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TMI Blog2015 (1) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... tware 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that loss of Unit-B should be set off against profit of Unit-A, before claiming deduction under section 10A of the Act. 4. The Assessing officer also held that while working out eligible profit under section 10A, the Assessee ought to have reduced income like interest, profit on sale of assets, sales tax return/refund, liabilities no longer required and written back so also the office expenses for telecommunication charges and expenses incurred in foreign currency as well are liable to be excluded from the figures of export turnover. Proceeding, thus, he passed an Assessment Order on 28 December 2007. 5. Aggrieved by this order that Appeal was filed by the Assessee before the Commissioner of Income Tax (Appeals). The Commissioner allowed the Appeal on one point/question namely Unit-B is a new and separate undertaking and in that regard he reversed the finding and conclusion of the Assessing officer. However, he maintained the order of the Assessing Officer in setting off the loss of Unit-B against the profit of Unit-A before claiming deduction under section 10A. The second question was whether the Assessing Officer was right in reducing from the eligible profit u/s 10A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior Counsel appearing on behalf of the Assessee would submit that the finding of fact is that Unit-B is not an expansion but a new Unit. A report was submitted by the Assessing Officer and which has been relied upon by the Commissioner. That was based on physical inspection of the business and the premises, therefore a pure finding of fact is rendered in relation to Unit-B, its location and its existence. 8. With regard to other questions, Mr.Kaka would submit that section 10A is a provision which enables the Revenue to give certain benefits and with a view to establish undertakings in free trade zone. He relies upon sub-section 1 and sub-section 4 of this provision to submit that the difference in the language of this provision and section 80HH has been noted by both the Commissioner and the Tribunal. There is no dispute that proceeds and gain are derived by the Assessee-undertaking from export and for a period of 10 consecutive assessment years. If it has exported computer software, then, the provisions enable the Assessee to claim a deduction in terms of sub-section 1 and its computation has been also indicated in sub-section 4 of the very provision. So long as on facts, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 assessment year 2005-06. The Assessee supported the finding of the Commissioner. In para 9, the Tribunal extensively refers to the documents placed on record. 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 Assessing Officer have been extensively referred to. The Tribunal concludes that all this material shows that Unit-B is a separate or an independent Unit. That it is housed in different premises. No contrary material was brought on record by the Departmental Representative or the Revenue before the Tribunal. The Tribunal has also affirmed a 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, we need not make any further or independent observation. Following this judgment and accepting above concessions of Mr.Tejveer Singh, we hold that this Appeal does not raise any substantial question of law in relation to questions 4C 4D. 14. Remaining question is question 4B. In relation to that question what the Tribunal has observed is that the manner of computing deduction under section 10A of the Act, according to the Revenue, enables it to compute the deduction and in the manner that while working out eligible profits under section 10A, the Assessee was required to exclude a sum of ₹ 21,13,822/- being the sales tax refund, a sum of ₹ 12,79,558/- being the liabilities no longer required and written back and ₹ 74,104/- being the profit on sale of assets. The Commissioner negated this stand of the Revenue and reversed the order of the Assessing Officer. However, the Departmental Representative's argument before the Tribunal is that aforementioned amounts or incomes do not meet the test of having been derived by an undertaking from the export of articles as contained in section 10A of the Act. 15. The Assessee relied upon the Tribunal's o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for the assessment year beginning on the 1st day of April, [2012] and subsequent years.[(1A) Notwithstanding anything contained in subsection (1), the deduction, in computing the total income of an undertaking, which begins to manufacture or produce articles or things or computer software during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2003, in any special economic zone, shall be,- (i) hundred per cent of profits and gains derived from the export of such articles or things or computer software for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, and thereafter, fifty per cent of such profits and gains for further two consecutive assessment years, and thereafter; (ii) for the next three consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r after the 1st day of April, 1981, in any free trade zone; or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park; (c) commencing on or after the 1st day of April, 2001 in any special economic zone; (ii) it is not formed by the splitting up or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanation 1 and Explanation 2 to subsection (2) of section 80-I shall apply for the purposes of clause (iii) of this subsection as they apply for the purposes of clause (ii) of that subsection. (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly subsection (2) of section 32, clause (ii) of subsection (3) of section 32A, clause (ii) of subsection (2) of section 33, subsection (4) of section 35 or the second proviso to clause (ix) of subsection (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction; (ii) no loss referred to in subsection (1) of section 72 or subsection (1) or subsection (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years [ending before the 1st day of April, 2001]; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80I or section 80IA or section 80IB in relation to the profits and gains of the undertaking; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... convertible foreign exchange means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of [the Foreign Exchange Management Act, 1999 (42 of 1999)], and any rules made thereunder or any other corresponding law for the time being in force; (iii) electronic hardware technology park means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce and Industry; (iv) export turnover means the consideration in respect of export [by the undertaking] of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with subsection (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India; (v) free trade zone means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area;(iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. Explanation.-Where any machinery or plant or any part thereof previously used for any purpose in any backward area is transferred to a new business in that area or in any other backward area and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (iii) of this subsection, the condition specified therein shall be deemed to have been fulfilled. (3) This section applies to the business of any hotel, where all the following conditions are fulfilled, namely :- (i) the business of the hotel has started or starts functioning after the 31st day of December, 1970 [but before the 1st day of April, 1990], in any backward area; (ii) the business of the hotel is not formed by the splitting up, or the reconstru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in the opinion of the [Assessing] Officer, the computation of the profits and gains of the industrial undertaking or the business of the hotel in the manner hereinbefore specified presents exceptional difficulties, the Assessing] Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-In this subsection, market value in relation to any goods means the price that such goods would ordinarily fetch on sale in the open market. (7) Where it appears to the [Assessing] Officer that, owing to the close connection between the assessee carrying on the business of the industrial undertaking or the hotel to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in the business of the industrial undertaking or the hotel, the [Assessing] Officer shall, in computing the profits and gains of the industrial undertaking or the hotel for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n itself namely sub-section 4, then there is a complete Code which is evolved and formulated by the Legislature. 20. In relation to this, we also find support in the judgment of this Court in the case of Black and Veatch Consulting Pvt.Ltd. This Court has observed and held as under: Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasised in a judgment of a Division Bench of this Court, while construing the provisions of Section 10B, in Hindustan Unilever Ltd Vs. Deputy Commissioner of Income Tax [2010] 325 ITR 102 (Bom) at paragraph 24. The submission of the Revenue placed its reliance on the literal reading of Section 10A under which a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years is to be allowed from the total income of the assessee. The deduction under Section 10A, in our view, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of Section 72 which deals with the carry forward and set off of business loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A categorically clarifies that the profits derived from export of computer software, which is what is the activity referred to in the present case, 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. This is the deduction and computation of that deduction is to be found in section 10A itself. That is how the Commissioner proceeds and concludes so as to reverse the Assessing Officer's order. We do not see how the Commissioner could have taken assistance of either section 80HH or section 80HHC as is interpreted in the decision of the Hon'ble Supreme Court. Section 80HHC pertains to deduction in respect of profit retained for export business. When there is a specific section in the Act and the enactment contains a separate Chapter in relation to the deduction of profit and gains derived by an undertaking from export and when such undertakings are established in a free trade zone, then, we do not see any basis for the complaint made by Mr.Tejveer Singh. This finding of the Commissioner has been upheld by the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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