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2021 (3) TMI 1133 - HC - Income TaxComputation of deduction u/s 10A - Interest expenditure incurred by the assessee are excluded form export turnover should also be excluded form total turnover - Whether Tribunal was right in holding that the assessee is eligible for deduction under section 10A as the assessee had not set up a new business buy only transferred its place of business of an existing business to a new place located in STPI area? - Tribunal held that the brought forward business loss and unabsorbed depreciation are to be set off only after grant of deduction under section 10A - HELD THAT - Above questions of law are covered by the decision of this Court in M/S. SRA SYSTEMS LTD. 2021 (3) TMI 977 - MADRAS HIGH COURT - Decided in favour of the assessee
Issues:
1. Interpretation of interest expenditure exclusion from export turnover and total turnover. 2. Eligibility for deduction under section 10A for business transfer. 3. Set off of brought forward business loss and unabsorbed depreciation under section 10A. Issue 1: Interpretation of Interest Expenditure Exclusion The first substantial question of law in the case dealt with whether interest expenditure incurred by the assessee should be excluded from both export turnover and total turnover. The court referred to a Supreme Court decision and emphasized that deductions on expenses related to the delivery of computer software under Section 10A should be allowed from the total turnover as well to avoid illogical results. The court highlighted that excluding such expenses from total turnover would render the calculation formula unworkable and absurd. The judgment established that deductions should be allowed from total turnover in the same proportion. Issue 2: Eligibility for Deduction under Section 10A The second issue revolved around the eligibility of the assessee for deduction under section 10A due to the transfer of the business location. The court cited a Division Bench decision where it was held that shifting the business to a new location within an STPI area did not violate the conditions of setting up a new business under Section 10A(2). The court confirmed that the assessee was entitled to the deduction under Section 10A, and the disallowance made by the Assessing Officer was deemed incorrect. Issue 3: Set Off of Brought Forward Loss and Unabsorbed Depreciation The third issue involved the set off of brought forward business loss and unabsorbed depreciation after granting deduction under section 10A. The court referred to a Division Bench judgment which clarified that deductions under sections 10A or 10B should be made while computing the gross total income of the eligible undertaking under Chapter IV of the Income Tax Act. The court emphasized that such deductions should not be made at the stage of computing total income under Chapter VI of the Act. It was held that the method of computing income by the Revenue, which left the assessee with no income after set off of depreciation, was against the law as declared by the Supreme Court. The court concluded that the substantial question of law raised in the appeal was covered by the Supreme Court decision, and the appeal was dismissed in favor of the assessee. In conclusion, the High Court of Madras, in a detailed judgment delivered by Justice M. Duraiswamy and Justice T.V. Thamilselvi, addressed various substantial questions of law related to the interpretation of tax laws concerning interest expenditure exclusion, eligibility for deduction under section 10A, and the set off of brought forward losses and unabsorbed depreciation. The court relied on precedents and established legal principles to decide in favor of the assessee on all issues, ultimately dismissing the appeal filed by the Revenue.
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