INCOME TAX ACT, 1961

Section 10A

Deduction under section 10A - Allowability - Interest earned on bank guarantee and fixed deposit -

Assessee claimed deduction under section 10A as regards interest earned on bank guarantee and fixed deposit. Being of the view that interest income being assessable under the head 'Income from other sources', AO disallowed deduction claimed under section 10A on the interest income. Held: Undisputedly, assessee earned interest income from the deposit made towards bank guarantee and temporary parking of surplus funds. Assessee had no other activity of earning income, except export of ITES through its 10A unit. Thus, it could be safely concluded that deposits on which assessee had earned interest income were on account of its business activity. There could not be any doubt that deposits made towards bank guarantee, were purely in connection with its business activity. As far as the interest on fixed deposit was concerned, it is an accepted factual position that surplus fund were available with assessee and not immediately required for business was temporarily invested in fixed deposit. Thus, this activity of parking surplus funds in the fixed deposit has to be construed to be in the course of its regular business activity. Accordingly, assessee was eligible to claim deduction under section 10A in respect of the interest income.

Relied:CIT v. Hewlett Packard Global Soft Ltd. (2017) 403 ITR 453 (Karn-HC) (FB) : 2017 TaxPub(DT) 4700 (Karn-HC) and Cybertech Systems & Software v. Dy. CIT (2018) 91 Taxmann.com 407 (Bom-HC) : 2018 TaxPub(DT) 1231 (Bom-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

Section 10A

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