2018 (12) TMI 1806 - AT - Income Tax

Exemption u/s 10A - other income as eligible for exemption u/s 10A - HELD THAT - As decided in Hewlett Packard Global Soft Ltd. 2017 (11) TMI 205 - KARNATAKA HIGH COURT assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as 'Income from other Sources' under Section 56 of the Act. The incidental activity of parking of Surplus Funds with the Banks or advancing of staff loans by such special category of assessee covered under Section 10-A or 10-B of the Act is integral part of their export business activity and a business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be de-linked from its profits and gains derived by the Undertaking engaged in the export of Articles as envisaged under Section 10-A or Section 10-B of the Act and cannot be taxed separately under Section 56 of the Act. Treating export sale proceeds realized subsequently as part of current year export turnover by CIT-A - HELD THAT - The finding of the ld. CIT(A) is in accordance with law laid down by the jurisdictional High Court in the case of Wipro Ltd. vs. DCIT 2015 (10) TMI 826 - KARNATAKA HIGH COURT and nothing was brought to our notice that the judgment of the Hon ble High Court in the case of Wipro Ltd. (supra) was reversed by the Hon ble Supreme Court. Accordingly, we do not find any merit in the grounds of appeal filed by the revenue. This ground of appeal is dismissed. Not to set off loss of another eligible 10A unit against the profits of eligible 10A unit for the purpose of computing exemption u/s 10A - HELD THAT - The decision of the ld. CIT(A) is in accordance with decision of the Hon ble Supreme Court in the case of CIT vs. Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT held that from a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. Though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. Reduce telecommunication and insurance expenditure incurred in foreign currency for export of software from both export turnover as well as total turnover - HELD THAT - As decided in HCL TECHNOLOGIES LTD. 2018 (5) TMI 357 - SUPREME COURT when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well. Write back of advances given to customers constitute business income or not? - HELD THAT - This issue is covered in favour of the assessee-company by the decision of the Hon ble High Court of Karnataka in the case of Hewlett Packard Global Soft Ltd. 2017 (11) TMI 205 - KARNATAKA HIGH COURT . The grounds of appeal are allowed.

Issues Involved:

1. Eligibility of 'other income' for exemption under Section 10A.
2. Inclusion of export sale proceeds realized subsequently in the current year's export turnover.
3. Set-off of losses of one 10A unit against profits of another 10A unit.
4. Reduction of telecommunication and insurance expenditure from both export turnover and total turnover.

Detailed Analysis:

1. Eligibility of 'Other Income' for Exemption Under Section 10A:

The revenue challenged the finding of the CIT(A) that 'other income' is eligible for exemption under Section 10A. The CIT(A) based its decision on various rulings by the Karnataka High Court, including cases like Subex Ltd, Green Agro Pack Pvt. Ltd., and Wipro Ltd. The Tribunal upheld the CIT(A)'s decision, referencing the Full Bench decision of the Karnataka High Court in CIT vs. Hewlett Packard Global Soft Ltd., which determined that incidental income such as interest on bank deposits or staff loans constitutes part of the profits and gains of special undertakings like 100% Export Oriented Units (EOUs). Therefore, the Tribunal found no merit in the revenue's appeal on this ground and dismissed it.

2. Inclusion of Export Sale Proceeds Realized Subsequently in Current Year's Export Turnover:

The revenue also contested the CIT(A)'s inclusion of export sale proceeds realized after the prescribed time as part of the current year's export turnover. The CIT(A) relied on Section 155(11A) of the Act and the Karnataka High Court's decision in Wipro Ltd. vs. DCIT, which supports treating such proceeds as part of the current year's export turnover. The Tribunal upheld the CIT(A)'s decision, noting that the revenue did not provide evidence of the Supreme Court reversing the High Court's ruling. Thus, this ground of appeal was also dismissed.

3. Set-off of Losses of One 10A Unit Against Profits of Another 10A Unit:

The revenue argued against the CIT(A)'s decision not to set off the loss of one 10A unit against the profits of another 10A unit. The CIT(A) followed the ITAT's decision in the assessee's own case for the assessment year 2007-08 and the Supreme Court's ruling in CIT vs. Yokogawa India Ltd., which clarified that deductions under Section 10A are specific to the eligible undertaking and should be computed independently. The Tribunal agreed with the CIT(A)'s interpretation and dismissed the revenue's appeal on this ground.

4. Reduction of Telecommunication and Insurance Expenditure from Both Export Turnover and Total Turnover:

The revenue challenged the CIT(A)'s decision to reduce telecommunication and insurance expenditure incurred in foreign currency from both export turnover and total turnover. The CIT(A) based its decision on the Supreme Court's ruling in CIT vs. HCL Technologies Ltd., which held that such expenditures should be excluded from both export turnover and total turnover to avoid an illogical and unjust result. The Tribunal upheld the CIT(A)'s decision, finding it consistent with the Supreme Court's interpretation, and dismissed the revenue's appeal on this ground.

Separate Judgments Delivered:

The Tribunal delivered a common judgment for ITA Nos. 1516 & 1517/Bang/2017, dismissing the revenue's appeals for both assessment years 2010-11 and 2011-12. In the cross-appeal (ITA No. 1222/Bang/2017) filed by the assessee for the assessment year 2011-12, the Tribunal allowed the appeal, holding that advances written back to the profit and loss account constitute business income eligible for deduction under Section 10A, following the Karnataka High Court's decision in Hewlett Packard Global Soft Ltd.

Conclusion:

The appeals filed by the revenue were dismissed, and the cross-appeal filed by the assessee was allowed. The Tribunal's order was pronounced in the open court on 05th December 2018.

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