Justice Syed Shah Mohammed Quadri - The applicant is a non-resident individual. He proposes to set up a Jewellery Unit in Special Economic Zone (SEZ) in Noida, UP. He says that, for purposes of his business, he has to import precious metal to India for which he is required to submit Import Performance Guarantee/Financial Security/Letter of Credit. In that connection he has to mortgage/pledge 100% security to bank in the form of FDRs. It is stated that interest accrued on the FDRs and interest charged by bank on financial securities like Letter of Credit (LC) and other incidental expenses of bank are compulsions of such business without which the business cannot be run in international competitive market. His contention is that interest accrued to him on the FDRs is his "business income" derived from the business of export by his SEZ unit. On these facts, this application under section 245Q(1) of the Income-tax Act, 1961 (for short the ‘Act’) is filed by him through Shri Om Prakash Tiwary, Chartered Accountant, seeking advance ruling of the authority on the following questions:—

(i)It is appropriate to treat whether the above-said interest as an income derived from export business of SEZ unit under section 10A.

(ii)Whether it is correct to set-off the above-said interest on security/FDRs etc. with expenses incurred on such security/FDRs.

Question (B) is numbered as question No. (iii) and it is the following terms:

(iii)How this income and expenses shall to be treated for assessment purpose.

2. The Commissioner of Income-tax, Ghaziabad offered the following comments :

"The income derived from business and profession is defined under section 14D of the Act whereas interest from FDRs and other bank deposits fall under section 14F of the Act. They fall under different heads and they cannot be inter-mixed. The interest accrued on FDRs cannot be treated as business income as it has no direct relation with the export business which the applicant intends to carry on. The interest income is assessable under the head ‘income from other sources’ and not under the head ‘income from business or profession’."

3. On 15-9-2004, the application was allowed under sub-section (2) of section 245R of the Act for pronouncement of ruling under sub-section (4) thereof and the case was listed for pre-pronouncement hearing on 6-10-2004. Neither the applicant nor his authorized representative (Mr. Om Prakash Tiwary, C.A.) appeared on that date. The case was adjourned from time to time to enable the applicant to represent his case but the applicant and his authorized representative remained absent.

4. As none appeared for the applicant even today I am proceeding to decide the application after perusing Annexure-II of the application, which contains applicant’s interpretation of law and facts in respect of the said questions. The applicant’s plea is that the interest on FDRs is "business income" as it has connection with his SEZ business. He relies on section 56(2)(id) to assert that the interest would not fall under the head "Income from other sources". He compared the provisions of section 10A and section 80HHC to support his plea that under section 10A the interest would form part of his business income. He relied upon the judgment of the Income-tax Appellate Tribunal in Shiva Shankar Granites (P.) Ltd. v. ITO [2002] 81 ITD 106 (Hyd.) in support of his plea.

5. Shri S. Rahman, Addl. CIT, Noida, who appeared for the Commissioner, argued that the interest which accrued on the FDRs could not be treated as business income and section 10A of the Act would not apply to such income. He also submitted that the expenditure, if any, incurred on securities/FDRs cannot be set off against the interest income accruing on the FDRs.

6. From the contentions, noted above, the point that arises for consideration is whether the interest income which accrued to the applicant on the FDRs/securities, would fall under the head "profits and gains of business or profession".

7. For