In a significant ruling, the ITAT Mumbai bench held that Deduction under section 10AA of the Income Tax Act is available to Exporters for the reason that the term ‘services’ as used in section 10AA(9) of the Act read with the definition given under the SEZ Act, 2005 makes it clear that the provision is extended for such export services.
The bench further clarified that the interest from FDs kept with Banks by way of margin money in connection with the business of the assessee is “Business income” and is deductible under s. 10AA of the IT Act.
The assessee was engaged in trading and import/ export of polished diamonds, gold and gold jewellery, claimed deduction under section 10AA of the Income Tax Act.
The AO denied exemption to the assessee by finding that the assessee had neither manufactured or produced any goods or articles nor provided any “services”.
The assessee contended that the term ‘services’ as used in section 10AA(9) of the Act should be read as defined in the SEZ Act, 2005 which would override the provisions of section 10AA of the Act. It is further contended that ‘services’ as defined in Rule 76 of the SEZ Rules, 2006 and the Explanation thereto state that the expression ‘trading’ shall mean import for the purpose of re-export and therefore the assessee was entitled to be allowed deduction under section 10AA as claimed.
The first appellate authority accepted these contentions and held in favour of the assessee. Aggrieved with the order, the Revenue approached the ITAT.
The Tribunal, based on the decision in Geetanjali Exports Corporation Ltd, allowed the deduction to the assessee.
Another appeal was preferred by the assessee impugning the order of the lower authorities who held that the interest received by the assessee in respect of their Fixed Deposit in the bank was treated as “Income from other sources.” The assessee claimed that the same must be treated as business income since the same was deposited as guarantee for the purpose of opening a Letter of Credit with the bank for their business purpose. Since the deposit have nexus with the business, the same must be treated as “business income” and is liable to be deducted u/s 10AA.
Based on judicial decisions, the bench held that the FDs kept with Banks by way of margin money made for the purposes of the assessee’s business of import/ export trading in diamonds, constitutes business receipts/income and is therefore eligible for deduction under section 10AA of the Act.
Read the full text of the order below.
