2019 (4) TMI 1439 - HC - Income Tax

Claim under section 10A on units on which deduction u/s 80HHE as claimed - double deduction - method of computation of deduction u/s 10A - HELD THAT - What subsection (5) of section 80 HHE thus prohibits is the claim of deduction allowed u/s 80HHE under any other provision, be it in the same assessment year or in other assessment year. In the present case, it is not even the ground of the revenue that the deduction u/s 10A claimed by the assessee in the present year is in relation to profit for which the assessee was granted deduction under section 80HHE. Sub-section 5 of section 80 HHE, therefore, in the present case would have no applicability. In our view by a division bench judgement of Delhi High Court in the case of Commissioner Income Tax Vs. Damco Solutions Pvt. Ltd. . 2010 (10) TMI 592 - DELHI HIGH COURT . The assessee had admittedly started manufacturing computer software for export prior to 1st April 2001, when section 10A was substituted by the Finance Act of 2000. It was under this amendment that the profit and gains derived by an undertaking from export of computer software came to be covered for deduction u/s 10A. The revenue contends that this benefit would not be available to an industry which was already existing and engaged in such activity. The interpretation of the revenue would render the first proviso to subsection (1) of section 10A wholly redundant This proviso would apply to an industry which was already in existence, engaged in manufacturing and export of computer software when the said amendment was made in section 10A. However, such an industry would be eligible to claim that deduction in relation to profit and gain arising out of such activity only for remainder of the period of 10 assessment years, which could be claimed for consequent assessment years alone. Computation of benefit of section 10A - HELD THAT - Issue is squarely covered by the judgement of Supreme Court in the case of Commissioner of Income Tax Vs. HCL Technologies, . 2018 (5) TMI 357 - SUPREME COURT in which the Court held that the total turnover for the purpose of section 10 of the Act cannot be understood as defined for the purpose of section 80 HHE. It was further held that thus the expenses which are to be excluded from the export turnover, would also have to be excluded for the purpose of computing total turnover.

Summary

Issues:
1. Claim under section 10A of the Income Tax Act on units claiming deduction under section 80HHE and computation method.
2. Whether the benefit of section 10A is available to existing industries engaged in manufacturing computer software for export prior to 1st April 2001.
3. Computation of deduction under section 10A regarding exclusion of freight and insurance expenditure from export turnover for computing total turnover.

Analysis:
1. The main issue in this case was the claim under section 10A of the Income Tax Act on units that were also claiming deduction under section 80HHE, and the method of computation of such deduction. The appellant revenue challenged the ITAT's decision upholding the CIT (A)'s order allowing the claim under section 10A. The revenue contended that the assessee could not claim deduction under section 10A due to section 80HHE restrictions and that the benefit of section 10A was not available to existing industries. However, the court found that the provisions of section 80HHE did not prohibit the assessee from claiming deduction under section 10A and that the benefit of section 10A was not limited to new industries post 1/4/2001.

2. The court analyzed the provisions of section 10A and the first proviso to subsection (1) of section 10A. The proviso stated that if the profits and gains of an undertaking had not been included before the amendment by the Finance Act of 2000, the undertaking would be entitled to deduction for the unexpired period of ten consecutive assessment years. This provision ensured that existing industries engaged in manufacturing and export of computer software could claim the deduction under section 10A for the remaining period of ten assessment years post the amendment.

3. The court also addressed the computation issue raised by the revenue regarding the exclusion of freight and insurance expenditure from the export turnover for computing the total turnover under section 10A. Referring to the Supreme Court judgment in Commissioner of Income Tax Vs. HCL Technologies, the court held that the total turnover for section 10A cannot be equated with that for section 80HHE. It was established that expenses excluded from export turnover must also be excluded from the computation of total turnover for section 10A. Consequently, the court dismissed the appeal, stating that no question of law arose in the case.