The Delhi bench of the Income Tax Appellate Tribunal (ITAT)has recently held that interest income derived from the business of manufacturing and export of rice is eligible for deduction under Section 10B of the Income Tax Act 1961.
Section 10B of the Income Tax Act is a special provision enacted for a hundred per cent export-oriented undertakings.
The aforesaid decision was made by the tribunal in the case of assessee Picric Limited, which is a company engaged in the business of manufacture and sale of rice. They are exporters of basmati rice as also non-basmati rice. The assessee after filing the return in the assessment year 2004-05.
Later the assessee’s case was picked up for scrutiny and completed assessment under Section 143(3) of the Income Tax Act. Thereafter, the AO disallowed interest income derived from the business.
The aggrieved assessee filed an appeal before CIT(A). Without considering the contentions of the assessee CIT(A) confirmed the order of the AO. Being dissatisfied by the order of the CIT(A) assessee filed an appeal before the tribunal.
Before the bench Neeraj Jain, counsel for the assessee submitted that all profits and gains of 100% EOU including incidental income by way of interest on bank deposits or staff loans would be entitled to 100% exemption or deduction under Section 10A or 10B of the Income Tax Act.
Moreover, the assessee contended that All incomes that arise essentially during the course of running of the eligible business would be eligible for deduction under Section 10B of the Income Tax Act.
H.K. Chaudhary counsel for the revenue relied upon the decision of the CIT vs. Sri Ram Honda Power Equipment submitted that “whether interest income is earned on surplus funds or the same is earned on fixed deposits for the purposes of availing credit facilities from the bank, it will not have an immediate nexus with the export business and in both the situations the same will be treated as ‘income from other sources’ and not business income”.
Accordingly, counsel submitted that interest income and other misc. incomes are assessable under the heading ‘income from other sources’.
It was observed by the tribunal that all income that arises essentially during the course of running of the eligible business would qualify for deduction under Section 10B of the Income Tax Act.
Therefore, the bench of G.S Pannu, (President) and Astha Chandra, (Judicial Member) determined that “Once an income forms part of the business of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction under Section 10B of the Income Tax Act.”
Hence, the bench allowed the appeal filed by the assessee.
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