2014 (6) TMI 1007 - HC - Income Tax

Deduction u/s 10A computation - up-linking charges deducted for computing export turnover u/s.10A - Held that - Substantial questions of law are answered in favour of the assessee as relyin on Commissioner of Income Tax and Another Vs. Tata Elxsi Ltd., & Others (2011 (8) TMI 782 - KARNATAKA HIGH COURT) wherein held charges both from the export turnover as well as from the total turnover for the purposes of computation of deduction u/s 10A of the Act. Section 10A deduction allowable to the assessee in respect of profit making unit -Whether the tribunal was correct in failing to appreciate the substituted Section 10A of the Act by Finance Act, 2000 w.e.f. 1.4.2001 that the deduction is to be allowed u/s.10A of the Act on the total income of the assessee without setting out the loss from non-profit making units? - Held that - As considered by this Court in the case of Commissioner of Income Tax and Another Vs. Yokogawa India Ltd., & Others reported in (2011 (8) TMI 845 - Karnataka High Court) and was answered in favour of the assessee and against the Revenue. Deduction u/s.10A allowable in respect of income computed on the arms length price - Section 92(C)(4) applicability - Held that - The error committed by the Assessing Officer was relying on Section 92(C)(4) to a case where Arm s Length Price was determined by the assessee, whereas the said provision applies to a case where Arm s Length Price was determined by the Assessing authority. That mistake has been corrected by the tribunal by setting aside the order passed by the Commissioner as well as the assessing authority. No error committed by the Tribunal in the impugned order. - Decided against revenue

Summary

Issues:
1. Whether up-linking charges deducted for computing export turnover under section 10A should also be reduced for computing total turnover when arriving at section 10A deduction?
2. Whether section 10A deduction is allowable to profit-making units only if they are independent and loss-making units cannot be set off for deduction?
3. Whether the deduction under section 10A should be allowed on the total income without setting out the loss from non-profit making units?
4. Whether deduction under section 10A is allowable in respect of income computed on the arms length price by ignoring the proviso to section 92(4) of the Act?

Analysis:
1. The High Court considered the first substantial question of law regarding the treatment of up-linking charges for computing export turnover under section 10A. The Court referred to a previous case and ruled in favor of the assessee, holding that the up-linking charges should also be reduced for computing total turnover when arriving at the section 10A deduction.

2. The Court addressed the second and third substantial questions of law together, stating that they do not arise for consideration as they were previously dealt with in another case where the ruling was in favor of the assessee. The Court directed that the assessing authority should pass consequential orders based on the pending appeals before the Apex Court.

3. Regarding the fourth substantial question of law concerning the deduction under section 10A in relation to income computed on the arms length price, the Court found that the Assessing Officer had made an error by applying a provision incorrectly. The tribunal corrected this error, leading the Court to rule in favor of the assessee against the Revenue.

4. Ultimately, the High Court dismissed the appeal, finding no error committed by the Tribunal in the impugned order. The Court upheld the decisions in favor of the assessee on all substantial questions of law, leading to the dismissal of the appeal by the Revenue.