Mercury Precision Products Pvt. Ltd., CHENNAI V. ITO, CHENNAI

ITA 2080/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7832 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 08-07-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S PARTHASARATHY; M NARAYANAN
• Keywords: Capital asset; Business income
• Section: 10B; 56; 15

Judgement Text

, ( ) , IN THE INCOME TAX APPELLATE TRIBUNAL A (SMC) BENCH, CHENNAI , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER . / ITA NO.2080/MDS/2016 / ASSESSMENT YEAR : 2011-12 M/S. MERCURY PRECISION PRODUCTS PVT. LTD., PLOT NO. 24(NP), AMBATTUR INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 098. PAN AACCM1976A ( /APPELLANT) V. THE INCOME-TAX OFFICER, CORPORATE WARD-IV(1), CHENNAI- 34. RESPONDENT) / APPELLANT BY : SHRI S.PARTHASARATHY, CA & SHRI M. NARAYANAN, CA / RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT ! / DATE OF HEARING : 05.12.2016 '# ! / DATE OF PRONOUNCEMENT : 22.12.2016 ! / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-8,CHENNA I DATED 29.03.2016. - - ITA 2080/16 2 2. THE ONLY ISSUE IN THIS APPEAL IS WITH REGARD TO TREATMENT OF INTEREST INCOME ON FIXED DEPOSITS OF 10,90,028/- WHILE COMPUTING THE DEDUCTION U/S.10A OF THE ACT. THE AS SESSEE EARNED INTEREST OF 10,90,028/- ON FIXED DEPOSITS AND CLAIMED AS BUSINESS INCOME OF THE ASSESSEE WHILE CLAIMING DEDU CTION U/S.10A OF THE ACT. HOWEVER, THE LOWER AUTHORITIES TREATED THE SAME AS INCOME FROM OTHER SOURCES AND NOT CONSIDE RED FOR GRANTING DEDUCTION U/S.10A OF THE ACT. AGAINST THI S, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. THE LD. AR, SUBMITTED THAT THE ASSESSEE IS A 100 % EXPORT ORIENTED UNIT AND IS ELIGIBLE TO AVAIL THE EXEMPTIO N U/S. 10A THE ACT AS ALL THE CONDITIONS PRESCRIBED THEREIN ARE CO MPLIED WITH. THE ASSESSEE EARNED INTEREST OF 10,90,028.00 FROM THE DEPOSITS PLACED WITH THE BANK FOR VARIOUS PURPOSES, LIKE, TO MEET THE MARGIN REQUIREMENTS WHILE ESTABLISHING LCS OR F OR ISSUE OF BANK GUARANTEES, TEMPORARY PARKING OF FUNDS BEFORE DEPLOYMENT ETC. THE SAID INTEREST ON FIXED DEPOSIT IS NOT AN INCOME WHICH IS EARNED OUT OF FUNDS RECEIVED FROM OUTSIDE NOT CONNE CTED WITH THE BUSINESS NOR FROM A SEPARATE LINE OF BUSINESS ACTIV ITY, BUT IT IS - - ITA 2080/16 3 FROM THE FUNDS DERIVED FROM THE REGULAR EXPORT BUSI NESS PROCEEDS. FURTHER, THE LD. AR SUBMITTED THAT IN A SSESSEES OWN CASE IN THE A.Y 2008-09 TO 2010-11, WHICH WERE SUBJ ECT TO SCRUTINY U/S.143(3) OF THE ACT, INTEREST ON SUCH FI XED DEPOSIT HAS BEEN TAXED UNDER THE HEAD PROFITS AND GAINS FROM B USINESS OR PROFESSION AND THEREBY GRANTED EXEMPTION U/S.10B O F THE ACT FOR THE ENTIRE INTEREST EARNED ON FIXED DEPOSIT AFTER C ONSIDERING THE FACTS OF THE CASE. HE RELIED ON THE DECISION IN TH E CASE OF CIT V. WESTERN OUTDOOR INTERACTIVE P. LTD. 349 ITR 309, WH EREIN IT WAS HELD THAT SEC.10A OF THE ACT EXEMPTION IN ALLOWABLE IN CASE ALLOWED IN EARLIER YEARS AND THERE IS NO CHANGE IN THE BUSINESS. 3.1 THE LD. AR, ALSO PLACED RELIANCE ON THE JUDGMEN T OF THE KARNATAKA HIGH COURT IN THE CASE OF MOTOROLA INDIA ELECTRONICS (P) LTD. IN ITA NO.428 OF 2007 AND 447 OF 2007 DAT ED 1.12.2013, WHEREIN IT WAS OBSERVED THAT INTEREST RE CEIVED ON FIXED DEPOSIT IS ELIGIBLE FOR BENEFIT U/S.10B OF TH E ACT, SINCE THERE IS A DIRECT NEXUS BETWEEN SUCH INCOME AND THE BUSIN ESS OF THE UNDERTAKING. THE HIGH COURT HELD THAT THOUGH THE I NTEREST DOES NOT PARTAKE THE CHARACTER OF PROFITS AND GAINS FROM THE EXPORT OF ARTICLE, IT IS THE INCOME WHICH IS DERIVED FROM THE CONSIDERATION - - ITA 2080/16 4 REALIZED BY EXPORT OF ARTICLES. THEREFORE, IT IS E LIGIBLE FOR BENEFIT U/S.10B OF THE ACT AND TO SUPPORT HIS VIEW, HE FURT HER RELIED ON THE JUDGMENT OF THE TRIBUNAL, MUMBAI BENCH IN THE C ASE OF J.P.MORGAN SERVICES PVT. LTD. (2013). FURTHER, THE LD. AR SUBMITTED THAT THE PROFITS OF THE BUSINESS OF THE U NDERTAKING INCLUDES THE PROFITS AND GAINS FROM EXPORT OF THE A RTICLES AS WELL AS ALL OTHER INCIDENTAL INCOMES DERIVED FROM THE BU SINESS OF THE UNDERTAKING. IT IS CLEAR THAT WHAT IS EXEMPTED IS NOT MERELY THE PROFITS AND GAINS FROM THE EXPORT OF ARTICLES BUT A LSO THE INCOME FROM THE BUSINESS OF THE SUBJECT UNDERTAKING WHICH IS DIRECTLY ATTRIBUTABLE TO AND PART6AKES THE CHARACTER OF BEIN G BORNE OUT OF THE SAID EXPORT ACTIVITY. ACCORDING TO THE LD. AR , THE AO HAS ERRED IN INTERPRETING AND RELYING ON THE DECISION I N THE CASE OF CIT V. ALPINE SOLVEX LTD. (176 TAXMAN 285)(MP). 3.2 THE LD. AR, FURTHER SUBMITTED THAT IN VIEW OF T HE PROVISIONS OF SEC.10A(4) OF THE ACT, IT IS TO BE CONSIDERED AS PART OF THE BUSINESS INCOME OF THE ASSESSEE. HE SUBMITTED THAT SUB-SEC.(4) OF SEC.10A OF THE ACT, SAYS THAT PROFITS DERIVED FR OM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE TH E ACCOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE U NDERTAKING AND - - ITA 2080/16 5 NOT THE PROFITS AND GAINS FROM EXPORT OF ARTICLES. ACCORDING TO HIM, PROFITS AND GAINS DERIVED FROM EXPORT OF ARTIC LES IS DIFFERENT FROM THE INCOME DERIVED FROM THE PROFITS OF THE BUS INESS OF THE UNDERTAKING. THE PROFITS OF THE BUSINESS OF THE UN DERTAKING INCLUDES THE PROFITS AND GAINS FROM EXPORT OF THE A RTICLES AS WELL AS ALL OTHER INCIDENTAL INCOMES DERIVED FROM THE BU SINESS OF THE UNDERTAKING. HE SUBMITTED THAT THE PROVISIONS OF S EC.80HHC OF THE ACT CANNOT COMPARE TO SEC.10A OF THE ACT, AS TH EY ARE STANDING ON DIFFERENT FOOTING. FURTHER, HE PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL, SPECIAL BENCH, INDORE IN THE CASE OF MARAL OVERSEAS LTD. V. ADDL. CIT IN ITA NOS.777 & 9 00/IND/ 2004 AND 295 & 356/IND/2006) AND THE JUDGMENT OF TH E BOMBAY HIGH COURT IN THE CASE OF CIT V. M/S. SOLIX TECHNOL OGIES PVT. LTD. IN ITA NO.1731 OF 2013 AND 1735 OF 2013 DATED 10.8. 2015. 4. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE INTEREST INCOME EARNED FROM FIXED DEPOSIT CANNOT BE CONSIDER ED AS PART OF THE EXPORT BUSINESS INCOME OF THE ASSESSEE. ACC ORDING TO HIM, ONLY THE INCOME FROM EXPORT IS ENTITLED FOR DE DUCTION U/S.10A OF THE ACT. HE ALSO RELIED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF CHANGEPOND TECHNOLOGIES (P) LT D.CIT - - ITA 2080/16 6 REPORTED IN 22 SOT 220 (CHENNAI) AND IN THE CASE OF ORCHID CHEMICALS & PHARMACEUTICALS LTD. VS. JCIT (97 ITD 277)(CHENNAI), WHEREIN IT WAS OBSERVED AS UNDER : IN THE CONTEXT OF EXPRESSION DERIVED FROM OR ATTRIBUTABLE TO, THE NATURE OF THE INCOME IS IMPO RTANT AND THE NATURE OF INCOME HAS TO BE DECIDED ON THE FACTS OF EACH CASE. IN THE INSTANT CASE, THE ASSESSEE HAD E ARNED THE INTEREST ON MARGIN MONEY DEPOSIT MADE FOR OBTAI NING LETTER OF CREDIT FOR PURCHASE OF RAW MATERIALS. AC TUALLY, THE INCOME OF INTEREST HAD BEEN EARNED FROM DEPOSIT OF MARGIN MONEY WITH THE BANK. THE QUESTION WAS AS TO WHAT WAS THE REAL CHARACTER OF THE INCOME AND NOT W HAT THE PARTIES CALLED IT. THE ELEMENT OF SOURCE OF IN COME WAS DEPOSIT IN THE BANK AND THE ASSESSEE DERIVED INTEREST INCOME THEREFROM. THE INCOME AND HEADS OF INCOME ARE PROVIDED IN SECTION 14. WHERE AN ITEM O F INCOME FALLS SPECIFICALLY UNDER ONE HEAD, IT HAS TO BE CHARGED UNDER THAT HEAD AND NOT OTHER. WHATEVER BE THE NATURE OF THE ACTIVITY OR THE NATURE OF THE INCOME, THE INCOME OF AN ASSESSEE IS TO BE CLASSIFIED AND COMPU TED UNDER THE SPECIFIC HEADS ENUMERATED IN SECTION 14. EVEN IF SUCH INCOME AROSE IN THE COURSE OF BUSINESS , IF THE SAME FALLS CLEARLY UNDER SOME OTHER HEAD OR SAT ISFIES THE TEST OF ANY SPECIFIC HEAD, THEN SUCH INCOME HAS TO BE CLASSIFIED AND COMPUTED ONLY UNDER SUCH HEAD. THE SEVERAL HEADS OF INCOME ARE MENTIONED IN SECTION 14 AND DEALT WITH SEPARATELY IN SECTIONS 15 TO 59. A PART ICULAR VARIETY OF INCOME MUST BE ASSIGNABLE TO ONE OR THE OTHER OF THESE SECTIONS. IF THE INCOME UNDER CONSIDERATI ON IS TAXABLE UNDER ANY PARTICULAR SECTION, SAY, SECTION 22 OR 28, THEN IT CANNOT BE TAXED UNDER SECTION 56 OR VIC E VERSA. SIMILARLY, INTEREST ON SECURITIES, WHICH IS SPECIFICALLY MADE CHARGEABLE TO TAX UNDER SECTION 1 8 UP TO THE ASSESSMENT YEAR 1988-89 AS A DISTINCT HEAD, FALLS UNDER THAT SECTION AND CANNOT BE BROUGHT UNDER SECT ION 28, WHETHER THE SECURITIES ARE HELD AS TRADING ASSE TS OR CAPITAL ASSETS. THE FACT THAT INCOME FALLING UNDER A - - ITA 2080/16 7 SPECIFIC HEAD MAY INDIRECTLY BE COVERED BY ANY OTHE R HEAD WILL NOT MAKE IT TAXABLE UNDER THE LATTER HEAD . THE INTEREST INCOME EARNED FROM DEPOSITS WITH THE B ANK WAS NOT CONNECTED WITH PROFITS AND GAINS WHICH WERE DERIVED FROM HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING OR FROM MANUFACTURING ANY ARTICLE OR TH ING. THE EXPRESSION ANY PROFITS AND GAINS DERIVED BY T HE ASSESSEE FROM A HUNDRED PER CENT EXPORT ORIENTED UNDERTAKING TO WHICH THIS SECTION APPLIES AS USED I N SECTION 10B HAS A DISTINCT BUT NARROW MEANING AND I T CANNOT RECEIVE A FLEXIBLE OR WIDER CONCEPT. THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION OF THE AMOU NT WHICH IT DERIVES AS DIRECT PROFIT BY EXPORT OF GOOD S MANUFACTURED IN ITS NEWLY ESTABLISHED HUNDRED PER C ENT EXPORT-ORIENTED UNDERTAKING. ANY INDIRECT OR INCID ENTAL PROFIT CANNOT BE REGARDED AS PROFIT EARNED OUT OF T HE MAIN BUSINESS ACTIVITY. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE, THE CLAIM OF ASSESSEE IS THAT THE ASSESSEE HAS DEPOSITED THE EXPORT REALIZATION IN BA NK DEPOSITS AND EARNED INTEREST INCOME FROM IT AND IT IS A PART OF THE PROFIT AND GAIN FROM THE INDUSTRIAL UNDERTAKING AS STIPULA TED IN SEC.10A(4) OF THE ACT. IN OUR OPINION, SIMILAR ISSU E CAME FOR CONSIDERATION BEFORE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT VS.MENON IMPEX P. LTD. IN [2003] 259 ITR 403 (MAD) WHEREIN HELD THAT:- THE INTEREST RECEIVED BY THE ASSESSEE WAS ON DEPOS ITS MADE BY IT IN THE BANKS. IT WAS THE DEPOSIT WHICH WAS TH E SOURCE OF THE INTEREST INCOME. THE MERE FACT THAT THE DEPOSIT WAS MADE - - ITA 2080/16 8 FOR THE PURPOSE OF OBTAINING LETTERS OF CREDIT WHIC H WERE IN TURN USED FOR THE PURPOSE OF THE BUSINESS OF THE INDUSTR IAL UNDERTAKING DID NOT ESTABLISH A DIRECT NEXUS BETWEE N THE INTEREST AND THE INDUSTRIAL UNDERTAKING. SIMILAR VIEW WAS TAKEN BY THE JURISDICTIONAL HIGH C OURT IN THE CASE OF M/S.INDIA COMNET INTERNATIONAL VS. ITO IN [2008] 304 ITR 322 (MAD) WHEREIN HELD THAT INTEREST RECEIVED O N EXPORT PROFIT DEPOSITED WITH BANK DOES NOT QUALIFY FOR RE LIEF U/S.10A OF THE ACT. FURTHER, THE DELHI HIGH COURT IN THE CASE OF M/S.THOMSON PRESS (INDIA) LTD. VS. CIT IN [2015] 37 9 ITR 222 (DEL) WHEREIN HELD THAT THE INTEREST CANNOT BE CONS IDERED AS PROFIT AND GAIN DERIVED BY ASSESSEE FROM THE ELIGIB LE UNDERTAKING AS IT DOES NOT BEAR A DIRECT NEXUS WITH THE ACTIVIT IES OF THE ELIGIBLE UNDERTAKING ONLY, THE PROFIT AND GAINS OF ASSESSEE WHICH HAS DIRECT NEXUS WITH THE UNDERTAKING TO WHICH S.10A AP PLY, INTEREST WOULD BE EXCLUDED FROM THE INCOME OF ASSESSEE. 6. IN VIEW OF THE ABOVE DISCUSSION, WE ARE INCLINE D TO HELD THAT THE INTEREST INCOME EARNED BY THE ASSESSEE FRO M THE BANK DEPOSITS CANNOT BE INCLUDED AS PROFIT AND GAIN FROM ELIGIBLE UNDERTAKING SO AS TO GRANT DEDUCTION U/S.10A OF THE ACT AND IT IS - - ITA 2080/16 9 TO BE EXCLUDED FROM PROFIT AND GAINS OF THE BUSINES S UNDERTAKING. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 22 ND DECEMBER,2016 AT CHENNAI. ( $ % & ' ) ()*+,-*.//0*-12 ! 34566/7+8*+89:;<:- $= /CHENNAI, >3 /DATED, THE 22 ND DECEMBER, 2016. K S SUNDARAM 3? @ABA /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. C2 /CIT(A) 4. C /CIT 5. ADE F /DR 6. EGH /GF.