You are a unit set up in an SEZ enjoying tax holiday under Section 10A and 10AA of the Income Tax Act. The tax holiday is, obviously, to incentivise companies to set up units and bring about economic value addition. It is common sense that the profits that are eligible for the tax holiday must have arisen out of the core business of the unit, and not from sources such as interest income on money parked with banks. But it has required a judicial pronouncement to underscore this point.

In the case of Barclays Shared Services Pvt Ltd Vs Assistant Commissionder of Income Tax , the Income Tax Appellate Tribunal said that ‘income from other sources’ will not qualify for deduction under Section 10A and 10AA of the IT Act.

The sum in dispute was ₹1.20 crore, comprising other income, interest on short-term fixed deposits, gain on sale of fixed assets and sale of scrap.

The Tribunal as held that an item of income, in order to be covered under the qualifying amount, must have some nexus with the business of the undertaking, which need not necessarily be derived from it. “What we need to appreciate is that the amount of income which qualifies for deduction is the profits of the business of the undertaking and not any income earned by the assessee dehors (meaning ‘outside of’) the business of the undertaking.”

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