2015 (1) TMI 110 - HC - Income Tax

Claim of deduction u/s 10A - Unit B to treated as separate and independent unit or not Held that - The intention of the Assessee was to claim Unit-B as a separate Unit - That is to enable it to extend the tax holiday of 10 years enjoyed by Unit-A and particularly when it was coming to an end in the AY 2005-06 - the nature of the business activities, location, lease agreement, layout plans and photographs of the premises Unit-B, which are all forming part of the order of the Commissioner and the remand report of the AO have been extensively referred to - The Tribunal concludes that all this material shows that Unit-B is a separate or an independent Unit - no contrary material was brought on record by the Departmental Representative or the Revenue before the Tribunal - The Tribunal has upheld the finding of fact of the Commissioner by concluding that merely because a new permission is obtained in relation to this Unit, containing reference to the original licence, that is not conclusive to demonstrate that the new Unit is a separate or independent Unit - The Software Technology Park is the broad identity of the area, but the Unit-B is held not to be expansion of the existing Unit-A, rather it is a separate or an independent Unit as such no substantial question of law arises for consideration Decided against revenue. Incomes by way of sales tax refund, liabilities required to be written back and profit on sale of assets are eligible incomes for computing deduction u/s 10A for Unit-A or not Held that - There is some substance in the contention of assessee that if the deduction shall be allowed from the total income of the Assessee in the manner set out by section 10A and the computation is also provided in that provision itself namely sub-section 4, then there is a complete Code which is evolved and formulated by the Legislature relying upon The Commissioner of Income Tax-10 Versus Black & Veatch Consulting Pvt. Ltd. 2012 (4) TMI 450 - BOMBAY HIGH COURT - Chapter VIA provides for deduction to be made in computing the total income and section 80HH deals with deduction in respect of profit and gains from the newly established undertaking or Hotel business in backward areas, then the attempt of the Revenue to telescope Chapter VIA in the context of the deduction, which is permissible under section 10A falling in Chapter III, cannot be countenance. Section 10A categorically clarifies that the profits derived from export of computer software, which is what is the activity shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such computer software bears to the total turnover of the business carried out by the Assessee - The Tribunal has, therefore, proceeded by relying upon the language of section 10A itself - once the expression derived from has been specifically defined in the same section, then the meaning of such expression as understood in common parlance will not be applicable - the view taken by the Tribunal and in upholding the conclusion of the Commissioner, is in consonance with the language of section 10A and also takes into consideration the relevant sub-section thereof namely sub-section 4 thereof, then it cannot be said that its conclusion or order is vitiated by any error of law apparent on the face of the record thus, no substantial question of law arises for consideration Decided against revenue.

Issues Involved:
1. Separate and independent status of Unit-B for claiming deduction under section 10A.
2. Eligibility of incomes like sales tax refund, liabilities no longer required, and profit on sale of assets for computing deduction under section 10A.
3. Computation of deduction under section 10A for Unit-A without deducting loss pertaining to Unit-B.
4. Exclusion of telecommunication charges and expenses incurred in foreign currency from the figures of "Export Turnover" and corresponding reduction in "Total turnover" for the purpose of computing deduction under section 10A.

Issue-Wise Detailed Analysis:

1. Separate and Independent Status of Unit-B:
The Tribunal upheld the assessee's claim for treating Unit-B as a separate and independent unit for the purpose of claiming deduction under section 10A of the IT Act. The Tribunal referred to extensive documentation, including the nature of business activities, location, lease agreement, layout plans, and photographs of the premises of Unit-B, which were part of the Commissioner's order and the remand report of the Assessing Officer. The Tribunal concluded that Unit-B is housed in different premises and is a separate or independent unit, not merely an expansion of Unit-A. This finding of fact does not raise any substantial question of law, as there was sufficient material on record to support this conclusion.

2. Eligibility of Certain Incomes for Computing Deduction under Section 10A:
The Tribunal held that incomes by way of sales tax refund, liabilities no longer required written back, and profit on sale of assets are eligible incomes for computing deduction under section 10A for Unit-A. The Tribunal noted that section 10A categorically clarifies that the profits derived from the export of computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such computer software bears to the total turnover of the business carried out by the assessee. The Tribunal found that the Assessing Officer's reliance on the judgment in CIT Vs. Sterling Food Ltd. was misplaced, as it pertained to section 80HH, which has different language and context compared to section 10A.

3. Computation of Deduction Without Deducting Loss Pertaining to Unit-B:
The Tribunal concluded that the Assessing Officer was not justified in rejecting the assessee's claim of computing deduction under section 10A for the profits of Unit-A without deducting the loss pertaining to Unit-B. The Tribunal referred to its judgment in Navin Bharat Industries v/s. DCIT and the decision of the High Court in Commissioner of Income Tax v/s. Black and Veatch Consulting Pvt. Ltd., which held that the deduction under section 10A has to be given at the stage of computing the profits and gains of business, which is anterior to the application of the provisions of section 72 dealing with the carry forward and set off of business losses. This approach was affirmed, and the Tribunal's order was upheld.

4. Exclusion of Telecommunication Charges and Expenses Incurred in Foreign Currency:
The Tribunal held that expenses for telecommunication charges and expenses incurred in foreign currency are liable to be excluded from the figures of "Export Turnover" as well as corresponding reduction in "Total turnover" for the purpose of computing deduction under section 10A. The Tribunal's decision was supported by the judgment of the High Court in CIT Vs. Gem Plus Jewellery India Ltd., which concluded the issue against the Revenue. Therefore, this question does not raise any substantial question of law.

Conclusion:
The High Court dismissed the appeal, concluding that none of the issues raised substantial questions of law. The Tribunal's findings were based on sufficient material and were in consonance with the language and provisions of section 10A, as well as relevant judicial precedents. The appeal was dismissed with no order as to costs.

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