SPRINGER NATURE TECHNOLOGY AND PUBLISHING SOLUTIONS PRIVATE LIMITED,PUNE V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), PUNE

ITA 418/PUN/2023

AI Insights

The case involves Springer Nature Technology and Publishing Solutions Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of a deduction under section 10AA on interest income earned from short-term deposits. The primary legal issue was whether the interest income, which was earned from surplus funds and temporarily parked in fixed deposits, could be considered as 'profits of business of the undertaking' eligible for deduction under section 10AA. The Tribunal examined various judicial precedents and the specific provisions of section 10AA, ultimately finding that the interest income did not have a direct nexus with the profits of the SEZ units and thus was not eligible for the claimed deduction.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 472324 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: CIT vs. Hewlett Packard Global Soft Ltd, Menon Impex (P) Ltd., India Comnet International Vs. ITO, Barclays Shared Services Private Limited, Sterling Foods, Wipro Ltd, Thomson Press (India) Ltd., Polaris Software Lab, Tessitura Monti India (P.) Ltd, Cyber Pearl Information technology Park (P). Ltd, Allen Career Institute, Swani Spice Mills (P.) Ltd, Hycron India Ltd, Dishman Pharmaceuticals & Chemicals Ltd, Camiceria Apparels India (P) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KEYUR PATEL; IRS
• Assessee Lawyers: VISHAL KALRA
• Keywords: Set aside; Business income; Commercial expediency
• Section: 143(3); 142(1); 143(2); 56; 251; 2; 10AA; 80HH

Judgement Text

" आयकर अपीलीय अिधकरण ”बी” ɊायपीठपुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B” :: PUNE BEFORE DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपीलसं. / ITA No.418/PUN/2023 िनधाᭅरणवषᭅ / Assessment Year: 2017-18 Springer Nature Technology and Publishing Solutions Pvt. Ltd., Upper Ground Tower 8, Magarpatta City, Pune–411013. PAN: AACCC8853E V s The Assistant Commissioner of Income Tax, Circle-1(1), Pune. Appellant/ Assessee Respondent / Revenue Assessee by Shri Vishal Kalra – AR Revenue by Shri Keyur Patel, IRS –CIT(DR) Date of hearing 19/12/2024 Date of pronouncement 10/02/2025 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the assessee against the order of ld.Commissioner of Income Tax(Appeals)[NFAC] for Assessment Year 2017-18 dated 14.02.2023 passed u/sec.250 of the Income Tax Act, 1961, emanating from assessment order ITA No.418/PUN/2023 [A] 2 under section 143(3) of the Act, dated 05.12.2019 for A.Y.2017- 18. The Assessee has raised the following grounds of appeal : “The Appellant objects to the order dated February 14, 2023 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, New Delhi [learned CIT (Appeals)\"] for the aforesaid assessment year on the following amongst other grounds: Disallowance of claim of deduction under section 10AA of the Income-tax Act, 1961('the Act') on interest income earned on short term deposits 1. The learned CIT (Appeals) erred in excluding interest income earned of INR 1,79,01,588 on short term deposits for the purpose of computation of deduction under section 10AA of the Act by holding that it cannot be classified as 'profits of business of the undertaking' 2. The learned CIT (Appeals) erred in holding that interest income earned of INR 1,79,01,588 on short term deposits is liable to be taxed under the head 'Income from Other Sources' as against 'Profits of business' as claimed by the Appellant. 3. The learned CIT (Appeals) erred in placing reliance on Jurisdictional Hon'ble Pune Tribunal's decision in the case of Barclays Shared Services Private Limited¹ without appreciating that: The Hon'ble Pune Tribunal has distinguished the favorable decision of the Hon'ble Karnataka High Court in the case of CIT vs. Hewlett Packard Global Soft Ltd by stating that it not the Jurisdictional High Court decision and it has been delivered in the context of section 10A/108 of the Act and not section 10A/10AA of the Act which are the sections under appeal. The Hon'ble Pune Tribunal while pronouncing its decision relied on the decision of the Hon'ble Madras High Court in ITA No.418/PUN/2023 [A] 3 the case of Menon Impex (P) Ltd.) by referring it as jurisdictional High Court decision. Therefore, the basis for distinguishing the decision of the Hon'ble Karnataka High Court in the case of Hewlett Packard Global Soft Ltd (supra) is factually incorrect Double taxation of interest income on short term deposits 4. Without prejudice to above, the learned CIT (Appeals) has erred in confirming the double disallowance of the interest income amounting to Rs. 17,901,588 by not appreciating that it was already included as profits of business and profession while computation of deduction under section 10AA of the Act by the Appellant and the assessing officer has also taxed the same as income from other sources. Others 5. Each one of the above grounds of appeal is without prejudice to the other 6. The Appellant craves leave to add, to amend, to alter, to substitute, and draw any or all of the above grounds of appeal.” Submission of ld.AR : 2. The ld.Authorised Representative(ld.AR) for the Assessee submitted that the only issue is interest on fixed deposits whether eligible for deduction under section 10AA or not! Ld.AR submitted that the interest has been earned by Parking Surplus ITA No.418/PUN/2023 [A] 4 Funds with the Bank. Ld.AR submitted that it is a covered issue by the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Hewlett Packard Global Soft Ltd., [2018] 403 ITR 453. 2.1 In the rebuttal to submission of Ld.Departmental Representative, ld.AR submitted that ld.DR’s reliance on the decision of Hon’ble Supreme Court in the case of India Comnet International Vs. ITO [2013] 354 ITR 673 is misplaced as Hon’ble Supreme Court merely set-aside the issue to the ITAT. Thus, Hon’ble Supreme Court has not laid down any Law on the issue. 2.2 Ld.Authorised Representative(ld.AR) submissions is as under : “1. Springer Nature Technology and Publishing Solutions Private Limited ('Appellant') is a company engaged in providing IT enabled and computer software development services for a variety of work such as pre-media, prepress, copy editing, design and typesetting, graphics and content transformation services related to books, journals and catalogues. ITA No.418/PUN/2023 [A] 5 12. For the assessment year (\"AY\") 2017-18, the Appellant filed its return of income on November 29, 2017 declaring a total income of INR 3,61,10,090 and book profits of INR 17. 11,69.436 The Appellant's case was selected for scrutiny vide notice dated September 21, 2018 issued under section 143(2) of the Act and the assessment was completed vide order dated December 05, 2019, assessing the total income to be INR 6.54,05,110 under normal provisions of the Act and book profit of INR 17,11,69,436 1.3. The said difference of INR 1,13,93,425 is taxable income under normal provisions of the Act is on disallowance of claim of deduction under section 10AA on the interest income on fixed deposit amounting to INR 1.79,01,588. Further, the AO has assessed the said interest income of INR 1,79,01,588 as 'Income from Other Sources'; however he has not reduced the same from Income from Profits and Gains from Business or Profession', thereby resulting in double taxation. 1.4. The following additions/disallowances have been made by the AO in the assessment order 2.1 In this regard, it is respectfully submitted that the appellant operates from three Special Economic Zone (SEZ), and out of these three SEZ units the appellant company claimed the benefit under section 10AA of the Act for the following two units:- a) SEZ unit T8-the impugned AY being 6th year of the claim under section 10AA of the Act (Wing B. Upper Ground Level. Tower VIII, Magarpatta Township Development Construction Company Limited- SEZ, village Hadapsar, Taluka- Haveli, Pune) b) SEZ Unit T9-the impugned AY being 4th year of the claim under section 10AA of the Act (Wing A and B (Part 1), L1 and Wing A L5, Tower XI, Magarpatta Township Development and Construction Company Limited- SEZ Village Hadapsar, Taluka-Haveli, Pune). ITA No.418/PUN/2023 [A] 6 2.2 It is submitted that the appellant claimed deduction u/s 10AA of the Act of INR 14,81.23.737 in respect of SEZ unit T8 and SEZ unit T9. The details of claim made and disallowance thereon as per below Sno. Particulars Sez Unit T8 Sez Unit T9 Total A Profit of the undertaking 7,51,71,191 11,05,38,142 18,57,09,333 B Total Turnover 26,14,36,572 79,01,66,238 1,05,16,02,810 C Export Turnover 26,14,36,572 79,01,66,238 1,05,16,02,810 D % of Deduction under section 10AA of the Act 50% 100% - E Quantum of Deduction under section 10AA[(A*C)*D] 3,75,85,595 11,05,38,142 14,81,23,737 F Interest income included in the profit of the undertaking 1,30,16,326 48,85,262 1,79,01,588 G Deduction denied by the AO / CIT(A) (F*D) 65,08,163 48,85,262 1,13,93,425 During the year under consideration, the Appellant has earned interest income of INR 1,79,01,588 from the short-term fixed deposits made in the RBL Bank and Kotak Mahindra Bank (refer pages 148-152 of the PB). The term of such deposits range from 3 months to 12 months and the appellant has offered the said interest income to tax as 'profits and gains from business' as said deposits have been made from the surplus generated from proceeds received from the export business activity and has claimed a deduction amounting to INR 1.13.93.425 under section 10AA of the Act on the same ITA No.418/PUN/2023 [A] 7 Fixed deposits are temporary in nature It is submitted that the term deposits by the Appellant were made out of the surplus export proceeds and were temporary in nature. The fixed deposits have been classified into two categories, where the maturity period is less than 3 months and the maturity period is more than 6 months. In the present case, the term deposits created by the Appellant range from 3 months to 12 months, hence, the fixed deposits are temporary in nature (refer page 126/PB) Thus, based on the term of the deposits it can be ascertained that the intention of making the said term deposits is not to make investments in order to earn interest income as they are made for a short duration out of the surplus funds available with the Appellant. Accordingly, the said interest income can be considered to be earned in ordinary course of business and therefore be a part of the profits of business of the undertaking eligible for deduction as per provisions of section 10AA(1) read with 10AA(7) of the Act. 2.13 The above position has been affirmed in the full bench decision of the Hon'ble Karnataka High Court in the case of CIT vs Hewlett Packard Global Soft Ltd.: [2018] 403 ITR 453 Relevant extract of the decision is reproduced below: 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as 'Income from other Sources under Section 56 of the Act. The incidental activity of parking of Surplus Funds with the Banks or advancing of staff loans by such special category of assessees covered under Section 10-A or 10-B of the Act is integral part of their export business activity and a business decision taken in view of ITA No.418/PUN/2023 [A] 8 the commercial expediency and the interest income earned incidentally cannot be de-linked from its profits and gains derived by the Undertaking engaged in the export of Articles as envisaged under Section 10-A or Section 10-B of the Act and cannot be taxed separately under Section 56 of the Act.\" (emphasis supplied) 2.16. Similar principle has been upheld in following judicial rulings amongst others that interest income on short term temporary deposits from surplus funds is eligible for deduction under section 10AA/10A/10B of the Act L Camiceria Apparels India (P) Ltd. vs ACIT ITA No. 1972 & 1973 of 2008 (Madras) PCIT vs NTT Data Global Delivery Services Ltd. ITA No 392/2022 (Delhi) PCIT vs Dishman Pharmaceuticals & Chemicals Ltd. [2019] 417 ITR 373 (Guj) IV CIT vs Hycron India Ltd. [2009] 308 ITR 251 (Raj) V Allstate India Pvt. Ltd. vs DCIT ITA No. 257/Bang/2023 (Bang. - Trib.) 3. Ground no. 4. \"Interest income considered under head of \"Income from Other Sources\" without corresponding reduction of the same from the head 'Income from Profits and Gains of Business or Profession\" 3.1 Without prejudice to the above grounds, it is submitted that the AO has denied the deduction under section 10AA on interest income, by treating the same as 'Income from Other Sources Having assessed the said interest income of INR 1,79.01,588 as 'Income from Other Sources the AO ought to have reduced the same from Income from Profits and Gains from Business or Profession' while considering the ITA No.418/PUN/2023 [A] 9 returned income from business before deduction under section 10AA of the Act (refer page 49 of the PB). 3.2 The AO has erred in taking the returned income of the Appellant as the starting point and not reducing the aforesaid interest income of INR 1,79.01,588 from the head of \"Income from favourable judgements on this specific issue have been rendered by various High Courts subsequently. Profits and Gains of Business or Profession, thereby leading to double taxation of the same income (refer page 57 of the appeal set). The relevant extract of the calculation has been reproduced below. Particulars Income computed by AO Income computed by the Appellant Returned income from business before deduction u/s 10AA of theca (ref. pg 49/PB) 18,55,44,673 18,55,44,673 Less : Interest Income already included in above income as per the return computation 0 1,79,01,588 Less : Deduction under section 10AA of the Act as computed by the AO 13,67,30,313 13,67,30,313 Business Income 4,88,14,360 3,09,12,772 Income from Other Sources 1,79,01,588 1,79,01,588 Gross total Income 6,67,15,948 4,88,14,360 Less : Deduction under Chapter VIA 13,10,843 13,10,843 Total assessed Income (Rounded Off) 6,54,05,110 4,75,03,520 3.3. The CIT(A) erred in observing that if the revised deduction under section 10AA of the Act and interest income is adjusted, there will be no difference to the assessed income. It is to be appreciated that he lost sight of the fact that the starting point of the AO was the income as per return of income in which the interest income was ITA No.418/PUN/2023 [A] 10 already included and thus, was leading to double addition (refer page 49 of the PB and page 44 of the appeal set). 3.4 Thus, if the contrary view is to be taken, then the interest income of INR 1,79,01,588 ought to be reduced from the head of 'Income from profits and gains of business or profession' and must re- compute the corrected assessed total income of the Appellant.” Submission of ld.DR: 3. Mr.Keyur Patel, IRS -ld.Commissioner of Income Tax(DR) for the Revenue filed a Written Submission. Mr.Keyur Patel took us through Section 10AA of the Act and submitted that Section 10AA of the Act specifically talks about total income of “the unit” which begins manufacture or produce article or provide any service during the previous year. Thus, ld.DR submitted that the Section is about Profit derived from manufacturing activity of “the eligible unit” or profit derived from providing services by “the eligible unit”. The deduction is only available when the amount is received in foreign currency. In this case, interest income has not been earned in foreign currency. ITA No.418/PUN/2023 [A] 11 Ld.DR distinguished the case law in the case of CIT Vs. Hewlett Packard Global Soft Ltd.(supra) relied by Assessee, ld.DR submitted that in the case of Hewlett Packard Global Soft Ltd.(supra), it is categorically mentioned in Para-16 that term deposit was kept in the Current Account of Citi Bank, Hongkong. Thus, the interest earned was in convertible foreign exchange. However, in the case of the present assessee, interest has been earned in Indian Rupees. Ld.DR also submitted that the decision in the case of CIT Vs. Hewlett Packard Global Soft Ltd.(supra) is distinguishable on facts as in that the Hon’ble Karnataka High Court has not considered the decision of Hon’ble Madras High Court in the case of CIT Vs Menon Impex P Ltd (2003) 203 ITR 403, which has been upheld by Hon’ble Supreme Court in the case of India Comnet International [2013]354 ITR 673. Hence, the case law relied by Assessee distinguishable and not applicable. Ld.DR also submitted that ld.CIT(A) has relied on the ITA No.418/PUN/2023 [A] 12 decision of ITAT Pune in Barclays Shared Services Private Limited dated 09/03/2021, which is the jurisdictional ITAT. Ld.DR submitted that as per Rule of Judicial Precedence, this bench is bound to follow the decision of ITAT, Pune(supra). Ld.DR for the Revenue relied on the decision of Hon’ble Supreme Court in the case of India Comnet International Vs. ITO [2013] 354 ITR 673 dated 06.09.2012. Ld.DR submitted that once Hon’ble Supreme Court in the case of India Comnet International Vs ITO (supra) has upheld the view taken by Hon’ble Madras High Court in the case of Menon Impex P Ltd(supra) then the law on this issue is settled and Hon’ble ITAT has to follow the law laid down by Hon’ble Supreme Court in the case of India Comnet International P Ltd (supra). 3.1 Ld.Departmental Representative for the Revenue relied on the following decisions as under :  India Comnet International v. ITO (SC) ITA No.418/PUN/2023 [A] 13  PCIT vs Wipro Ltd (SC) [2022] 446 ITR 1  Thomson Press (India) Ltd. v. Commissioner of Income-tax-II (Delhi HC)  Polaris Software Lab v. Addl. CIT, Co. Range V (ITAT, Chennai)  Tessitura Monti India (P.) Ltd. v. ITO-8(3)(3), Mumbai (ITAT, Mumbai)  Cyber Pearl Information technology Park (P). Ltd v. ITO, Company ward 1(1) Chennai, (Madras HC)  Commissioner of Income-tax v. Allen Career Institute (Rajasthan HC)  Commissioner of Income-tax v. Swani Spice Mills (P.) Ltd. (Bombay HC)  Commissioner of Income-tax v. Menon Impex (P.) Ltd. (Madras HC) Findings & Analysis : 4. We have heard both the parties and perused the records. Brief Facts of the Case : 4.1 In this case, Assessee has e-filed its original return of income for A.Y.2017-18 on 29.11.2017 declaring total income of Rs.3,61,10,090/-. The Assessee’s case was selected for scrutiny. ITA No.418/PUN/2023 [A] 14 Notice under section 143(2) and notice under section 142(1) were duly served on the Assessee. As per the Assessment Order, the assessee company was incorporated under the Companies Act. 1956 on 25/08/2006. The assessee company is engaged in the business of premedia, information Technology Enabled services and Software Development. The assessee company is registered under Software Economic Zone, Act 2005, engaged in business of export of Computer Software and the profit derived from the said business is claimed exemption u/s.10AA of the IT Act. The assessee has started two SEZ units at Hadapsar Pune, engaged in software development, which are eligible units u/s 10AA of Act. The first undertaking is located at Wing 'B' Upper Ground Level, Tower-VIII, Magarpatta Township Development & construction company limited-SEZ, Village-Hadapsar, Taluka-Haveli, Pune- 411013, was registered on 12th July 2011 and the manufacturing or production of this unit was started on 19/08/2011 and the ITA No.418/PUN/2023 [A] 15 present year being 6th year for claiming deduction u/s. 10AA. The second undertaking is located at Wing-A and Wing-B. Level-1 and Wing-A, Level 5, Tower-XI. Magarpatta Township Development & Construction Company Limited-SEZ, Village- Hadapsar, Taluka-Haveli, Pune 411013, registered under SEZ on 21/12/2012 and started manufacture or production from 15/04/2013. Hence, the present year being 4th consecutive year of claim 10AA of the Act. The new undertaking at said address has been granted approval as SEZ unit on 21/12/2012 by the Development commissioner, SEEPZ-SEZ, Mumbai Vide its letter no. SEEPZ-SEZ /MIDCCL-SEZ/CPSPL/25/2012-2013 and has begun business of Premedia, Information Technology Enabled Services and Software Development form 15/04/2013. During the year under consideration, the Assessee has claimed deduction under section 10AA of the Act totaling to Rs.14,78,23,737/- in respect of the above two units. ITA No.418/PUN/2023 [A] 16 Issue in the Assessment Order : 4.1.1 During the scrutiny proceedings, Assessing Officer noted that Assessee has claimed Rs.1,79,01,588/- which was interest on fixed deposits as profits of business and claimed deduction under section 10AA of the Act. It is mentioned in the Assessment Order that Assessee has kept certain term deposits in RBL Bank, Pune. The said interest has been earned from the Term Deposits kept with RBL Bank, Pune. It has been mentioned in the Para 6.7 of the Assessment Order that Assessee could not establish whether Assessee’s SEZ units have to keep fix deposits under any circumstances or compulsions. It is further mentioned that the Assessee failed to prove the purpose and direct utility of the FDRs for its business operation. Assessing Officer in the assessment order mentioned that the Character of the receipt changes to Income from Other Sources. Assessing Officer also mentioned in ITA No.418/PUN/2023 [A] 17 the assessment order that interest on surplus amount in bank deposit do not have any first-degree nexus with the eligible business activity of the assessee to claim deduction under section 10AA of the Act. Finally, in the assessment order, the Assessing Officer disallowed Assessee’s claim of deduction under section 10AA of the Act, for the interest earned on fixed deposits. Aggrieved by the assessment order, Assessee filed appeal before ld.CIT(A). Assessee relied on various case laws during proceedings before ld.CIT(A). Ld.CIT(A) confirmed the addition following the decision of ITAT Pune in Barclays Share Services Primate Limited in ITA No.267/CHNY/2018 for A.Y.2010-11. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal. 4.1.2 It is important to mention here that in the Form 56F filed by the assessee as per Rule 16D of the Income Tax ITA No.418/PUN/2023 [A] 18 Rules the assessee has shown export turnover separately and it does not include Interest. In the FORM 56F the Auditor has certified that FULL CONSIDERATION IS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE. (page 144- 147 of the paper book) 4.1.3 The Assessee in its Audited Profit & Loss Account, have shown the impugned Interest Income under the head “Other Income”, which is different from the Income shown under the head ‘Revenue from Operations’. The Other Income is shown in Schedule 14 of the Audit Report. Thus, the assessee itself has differentiated between the Revenue from Operations and Other Income. It shows that the Auditor as per the Accounting Policies has classified the impugned interest as ‘Other Income’. (page 108-145 of paper book) ITA No.418/PUN/2023 [A] 19 4.2 Thus, the only issue for our consideration is whether interest earned on fixed deposit kept with RBL Bank in India is eligible for deduction under section 10AA or not! We are reproducing here Section 10AA of the Act, for ready reference as under : Special provisions in respect of newly established Units in Special Economic Zones. 10AA. (1) Subject to the provisions of this section, in computing the total income of an assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005, from his Unit, who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, but before the first day of April, 2021, the following deduction shall be allowed— (i) hundred per cent of profits and gains derived from the export, of such articles or things or from services for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services, as the case may be, and fifty per cent of such profits and gains for further five assessment years and thereafter; (ii) for the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the \"Special Economic Zone Re-investment Reserve Account\") ITA No.418/PUN/2023 [A] 20 to be created and utilized for the purposes of the business of the assessee in the manner laid down in sub-section (2). 22[Explanation.—For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee.] (2) The deduction under clause (ii) of sub-section (1) shall be allowed only if the following conditions are fulfilled, namely :— …………………..” ( emphasis supplied) 4.3 Thus , the plain reading of section 10AA explains that Profit and Gains Derived from Export of Articles or Services is eligible for exemption under section 10AA subject to other conditions mentioned in the Section 10AA of the Act. 4.4 The Hon’ble Supreme Court in the case of CIT Vs. Sterling Foods (AIR 1999 Supreme Court 2036). has held as under : Quote, “ There must be for the application of the words \"derived from\", a direct nexus between the profits and gains and the industrial undertaking…” Unquote. ITA No.418/PUN/2023 [A] 21 4.5 Thus, the Hon’ble Supreme Court held that Derived From means there must be a direct nexus between the Profits and Industrial Undertaking. The decision in the case of CIT vs Sterling Foods (supra) was rendered in the context of Section 80HH of the Income Tax Act. The relevant Section 80HH is reproduced as under : [Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas. 80HH. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof…... The relevant part of Section 10AA is reproduced here under again: “..hundred per cent of profits and gains derived from the export, of….” 4.5.1 It can be observed by comparing the section 80HH and Section 10AA of the Act that both the section has used the word ITA No.418/PUN/2023 [A] 22 “Derived from”. We have already stated that the word Derived from has been explained by Hon’ble Supreme Court as having direct nexus. 4.5.2 We are only referring to the meaning of the word “Derived from” explained by the Hon’ble Supreme Court. 4.6 Distinguishing Hon’ble Karnataka High Court’s decision in Hawlett Packard Global Soft Ltd : The Assessee has relied on the decision of Hon’ble Karnataka High Court in the case CIT Vs. Hawlett Packard Global Soft Ltd., 403 ITR 453 dated 30.10.2017. It is noted that as per paragraph 16 of the said order, for A.Y.2001-02, interest income of Rs.4,68,037/- on short term deposits of Rs.6,46,88,606/- temporarily park in the CURRENT Account held in Citi Bank, Hong-Kong was claimed as profit of the business and eligible for exemption under section 10A of the Act. Thus, the most important fact in the case of Hawlett Packard Global Soft Ltd.,(supra) is that the ITA No.418/PUN/2023 [A] 23 interest was earned from the Current Account maintained with Citi Bank, Hong-Kong, it means it was earned in Foreign Currency. 4.6.1 However, in the case of the Assessee, interest has been earned from the Fixed Deposits kept with RBL Bank in India. Current Account mentioned in the case of Hawlett Packard Global Soft Ltd., is a running account, wherein business receipts are credited, the Current Account was maintained outside India in Citi Bank, Hong-Kong. Therefore, the case relied by ld.AR for the Assessee is distinguishable on facts. For claiming deduction under section 10AA Act, one of the primary conditions is that the amount should be received inconvertible foreign exchange. Admittedly, the interest income was earned from Fixed Deposits kept in India in Indian Rupees, in the case of Assessee. 4.6.2 In the case of CIT Vs. Hawlett Packard Global Soft Ltd., 403 ITR 453 dated 30.10.2017, the Revenue has failed to bring it to the notice of the Hon’ble Karnataka High Court, decision of the Hon’ble Supreme Court in the case of ITA No.418/PUN/2023 [A] 24 India Comnet International dated 6/9/2012 (supra) wherein Hon’ble Supreme Court has referred to the decision of Hon’ble Madras High Court in the case of CITvs Menon Impex P Ltd (supra). Therefore, the decision of Hon’ble Karnataka High Court in CIT Vs. Hawlett Packard Global Soft Ltd., (supra) is distinguishable. 4.6.3 Further, the decision of Hon’ble Karnataka High Court in the case of Hawlett Packard Global Soft Ltd (supra) is distinguishable on facts and law, as the Hon’ble Karnataka High Court in paragraph 34 has specifically noted that the Interest Income is Incidental, however, the Hon’ble Karnataka High Court invoked Purposive Construction rule and Liberal Construction rule and held that Interest Income earned incidentally cannot be delinked from its profit. However, subsequently, Hon’ble Supreme Court in the case of PCIT Vs. Wipro Ltd. 446 ITR 1(SC)[11-07- 2022] held that Exemption provisions are to be strictly and literally complied with. Thus, over the period, law has evolved and now the Hon’ble Supreme Court has emphasized on Stricter Construction of exemption ITA No.418/PUN/2023 [A] 25 provisions. Therefore, the case relied by the Assessee is distinguishable. 4.7 Hon’ble Supreme Court’s Decision-India Comnet International : 4.7.1 The Hon’ble Supreme Court in the case of India Comnet International Vs. ITO(supra) has discussed the issue of interest earned and its eligibility for exemption under section 10A of the Act. The relevant paragraph of the Hon’ble Supreme Court’s decision is reproduced as under : “3. In civil appeal arising out of S.L.P(C) No.12756 of 2008, the facts are as under: The assessee is a 100% Export Oriented. Unit, which develops and exports software. It earns foreign exchange. It has earned interest income amounting to Rs.92,06,602 on Foreign Currency Deposit Account Permitted by FERA under Banking Regulations. The assessee was asked to explain why the said sum should not be assessed under the Head ‘Other Sources’ in Section 36 of the Income Tax Act, 1961 [Act, for short] This query was raised because, in its ITA No.418/PUN/2023 [A] 26 Return of Income, the assessee claimed exemption in respect of the said amount of Rs 92.06 402-under Section 10A of the Act. The assessee has lost throughout in the proceedings. 4. The impugned judgment of the High Court is based on the judgment of the Madras High Court in the case of CTT Menon Impex (P) Ltd (2003) 259 ITR 403/128 Tasman 11 wherein a similar question arose as to \"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest income derived by the assessee from funds in connection with Letter of Credit is income derived from the profits of business of the industrial undertaking so as to be entitled to get the benefit of Section 10A of the Income Tax Act, 19617 In that case, the Madras High Court examined in detail the transaction in question and found that the assessee had set up a new industrial undertaking in Kandla Free Trade zone for manufacturing light engineering goods. The goods therein were exported during the Assessment Year 1985-1996. In the course of business, the assessee was required to open a Letter of Credit. On such Deposit, the assessee earned interest. Under the said circumstances, the High Court held, following the judgment of this Court in the case of CIT Sterling Foods [1999] 237 ITR 579/ 104 Taxman 204, that the interest received by the assessee was on deposit made by it in the Banks, that such deposit was the source of income, and that, the mere fact that the deposit was made for ITA No.418/PUN/2023 [A] 27 obtaining Letter of Credit which Letter was, in turn, used for the purpose of business undertaking did not establish a direct nexus between the interest and industrial undertaking. Thus, the judgment of the Madras High Court in Menon Impex (P) Lad (supra) was based on the examination of the transaction in detail which exercise has not been undertaken in the present case For the above reasons, we set aside the impugned judgment and remit the cases to the Income Tax Appellate Tribunal [ITAT, for short) for deciding the matter afresh after examining the transaction in question, as done by the Madras High Court in the case of Menon Impex (P) Lid (supra).” 4.8 Thus, Hon’ble Supreme Court set-aside the issue to the ITAT for examination of the transaction in the light of decision of Hon’ble Madras High Court in the case of CIT Vs. Menon Impex (P.) Ltd., [2003] 259 ITR 403. It means, in principle, Hon’ble Supreme Court has upheld the proposition of law explained by Hon’ble Madras High Court in the case of CIT Vs. Menon Impex P Ltd (supra) that for the Interest source was Fixed deposit, hence it did not establish direct nexus between Interest and Industrial ITA No.418/PUN/2023 [A] 28 Undertaking, hence the Interest earned on fixed deposit was not eligible for exemption u/s 10A of the Act. Hon’ble Madras High Court has categorically held that there has to be a Direct Nexus between the Interest and Industrial undertaking. Section 10A and section 10AA of the Act, are identical, hence the decision of Hon’ble Supreme Court is applicable to the case of the assessee. 4.9 The Hon’ble Supreme Court has held in the case of The Peerless Gen.Fin And Investment Co. Ltd Vs. Commissioner Of Income Tax on 9 July, 2019 (AIRONLINE 2019 SC 511) : Quote, “We reiterate that though the Court’s focus was not directly on this, yet, a pronouncement by this Court, even if it cannot be strictly called the ratio decidendi of the judgment, would certainly be binding on the High Court. ”Unquote. 4.10 Therefore, the decision of Hon’ble Supreme Court in the case of India Comnet International Vs. ITO (supra) is a binding precedence for us. ITA No.418/PUN/2023 [A] 29 Our Analysis & Conclusion : 5. In the case of the Assessee, Springer Nature Technology and Publishing Solutions Pvt. Ltd admittedly the Interest has been earned from the Fixed Deposits kept with the RBL bank in India. Therefore, in the case of the Assessee, the source of the impugned Interest is Fixed Deposits kept with the bank. The Fixed Deposits kept with the Bank and the export activity of SEZ unit do not have any Direct Nexus. Therefore, respectively following the decision of Hon’ble Supreme Court in the case of India Comnet International Vs. ITO (supra) which in-turn has referred to the decision of Hon’ble Madras High Court in the case of Menon Impex P Ltd, it is held that the Interest Earned by the assessee from the Fixed deposits kept with the Bank is not eligible for exemption under section 10AA of the Act. Also, following the ITA No.418/PUN/2023 [A] 30 Stricter Interpretation as explained by Hon’ble Supreme Court in the case of Wipro Ltd (supra). 5.1 We also find support from the decisions of ITAT referred by Ld.DR, on identical issue where in ITAT held that Interest earned is not eligible for exemption under section 10A/10B of the Act. Regarding Case Laws relied by the Assessee : 6. In the paper book the assessee has relied on several case laws. We have already at length distinguished the decision in the case of CIT Vs. Hewlett Packard Global Soft Ltd (supra). Another decision relied by the Assessee is PCIT Vs. NTT Data Global Delivery Services Ltd., ITA 392/2022 Hon’ble Delhi High Court. We have carefully studied the said decision and it is noted that Hon’ble Delhi High Court has referred the decision of Hon’ble Karnataka High Court in the case of CIT vs Hewlett Packard Global Soft Ltd (supra). We have already distinguished the said ITA No.418/PUN/2023 [A] 31 decision. Also, we have noted that Revenue has failed to bring it to the notice of Hon’ble Delhi High Court the decision of Hon’ble Supreme Court in the case of India Comnet International (supra). Therefore, the decision of Hon’ble Delhi High Court is distinguishable. 6.1 Similarly, other case laws relied by the Assessee are distinguishable on facts and law, hence not applicable to the case of the assessee. 7. Accordingly, Ground Number 1, 2 and 3 raised by the assessee are dismissed. Ground No.4 : 8. Vide Ground No.4, Assessee submitted that there has been double disallowance of the interest. We direct the Assessing Officer to verify Assessee’s claim of double disallowance and ITA No.418/PUN/2023 [A] 32 allow the relief if found correct. Accordingly, Ground No.4 is allowed for statistical purpose. 9. Ground No.5 & 6 are general in nature, needs no adjudication. Hence, dismissed as unadjudicated. 10. To sum up, the appeal of the Assessee is Partly Allowed for Statistical Purpose. Order pronounced in the open Court on 10th February, 2025. Sd/- Sd/- (VINAY BHAMORE) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 10th Feb, 2025/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “बी” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. ITA No.418/PUN/2023 [A] 33 आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune. "