2014 (1) TMI 1882 - HC - Income Tax

Deduction u/s 10A - Interest earned on margin money and bank guarantee deposits - whether can be treated as profits and against as are derived by the assessee from the export of computer software within the meaning of Section 10A? - HELD THAT - As decided in M/S. Motorola India Electronics Private Limited 2013 (12) TMI 1702 - KARNATAKA HIGH COURT profits of the business of the undertaking includes the profits and gains from export of the articles as well as all other incidental incomes derived from the business of the undertaking - what is exempted is not merely the profits and gains from the export of articles but also the income from the business of the undertaking - thus, the Tribunal was justified in extending the benefit to the amounts also there was no merit in these appeals Decided against Revenue.

Summary

Issues involved:
1. Interpretation of Section 10A of the Income Tax Act regarding export proceeds realization.
2. Treatment of interest earned on margin money and bank guarantee deposits as profits derived from export of computer software.

Detailed Analysis:

Issue 1: The first issue in this case pertains to the interpretation of Section 10A of the Income Tax Act regarding the realization of export proceeds in convertible foreign exchange within the stipulated time. The Tribunal relied on the third proviso to sub-Section (1) of Section 10A, which raised the question of whether it was justified when the conditions of sub-Section (3) of Section 10A were not satisfied due to non-realization of export proceeds in convertible foreign exchange within the specified time. The appellant's grievance was considered redressed even before the appeal was decided, rendering it infructuous. The Tribunal's order dated 27-02-2007 was deemed ineffective concerning the substantial questions of law raised by the appellant. The Court did not delve into the merits of the case due to the agreement between the counsels for both parties.

Issue 2: The second issue revolves around whether interest earned by the assessee on margin money and bank guarantee deposits can be treated as profits derived from the export of computer software within the purview of Section 10A. The revenue raised this question for consideration, questioning the Tribunal's decision on this matter. The respondent's counsel pointed out that this question was already addressed in a judgment by the Division Bench of the court in a previous case involving Commissioner of Income Tax and others v/s M/S. Motorola India Electronics Private Limited. The revenue did not contest the respondent's submissions on this issue. Consequently, the third substantial question of law was answered in favor of the assessee based on the precedent set by the earlier judgment, leading to the disposal of the appeal.

In conclusion, the judgment by the Karnataka High Court addressed the issues regarding the interpretation of Section 10A of the Income Tax Act and the treatment of interest earned on margin money and bank guarantee deposits in the context of profits derived from the export of computer software. The decision was based on legal precedents and agreements between the counsels, ultimately resulting in the disposal of the appeal in favor of the assessee.