Appeal details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 5659 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
10 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-04-2011
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
15-03-2011
Assessment Year
2004-2005
Appeal Filed On
17-05-2010
Judgement Text
PAGE 1 OF 6 ITA NO.675/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, J.M. AND SHRI A MOHAN ALANKAMONY, A.M ITA NO.675/BANG/2010 (ASSESSMENT YEAR 2004-05) M/S GREEN AGRO PACK PVT. LTD., NO.2821, 6 TH CROSS, 18 TH MAIN, HAL 2 ND STAGE, BANGALORE-8. - APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(3), BANGALORE. - RESPONDENT APPELLANT BY : SHRI ATUL K ALUR, ADVOCATE RESPONDENT BY : SHRI B ARULAPPA, ADDL. CIT ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER OF LEARNED CIT(A)-I, BANGALORE DA TED 10/3/2010. THE ASST. YEAR CONCERNED IS 2004-05. 2. THE ISSUE THAT IS RAISED IN THE APPEAL IS WHETH ER THE INTEREST INCOME, STAFF LOAN, INSURANCE RECEIPT ARE TO BE TAKEN AS PART OF THE BUSINESS PROFITS WHILE COMPUTING DEDUCT ION U/S 10B OF THE I T ACT. 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- PAGE 2 OF 6 ITA NO.675/BANG/2010 2 THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT IS A 100% EXPORT ORIENTED UNIT. FOR THE RELEVANT ASST. YEAR, RETURN OF INCOME WAS FILED ON 28/10/2004 DECLARING AN INCOME OF RS.5,43,023/- AFTER CLAIMING A DEDUCTION U/S 10B OF THE ACT AMOUNTING TO RS.19,43,539/-. WHILE COMPUTING DEDUC TION U/S 10B OF THE ACT, THE ASSESSEE COMPANY HAD INCLUDED THE FOLLO WING RECEIPTS AS PART OF THE BUSINESS PROFITS:- I) BANK INTEREST OF RS.3,79,668/- II) INSURANCE RECEIPT OF RS.5,23,298/- III) INTEREST ON STAFF LOAN AND FINES OF RS.2,29, 256/- TOTAL = RS.11,32,222/- 3.1 THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT VIDE ORDER DATED 29 TH NOVEMBER, 2006. THE AO RECOMPUTED THE DEDUCTION U/S 10B OF THE ACT. AS AGAINST THE D EDUCTION CLAIMED AMOUNTING TO RS.19,43,539/-, THE AO ALLOWED ONLY RS .8,62,637/-. THE CLAIM U/S 10B OF THE ACT WAS VARIED FOR THE REA SON THAT INTEREST ON FIXED DEPOSIT OF RS.3,79,668/-, INTERES T ON STAFF LOAN AND FINES ETC. OF RS.2,29,256/- AND INSURANCE CLAIM S OF RS.5,23,298/- WERE REDUCED FROM THE ELIGIBLE PROFI TS FOR THE PURPOSE OF DEDUCTION U/S 10B OF THE ACT. THE RELEV ANT FINDING OF THE AO READS AS FOLLOWS:- INTEREST ON FIXED DEPOSITS OF RS.3,79,668/- INTEREST ON STAFF LOANS AND FINES ETC. OF RS.2,29,256/- AND INSURANCE CLAIMS OF RS.5,23,298/- ARE ALL NORMALLY OFFERED TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. SUCH INCOME CANNOT BE CONSIDERED FOR ELIGIBLE PROFITS PAGE 3 OF 6 ITA NO.675/BANG/2010 3 FOR THE PURPOSE OF DEDUCTION U/S 10B. HENCE, THE AMOUNT OF RS.11,32,222/- IS NOT CONSIDERED FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10B. 4. AGGRIEVED BY THE ASSESSMENT COMPLETED, THE ASSES SEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY. 5. IT WAS CONTENDED BEFORE THE FIRST APPELLATE AUT HORITY THAT THERE IS A DIRECT NEXUS WITH THE BUSINESS OF T HE ASSESSEE IN EARNING THE ABOVE SAID RECEIPTS AND THEREFORE, IT F ORMS PART OF ELIGIBLE BUSINESS PROFITS FOR CALCULATION OF DEDUCT ION U/S 10B OF THE ACT. HE ALSO RELIED ON THE FOLLOWING DECISIONS OF THE HONBLE HIGH COURTS:- CIT V MADRAS REFINERIES LTD. (1998) 228 ITR 354 (MAD); SHAM PROGETTI SPA V CIT (ADDL.) (1981) 132 ITR 70 (DEL.) & CIT V VIDYUT STELL LTD. (1995) 82 TAXMAN 99 (AP). 6. THE CIT(A) WAS OF THE VIEW THAT IT CANNOT BE S TATED THAT THE ABOVE RECEIPTS ARE DERIVED FROM THE EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLE OR THING OR COMPUTER SOFTWARE AND HENCE, THESE RECEIPTS CANNOT FORM PART OF BUSINESS PROFITS FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 10B OF THE ACT 7. THE ASSESSEE, BEING AGGRIEVED, IS IN APPEAL BEF ORE US. 8. THE LEARNED AR SUBMITTED THAT IN SO FAR AS THE BANK INTEREST IS CONCERNED, IT IS CLEAR FROM THE ASSESSM ENT ORDER THAT PAGE 4 OF 6 ITA NO.675/BANG/2010 4 THE INTEREST WERE DERIVED FROM DEPOSITS WHICH WERE MADE FOR SHORT TERM PERIOD TOWARDS SECURITY AGAINST FACILITIES AVAI LED FROM BANK FOR THE PURPOSE OF EXPORT. IT WAS SUBMITTED THAT IN IDENTICAL CIRCUMSTANCES IN ASSESSEES OWN CASE, THE HONBLE H IGH COURT OF KARNATAKA HAS HELD THAT THE ASSESSEE IS ELIGIBLE FO R DEDUCTION U/S 10B OF THE ACT IN RESPECT OF BANK INTEREST RECEIPT. IT WAS SUBMITTED THAT THE HONBLE HIGH COURT HAS REVERSED THE FINDING OF THE TRIBUNAL. THE JUDGEMENT OF THE HONBLE HIGH C OURT IN ITA NO.3112/2005 DATED 13 TH APRIL, 2010 FOR THE ASST. YEAR 1998-99 IS PLACED ON RECORD. 8.1 IN SO FAR AS THE INSURANCE RECEIPT AND INTERES T ON STAFF LOAN ARE CONCERNED, THE LEARNED AR FAIRLY SUBM ITTED THAT THE ISSUES ARE COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE CONCERNING ASST. YEA R 2003-04 IN ITA NO.16/BANG/2007 DATED 7 TH DECEMBER, 2007. 9. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E IMPUGNED ORDER OF THE FIRST APPELLATE AUTHORITY. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. IN SO FAR AS THE BANK INTEREST OF RS.3,79,668/- IS CONCERNED, THE ASSESSEE HAD PLACED ON RECORD THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE (ITA NO.3112/2005 DATED 13 TH APRIL, 2010). IN THE SAID JUDGEMENT, THE HONBLE HIGH COURT WAS CONSIDERING THE FOLLOWING QU ESTION OF LAW:- PAGE 5 OF 6 ITA NO.675/BANG/2010 5 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE INTEREST RECEIVED ON FD CAN BE BROUGHT UNDER THE HEAD INCOME FROM OTHER SOURCES? ON THE ABOVE QUESTION OF LAW, THE HONBLE HIGH COUR T HELD THAT INTEREST AMOUNT EARNED ON THE DEPOSIT HAS TO BE TRE ATED AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCE S. THE RELEVANT FINDING OF THE HONBLE HIGH COURT READS AS FOLLOWS:- HAVING HEARD THE LEARNED COUNSEL ON BOTH THE SIDES AND ON PERUSAL OF THE MATERIAL ON RECORD, IT IS NOT IN DISPUTE THAT THE APPELLANT IS A 100% EXPORT ORIENTED UNIT WHICH IS ENGAGED IN EXPORT OF PROCESSED GHERKINS AND DURING THE COURSE OF ITS BUSINESS IT WOULD HAVE TO MAKE CERTAIN DEPOSITS FOR THE PURPOSE OF OBTAINING LETTER OF CREDIT OR FOR BANK GUARANTEE WHEN THE PRODUCTS WHICH ARE PROCESSED BY IT HAVE TO BE EXPORTED. IN TERMS OF THE SAID LETTER OF CREDIT OR BANK GUARANTEE, CERTAI N DEPOSITS ARE MADE AND SUCH DEPOSITS ARE TO BE TREATED AS MARGIN AMOUNTS AND ANY INTEREST WHICH IS EARNED OUT OF THE SAID DEPOSITS HAS TO BE TREATED AS BUSINESS INCOME AND NOT AS INCOME EARNED FROM OTHER SOURCES. IN THIS CONTEXT, IT WOULD BE APPOSITE TO REFER TO TWO DECISIONS OF THIS COURT RENDERED IN ITA NO.426/2002 IN THE CASE OF M/S HAJEE JAFFAR SHARIFF V THE INCOME TAX OFFICER, DISPOSED OF ON 12.11.2007, WHEREIN IT HAS BEEN HELD THAT WHEN MONEY IS INVESTED IN FIXED DEPOSIT TO GET THE BENEFIT OF LETTER OF CREDIT AND NOT TO INVEST THE SAME TO EARN ANY INTEREST, THEN THE SAID INTEREST AMOUNT EARNED ON THE DEPOSIT HAS TO BE TREATED AS THE BUSINESS INCOME AND NOT AS INCOME EARNED FROM OTHER SOURCES. PAGE 6 OF 6 ITA NO.675/BANG/2010 6 IN THIS CASE, THE NATURE OF INTEREST DERIVED IS ENU MERATED IN PARAGRAPH 4 OF THE ASSESSMENT ORDER. THE FACTS BEI NG IDENTICAL TO THAT OF THE ASST. YEAR THAT WAS CONSIDERED BY THE HO NBLE HIGH COURT, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DE DUCTION U/S 10B IN RESPECT OF INTEREST INCOME EARNED. 10.1 IN SO FAR AS THE INSURANCE RECEIPT AND INTERE ST ON STAFF LOAN IS CONCERNED, THE ASSESSEES COUNSEL HAS FAIRLY CONCEDED THAT THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSE E BY THE ORDER OF THE TRIBUNAL IN ITA NO.16/BANG/2007 CONCERNING A SST. YEAR 2003-04. IN VIEW OF THE SUBMISSION, WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S 10B OF THE ACT IN RES PECT OF INSURANCE RECEIPT AND INTEREST ON STAFF LOAN. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. THE ORDER PRONOUNCED ON FRIDAY, THE 8 TH DAY OF APRIL, 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/17/3. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.
