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2021 (10) TMI 1379 - HC - Income TaxDeduction u/s 35D - share premium collected on the issue of Share Capital - whether to be treated as part of the Capital Employed for allowing deduction? - HELD THAT - The points raised herein are squarely covered by the judgment of Berger Paints India Ltd., 2017 (3) TMI 1531 - SUPREME COURT Hence, this substantial question of law is answered against the assessee and in favour of the Revenue. Cost of acquisition of companies be treated as asset for allowing deduction u/s 35D - HELD THAT - This issue is squarely covered by the decision of this Court in the assessee s own case in 2021 (10) TMI 1209 - KARNATAKA HIGH COURT wherein as held that going by meaning assigned to the word extension , quite apart from the horizontal expansion in the industrial undertaking, vertical expansion also stands included within the meaning of the term extension of the industrial undertaking - as further stated that the assessee has incurred expenditure for the purpose of acquisition of Subex Americas Inc., and Subex UK Limited and the same was incurred for the purpose of expansion of the business. There being vast difference between expansion and extension , the arguments of the learned counsel for the assessee, placing reliance on the consolidation procedures as per the Accounting Standard AS-21 , cannot be countenanced this substantial question of law is answered against the assessee and in favour of the Revenue. Deduction u/s 35D be disturbed in the subsequent years - HELD THAT - Section 35D has been disturbed in the subsequent years in a manner known to law. Hence, this question is answered in favour of the Revenue and against the assessee. Deduction u/s 10AA - telecommunication expense re to be excluded from export turnover in computing deduction - HELD THAT - This question is covered by the ruling of Coordinate Bench of this Court in the case of M/s. Mindtree Ltd. 2020 (8) TMI 767 - KARNATAKA HIGH COURT held that assessee has incurred expenditure in foreign currency from export turnover for software development. Similarly, the telecommunication charges attributable to delivery of computer software outside India could not have been excluded from the export turnover in view of Explanation 1(i) to Section 10AA of the Act. It is also noteworthy that Explanation 2 to Section 10AA provides that profits and gains derived from; on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. - Decided in favour of assessee.
Issues:
1. Whether share premium collected on the issue of Share Capital can be considered as part of 'Capital Employed' for deduction under Section 35D of the IT Act? 2. Whether the cost of acquisition of companies can be treated as an asset for deduction under Section 35D of the IT Act? 3. Whether the deduction under Section 35D can be disturbed in subsequent years? 4. Whether telecommunication expenses should be excluded from export turnover in computing deduction under Section 10AA? Analysis: Issue 1: The Court referred to the judgment of the Hon'ble Apex Court in Berger Paints India Ltd. v. Commissioner of Income-tax, Delhi-V, [(2017) 79 taxmann.com 450 (SC)], stating that the share premium collected on the issue of Share Capital cannot be considered as part of 'Capital Employed' for the purpose of claiming deduction under Section 35D of the IT Act. The substantial question of law No.1 was answered against the assessee and in favor of the Revenue. Issue 2: Regarding the cost of acquisition of companies, the Court relied on the decision in the assessee's own case in ITA No.378/2015. The Court cited the case of Commissioner of Income-tax v. Ashok Leyland Ltd., [(2012) 349 ITR 663], emphasizing that expenditure related to the acquisition of companies cannot be treated as an asset for deduction under Section 35D of the IT Act. The substantial question of law No.2 was answered against the assessee and in favor of the Revenue. Issue 3: The Court noted that Section 35D had been disturbed in subsequent years in accordance with the law. Therefore, the question of whether the deduction under Section 35D can be disturbed in subsequent years was answered in favor of the Revenue and against the assessee. Issue 4: In addressing whether telecommunication expenses should be excluded from export turnover for computing deduction under Section 10AA, the Court referred to the ruling in the case of M/s. Mindtree Ltd. v. The Asst. Commissioner of Income Tax [ITA No.89/2013, D.D. 25.08.2020]. The Court held that telecommunication charges attributable to the delivery of computer software outside India should not be excluded from the export turnover. The substantial question of law No.4 was answered in favor of the assessee and against the Revenue. In conclusion, substantial questions of law 1 to 3 were answered against the assessee and in favor of the Revenue, while substantial question of law 4 was answered in favor of the assessee and against the Revenue. Consequently, the appeal was dismissed based on the above analysis and findings.
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