Income Tax Appellate Tribunal - Bangalore
Green Agro Pack Private Limited , ... vs Assessee on 10 March, 2010
Page 1 of 6 1 ITA No.675/Bang/2010
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, 6th Cross, 18th Main,
HAL 2nd 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
ORDER
PER GEORGE GEORGE K :
This appeal instituted by the assessee is directed against the order of learned CIT(A)-I, Bangalore dated 10/3/2010. The asst. year concerned is 2004-05.
2. The issue that is raised in the appeal is whether the interest income, staff loan, insurance receipt are to be taken as part of the business profits while computing deduction u/s 10B of the I T Act.
3. Briefly stated the facts are as follows:- Page 2 of 6 2 ITA No.675/Bang/2010
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 deduction u/s 10B of the Act, the assessee company had included the following 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 29th November, 2006. The AO recomputed the deduction u/s 10B of the Act. As against the deduction 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 reason that interest on fixed deposit of Rs.3,79,668/-, interest on staff loan and fines etc. of Rs.2,29,256/- and insurance claims of Rs.5,23,298/- were reduced from the eligible profits for the purpose of deduction u/s 10B of the Act. The relevant 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 3 ITA No.675/Bang/2010 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 assessee carried the matter in appeal before the first appellate authority.
5. It was contended before the first appellate authority that there is a direct nexus with the business of the assessee in earning the above said receipts and therefore, it forms part of eligible business profits for calculation of deduction u/s 10B of the Act. He also relied on the following decisions of the Hon'ble 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 stated 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 before us.
8. The learned AR submitted that in so far as the bank interest is concerned, it is clear from the assessment order that Page 4 of 6 4 ITA No.675/Bang/2010 the interest were derived from deposits which were made for short term period towards security against facilities availed from bank for the purpose of export. It was submitted that in identical circumstances in assessee's own case, the Hon'ble High Court of Karnataka has held that the assessee is eligible for deduction u/s 10B of the Act in respect of bank interest receipt. It was submitted that the Hon'ble High court has reversed the finding of the Tribunal. The judgement of the Hon'ble High Court in ITA No.3112/2005 dated 13th April, 2010 for the asst. year 1998-99 is placed on record.
8.1 In so far as the insurance receipt and interest on staff loan are concerned, the learned AR fairly submitted that the issues are covered against the assessee by the order of the Tribunal in assessee's own case concerning asst. year 2003-04 in ITA No.16/Bang/2007 dated 7th December, 2007.
9. The learned DR, on the other hand, supported the impugned order of the first appellate authority.
10. We have heard the rival submissions and perused 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 Hon'ble jurisdictional High Court in assessee's own case (ITA No.3112/2005 dated 13th April, 2010). In the said judgement, the Hon'ble High Court was considering the following question of law:- Page 5 of 6 5 ITA No.675/Bang/2010
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 Hon'ble High Court held that interest amount earned on the deposit has to be treated as business income and not as income from other sources. The relevant finding of the Hon'ble 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, certain 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 6 ITA No.675/Bang/2010
In this case, the nature of interest derived is enumerated in paragraph 4 of the assessment order. The facts being identical to that of the asst. year that was considered by the Hon'ble High Court, we hold that the assessee is eligible for deduction u/s 10B in respect of interest income earned.
10.1 In so far as the insurance receipt and interest on staff loan is concerned, the assessee's counsel has fairly conceded that the issue has been decided against the assessee by the order of the Tribunal in ITA No.16/Bang/2007 concerning asst. 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 respect 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 8th 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 CIT concerned.
4. The CIT(A) concerned. 5. DR 6. GF MSP/17/3. By order Asst. Registrar, ITAT, Bangalore.