2020 (12) TMI 687 - HC - Income Tax

Adhoc disallowance of 2.5% of dividend income as expenditure incurred on exempt income when the assessee had identified expenditure to be disallowed - HELD THAT - From perusal of substantial question of law No.1, we find that the aforesaid substantial question of law is no longer res integra and has already been answered in favour of the assessee by the Supreme Court in 'GODREJ BOYCE MANUFACTURING COMPANY LTD. VS. DY. COMMISSIONER OF INCOME-TAX AND ANR.', 2017 (5) TMI 403 - SUPREME COURT . In view of aforesaid enunciation of law, the first substantial question of law is answered in favour of the assessee and against the revenue. Losses of a 10A/10AA unit as already set-off against other business income of the appellant, should be again carried forward and set-off against eligible profits of the same unit in a subsequent year - HELD THAT - From perusal of para 17 of the judgment rendered by the Supreme Court in COMMISSIONER OF INCOME-TAX VS. YOKOGAWA INDIA LTD. , 2016 (12) TMI 881 - SUPREME COURT we find that the second substantial question of law is also no longer res integra and has been answered in favour of the assessee by the Supreme Court. Therefore, the second substantial question of law is also answered in favour of the assessee and against the revenue. Disallow the deferred compensation claimed by appellant as the claim does not fall within the parameters of sec.36(1)(iv) (v) r.w.s. 40A(9) - excluding the computer software sales made to STP/SEZ units in India from export turnover for the purpose of computing deduction under Section 10A/10AA of the Act? - excluding the VAT / GST from export turnover and total turnover for the purpose of computing deduction under Section 10A/10AA - HELD THAT - From perusal of judgment rendered by a bench of this court in 'WIPRO LTD. VS. DCIT' 2015 (10) TMI 826 - KARNATAKA HIGH COURT we find that the aforesaid substantial question of law is also no longer res integra and has been answered in favour of the assessee. Therefore, the third , fourth and fifth substantial question of law is also answered in favour of the assessee and against the revenue 80% of the uplinking charges excluded from the definition of turnover, when even the first responded had limited such exclusion to 5% of the telecommunication charges - HELD THAT - This court in 'COMMISSIONER OF INCOME TAX ANOTHER VS. TATA ELXSI LTD.' 2016 (3) TMI 460 - KARNATAKA HIGH COURT as well as para 21 of the Supreme Court in 'COMMISSINOER OF INCOME-TAX VS. HCL TECHNOLOGIES LTD.', 2018 (5) TMI 357 - SUPREME COURT we find that the sixth substantial question of law is also required to be answered in favour of the assessee and against the revenue.

Issues Involved:
1. Adhoc disallowance of dividend income as expenditure incurred on exempt income
2. Set-off of losses of a 10A/10AA unit against other business income
3. Disallowance of deferred compensation claimed by appellant
4. Exclusion of computer software sales from "export turnover"
5. Exclusion of VAT/GST from export turnover and total turnover
6. Exclusion of uplinking charges from turnover
7. Treatment of purchase and sales of monitors as trading activity for computing deduction under Section 80-IB

Analysis:

Issue 1:
The appellant challenged the adhoc disallowance of 2.5% of dividend income as expenditure incurred on exempt income. The tribunal's decision was based on the identification of expenditure to be disallowed. The appellant argued that the tribunal erred in disallowing the expenditure based on estimated time spent by functionaries. The High Court referred to a Supreme Court judgment in 'GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DY. COMMISSIONER OF INCOME-TAX' and ruled in favor of the assessee.

Issue 2:
Regarding the set-off of losses of a 10A/10AA unit against other business income, the tribunal held that brought forward losses of the 10A unit should be set off against profits before allowing the deduction. The appellant contended that losses of non STP units cannot be set off against profits of 10A/10B units. The High Court referred to a Supreme Court judgment and ruled in favor of the assessee.

Issue 3:
The tribunal disallowed the claim for deduction of deferred compensation and the appellant challenged this decision. The High Court analyzed the claim under Section 37(1) of the Act and ruled in favor of the revenue, upholding the tribunal's decision.

Issue 4:
The exclusion of computer software sales from "export turnover" for computing deduction under Section 10A/10AA was contested by the appellant. The High Court referred to relevant judgments and ruled in favor of the assessee.

Issue 5:
The exclusion of VAT/GST from export turnover and total turnover was challenged by the appellant. The High Court analyzed the provisions of Section 10A/10AA and ruled in favor of the revenue, upholding the tribunal's decision.

Issue 6:
Regarding the exclusion of uplinking charges from turnover, the appellant argued against the tribunal's decision. The High Court referred to relevant judgments and ruled in favor of the assessee.

Issue 7:
The treatment of purchase and sales of monitors as a trading activity for computing deduction under Section 80-IB was disputed by the appellant. The High Court analyzed the issue and ruled in favor of the assessee.

In conclusion, the High Court addressed various substantial questions of law raised by the appellant and the revenue, ruling in favor of both parties on different issues based on legal precedents and interpretations of relevant provisions of the Income Tax Act, 1961. The judgment provided detailed analysis and explanations for each issue raised, ensuring a comprehensive review of the matters in dispute.

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