THE COMMISSIONER OF INCOME TAX vs. M/S TEKTRONIX ENGINEERING DEV

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ITA/444/2008HC KarnatakaKAHC01019885200808 July 2014Bench: B.MANOHAR,N.KUMAR5 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court addressed the two substantial questions of law. For the first question concerning the set-off of losses from non-STP units against income from profit-making STP units for Section 10A deduction, the Court applied its previous decision in the case of CIT & Anr. v. Yokogawa India Ltd. & Ors. (ITA No. 356/2010). This decision was in favour of the assessee. Therefore, the first question was answered in favour of the assessee and against the Revenue. However, the Court noted that the Yokogawa India Ltd. judgment was under appeal before the Apex Court, and if the Apex Court ruled in favour of the Revenue, the Assessing Authority would give effect to that order. For the second question regarding the treatment of Rs. 14,03,18,500/- as a loss for book profit computation under Section 115JB, the Court referred to its judgment in CIT & Anr. v. Weizmann Homes Ltd., which, after considering case law and amendments, was held in favour of the Revenue. Accordingly, this issue was answered in favour of the Revenue and against the assessee. The appeal was partly allowed.

What were the facts?

The Revenue, comprising the Commissioner of Income Tax and the Income Tax Officer, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated October 26, 2007, passed by the Income Tax Appellate Tribunal (ITAT), Bangalore Bench. The ITAT had granted relief to the assessee, M/s. Tektronix Engineering Dev. India Pvt Ltd., on two counts for the Assessment Year 2002-03. The appeal challenges the ITAT's decision to allow the assessee's claim for deduction under Section 10A and its treatment of a sum of Rs. 14,03,18,500/- for computing book profit under Section 115JB.

What were the issues?

The Tribunal had to decide two substantial questions of law: 1. Whether the Appellate Authorities were correct in holding that the loss from non-STP units is not required to be set off against the income of other profit-making STP units before allowing deduction under Section 10A of the Act, considering the total income and the amended Section 10A(4) of the Act. 2. Whether the Appellate Authorities were correct in holding that a sum of Rs. 14,03,18,500/- should be treated as a loss when computing the Book Profit under Section 115JB of the Act, despite it being a contingent liability, the value of shares not being disclosed, and the order of the High Court being passed after the end of the year. Assessee's contentions: The assessee argued in favour of allowing the deduction under Section 10A without setting off losses from non-STP units and for treating the sum as a loss for book profit calculation. The judgment does not explicitly record the assessee's arguments for each issue but implies their stance through the Tribunal's favorable decision. Revenue's contentions: The Revenue contended that losses from non-STP units should be set off against STP unit income before Section 10A deduction and that the sum of Rs. 14,03,18,500/- should not be treated as a loss for book profit computation. The judgment indicates the Revenue's position by framing the questions as challenges to the Appellate Authorities' findings.

Which sections of the Income-tax Act were involved?

Section 10A,Section 115JB,Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 08TH DAY OF JULY 2014

PRESENT

THE HON'BLE MR.JUSTICE N.KUMAR

AND

THE HON'BLE MR.JUSTICE B.MANOHAR

ITA No.444/2008 BETWEEN:

1.

The Commissioner of Income Tax, C.R Building, Queens Road, Bangalore.

2.

The Income Tax Officer, Ward -12(2), C.R. Building, Queens Road, Bangalore.

…Appellants

(By Sri.K.V.Aravind, Advocate)

AND:

M/s.Tektronix Engineering Dev. India Pvt Ltd., Tek Towers, Hayes Road, Bangalore – 530 025.

…. Respondent

(By Smt.Vani.H, Advocate)

This ITA is filed U/s.260-A of I.T Act, 1961 arising out of order dated

26/10/2007 passed in ITA.No.208/Bang/2006, for the Assessment year 2002- 03, praying that this Hon’ble Court may be pleased to:

i. formulate the substantial questions of law stated therein.

ii. allow the appeal and set aside the order passed by the ITAT Bangalore in ITA.No.208/2006, dated 26-10-2007 confirm the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward – 12(2), Bangalore, in the interest of justice and equity.

This appeal coming on for Hearing this day, N.Kumar J., delivered the following:

J U D G M E N T

This appeal is filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) challenging the order dated 26/10/2007 passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘B’ (hereinafter referred to as ‘the Tribunal’ for short)

whereby the Tribunal has granted the relief to the assessee on two counts.

2.

The substantial questions of law that arise for our consideration are as follows:

1.

Whether the Appellate Authorities were correct in holding that the loss from non- STP units is not required to be set off against the income of the other profit making STP units before allowing deduction u/s.10A of the Act without taking into consideration that the same should be completed on the total income as per the provision and the amended Section 10A(4) of the Act?

2.

Whether the Appellate Authorities were correct in holding that a sum of Rs.14,03,18,500/- should be treated as a loss when computing the Book Profit u/S.115JB of the Act despite the same being contingent liability and the value of the shares was not disclosed and the order of this Hon’ble Court dated 23.10.2002 was passed after the end of the Year?

3.

Insofar as the first substantial question of law is concerned, this Court in the case of COMMISSIONER OF INCOME TAX AND ANOTHER v/s YOKOGAWA INDIA LTD. AND OTHERS in ITA No.356/2010 and

other connected appeals, after reviewing the entire case law held the issue in favour of the assessee and against the Revenue. Applying the same yardstick in this case also, the first substantial question of law in this appeal is answered in favour of the assessee and against the Revenue. However, it is submitted that the judgment of this court in the aforesaid case is the subject matter of the appeal before the Apex Court. In the event of Apex Court answering the said issue in favour of the Revenue, then the Assessing Authority shall give effect to the order in terms of the order passed by the Hon’ble Supreme Court under Section 260(1A) of the Act.

4.

The second substantial question of law is also the subject matter of the judgment of this Court in the case of COMMISSIONER OF INCOME-TAX AND ANOTHER v/s WEIZMANN HOMES LTD., wherein the Apex Court after considering the entire case law and taking note of the subsequent amendment has held the said question

in favour of the Revenue and against the assessee. Accordingly, this issue is answered in favour of the Revenue and against the assessee.

5.

In view of the above, we pass the following order:

The appeal is partly allowed as stated above.

Sd/-

JUDGE

Sd/-

JUDGE

mpk/-*

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