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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ C ’
Before: SHRI SUNIL KUMAR YADAV & SHRI JASON P BOAZ
Per Shri Jason P Boaz, A.M. : This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-7, Bangalore dt.30.05.2017 for the Assessment Year 2011-12. 2. Briefly stated, the facts of the case are as under :- 2.1 The assessee, a company engaged in the business of development and export of software services, filed its return of income for Assessment Year 2011-12 on 28.11.2011 declaring income of Rs.52,78,790. The case was taken up for scrutiny and the assessment was completed under Section 143(3) r.w.s 144C of the Income Tax Act, 1961 (in short 'the Act') vide order dt.13.3.2015, wherein the income of the assessee was determined at Rs.2,15,46,990 in view of interest income, other income etc. being excluded from business income while computing the eligible deduction under Section 10A of the Act. Book profits under Section 115JB of the Act were determined at Rs.14,57,34,962. 2.2 Aggrieved by the order of assessment for Assessment Year 2011-12, the assessee filed an appeal before the CIT (Appeals) -7, Bangalore who disposed off the appeal vide order dt.22.7.2016. Subsequently, the assessee filed a rectification application under Section 154 of the Act before the CIT (Appeals), who allowed the assessee partial relief vide the impugned order dt.30.5.2017.
Aggrieved by the aforesaid orders of the CIT (Appeals) – 7, Bangalore dt.30.5.2017 for Assessment Year 2011-12, the assessee filed this appeal before us, wherein it has raised the following grounds :-
4. Ground No.1 (1.1 to 1.3) - Computation of revised profits of the Undertaking by rendering the interest Income – Rs.50,23,578. 4.1 In these grounds (supra), the assessee contends that the learned CIT (Appeals) erred in holding that interest income should be reduced from the profits of the STPI Unit for the purposes of computing deduction under Section 10A of the Act on the ground that the aforesaid income does not have any direct nexus with the export business of the assessee; when in fact the assessee has only one STPI undertaking and there is no activity apart from the business activity of this undertaking. According to the learned Authorised Representative, while a co-ordinate bench of this Tribunal vide order in & 748/Bang/2016 in the assessee's own case for Assessment Year 2010-11, at paras 5 to 9 thereof has considered this issue and decided the same against the assessee, on further appeal by the assessee, the Hon'ble Karnataka High Court in its order in ITA No.761/2017 dt.23.1.2018 has decided the issue in favour of 2 of its order. In doing so, the Hon'ble Court followed its own Full Bench decision in the case of Hewlett Packard Global Soft Ltd. in of 2017 dt.30.1.2017 wherein it was held that all profits and gains of 100% EOU including incidental income by way of interest earned on bank deposits, etc would be entitled to 100% deduction / exemption under Section 10A or 10B of the Act. 4.2 Per contra, the learned Departmental Representative for Revenue supported the orders of the authorities below. 4.3.1 We have heard the rival contentions, perused and carefully considered the material on record, including the judicial pronouncements cited. Admittedly, the assessee has only one undertaking (STPI Unit) engaged in the business of export of software and earned interest income of Rs.50,23,578 from fixed deposits with Banks made out of export realization and advances received in the normal course of its business. The same was included in the business income for the purposes of claiming deduction under Section 10A of the Act. However, the authorities below were of the view that the said interest income had no nexus with the assessee's business and therefore excluded the same from the business income for the purposes of computing the deduction under Section 10A of the Act. In our considered view, this issue before us is no longer res integra as the Hon'ble High Court in its order in the assessee's own case for Assessment Year 2010-11 (supra) has decided this very issue in favour of the assessee and against revenue. In doing so it followed its own Full Bench decision in the case of Hewlett Packard Global Soft Ltd. (2017) 87 taxman.com 182 (Kar) (FA) wherein it was held that all profits and gains of 100% EOU including incidental income by way of interest on bank deposits would be entitled to 100% deduction / exemption under Section 10A / 10B of the Act. 4.3.2 Respectfully following the above decisions of the Hon'ble High Court of Karnataka (supra), we direct the Assessing Officer to include the aforesaid interest income of Rs.50,23,578 as profits of its STPI Unit for the purposes of computing the deduction under Section 10A of the Act as it has nexus with the assessee's business undertaking engaged in export of articles as envisaged under Sec. 10A of the Act. We hold and direct accordingly. Consequently, grounds 1 (1.1 to 1.3) of assessee's appeal is allowed.
5. Ground No.2 - Computation of revised profits of the undertaking by reducing the other income of Rs.7,435. 5.1 In these grounds (supra), the assessee contends that the learned CIT (Appeals) erred in holding that the learned CIT (Appeals) erred in holding that ‘other income’ should be reduced from the profits of the STPI undertaking for the purposes of computing the deduction under Section 10A of the Act on the ground that the aforesaid income does not have any direct nexus with the export business of the assessee; when in fact the assessee has only one undertaking and there is no activity apart from the business activity of this undertaking. According to the learned Authorised Representative, this very issue was considered and decided in favour of the assessee and against revenue by the decision of a co-
Tribunal in the assessee's own case for Assessment Year 2010-11 (supra). 5.2 Per contra, the learned Departmental Representative for revenue supported the orders of the authorities below. 5.3.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncement cited (supra). We find that this very issue of inclusion of ‘other income’ as income of the assessee's sole undertaking (STPI Unit) engaged in the export of articles, as envisaged under Section 10A of the Act, since it has nexus with business of the assessee's sole undertaking has been considered and held in favour of the assessee by the decision of the co- ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2010-11. At para 11 of its order the co-ordinate bench held as under : “ 11. Ground no.2 is with respect to computation of revised profits of the undertaking by reducing the other income. The other income earned by the assessee is as under :
Sl.No. Particulars Amount in Rs. 1 Receipt from Ex-employee towards breach and 3,28,701 violation of agreement. 2 Reimbursement of Demurrage charges from Dell 76,232 India 3 Sale of Battery 32,000 4 Reimbursement of amount paid on behalf of 51,852 Toshiba Japan 5 Other Misc. Income 2,811 Total Communication Charges 4,91,596 From the heads of other income, it is clear that the income earned by the assessee was from the business of the undertaking and the assessee is entitled to the benefit of Section 10A of the Act. In view thereof, we allow this ground of the assessee.”
5.3.2 Respectfully, following the above decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2010-11 (supra), we hold that the ‘other income’ earned by the assessee was from its sole undertaking (STPI) and therefore is to be included in business income for the purposes of computing deduction under Section 10A of the Act. We hold and direct accordingly.
In the result, assessee's appeal for Assessment Year 2011-12 is allowed. Order pronounced in the open court on the 2nd day of March, 2018.