Tax Exemption Allowable for Interest Income Received on Temporary FD: ITAT [Read Order]

The Banglore Bench of the Income Tax Appellate Tribunal (ITAT) has held that Tax Exemption is allowable on interest income received on temporarily fixed deposits (FD).

Shri Prakash Shridhar Hegde appeared for the appellant and Shri Gudimella VP Pavan Kumar appeared for the respondent.

 Allstate India Private Limited, the assessee has entered into an Advance Pricing Agreement with the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Govt. of India on 27.7.2020 and the agreement covers the period of F.Y. 2016-17 to F.Y. 2020-21.  In pursuance of the Advance Pricing Agreement, the assessee has filed a modified Income Tax Return(ITR) under section  139 r.w.s. 92CD of the Income Tax Act,1961 declaring income of Rs.23,19,09,830/-. 

The assessee company is engaged in providing software development services including testing, infrastructure support and other related services.  The assessee company also provides information technology-enabled services to Allstate group companies. 

The assessee contended that the assessee is a 100% export unit and eligible for exemption as per Section 10AA of the Act on the profits derived from the export business activities as defined in Section 10AA of the Act. The fund was temporarily parked in the bank as a fixed deposit for a shorter period. The assessee has no business in India; therefore, the interest received on a fixed deposit should be treated as business income as defined in Section 10AA of the Act.

The two-member bench of George George K. (Judicial Member) and Laxmi Prasad Sahu (Accountant Member) has observed that ”interest income earned by the Company of parking surplus funds with the bank by a special category of the assessee i.e. SEZ unit covered under Section 10AA of the Act. was an integral part of export business activity and business decisions taken given the commercial expediency. Hence such interest income earned incidentally could not be de-linked from its profit and gains derived from the export profit of the unit and could not be taxed separately.”

To Read the full text of the Order CLICK HERE

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