2020 (6) TMI 638 - HC - Income Tax

Deduction u/s. 10A - Tribunal held that the interest earned on deposits kept as margin money is part of the profits derived from export and therefore eligible for deduction in terms of the provisions of Section 10A - HELD THAT - Parties jointly submitted that the first substantial question of law has been answered by a Full Bench of this Court in 'COMMISSIONER OF INCOME TAX Vs. HEWLETT PACKARD GLOBAL SOFT LTD. 2017 (11) TMI 205 - KARNATAKA HIGH COURT in the favour of assessee. Computing deduction u/s. 10A - losses of EC-1 EC-2 units cannot be set off against the profits of the EC-3 unit for the purpose of computing deduction - Whether the Tribunal committed an error in not taking into consideration the amendment to Section 10A of the Act by Finance Act 2000 w.e.f. 01.04.2001, the deduction of profits and gains earned by the undertaking from the export of the article or things or computer software is required to be allowed from the total income of the assessee and consequently the loss from any STP / non STP unit is required to be set off against the income of the other STP unit before allowing deduction u/s. 10A of the Act? - HELD THAT - The second and third substantial questions of law have been answered by the Supreme Court in 'COMMISSIONER OF INCOME-TAX Vs. YOKOGAWA INDIA LTD.' 2016 (12) TMI 881 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 10A of the Income Tax Act, 1961 regarding the eligibility of interest earned on deposits kept as margin money for deduction.
2. Determination of whether losses of specific units can be set off against the profits of another unit for computing deduction under Section 10A.
3. Consideration of the amendment to Section 10A by Finance Act 2000 and its impact on setting off losses against profits for deduction under the Act.

Issue 1:
The first substantial question of law in the appeal was whether the interest earned on deposits kept as margin money is part of the profits derived from export and thus eligible for deduction under Section 10A of the Income Tax Act. The parties jointly submitted that this question had been addressed by a Full Bench of the Court in a previous case, 'COMMISSIONER OF INCOME TAX Vs. HEWLETT PACKARD GLOBAL SOFT LTD.' The Court, following the precedent, ruled against the revenue and in favor of the assessee, resulting in the dismissal of the appeal.

Issue 2:
The second issue involved whether the losses of specific units (EC-1 & EC-2) could be set off against the profits of another unit (EC-3) for the purpose of computing deduction under Section 10A. The Supreme Court had already addressed this issue in 'COMMISSIONER OF INCOME-TAX Vs. YOKOGAWA INDIA LTD.' The Court, in line with the Supreme Court's decision, ruled against the revenue and in favor of the assessee, leading to the dismissal of the appeal.

Issue 3:
The third issue pertained to whether the Tribunal erred in not considering the amendment to Section 10A by Finance Act 2000, which required the deduction of profits and gains earned by the undertaking from exports to be allowed from the total income of the assessee. The amendment also mandated setting off losses from any STP/non-STP unit against the income of other STP units before allowing deduction under Section 10A. The Court, following the law as clarified by the Supreme Court, ruled against the revenue and in favor of the assessee, resulting in the dismissal of the appeal.

In conclusion, the High Court of Karnataka, in this judgment, addressed various issues related to the interpretation and application of Section 10A of the Income Tax Act, 1961. The Court relied on previous decisions and legal provisions to rule against the revenue and in favor of the assessee, leading to the dismissal of the appeal.