THE PR COMMISSIONER OF INCOME TAX vs. M/S SUBEX LTD

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ITA/179/2022HC KarnatakaKAHC01034126202127 May 2024Bench: KRISHNA S DIXIT,RAMACHANDRA D. HUDDAR5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the first substantial question of law was already answered against the Revenue by a Coordinate Bench decision in ITA No. 684/2015 between PR. COMMISSIONER OF INCOME TAX Vs. M/s SUBEX LTD., disposed of on October 1, 2021. Similarly, the second substantial question of law was also considered no longer res integra in view of another decision of the same Bench in ITA No. 389/2014 c/w ITA No. 392/2014 between M/s COURSE5 INTELLIGENCE PVT. LTD., VS. THE INCOME TAX OFFICER, disposed of on September 1, 2023. The Court noted there was unanimity at the Bar regarding these precedents. Consequently, the appeal was found to be unworthy of merit. The operative direction was to dismiss the appeal.

What were the facts?

The Revenue (Principal Commissioner of Income Tax and Deputy Commissioner of Income Tax) has filed these appeals against the order of the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeals pertain to Assessment Year 2007-2008 and arise from ITAT's orders in ITA No. 2249/BANG/2019 and ITA No. 2361/BANG/2019, both dated February 5, 2020. The ITAT had set aside the disallowance made by the assessing authority and confirmed by the Appellate Commissioner. The assessee is M/s Subex Ltd. The appeals are filed under Section 260-A of the Income Tax Act, 1961, challenging the ITAT's decision to grant relief to the assessee.

What were the issues?

The Tribunal had to decide two substantial questions of law: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting aside the disallowance made under Section 35-D of the Act by the assessing authority, which had held that the assessee company did not satisfy the conditions stipulated in Section 35-D for the acquisition of subsidiary companies using funds borrowed via GDRs and FCCBs, especially when the assessing authority's order was based on its earlier order challenged before the High Court. 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing relief to the assessee by relying on Section 40(a)(ia) and Circular No. 37/16, when Section 35D pertains to capital employed/expenditure and cannot be considered as profits from business for the purpose of calculating deduction under Section 10A. Contentions: Assessee: The judgment does not record specific contentions for the assessee. The ITAT's decision was in favour of the assessee. Revenue: The Revenue argued that the disallowance under Section 35-D was rightly made as the conditions were not satisfied. They also contended that Section 40(a)(ia) and Circular No. 37/16 were incorrectly applied by the Tribunal as Section 35D deals with capital expenditure, not business profits for Section 10A calculation.

Which sections of the Income-tax Act were involved?

Section 35-D,Section 40(a)(ia),Section 10A,Section 260-A

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:17601-DB ITA No. 179 of 2022 C/W ITA No. 180 of 2022

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH DAY OF MAY, 2024 PRESENT THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND THE HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR INCOME TAX APPEAL NO. 179 OF 2022 C/W INCOME TAX APPEAL NO. 180 OF 2022

IN ITA NO.179/2022:

BETWEEN:

1.

THE PR COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU 560 095.

2.

THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 6(1)(1), PRESENT ADDRESS, DCIT, CIRCLE 1(1)(1), 2ND FLOOR, BMTC BUIDLING, 80 FEET ROAD, KORAMANGALA, BENGALURU 560 095. …APPELLANTS (BY SRI. M DILIP.,ADVOCATE AND SRI. RAVIRAJ Y V., ADVOCATE)

AND:

M/S SUBEX LTD., RMZ ECOWORLD , OUTER RING ROAD, DEVARABISANAHALLI, BENGALURU 560 103, PAN NO. AABCS9255R …RESPONDENT (BY SRI. CHYTHANYA K K., SENIOR ADVOCATE A/W SRI. TATA KRISHNA.,ADVOCATE)

Digitally signed by SHARADA VANI B Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:17601-DB ITA No. 179 of 2022 C/W ITA No. 180 of 2022

THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 05/02/2020 PASSED IN ITA NO. 2249/BANG/2019, FOR The ASSESSMENT YEAR 2007-2008. PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 2249/BANG/2019 DATED 05/02/2020 FOR ASSESSMENT YEAR 2007-2008 ANNEXURE-C CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-6(1)(1), BENGALURU AND ETC.,

IN ITA NO.180/2022:

BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU 560 095.

2.

THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 6(1)(1), PRESENT ADDRESS, DCIT, CIRCLE 1(1)(1), 2ND FLOOR, BMTC BUIDLING, 80 FEET ROAD, KORAMANGALA, BENGALURU 560 095. ...APPELLANTS (BY SRI. M DILIP.,ADVOCATE AND SRI. RAVIRAJ Y V., ADVOCATE)

AND:

M/S SUBEX LTD., RMZ ECOWORLD , OUTER RING ROAD, DEVARABISANAHALLI, BENGALURU 560 103. PAN NO. AABCS9255R …RESPONDENT (BY SRI. CHYTHANYA K K., SENIOR ADVOCATE A/W SRI. TATA KRISHNA.,ADVOCATE)

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NC: 2024:KHC:17601-DB ITA No. 179 of 2022 C/W ITA No. 180 of 2022

THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 05/02/2020 PASSED IN ITA NO. 2361/BANG/2019, FOR THE ASSESSMENT YEAR 2007-2008 PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 2361/BANG/2019 DATED 05/02/2020 FOR ASSESSMENT YEAR 2007-2008 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(1), BENGALURU AND ETC.,

THESE INCOME TAX APPEALS, COMING ON FOR ADMISSION, THIS DAY, KRISHNA S DIXIT.J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal by the Revenue has the following two substantial questions of law: “VI. SUBSTANTIAL QUESTION OF LAW

1.

"Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside the disallowance made under section 35-D of the Act by the assessing authority by following its earlier order which has been challenged before this Hon'ble High Court in ITA No. 684/2015 and also in ITA No.378/2015 even when the assessing authority has rightly made the addition by holding that the assessee company had acquired the subsidiary companies and for the purpose of acquisition, had borrowed funds by issue of GDRs and FCCBs and as the condition stipulated in section 35-D were not satisfied ?"

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NC: 2024:KHC:17601-DB ITA No. 179 of 2022 C/W ITA No. 180 of 2022

2.

"Whether on the facts and in the circumstances of the case, the Tribunal is right in allowing relief to assessee by relying on section 40(a)(ia) of the which relates to Revenue business expenditure and Circular No.37/16 whereas section 35D of the Act in the instant case is in respect of capital employed - capital expenditure and cannot be taken as profits from business for the purpose of calculation of deduction under section 10A of the Act"?.”

2.

The first question has been answered against the Revenue by a Coordinate Bench decision in ITA No.684/2015 between PR.

COMMISSIONER OF INCOME TAX Vs. M/s SUBEX LTD., disposed off on 01.10.2021. Similarly, the second question is also no longer res integra in view of another decision of the very same Bench rendered in ITA No.389/2014 c/w ITA No.392/2014 between M/s COURSE5 INTELLIGENCE PVT. LTD., VS. THE INCOME TAX OFFICER, disposed off on 01.09.2023. There is unanimity at the Bar in this and therefore much need not be done in the case at hand.

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NC: 2024:KHC:17601-DB ITA No. 179 of 2022 C/W ITA No. 180 of 2022

In light of the above, this appeal being unworthy of merit is liable to be and accordingly dismissed, costs having been made easy.

Sd/- JUDGE

Sd/- JUDGE

Bsv List No.: 1 Sl No.: 34

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