9911796707
TMI Blog2011 (11) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... g the totality of circumstances, in our view, the Commissioner of Income-tax (Appeals) rightly dis-agreed with the apprehension of the Assessing Officer on this matter and has correctly upheld the assessee’s claim for treating Unit-B as a separate and independent Unit for the purposes of claim of deduction under section 10A of the Act. In this view of the matter, we, therefore, find no merit in the Ground of appeal raised by the Revenue and the same is dismissed accordingly. 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 of the Act for Unit-A X X X X Extracts X X X X X X X X Extracts X X X X ..... der consideration in terms of an STPI approval dated 8.10.2003. The said Unit-B was treated by the assessee as a separate undertaking independent of Unit-A and was claimed to be eligible for benefit of deduction under section 10A in an independent manner, though during the year no deduction in relation to Unit-B was claimed, as it had incurred a loss. So, however, the Assessing Officer did not agree to the assessee's claim that Unit-B was independently eligible for deduction under section 10A since, according to him, there was no separate existence of Unit-B. In coming to such conclusion, the Assessing Officer has enumerated various reasons, which can be summarized as under: i) that Unit B is situated in the same building in which the erstwhile Unit A was situate; ii) that expansions carried out in the past years at different premise were claimed as expansions of Unit A and that it is only expansion in the instant year that is being claimed as a new and separate undertaking; iii) that the STPI permission obtained in October, 2003 is for expansion of business and not for starting a new business; iv) that common Bond register for the purposes of custom duty has been maintained fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer was not justified in treating it as a mere expansion of Unit-A. Not being satisfied with the aforesaid conclusion of the Commissioner of Income-tax (Appeals), Revenue is in appeal before us. 7. Before us, the learned Departmental Representative has argued that the Assessing officer was justified in holding that Unit-B could not be treated as independently eligible for the deduction under section 10A of the Act. According to him, the elaborate points made out by the Assessing Officer have been wrongly negated by the Commissioner of Income-tax (Appeals) inasmuch as the intention of the assessee to claim Unit-B as a separate Unit was merely to extend the tax holiday of ten years which was being enjoyed by Unit-A and the same was coming to an end in assessment year 2005-06. In sum and substance, the arguments set up by the learned Departmental Representative is that the Assessing Officer was justified in treating Unit-B as not eligible for the claim of deduction under section 10A of the Act. 8. On the other hand, the learned Counsel appearing for the assessee, has assailed the arguments of the learned Departmental Representative by pointing out that the Commissioner of Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e understood as a separate unit but a mere expansion of the erstwhile Unit-A and, therefore, the Unit-B is not to be reckoned as a separate Unit for the purposes of claim of deduction under section 10A of the Act. The Commissioner of Income-tax (Appeals) has, however, appreciated the plea of the assessee and has held Unit-B as a separate undertaking and in terms thereof, it has been held to be eligible for the claim of deduction u/s 10A independent of the old Unit-A. Section 10A of the Act provides for a deduction in respect of profits and gains as are derived by an undertaking from export of computer software, etc. for a period of 10 consecutive assessment years, subject of-course to fulfilment of the conditions specified by sub-section (2) of section 10A of the Act. The conditions prescribed in sub-section (2) of section 10A of the Act are, namely, that the undertaking has to begin manufacture or produce computer software during the previous year relevant to the assessment year commencing on or after the first day of April, 1994 in any software technology park; and that the undertaking is not formed by splitting up or reconstruction of the business already in existence; and, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to your fulfilling the Excise & Customs related formalities." The aforesaid has been interpreted by the Revenue to infer that the approval by STPI is only an expansion of the old Unit and not to set-up a new and separate Unit. Similar objection in the context of section 10A of the Act was a subjectmatter of consideration by the Pune Bench in the case of Patni Computer systems Ltd. (supra) wherein reference was made to an earlier decision of the Tribunal in the case of Jayant Agro Organics Ltd. Akhandanad, Mumbai v. Jt. CIT (ITA No 5439/Mum/01 dated 3.3.2006) and it was held that the said plea was not cogent to deny the claim of deduction under section 10A of the Act. The relevant portion of the order of Tribunal contained in para 41 & 42 is reproduced: "41. The only plea of the Revenue is that in the approvals granted by the STPI, the three units have been referred to as an expansion of the corresponding old units. The moot question is as to whether such a plea of the Revenue is potent to effect the assessee's entitlement for deduction under section 10A of the Act. Similar plea of the Revenue in the context of section 10B of the Act was a subject matter of consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat they fulfill the conditions prescribed under section 10A(2) of the Act. There is no prohibition that an expansion in the same line of business achieved by setting up a new independent unit would lead to denial of deduction under section 10A of the Act. In this background, in the earlier part of this order we have already noted with approval the factual findings of the Commissioner of Income-tax (Appeals) that the three units are separate and independent production units and the same cannot be treated as mere expansions of the existing undertakings. Therefore, the mere fact that the requisite permissions from STPI refer them as expansions of the existing units, would not dis-entitle the assessee from the claim of deduction under section 10A of the Act. In this view of the matter, we find no error in the approach of the Commissioner of Income-tax (Appeals) in having allowed the claim of assessee for the benefits under section 10A of the Act on the three units treating the same as independent units. Thus, Ground Nos 1 & 2 of the appeal of the Revenue are dismissed." 10. Following the aforesaid parity of reasoning, in our view, the aforesaid plea would not dis-entitle the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach of the Assessing Officer is untenable, inasmuch as on facts and in law, as succinctly brought out by the Commissioner of Incometax (Appeals), Unit-B is entitled to be understood as a separate and independent Unit for the purpose of claiming deduction under section 10A of the Act. Moreover, in the course of hearing before us, the learned Counsel for the respondent-assessee pointed out that even after the expiry of tax holiday period of 10 years in Unit-A, the activities and profits of Unit-A have shown positive growth and this itself shows that there was no intention to claim separate deduction for Unit-B merely for the purposes of enjoying tax holiday. The aforesaid plea has not been controverted before us. Considering the totality of circumstances, in our view, the Commissioner of Income-tax (Appeals) rightly dis-agreed with the apprehension of the Assessing Officer on this matter and has correctly upheld the assessee's claim for treating Unit-B as a separate and independent Unit for the purposes of claim of deduction under section 10A of the Act. In this view of the matter, we, therefore, find no merit in the Ground of appeal raised by the Revenue and the same is dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits derived from export activities while computing deduction u/s 10A. This ground of appeal succeeds." 14. Against the aforesaid, the learned Departmental Representative has reiterated the arguments set up by the Assessing Officer that the aforesaid incomes do not meet the tests of having been "derived by an undertaking from the export of articles" as contained in section 10A of the Act and, therefore, the Commissioner of Income-tax (Appeals) erred in allowing appropriate relief to the assessee. 15. In this connection, the Counsel for the respondent-assessee has defended the conclusion of the Commissioner of Income-tax (Appeals) by relying upon an order of the Mumbai Bench of the Tribunal in the case of Livingstones Jewellery (P) Ltd. V.DCIT 31 SOT 323 (Mum), wherein similar argument has been dealt with in favour of the assessee. 16. We have carefully considered the rival submissions. In our view, the assessee is correct in asserting that a similar situation has been dealt with by the Mumbai Bench of the Tribunal in the case of Livingstones Jewellery (P) Ltd (supra) wherein an identical argument set up by the Revenue in the context of the claim of deduction under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy for deduction. From the facts of the instant case it is noted that the assessee had given FDRs to the bank for obtaining credit facility. Such interest income has nexus with the business of the undertaking and falls under the head 'Profits and gains of business or profession' as having relation with the carrying on of the business. Similar view has been taken in the case of Motorola India Electronics (P) Ltd. (supra). In our considered opinion the ld CIT(A) was not justified in treating the interest income as not derived from the export activity. We, therefore hold that the assessee was entitled to deduction u/s 10A in respect of the interest income. The resultant denial of deduction under section 10A is deleted." 17. Following the aforesaid precedent, we endorse the view of the Commissioner of Income-tax (Appeals) and Revenue fails on this Ground. 18. In the result, Revenue's appeal is dismissed. 19. In the assessee's appeal, vide ITA No 805/PN/09, the first Ground of appeal raised is that the Commissioner of Income-tax (Appeals) was not justified in upholding the action of the Assessing Officer in setting-off loss of Unit-B against profits of Unit-A for the purposes of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee vehemently submitted that the lower authorities were not justified in rejecting the claim of the assessee for computing deduction under section 10A of the Act for the Unit-A without deducting the loss pertaining to Unit-B. In this connection, reliance has been placed on the decision of the Cochin Bench of the Tribunal in the case of M/s F.C.I Technology Services Ltd., Cochin v. ACIT in ITA No 616/Coch/2008 dated 04.06.2010, a copy of which is placed on record. 23. On the other hand, the learned Departmental Representative, appearing for the Revenue has defended the orders of the authorities below and has in particular referred to the decision of the Commissioner of Income-tax (Appeals) wherein the assessee's claim has been rejected by relying on the decision of the Tribunal in the case of Navin Bharat Industries Ltd. (supra). 24. We have considered the rival submissions. In this case, the stand of the assessee has been negated by the Commissioner of Income-tax (Appeals) following the decision of the Tribunal in the case of Navin Bharat Industries Ltd. (supra). In so far as the decision in the case of Navin Bharat Industries Ltd (supra) is concerned, we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st losses from the other two units, one of which is an eligible (u/s 10A) unit, for computing the deduction u/s 10A. The issue of set off or adjustment of sec.10A income against non-section 10A income stands answered by the Tribunal pr its Special Bench decision in the case of Scientific Atlanta India Technology P. Ltd. (supra), which is even otherwise binding on us, so that the same must be considered as resolved, at least as far as the Tribunal is concerned; the Revenue not bringing any decision to the contrary by an higher authority to our notice. The second aspect of the matter, i.e. aggregation of the income from two (or more) eligible (u/s 10A) undertakings and, consequently, the set off of the two, where one of them is in loss, as in the present case, remains for being answered. As this issue was not considered or addressed at the time of hearing, the matter was posted for hearing again, to allow the parties an opportunity of hearing on this aspect of the matter. The ld AR drew our attention to the different paragraphs of the same decision, where, while discussing the matter with reference to the precedents in the matter, it stands emphasized that deduction u/s 10A is qua an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basic position in respect of the deduction, the next question in the matter would be with regard to its quantification, i.e. the qualifying amount of profit and gains on which the same is to be allowed or worked at. Against, the deduction being unitspecific and, further, not forming part of GTI, it is not subject to either aggregation or adjustment and, consequently, to the restrictive influence of ss. 80A(2) and 80AB of Chapter VI-A. Also, there is nothing in the section that suggests aggregation of profits from two or more eligible undertakings, so that the profit derived from each is to be considered separately, i.e. as if it were the only income of the assessee, for the purpose of computation of deduction thereunder. In other words, the qualifying amount an, consequently, the deduction in its respect is to be worked on a stand-alone basis, independently for each eligible unit. In this respect, ss.10A and 10B are a separate code in themselves. The treatment of the unabsorbed loss or depreciation, as the case may be, that may arise for any of the years, whether inside or outside the tax holiday period, stands, again, provided thereunder. Of course, once the tax holiday period ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in rejecting the assessee's claim of computing deduction under section 10A of the Act for the profits of Unit-A without deducting loss pertaining to Unit-B. As a result, we set aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to recompute the deduction pertaining to Unit-A accordingly. Thus on this Ground, assessee succeeds. 26. Ground No. 2 reads as follows: Treatment of telecommunication charges in computing deduction u/s 10A. The ld CIT(A) erred in holding that 80% of telecommunication charges are attributable to the delivery of software outside India and hence is required to be reduced from export turnover. Your appellant prays that telecommunication charges attributable to delivery of software outside India estimated to be not more than 5 to 10% be accepted." At the time of hearing before us, the learned Counsel for the assessee did not press this Ground, in view of the smallness of the quantum involved. Accordingly, we dismiss this Ground as not pressed. 27. Ground No. 3 reads as under: "Expenses reduced from 'Export turnover' only Without prejudice to Ground No. 2 above, the ld CIT(A) erred in upholding the actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10A. Accordingly, this ground of appeal fails." Being aggrieved with the decision of the Commissioner of Income-tax (Appeals), assessee is in further appeal before us. 29. Before us, learned Counsel for the assessee submitted that the lower authorities have erred in law while adjusting the impugned expenses only from 'Export turnover' without a corresponding reduction from the figure of 'Total turnover'. The main reason advanced is that the adjustments are merited from the figure of 'Total turnover' also on the principle of parity for the purpose of computing the eligible deduction under section 10A of the Act. In this connection, reliance has been placed on the following decisions: (i) ITO v Sak Soft Ltd. 121 TTJ 865 (Chennai) (SB) (ii) CIT v. Gem Plus Jewellery India Ltd 233 CTR 248 (Bom) 30. On the other hand, the learned Departmental Representative, appearing for the Revenue, contended that the Commissioner of Income-tax (Appeals) made no mistake in dis-agreeing with the assessee inasmuch as the expression 'Export turnover' has been specifically defined in section 10A and for that reason the impugned expenses have been adjusted, whereas no specific definition is laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a provision to the contrary. However, no such provision ha ing been made, the principle which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation would lead to an absurdity. If the contention of the Revenue were to be accepted, the same expression viz. 'export turnover' would have a different connotation in the application of the same formula. The submission of the Revenue would lead to a situation where freight and insurance, though it has been specifically excluded from 'export turnover' for the purposes of the numerator would be brought in as part of the 'export turnover' when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided." 32. Applying the aforesaid reasoning laid down by the Hon'ble jurisdictional High Court to the present case, we hold that the impugned two items, namely, Telecommunication charges - ₹ 1,50,40,083/- and Expenses incurred in Foreign currenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
