2018 (2) TMI 306 - HC - Income Tax

Loss of eligible units deductiblity from the profits of the eligible units for the purpose of Section 10A deduction - Held that - The issue raised herein stands concluded against the Revenue and in favour of the Respondent-Assessee not only for the decision of this Court in the Assessee s own case in respect of the Appeal filed by the Revenue for assessment year 2006-07. It also now stands concluded by the decision of the Apex Court in Commissioner of Income Tax Vs. Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT . Grant receipt in the shape of allotment of land from the State Government - revenue or capital receipt - Held that - The grant of land to the Respondent is for setting up a unit with the object of creating employment for 3000 people. In this case, the purpose and object of grant of land admittedly is to generate income and employment for 3000 people. The Apex Court in Chaphalkar Brothers (2017 (12) TMI 816 - SUPREME COURT) approved the decision of the Jammu and Kashmir High Court in M/s. Shree Balaji Alloys Vs. Commissioner of Income Tax 2011 (1) TMI 394 - Jammu and Kashmir High Court as held that the incentives given was in the capital field. In fact, even in the earlier decision the Apex Court in Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT ) has applied the purpose test to determine the nature of subsidy i.e. in revenue or capital field. In the present facts, the impugned order relies upon the Apex Court decision to hold that the subsidy in the form of lands is in the capital field. - No substantial question of law. Appeal is admitted on the substantial questions of law as listed at Sr.Nos. 1, 3 and 4

Issues involved:
1. Treatment of foreign exchange losses as operating expenditure
2. Deduction of loss of eligible units for Section 10A deduction
3. Deduction of data line expenditure for Section 10A
4. Consideration of foreign exchange expenditure for Section 10A exemption
5. Classification of grant of land as capital or revenue

Analysis:

1. Treatment of foreign exchange losses as operating expenditure:
The first issue questions whether foreign exchange losses should be considered as operating expenditure when they did not significantly impact the company's operations. The Tribunal's decision on this matter is under challenge. The Appellant argues that the Tribunal erred in treating these losses as operating expenditure.

2. Deduction of loss of eligible units for Section 10A deduction:
The second issue involves the deduction of the loss of eligible units for the purpose of Section 10A deduction. The Appellant contends that the Tribunal's decision was incorrect. However, based on previous judgments, including one by the Apex Court, it is concluded that this issue does not give rise to a substantial question of law and is not entertained.

3. Deduction of data line expenditure for Section 10A:
The third issue questions whether data line expenditure should be deducted for Section 10A purposes. The Tribunal relied on a previous decision to hold that such expenditure is not required to be deducted. The Appellant contests this decision based on the definition of export turnover in Explanation 2 of Section 10A. This issue is part of the appeal and will be heard further.

4. Consideration of foreign exchange expenditure for Section 10A exemption:
The fourth issue pertains to whether foreign exchange expenditure should be taken into account for computing the exemption under Section 10A. The Tribunal's decision on this matter is challenged in the appeal and will be considered along with other substantial questions of law.

5. Classification of grant of land as capital or revenue:
The final issue revolves around the classification of the grant of land received by the Respondent. The Appellant argues that the grant should be considered revenue, while the Respondent asserts it is capital in nature. The Tribunal allowed the Respondent's appeal, emphasizing the purpose of the grant to generate income and employment. The Appellant relies on a recent Apex Court decision to argue that the grant should be considered revenue. However, based on various judgments and the purpose of the grant, it is concluded that this issue does not raise a substantial question of law and is not entertained.

In conclusion, the High Court of BOMBAY HIGH COURT has admitted the appeal on substantial questions of law related to foreign exchange losses, data line expenditure, and foreign exchange expenditure under Section 10A. The issue of the classification of the grant of land as capital or revenue will also be heard along with other appeals.

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