Decided on July 26,1994



B.L. Chhibber, Accountant Member - (1.) THESE cross-appeals arise out of the order of CIT (Appeals). In the appeal filed by the assessee the only effective ground raised reads as under : The learned CIT (Appeals) erred in law and on facts in confirming the action of the Dy. CIT (Asst.) that no exemption under Section 10A is allowable in respect of interest income of Rs. 4,50,000.
(2.) The assessee-company established a new industrial undertaking in Kandla Free Trade Zone and manufactured pharmaceutical products which were exported to USSR. The assessee-company advanced surplus fund of Rs. 35 lakhs to its sister-concern M/s. Cadila Laboratories Pvt. Ltd. and earned interest to the tune of Rs. 4,50,000. The assessee claimed exemption under Section 10A in respect of this amount. The learned Assessing Officer held that since the interest income did not constitute "profits and gains of business or profession", the assessee was not entitled to exemption in respect of interest income under Section 10A. On appeal, the learned CIT (Appeals) confirmed the action of the Assessing Officer holding that the interest income cannot be treated as income derived from industrial undertaking of the assessee-company so as to be entitled to exemption under Section 10A of the Act; as Section 10A prescribed that "any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee". In support of his view, the learned CIT (Appeals) relied upon the decision of Kerala High Court in the case of CIT v. Cochin Refineries Ltd. [1982] 135 ITR 278, Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) and Ashok Motors Ltd. v. CIT [1961] 41 ITR 397 (Mad.).
(3.) SHRI Mukesh M. Patel, the learned counsel for the assessee submitted that the observations of the authorities below that interest income does not form part of the business income of the assessee and hence not eligible for exemption under Section 10A, is wholly irrelevant and unjustified. According to the learned counsel, there is a clear nexus of such profits and gains in the form of interest income inasmuch as the interest is linked with the industrial undertaking. In support of his contention, he relied upon the judgment of the Calcutta High Court in the case of CIT v. Tirupati Woollen Mills Ltd. [1992] 193 ITR 252.;

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