In ITA No. 4115/Del/07-ITAT- ITAT (Delhi) rules that all profits and gains of 100% Export Oriented Unit are eligible for 100% exemption under Section 10B of the Income Tax Act
Members G.S. Pannu (President) & Astha Chandra (Judicial) [06-04-2023]

Read Order: Picric Limited v. Income Tax Officer

Chahat Varma

New Delhi, May 9, 2023: Ruling in favour of Picric Limited (assessee), a company engaged in the business of manufacture and sale of rice, the Delhi bench of the Income Tax Appellate Tribunal has held that all profits and gains of a hundred percent Export Oriented Unit, including incidental income such as interest on bank deposits or staff loans, would be eligible for a hundred percent exemption or deduction under section 10B of the Income Tax Act.  

“No doubt, profits and gains can be said to have been derived from an activity only if the activity is the immediate and effective source of the profit and gain or the activity has direct nexus with the profits and gains. But the activity giving rise to profits and gains derived by an undertaking need not have such direct nexus. Mere incidental nexus with the export activity will bring the profits and gains arising from such an activity within the ambit of “derived by” an undertaking. That any income that arises during the course of running the eligible business would qualify for deduction under section 10B of the Income Tax Act,” observed the Tribunal.

Placing reliance on CIT vs. Hritnik Exports Pvt. Ltd [LQ/DelHC/2014/3646], the Tribunal further observed that once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits.

The Tribunal also examined the case of CIT vs. Sankhya Technologies (P) Ltd. [LQ/MadHC/2020/1516], wherein the Madras High Court has held that interest earned on bank deposits was eligible to be included in the profits of a hundred percent export-oriented unit for the purpose of claiming deduction under section 10B of the Income Tax Act.