COMMISSIOENR OF INCOME TAX DELHI IV vs. EHPT INDIA P.LTD.

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ITA - 1194 / 2008HC Delhi14 December 201115 pages
For Petitioner: PREM LATA BANSAL
AI SummaryDismissed

What did the High Court hold?

The High Court upheld the Income Tax Appellate Tribunal's decision to accept the assessee's 'head-count' method for allocating indirect expenses. The court found no justification for the revenue to disturb the consistently accepted method.

What were the facts?

The assessee, EHPT India P. Ltd., operated two units: an STP unit for software export and a non-STP unit for domestic operations. The dispute arose over the method of allocating indirect expenses between these two units.

What were the issues?

The key issue was whether the 'head-count' method for allocating indirect expenses adopted by the assessee was valid and if the revenue could disturb a method consistently accepted in the past.

Which sections of the Income-tax Act were involved?

Section 10A

AI-generated summary — verify with the full judgment below

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IN THE HIGH COURT OF DELHI AT NEW DELHI

Reserved on: November 14<sup>th</sup>, 2011.

Date of Decision: 14<sup>th</sup> December, 2011.

+ ITA 1194/2008

COMMISSIONER OF INCOME TAX DELHI IV .... Petitioner

Through Mr. Kiran Babu, Sr. Standing

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V. EASWAR

1.

Whether Reporters of local papers may be allowed to see the judgment?

2.

To be referred to the Reporters or not?

Yes

3.

Whether the judgment should be reported in the Digest?

Yes

R.V. EASWAR, J.:

For detailed order, see ITA No.1172/2008.

R.V.EASWAR, J.

SANJIV KHANNA, J.

December 14, 2011

mm/Bisht

IN THE HIGH COURT OF DELHI AT NEW DELHI

Reserved on: November 14<sup>th</sup>, 2011.

Date of Decision: 14<sup>th</sup> December, 2011.

+ ITA 1172/2008

0/0

COMMISSIONER OF INCOME TAX DELHI IV .....Petitioner

Mr. Kiran Babu, Sr. Standing

AND

+ ITA 1194/2008

COMMISSIONER OF INCOME TAX DELHI IV .... Petitioner

Mr. Kiran Babu, Sr. Standing

CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V. EASWAR

- 1. Whether Reporters of local papers may be allowed to see the judgment? - 2. To be referred to the Reporters or not? Yes - 3. Whether the judgment should be reported in the Digest?

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R.V. EASWAR, J.:

These are two appeals filed by the revenue under Section 260A of the Income-tax Act ("Act", for short) against the common order passed by the Income Tax Appellate Tribunal ("Tribunal", for short) on 31-1-2008 in ITA Nos.2395/DEL/2005 & 93/DEL/2006 for the assessment years 2001-02 and 2002-03 respectively. On 23-7-2010 the appeals were admitted and the following substantial questions of law were framed:

- "(a) Whether Income Tax Appellate Tribunal was correct in law in accepting "head-count" method of distribution of expenses adopted by the assessee for allocation of indirect expenses between STP unit and non-STP unit? - b) Whether Income Tax Appellate Tribunal was correct in law in applying Rule of consistency when the method of allocation adopted by the assessee was not the correct method of accounting? - c) Whether Income Tax Appellate Tribunal was correct in law in discarding the method of distribution adopted by Assessing Officer which was in accordance with the provisions contained in Section 10A (iv) of the Act itself? - d) Whether order passed by Income Tax Appellate Tribunal is perverse in law and on facts?" - 2. The respondent-assessee is a private limited company resident in India. During the relevant previous years, it operated two units: a Software Technological Park unit ("STP unit", for short) which was engaged in the development of software which was primarily exported to the parent company in Sweden and another domestic unit (non-STP unit) which was primarily engaged in the implementation of the

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STP Unit | Non STP Unit | <b>Total</b> 4765138 | 4765138 28932001 | 1499544 | 30431545 63396248 | 2493829 | 65890077 , 23683830 | 830265 | 24514095 120777217 | 4823638 | 125600855(A) 4765138 28932001 63396248 23683830 | 4765138 28932001 1499544 63396248 2493829 23683830 830265

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"Turnover: | 339000025 (B) | 2200000(C) | 341200025(D) Allocation of the indirect | 124791002 | 809853 | 123600855 expenses: In the Ratio of | $[(A)/(D)^(B)]$ | $[(A)/(D)^(C)]$ turnover Difference | (4013785) | 4013785"

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the assessee has more than one undertaking because of the language of sub-section (4);

- b) That the assessee in the past was consistently following the method of apportioning the indirect expenses on the basis of the head-count and the same was also accepted by the income-tax authorities; - c) That therefore there was no justification for disturbing the method adopted by the assessee.

In the aforesaid view of the matter, the Tribunal upheld the method adopted by the assessee, allowed the assessee's appeal and dismissed the department's appeal.

8.

We have examined the matter in the light of the submissions made before us. The fate of the appeals must depend upon the answer to the question whether the method adopted by the assessee, namely, that of apportioning the indirect expenses between the STP unit and the non-STP domestic unit on the basis of the "head-count" is an unreasonable method and if it has been followed consistently by the assessee in the past and has also been accepted by the department, should the revenue authorities be permitted to disturb the same in the years under appeal. It seems to us that the settled position in such matters is to examine whether the method which is canvassed for acceptance is the one (a) which has been consistently accepted by both the parties, namely, the assessee and the revenue in the past; (b) which is a reasonable method having regard to the nature of the business and other relevant factors and (c) which does not distort the

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apportionment is sought to be disturbed in a few years, especially in a case such as the present one where the deduction under Section 10A is available over a period of ten years and only in some years the method of apportionment of income is disturbed. In other words, there is no "just cause" made out for abandoning the past method.

12.

We accordingly answer the first three substantial questions of law in the affirmative and in favour of the assessee. The last question raises the issue of perversity in law and on facts. For the reasons given by us, it will be clear that the order of the Tribunal is based on proper reasons and settled principles of law taking note of all the facts and relevant circumstances of the case. The factual finding that the method adopted by the assessee has been consistently accepted by the departmental authorities is not under challenge. No just cause has been made out by the department for a departure from the past assessments. In these circumstances, we hold that the order passed by the Tribunal cannot be said to be vulnerable to the charge of perversity either on facts or in law. The last question is thus answered in the negative and against the revenue. The appeal filed by the Revenue is accordingly dismissed with no order as to costs.

R.V.EASWAR, J.

AV A STEAD AT WITH A

SANJIV KHANNA, J.

7-11

December 14, 2011 mm/Bisht

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