By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
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13 114 ITD 387 (Bang.) (2008)
ACIT v. Motorola India Electronics (P.) Ltd.
A.Ys. : 1997-98, 1998-99, 2001-02. Dated : 28-11-2006
Whether in view of the fact that the assessee had advanced
certain amounts to its sister concerns from the monies available to it, because
it had been prevented by Government regulations from prepaying its External
Commercial Borrowings, interest income on the same could be considered to have
close nexus with the business of the assessee, and would be assessable under the
head ‘business income’ — Yes. Post-amendment to S. 10B, as entire profits
derived from business of an undertaking are to be considered for calculation of
eligible deduction, whether the assessee would be entitled to deduction of such
interest income, and expenses incurred in relation to such income were allowable
— Yes.
Facts :
The assessee-company earned certain interest income from
deposits lying in the EEFC account and from advancing of intercorporate loans
out of the funds of the undertaking. The assessee had certain External
Commercial Borrowings (ECB’s) obtained in the earlier years, which could be
repaid only in accordance with the repayment schedule, and thus it could repay
only a small portion of its outstanding loans, even though it had the liquidity
to pay more. The assessee took a business decision to place these funds with
various sister concerns as inter- corporate deposits. The assessee claimed that
both these types of interest income were a part of ‘income from business’.
Further, from A.Y. 2001-02, S. 10B has been substituted and
as per the new provisions, the interest income so derived would be entitled to
deduction u/s.10B.
According to the AO, only those profits derived from an
eligible undertaking from export of article or thing were entitled for deduction
for A.Y. 2001-02. On appeal, the CIT(A) upheld the order of the AO. On second
appeal, the Tribunal held that :
1. The interest income arose on deposits in the EEFC
account from export profits. The Government had stipulated the maximum amount
that could be held as deposits in the EEFC account, and as per the relevant
regulations, the assessee had also been prevented from pre-paying the External
Commercial Borrowings. Therefore, the assessee advanced the monies to its
sister concerns. The interest income on the same could be considered as having
close nexus with the business activity of the assessee and was assessable
under ‘business income’.
2. For the A.Ys 1997-98 and 1998-99, the assessee was not
eligible for grant of relief on interest income while computing deduction
u/s.10A and 10B. From A.Y 2001-02, S. 10B was substituted. Earlier, it was an
exemption Section, and income from these undertakings did not form part of
total income. However from that particular year, even though the Section
appears in Chapter 3, a deduction from business income from the undertaking is
to be granted by applying the substituted provision. For the A.Y in
discussion, the AO was directed to recompute the deduction u/s.10A and
u/s.10B, such that entire profits derived from the business of the undertaking
would be taken into consideration.
3. Regarding the allowability of expenditure relatable to
the interest income, as it had already been held that interest income was
assessable as business income, all related expenditures had to be allowed in
computing the interest income.
Cases referred to :
(i) CIT v. Tirupati Woollen Mills Ltd., (1992) 193
ITR 252 (Cal.)
(ii) CIT v. Tamil Nadu Dairy Development Corporation
Ltd., (1995) 216 ITR 535 (Mad.)
(iii) Synopsys India (P.) Ltd v. ITO, Appeal No.
1100 (Bangalore) of 2003
(iv) K. S. Subbiah Pillai & Co., (India) (P.) Ltd v.
CIT, (2003) 260 ITR 304 (Mad.) distinguished.
