INCOME TAX ACT, 1961

Section 10B

Deduction under section 10B - 100 per cent export-oriented undertakings - Interest income -

Assessee had outstanding borrowings by way of ECB's obtained in earlier years. After formulation of policy by Government, assessee could get approval of repayment only up to extent of 10 per cent of outstanding loan. It placed its excess funds with various sister concerns as inter-corporate deposits and submitted that interest derived from deposits in EEFC Account and interest income earned on inter-corporate deposits, have to be assessed under the head 'Income from business'. Interest income as derived from business of export of articles or things or computer software and eligible for exemption under section 10A for first relevant assessment year and for last relevant assessment year, due to change in provisions, it would be entitled for deduction as 100 per cent exporter. AO disallowed the exemption under amended section for the last year. Held: Interest received or consideration received from sale of import entitlement had no direct nexus with the profits and gains derived from the export of software and, therefore, assessee was not eligible for exemption. Assessee was an EOU, which had exported software and earned the income. A portion of that income is included in EEFC Account. Another portion of the amount was invested within the country by way of fixed deposits, and another portion of the amount was invested by way of loan to sister concern which is deriving interest or the consideration received from sale of import entitlement, which was permissible in law. Therefore, assessee was entitled to benefit of exemption of the said amount as contemplated under section 10B.

Followed:CIT v. Motorola India Electronics (P.) Ltd. (2014) 46 taxmann.com 167 (Karn) : (2014) 225 Taxman 11 (Mag.) (Kar.) : 2014 TaxPub(DT) 0705 (Karn-HC).

REFERRED :

FAVOUR : In assessee's favour

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