Income from Design Charges are business income to compute deduction u/s 10A of Income Tax Act: ITAT [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ), held that Income from Design Charges are business income to compute deduction under Section 10A of the Income Tax Act, 1961.

The Appellant,Uni-Design Jewellery Pvt Ltd is a company engaged in the business of manufacturing and export of diamond jewellery from its two units and filed return of income for the Assessment Year. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant had claimed deduction under Section 10A of the Income Tax Act in respect of Unit-II.

The Appellant was asked to explain why the other income amounting to INR 17 lakhs (including Designing Charges) should not be excluded for the purpose of computing deduction under Section 10A of the Income Tax Act. In response, the Appellant filed reply contending, inter alia, that Design Charges were in the nature of business income.

For the purpose of Section 10A of the Income Tax Act the quantum of deduction is required to be computed taking into account the profits of the business. The Design Charges which are nothing but recovery of cost incurred for manufacture of jewellery exported out of India, and therefore, the same are to be treated as business income of the undertaking for computing deduction under Section 10A of the Act.

However, the Assessing Officer treated Design Charges as „Income from Other Sources‟ and excluded the same while computing deduction under Section 10A of the Income Tax Act at the time of framing assessment under Section 143(3) of the Income Tax Act.

The CIT(A) dismissed the ground raised by the Appellant in this regard holding that the Appellant had failed to show that Design Charges were related to the export of jewellery.

The Counsel for the assessee submitted that the income by way of Design Charges recovered from the client is nothing but recovery of cost incurred by the Appellant. The Design Charges from the integral part of the business of the Appellant which must be treated as business income of the Appellant andshould be included in business income for the purpose of computing deduction under Section 10A of the Income Tax Act.

A Coram consisting of Prashant Maharshi, Accountant Member and Rahul Chaudhary, Judicial Member observed that “We hold that the Appellant has been able to establish that income by way of Design Charges are in the nature of business income as the same are in herently connected with the business of export of jewellery undertaken by Unit-II of the Appellant, and therefore, the same must be included in business income for the purpose of computing deduction under Section 10A of the Income Tax Act.”

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates