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Income Tax Appellate Tribunal, BANGALORE BENCH-SMC “ C ”
Before: SHRI VIJAY PAL RAO
Per Shri Vijay Pal Rao, J.M. : This appeal by the revenue is directed against the order dt.12.02.2016 of Commissioner of Income Tax (Appeals)-7, Bangalore for the Assessment Year 2009-10.
The revenue has raised the following grounds :
3. Ground No.1 is general in nature and does not require any specific adjudication.
4. Ground Nos.2 to 4 are regarding expenditure incurred in foreign currency towards telecommunication charges from export turnover as well as total turnover while computing the deduction under Section 10A of the Income Tax Act, 1961 (in short 'the Act').
5. Having considered the submission of learned Departmental Representative as well as the material on record, I find that the issue of expenditure incurred towards telecommunication charges in foreign currency attributable to the delivery of computer software abroad is reduced from export turnover an equal amount should also be reduced from total turnover while computing the deduction under section 10A of the Act, is covered in favour of the assessee by the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Tata Elxsi Ltd. 349 ITR 98 (Kar). The decision of Hon'ble jurisdictional High Court has been followed in a number of cases in co-ordinate benches of ITAT. Hence, this issue is decided against the revenue and in favour of assessee.
5. Ground Nos.5 & 6 are regarding set off of losses of non-STPI Unit against the proceeds of STPI unit before allowing the deduction under Section 10A of the Act.
6. Having considered the submission of learned Departmental Representative as well as the material on record, I note that this issue is covered in favour of the assessee and against the revenue by the decision of the Hon'ble jurisdictional High Court in the case of CIT Vs. Yokogawa India Ltd. 341 ITR 385 which has been upheld by the Hon'ble Supreme Court vide decision reported in 391 ITR 274 wherein the Hon'ble Supreme Court has held in paras 15 to 17 as under :
“ 15. Sub-section 4 of Section 10A which provides for pro rata exemption, necessarily involving deduction of the profits arising out of domestic sales, is one instance of deduction provided by the amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into the computation under the head "profits and gains from business" in Chapter IV and denied the benefit of deduction. The provisions of Sub-section 6 of Section 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation etc. commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understand by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisions of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operation of Chapter VI of the Act. The retention of the said provisions of the Act i.e. Section 80HHC and 80HHE, despite the amendment of Section 10A, in our view, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intended by the legislature. Such a benefit can only be understood by a legislative mandate to understand that the stages for working out the deductions under Section 10A and 80HHC and 80HHE are substantially different. This is the next aspect of the case which we would now like to turn to.
From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that,
The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision.
If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, 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. 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 understanding the expression "total income of the assessee" in Section 10A as 'total income of the undertaking'.” In view of the decision of Hon'ble Supreme Court (supra), I do not find any error or illegality in the order of CIT (Appeals) qua this issue.