OF THIS BENC H OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 135/PN/2006 AND 1374/PN/2006 FOR A.Y. 2003-04 WHEREIN IT HAS BEEN HELD AS UNDER: 4. HEARD THE SUBMISSIONS OF BOTH THE SIDES. AT THE OUTSET, IT IS PERTINENT TO MENTION THAT NOW THI S ISSUE IS VERY WELL SETTLED AFTER ELABORATE DISCUSSI ON BY THE SEVERAL COURTS. BEFORE WE CITE ALL THESE DECISIONS, IT IS WORTH TO EXAMINE THE NATURE OF INTEREST INCOME WHICH WAS UNDER THE FOLLOWING HEADS: I) INTEREST RECEIVED ON FD KEPT FOR CUSTOM BONDING OF RS. 3,45,484/- ITA NO. 1278/PN/2009 VERITAS SOFTWARE A.Y. 2001- 02 4 II) INTEREST RECEIVED ON MONEY FLEX DEPOSIT OF RS. 12,80,444/- III) INTEREST RECEIVED FROM MSEB DEPOSIT OF RS. 1,05,957/- IV) INTEREST RECEIVED ON SHORT TERM FDS OF RS. 1,29,241/- 5. IN RESPECT OF FIRST ITEM I.E. INTEREST ON FD KEP T FOR CUSTOM BONDING, THE SHORT SUBMISSION WAS THAT THE APPELLANT WAS REQUIRED TO KEEP THE ACCOUNT IN FIXED DEPOSIT FOR THE PURPOSE OF GIVING A BANK GUARANTEE REQUIRED FOR CUSTOM BONDING IN RESPECT OF IMPORT OF MACHINERIES. 5.1 THE NATURE OF INTEREST IN RESPECT OF ITEM NO. 2 WAS RELATED TO THE DEPOSITS MADE UNDER MONEY FLEX DEPOSIT ON THE BASIS OF ASSURANCE GIVEN BY THE BANK THAT CERTAIN NON-FUND BASED FACILITIES SUCH AS REDUCTION IN MARGIN MONEY REQUIRED FOR BANK GUARANTEE, FOREIGN LETTERS OF CREDIT ETC., COULD BE AVAILED AT REDUCED RATES IN LIEU OF SUCH DEPOSITS. IN RESPECT OF NATURE OF INTEREST AS MENTIONED IN ITEM NO. (III) IT WAS EXPLAINED THAT THE DEPOSIT WAS REQUIRED TO BE COMPULSORILY WITH MSEB FOR OBTAINING ELECTRICITY CONNECTION. FINALLY, IN RESP ECT OF FOURTH ITEM PERTAINING TO INTEREST ON SHORT TERM FD, THE LEARNED AR HAS FAIRLY MENTIONED NOT TO CONTEST THIS PART OF THE GROUND. 6. CONSIDERING THE NATURE OF DEPOSITS AND THE CASE LAW CITED THIS ISSUE IS NO MORE RES INTEGRA BEING DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWIN G JUDGMENTS. (A) RAJESH EXPORTS LTD. 2008 TIOL 457-ITAT- BANG WHEREIN IT WAS HELD THAT INTEREST ON FDS AS MARGIN MONEY WITH BANK FOR OPENING LD.COUNSEL FOR THE ASSESSEE HAD AN INEXTRICABLE LINK BETWEEN THE MARGIN MONIES AND THE BUSINESS OF THE UNDERTAKING, HENCE CONSIDERING THE PROVISIONS OF SECTION 10B(4) QUALIFY FOR ELIGIBLE EXEMPTION. (B) ACIT VS. MOTOROLA INDIA ELECTRONICS (P) LTD. (2007) 12 TTJ (BANG) 562 WHEREIN INTEREST ON DEPOSITS WITH EEFC ACCOUNT WAS HELD AS CLOSE NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. ITA NO. 1278/PN/2009 VERITAS SOFTWARE A.Y. 2001- 02 5 6.1 AS FAR AS ELIGIBILITY OF INTEREST RECEIVED FROM MSEB DEPOSIT IS CONCERNED, IN OUR CONSIDERED OPINION, THE SAME IS COVERED IN FAVOUR OF THE REVENUE BY THE RESPECTED SUPREME COURT DECISION IN THE CASE OF PANDIYAN CHEMICALS LTD. (262 ITR 278) WHEREIN IT WAS HELD THAT INTEREST DERIVED BY THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE ON DEPOSIT WITH THE ELECTRICITY BOARD FOR THE SUPPLY OF ELECTRICITY FOR RUNNING AN INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO BE A DIRECT FLOW FROM THE INDUSTRIAL UNDERTAKING ITSELF, HENCE HELD THAT SUCH INTEREST WAS NOT PROFITS AND GAINS DERIVED BY THE UNDERTAKING THEREFORE, THIS GROUND DESERVES TO BE DISMISSED. WE THEREFORE, HOLD THAT INTEREST ON FD KEPT FOR CUSTOM BONDING AND INTEREST FROM MONEY FLEX DEPOSIT ARE ELIGIBLE FOR THE CLAIM U/S 10B OF THE ACT AND REST OF INTERESTS ARE NOT ELIGIBLE FOR SUCH A CLAIM. THIS GROUND IS PARTLY ALLOWED. 5. FACTS BEING SIMILAR, SO FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE HOLD THA T THE CIT(A) WAS JUSTIFIED IN ALLOWING THE EXEMPTION U/S 10B IN RESPECT OF INTEREST INCOME OF RS. 22,36,437/-. THIS GROUND OF APPEAL RAISED BY THE REVENUE IS THUS DISMISSED. 6. AS FAR AS THE ISSUE PERTAINING TO FOREIGN EXCHAN GE GAIN AMOUNTING TO RS. 6,98,838/- IS CONCERNED, WE F IND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE AFORESAID DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE CITED SUPRA, WHEREIN IT HAS BEEN HELD AS UNDER : GROUND NO.2 PERTAINS TO CLAIM OF DEDUCTION IN RESPECT OF FOREIGN EXCHANGE GAIN. THIS ISSUE HAS ALSO BEEN DECIDED IN ABOVE PARAGRAPHS BY CITING THE DECISION OF MOTOROLA INDIA ELECTRONICS (P) LTD. ITA NO. 1278/PN/2009 VERITAS SOFTWARE A.Y. 2001- 02 6 (2007) 112 TTJ (BANG) 562 IN FAVOUR OF THE ASSESSEE. THIS GROUND IS ALLOWED. FACTS BEING SIMILAR, SO RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE, WE UPHOLD THE ORDER OF THE CIT(A) IN ALLOWING THE EXEMPTION U/S 10B IN RESPECT OF FOREIGN EXCHANGE GA IN OF RS. 6,98,838/-. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF MAY 2011. SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE: DATED: 13 TH MAY, 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A) II NASIK 4. THE CIT, - II NASIK 5. THE D.R, B BENCH, PUNE TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE