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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 1ST DAY OF OCTOBER, 2021
PRESENT
THE HON’BLE MRS.JUSTICE S.SUJATHA
AND
THE HON’BLE MR. JUSTICE RAVI V. HOSMANI
I.T.A.No.395/2016
BETWEEN :
M/s SUBEX LTD., RMZ ECOWORLD DEVARABISANAHALLI, OUTER RING ROAD, BENGALURU-560 037 REP BY ITS MANAGING DIRECTOR, SRI SURJEET SINGH, S/O SRI THAKUR SINGH AGED ABOUT 48 YEARS
...APPELLANT
(BY SRI CHYTHANYA K.K., ADV.)
AND :
THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(2) BENGALURU-560 001
…RESPONDENT
(BY SRI JEEVAN J. NEERALGI, ADV. A/W SRI T.N.C.SRIDHAR, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 18.03.2016 PASSED IN ITA NO.373/BANG/2015, FOR THE ASSESSMENT YEAR 2010-2011 ANNEXURE-A PRAYING TO
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FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED ABOVE. 2. ALLOW THE APPEAL AND SET-ASIDE THE IMPUGNED ORDER OF THE ITAT, BENGALURU 'B' BENCH IN ITA NO.373/BANG/2015, DATED 18.03.2016 ANNEXURE-A.
THIS APPEAL HAVING BEEN HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
This appeal arising against the order of the Income Tax Appellate Tribunal [ITAT] “B” Bench, Bengaluru dated 18.03.2016 passed in ITA No.373/Bang/2015 relating to the assessment year 2010-11.
This appeal was admitted to consider the following substantial questions of law: “1. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in holding that the share premium collected on the issue of Share Capital by the Appellant cannot be taken as part of the ‘Capital Employed’ for allowing deduction under Section 35D of the IT Act?
Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in holding that the cost
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of acquisition of companies cannot be treated as asset for allowing deduction under Section 35D of the IT Act?
Whether, in the circumstances of the case, the Tribunal is right in law in impliedly holding that the deduction under Section 35D be disturbed in the subsequent years?
Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the orders of the lower authorities in excluding certain expenses [i.e., communication expenses of Rs.1,46,71,497/- and insurance charges of Rs.1,16,30,388/-] from export turnover under Section 10AA of the IT Act?
Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the orders of lower authorities in excluding telecommunication charges of Rs.1,46,71,497/- and insurance charges of Rs.1,16,30,388/- from export turnover under Section 10AA of the IT Act when the same
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represented payment made for standard facility?
Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the orders of lower authorities in excluding telecommunication charges of Rs.1,46,71,497/- and insurance charges of Rs.1,16,30,388/- from export turnover under Section 10AA of the IT Act when the same does not relate to delivery of software at all?
Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the orders of lower authorities in excluding telecommunication charges of Rs.1,46,71,497/- and insurance charges of Rs.1,16,30,388/- from export turnover under Section 10AA of the IT Act when the same was not incurred in foreign currency?”
Re. Substantial question of law No.1: 3. The points raised herein are squarely covered by the judgment of the Hon'ble Apex Court in
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Berger Paints India Ltd., V/s. Commissioner of Income-tax, Delhi-V, [(2017) 79 taxmann.com 450 (SC)]. Hence, this substantial question of law is answered against the assessee and in favour of the Revenue.
Re. Substantial question of law No.2: 4. This issue is squarely covered by the decision of this Court in the assessee’s own case in ITA No.378/2015 wherein this substantial question of law is answered against the assessee and in favour of the Revenue. This substantial question of law is answered accordingly.
Re. Substantial question of law No.3: 5. This substantial question of law is answered against the assessee for the reason that the deduction under Section 35D of the Act has been disturbed in the subsequent years in accordance with
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law. Accordingly, this substantial question of law is held against the assesse and in favour of the Revenue.
Re. Substantial question of law No.4: 6. This question is covered by the ruling of Co- ordinate Bench of this Court in the case of M/s. Mindtree Ltd., V/s. The Asst. Commissioner of Income Tax [ITA No.89/2013, D.D. 25.08.2020], wherein it is observed thus: 9. Thus, the Commissioner of Income Tax (Appeals) has recorded a categorical finding that assessee is engaged in the development of computer software, which is exported outside India. The aforesaid finding has not been set aside by the Tribunal. Therefore, in view of Explanation 2(iii) to Section 10B of the Act, the expression ‘export turnover’ does not include any expenses incurred in foreign exchange in providing technical services outside India. The assessee has incurred
expenditure
of Rs.198,17,58,814/- in foreign currency
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from export turnover for software development. Similarly,
the telecommunication charges attributable to delivery of computer software outside India could not have been excluded from the export turnover in view of Explanation 1(i) to Section 10AA of the Act. It is also noteworthy that Explanation 2 to Section 10AA provides that profits and gains derived from; on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.
In view of the aforesaid, this substantial question of law is answered in favour of the assessee and against the Revenue.
Re. Substantial questions of law Nos.5 to 7: 7. These substantial questions of law are covered by Commissioner of Income-Tax V/s. HCL
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Technologies Ltd., [(2018) 404 ITR 719 (SC)] wherein the Hon’ble Apex Court has held thus: “17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from ‘export turnover’ must also be excluded from ‘total turnover’, since one of the components of ‘total turnover’ is export turnover.
Any other interpretation would run counter to the legislative intent and would be impermissible.”
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In view of the said ruling, we answer these substantial questions of law in favour of the assessee and against the Revenue.
Substantial question of law Nos.4 to 7 are answered in favour of the assessee and against the Revenue. Substantial question of law Nos.1 to 3 are answered against the assessee and in favour of the Revenue.
In the result, appeal is partly allowed as indicated above.
Sd/- JUDGE
Sd/- JUDGE
NC.