PR COMMISSIONER OF vs. M/S WIPRO LIMITED

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9TH DAY OF DECEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.464 OF 2017 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX-7

BMTC COMPLEX, KORAMANGALA

BENGALURU. 2. DEPUTY COMMISSIONER OF INCOME TAX

CIRCLE-12(5), BENGALURU. ... APPELLANTS (BY SRI. E.I. SANMATHI, ADV.,) AND: M/S. WIPRO LIMITED DODDAKANNELLI SARJAPUR ROAD BENGALURU-560025 PAN: AAACW0387R. ... RESPONDENT (BY SRI. S. GANESH, SR. COUNSEL FOR SRI. SANDEEP HUILGOL, ADV., FOR SRI. R.B. KRISHNA, ADV.,) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 04.01.2017 PASSED IN IT(TP)A NO.1665/BANG/2012 FOR THE ASSESSMENT YEAR 2008-09, ANNEXURE-A, PRAYING TO DECIDE THE FOREGOING

2 QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 04.01.2017 PASSED BY THE ITAT, 'A' BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO.IT(TP)A NO.1665/BANG/2012 FOR ASSESSMENT YEAR 2008-09 ANNEXURE-A AS SOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court vide order dated 22.11.2017 on the following substantial questions of law: (1) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in allowing the claim of assessee towards set-off of losses of STP/SEZ unit against the other income of

3 Rs.38,98,08,236/- by placing reliance on the decision of this Hon'ble Court in the case of assessee itself for the assessment year 2004-05 which has not reached finality and even when the assessee is not entitled for such set-off of losses in terms of the provisions of the IT Act? (2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in allowing the depreciation on software of Rs.72,76,90,525/- by placing reliance on the orders passed in the case of the assessee for earlier periods which has not reached finality and even when the ingredients of section 32 are not satisfied to claim depreciation relating to software? (3) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the exclusion of interest income, rental income and other income for the purpose of deduction under section 10A of the Act by placing reliance on the orders passed in the case of the assessee for earlier periods which has not

4 reached finality and even when the ingredients of section 10A are not satisfied to include the said income as part of section 10A? (4) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the recomputation of deduction under section 10A made by the assessing authority by following the decision of this Hon'ble High Court in the case of CIT vs. Tata Elxsi even when the said order has not reached finality? (5) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the denial of deduction under section 10A in respect of the amount of export turnover not remitted to India within 6 months by placing reliance on the orders passed in the case of the assessee for earlier periods which has not reached finality and even when the same cannot be termed as export turnover

5 considering the definition of the same as stipulated in the Act? (6) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the denial of deduction under section 10A of the Act in respect of undertaking in Bangalore established prior to 1993 by placing reliance on the orders passed in the case of the assessee for earlier periods which has not reached finality and even when the assessing authority rightly denied the same since they were expansion units formed from the original units which were granted STP-1 Licence in 1992? (7) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority not to allocate any corporate overhead to 80IB unit, over and above, the allocation made by the assessee itself by placing reliance on the orders passed in the case of the assessee for earlier periods which has not reached finality and even

6 when the assessing authority rightly allocated the said expenses considering the materials on record? (8) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that assessee is eligible for deduction under section 80IB of the Act relating to trading activity of monitors and printers by placing reliance on the orders passed in the case of the assessee for earlier periods which has not reached finality and even when the ingredients of section 80IB of the Act are not satisfied by the assessee to such relief? (9) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in allowing corporate overhead expenses relating to units claiming 80IC deduction by placing reliance on the orders passed in the case of the assessee for earlier periods which has not reached finality and even when the assessing authority had rightly denied the said claim amounting to Rs.45,89,776/- considering

7 the materials on record and conduct of the assessee? (10) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the allocation of corporate expenses to SEZ developers undertaking, Kolkatta while computing the deduction under section 80IA of the Act by placing reliance on the orders passed in the case of the assessee for earlier periods which has not reached finality and even when the assessing authority rightly allocated corporate expenditure to the SEZ while considering the claim for deduction under section 80IAB of the Act? (11) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in allowing the claim for foreign tax credit made by the assessee by following the decision of this Hon'ble High court in assessee's own case (reported in 382 ITR page 179) for assessment year 2003-04 even when the assessee is not at all entitled for such foreign tax credit in

8 respect of units eligible for deduction under section 10A has no such credit facility is stipulated in section 10A nor under the provisions of the DTAA? (12) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the allocation of corporate expenses for the purpose of deduction in respect of 10A and non-10A units by placing reliance on the orders passed in respect of earlier assessment years even though the said decisions have not reached finality? 2. The factual background in which the aforesaid substantial questions of law arise for consideration in this appeal need mention. The assessee is a public limited company and is engaged in numerous business and industrial activity including computer software development and exports and computer hardware manufacture and sale. The assessee filed its return of income for Assessment Year 2008-09 declaring a total

9 income of Rs.6,89,42,83,297/-. Initially, a draft order of assessment was passed. The assessee thereupon filed objections before Dispute Resolution Panel, which upheld the order of the Assessing Officer by an order dated 17.09.2012. On the basis of directions issued by before Dispute Resolution Panel, the Assessing Officer passed a final order of assessment on 26.10.2012. The assessee thereupon filed an appeal, before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). 3. The tribunal by an order dated 04.01.2017 inter alia by placing reliance on its order passed in the earlier Assessment Year with regard to Transfer Pricing Adjustment (TPA) on account of interest free loan provided to the subsidiary held that Transfer Pricing Adjustment is possible only in cases where comparable uncontrolled transactions entered into between two enterprises are established and unless such an uncontrolled transaction is identified no Arms Length

10 Price (ALP) adjustment is possible. Accordingly, the tribunal remitted the issue to the file of Transfer Pricing Officer (TPO) to follow the directions given by the tribunal in earlier Assessment Year. The tribunal with regard to claim of assessee under Section 14A of the Act directed the Assessing Officer to follow the directions given the claim of the assessee under Section 14A of the Act set aside the finding recorded by the Assessing Officer and remitted the matter to the Assessing Officer to re-examine the issue in the light of order passed by the tribunal in assessee's own case as well as in DCIT vs. M.N.DASTUR CO. PVT. LTD. in I.T.A. No.94/bang/2014. The tribunal also allowed the set off of losses of STP / SEZ units against other income of the assessee by following its previous order in the case of assessee itself for Assessment Year 2007-08. The claim for depreciation on software was also allowed by following its previous order in the case of the assessee for Assessment Year 2004-05. The claim of the assessee

11 for corporate expenses for the purposes of deduction between 10A units and non 10A units was also held in favour of the assessee in view of the order passed by the tribunal in the case of the assessee for the Assessment Year 2007-08. 4. In respect of claim of the assessee for computation of profit of overseas software development center, the matter was remitted to the Assessing Officer to decide the issue in the light of the order passed in the assessee's own case for the Assessment Year 2004-05 and Assessment Year 2007-08. In respect of exclusion of interest income, rental income and other income for the purpose of deduction under Section 10A of the Act, the tribunal by following the order passed in the case of the assessee in respect of Assessment Year 2004-05 and Assessment Year 2007-08, remitted the matter to the Assessing Officer to decide the issue in the light of its previous orders. The issue whether the interest received under Section 244A of the Act is income liable to tax or

12 not was remitted for limited purpose of computation of the amount. The claim of the assessee for exclusion of deemed export turnover for the purposes of deduction under Section 10A of the Act, as well as exclusion of VAT / GST from export turnover for the purposes of deduction under Section 10A of the Act was held against the assessee. 5. In respect of exclusion of communication charges and reimbursement expenses incurred in foreign currency from export turnover for purpose of computing the deduction under Section 10A of the Act, the claim of the assessee was allowed and the Assessing Officer was directed to exclude the expenses from total turnover as well. The claim of the assessee for deduction under Section 10A of the Act in respect of amount of export turnover not remitted to India within six months was also allowed and the Assessing Officer was directed to exclude the amount remitted by assessee after six months from the export turnover for the purpose of

13 computing deduction under Section 10A of the Act. The claim of the assessee for deduction under Section 10A of the Act in respect of undertaking in Bangalore established prior to 1993, the same was decided in favour of the assessee. However, it was clarified that income from expended undertaking in any case will be eligible to the extent of extended capacity utilized and not for entire capacity of undertaking. The claim of the assessee regarding allocation of corporate division under Section 80IB unit as well as deduction under Section 80IB in respect of trading activity of monitor and printer were allowed. Similarly, the claim for allocation of corporate overhead expenses under Section 80IC unit was also allowed by the tribunal by placing reliance in the order passed in the case of the assessee for Assessment Years 2004-05 and 2007-08. However, the claim with regard to eligibility of other income for deduction under Section 80IC was decided against the assessee. The claim with regard to allocation of

14 corporate expenses to SEZ Developer undertaking Kolkatta while computing the deduction under Section 80IAB of the Act was allowed in favour of the assessee by placing reliance on the order passed in the case of the assessee itself in respect of Assessment Years 2004- 05 and 2007-08. However, the claim of the assessee with regard to deduction under Section 80IB of the Act in respect of other income of the undertaking was decided against the assessee. The issue with regard to foreign tax credit was allowed in favour of the assessee by placing reliance on decision of this court in 382 ITR 179. In the result, the appeal preferred by the assessee was partly allowed. Being aggrieved, the revenue is in appeal before us. 6. Learned counsel for the revenue submitted that the tribunal relied on the assessee's case for the Assessment Years 2004-05 and 2007-08 pertaining to depreciation claimed on software, which was treated as royalty. However, it is pointed out that the decision of

15 this court in 383 ITR 179 does not cover the issue as the assessee had made payment towards purchase of software and claimed depreciation under Section 32 of the Act. It is argued that this court in 'COMMISSIONER OF INCOME-TAX VS. SAMSUNG ELECTRONICS LTD.', 345 ITR 49 and 'COMMISSIONER Of INCOME TAX VS. SYNOPSYS INETRNAL LTD.', 212 TAXMAN 454 (KAR) has held that the payment to a non resident for import of software would constitute royalty for imparting any information concerning technical, industrial, commercial or scientific knowledge experience or skill as per clause (iv) of Explanation 2 to Section 9(1)(vi) of the Act and therefore, the assessing authority has rightly held that the assessee was under an obligation to deduct the tax as per Section 195 of the Act. 7. It is also argued that since payment to non resident was in the nature of royalty in terms of Explanation 2 to Section 9(1)(vi) of the Act and no TDS

16 was deducted on the payment, therefore, disallowance under Section 40(a)(ia) of the Act has rightly been made. It is also pointed out that Section 40 of the Act begins with a non obstante clause and has an overriding effect on Section 30 to Section 48 of the Act. It is also urged that Section 40 does not apply to a claim for depreciation and claim under Section 32 is a claim for deduction. Therefore, the amount claimed as deduction while computing income chargeable under the head profits and gains from business and profession under Section 32 can be disallowed specially in case, where the assessee has failed to deduct TDS on payment made to purchase of software and has claimed depreciation under Section 32 of the Act on such software. It is also pointed out that the intent of disallowance under Section 40(a)(ia) of the Act is to ensure prevention of revenue leakage on foreign payments as recovery of tax from non resident payees was difficult. With regard to the claim of set off of STP unit losses of the assessee, it is

17 submitted that in view of decision of the Supreme Court in ‘COMMISSIONER OF INCOME-TAX VS. YOKOGAWA INDIA LTD.’, 391 ITR 274, the losses of STP units, profits of taxable units cannot be set off against the profits of Section 10A / 10B units. Since, such losses can be considered and set off and carry forward only Section 70, 72 and 74 which comes under Chapter VI of the Act. Therefore, the assessing authority is right in denying set off losses to M.G.Road unit since, its 10A tenure had expired. In support of aforesaid submissions, reliance has been placed on decision of the Supreme Court in 'MUNJAL SALES CORPORATION VS. COMMISSIONER OF INCOME TAX AND ANR.', 298 ITR 298 and decision of this Court in COMMISSIONER OF INCOME TAX AND ANOTHER VS. M/S WIPRO LTD. Dated 25.08.2010 passed in I.T.A.No.507/2002, MYSORE MINERALS LTD. VS. COMMISSIONER OF INCOME-TAX, (1999) 106 TAXMAN 166 (SC) and 'SHRI. CHAUDHARY

18 TRANSPORT COMPANY VS ITO, (2020) 81 TAXMANN.COM 47 (SC). 8. Learned Senior counsel for the assessee submitted that in fact, all the substantial questions of law involved in the appeal are no longer res integra and have been answered in favour of the assessee. It is submitted that reliance placed by learned counsel for the revenue in the case of the assessee rendered in I.T.A.No.507/2002 on the ground that the issue of royalty was not considered is misconceived as in the aforesaid decision though the substantial question of law is worded slightly different but in para 38 of the judgment, the division bench of this court has considered the issue of royalty. Therefore, the claim on depreciation relating to software has rightly been allowed in favour of the assessee. It is further submitted that the issue with regard to set off of losses of units claiming deduction under Section 10A/10AA of the Act is squarely covered by decision of the Supreme Court in

19 ‘COMMISSIONER OF INCOME-TAX VS. YOKOGAWA INDIA LTD.’, 391 ITR 274 (SC) and the remaining questions are answered in favour of the assessee by a decisions of this court M/S WIPRO LTD. VS. DCIT, 383 ITR 179 (KAR) and 'COMMISSIONER OF INCOME-TAX & ANOTHER VS. TATA ELXSI LTD.' 382 ITR 654 (KAR) as well as para 21 of the Supreme Court in 'COMMISSINOER OF INCOME-TAX VS. HCL TECHNOLOGIES LTD.', 404 ITR 719 (SC). 9. We have considered the submissions made by learned counsel for the parties and have perused the record. The revenue has contended that the Assessing Officer has rightly disallowed the depreciation claimed on software, which was treated as royalty under Section 40(a)(ia) of the Act on the ground that decision of this court in WIPRO LTD. supra in I.T.A.No.507/2002 dated 25.08.2010 does not deal with the issue of royalty. From perusal of the aforesaid decision, the tribunal has decided the aforesaid issue in favour of the assessee by

20 placing reliance on its previous order, which is upheld in Wipro Ltd. supra. The substantial question of law involved for consideration in the aforesaid appeal in the aforesaid appeal is reproduced below for the facility of reference: Whether the tribunal is correct in allowing expenditure on imported software when the expenditure per se is capital in nature and is not allowable? 10. Thus, the substantial question of law involved in the aforesaid appeal was different and therefore, with reference to the aforesaid judgment, issue with regard to depreciation claimed on software, which was treated as royalty under Section 40(a)(ia) of the Act could not have been decided by the tribunal. We are not inclined to accept the submission made by learned Senior counsel for the assessee that in paragraph 38, the issue of royalty has been dealt with. We therefore, remand the matter to the tribunal to decide the issue of depreciation claimed on software to the tribunal for

21 decision afresh by taking into account the decision rendered in Wipro Ltd. supra. Accordingly, the second substantial question of law is answered. 11. Thus, from perusal of aforesaid paragraph, it is evident that the issue pertaining to expenditure incurred for purchase of software as royalty has been dealt with and it has been held that the same is not royalty and the provisions of Section 40(a)(ia) of the Act are not attracted. The decision of the Supreme Court in the case of Chaudhary Transport Company supra has no application to the fact situation of the case as the Supreme Court has interpreted Section 40(a)(ia) of the Act in the context of Section 194C of the Act. Thus, the second question of law has to be answered in favour of the assessee and against the revenue. 12. The Supreme Court in Yokogawa India Ltd. supra was dealing with the issue whether losses under Section 10A units or non Section 10A units can be set

22 off against the profits of Section 10A units before deductions under Section 10A are effected held that it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. It is further held that the somewhat discordant use of the expression 'total income of the assessee' in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by

23 understanding the expression 'total income of the assessee' in Section 10A as 'total income of the undertaking'. Thereafter, in para 18 has answered all the substantial questions of law in favour of the assessee including the one whether losses under Section 10A units or non Section 10A units can be set off against the profits of Section 10A units before deductions under Section 10A are effected have answered all the substantial questions of law in favour of the assessee. Therefore, first substantial question of law is also answered in favour of assessee and against the revenue. 13. On close scrutiny of the remaining substantial questions of law are no longer res integra and are covered by decisions of this court in M/S WIPRO LTD. VS. DCIT, 383 ITR 179 (KAR) and 'COMMISSIONER OF INCOME-TAX & ANOTHER VS. TATA ELXSI LTD.' 382 ITR 654 (KAR) as well as para 21 of the Supreme Court in 'COMMISSINOER OF INCOME-TAX VS. HCL TECHNOLOGIES LTD.', 404 ITR 719 (SC), in favour

24 of the assessee. IN view of aforesaid enunciation of law, the remaining substantial questions of law are also answered in favour of the assessee and against the revenue. 14. At this stage, learned counsel for the revenue submits that all the remaining issues covered by decisions of this court in M/S WIPRO LTD. VS. DCIT, 383 ITR 179 (KAR) and 'COMMISSIONER OF INCOME-TAX & ANOTHER VS. TATA ELXSI LTD.' 382 ITR 654 (KAR) are pending adjudication at the instance of the revenue before the Supreme Court. In view of aforesaid submission needless to state that the Assessing Officer shall decide the issues in accordance with the decision which may be rendered by the Supreme Court. 15. For yet another reason, at this stage, no interference is called for with the order passed by the tribunal. The Supreme Court in RADHASOAMI SATSANG Vs. COMMISSIONER OF INCOME-TAX’

25 (1992) 60 TAXMAN 248 (SC) has held that even though principles of res judicata do not apply to income tax proceedings, but where a fundamental aspect permeating through the different Assessment Years has been found as the fact one way or the other and the parties have allowed the position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in subsequent year. For this reason also, in the facts of the case, a different view cannot be taken. In the instant case, the tribunal has answered all the substantial questions of law in favour of the assessee by placing reliance on the case of the assessee in previous Assessment Years viz., 2004- 05 and 2007-08. In the result, the appeal is disposed of in terms stated above. Sd/- JUDGE Sd/- JUDGE ss