M/S WIPRO LIMITED vs. THE ADDITIONAL COMMISSIONER OF INCOME-TAX,

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.315 OF 2012 BETWEEN: M/S. WIPRO LIMITED 76R & 80P, DODDAKANNELLI SARJAPUR ROAD BENGALURU-560035 ... APPELLANT (BY SRI. S. GANESH, SR. COUNSEL FOR SRI. SANDEEP HUILGOL, ADV., FOR SRI. R.B. KRISHNA, ADV.,) AND: THE ADDITIONAL COMMISSIONER OF INCOME-TAX, CIRCLE 12(5) 14/3, 4TH FLOOR, RASTROTHANA BHAVAN (OPP.) RBI, NRUPATHUNGA ROAD BANGALORE - 560 001. ... RESPONDENT (BY SRI. E.I.SANMATHI, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 18.07.2012 PASSED IN ITA NO.1349/BANG/2010 FOR THE ASSESSMENT YEAR 2006-07, ANNEXURE-E, PRAYING TO (I) FORMULATE THE SUBSTNATIAL QUESTIONS OF LAW AS STATED THEREIN, (II) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.1349/BANG/2010 DATED 18.07.2012 (ANNEXURE-E), IN THE INTEREST OF JUSTICE AND EQUITY.

2 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 assessee. The subject matter of the appeal pertains to the Assessment year 2006-07. The appeal was admitted by a bench of this Court vide order dated 05.02.2013 on the following substantial questions of law: (i) Whether the tribunal was right in making an adhoc disallowance of 2.5% of dividend income as expenditure incurred on exempt income when the assessee had identified expenditure to be disallowed? (ii) Whether the tribunal was right in directing that losses of a 10A/10AA unit, which are already set-off against other business income of the appellant, should be again carried forward and set-off against eligible profits of the same unit in a subsequent year?

3 (iii) Whether the Tribunal was right in directing the respondent to disallow the deferred compensation claimed by appellant as the claim does not fall within the parameters of sec.36(1)(iv) & (v) r.w.s. 40A(9)? (iv) Whether the tribunal was right in excluding the computer software sales made to STP/SEZ units in India from "export turnover" for the purpose of computing deduction under Section 10A/10AA of the Act? (v) Whether the tribunal was right in excluding the VAT / GST from export turnover and total turnover for the purpose of computing deduction under Section 10A/10AA of the Act? (vi) Whether the tribunal was right in concluding that 80% of the uplinking charges had to be excluded from the definition of turnover, when even the first responded had limited such exclusion to 5% of the telecommunication charges?

4 (vii) Whether the tribunal was right in concluding that purchase and sales of monitors constituted a trading activity and thus excludible from the profits of the Pondicherry unit for the purposes of computing deduction under Section 80-IB of the Act, when such monitors were part of the computers manufacture and sold by the units? 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 on 30.11.2006 for Assessment Year 2006-07. A draft order of assessment was passed on 31.12.2009. The assessee thereupon filed objections before Dispute Resolution Panel, which upheld the order of the Assessing Officer by an order dated 27.09.2010. On the

5 basis of directions issued by before Dispute Resolution Panel, the Assessing Officer passed a final order of assessment on 28.10.2010. 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 18.07.2010 inter alia disallowed the claim of the assessee under Section 14A of the Act. The tribunal in respect of losses incurred by the units eligible for deduction under Section 10A / 10AA of the Act held that the assessee could not be compelled to seek deduction under Section 10A in respect of an undertaking in which there is a loss. However, it was held that brought forward losses of 10A unit should be set off against profits before allowing the deduction. The tribunal disallowed the claim for deduction of deferred compensation amount paid from the trust. The tribunal also disallowed the claim for deduction under Section 10A/10AA of the Act with

6 respect of exports nomenclature as deemed export and claim for exclusion of VAT / GST collected from customers against bills raised in foreign jurisdiction was also disallowed. The tribunal also directed exclusion of 80% of uplinking charges and upheld the disallowance on computation of deduction under Section 80IB of the Act with reference to computer hardware at Pondicherry. In the aforesaid factual background, the assessee is in appeal before us. 4. Learned Senior counsel for the assessee submitted that the tribunal erred in disallowing 2.5% of the dividend income as disallowance when the assessee had identified the expenditure attributable based on estimated time spent by functionaries responsible for managing companies investments and cash surpluses. It is also submitted that the finding recorded by the tribunal in importing the concept of Section 80IA(5) to Section 10A /10AA is perverse and the tribunal grossly erred in not allowing the claim of deferred compensation

7 paid by the trust on behalf of the assessee as expense eligible for deduction under Section 37(1) of the Act. It is also contended that the tribunal erred in concluding that export nomenclatures as deemed export does not constitute export turnover as defined in Section 10A / 10AA of the Act and is therefore, not eligible for deduction. It is also argued that tribunal grossly erred in holding that VAT / GST cannot be included in export turnover and in total turnover as there is no requirement to exclude the same as per provisions of Section 10A / 10AA of the Act. The tribunal also misdirected itself in concluding that 80% of the uplinking charges should be excluded from the turnover. It was also urged that tribunal erred in concluding that purchase and sales of monitors constituted trading activity although such monitors are an integral part of computers which are sold. 5. On the other hand, learned counsel for the revenue submitted that assessing authority has rightly

8 estimated 5% of the dividend income as expenditure relating to earning of dividend according a sum of Rs.4,33,78,265/- was rightly disallowed under Section 14A of the Act and was upheld by the Dispute Resolution Panel and the tribunal rightly reduced it to 2.5%. It is also pointed out that the assessee itself has worked out the same at 2%. It is also urged that losses of non STP units, profits of taxable Units cannot be set off against profits of 10A / 10B units since, such loss can be considered and set off and carried forward only under Section 70, 72 and 74 which falls within Chapter VI of the Act and therefore, the assessing authority has rightly assessed the set off losses of M.G.Road Unit since 10A tenure had been expired. It is also submitted that issue pertaining to exclusion of VAT / GST, eligibility of monitor sold as part of main computer for deduction under Section 80IB, deduction under Section 10A /10AA with regard to deemed export and eligibility of Foreign Tax Credit is pending adjudication before the Supreme

9 Court. Learned counsel for the revenue has supported the order passed by the Assessing Officer as well as the directions issued by Dispute Resolution Panel as well as the tribunal and has submitted that the substantial questions of law which arise for consideration in this appeal deserves to be answered in favour of the revenue and the appeal is therefore, required to be dismissed. 6. We have considered the submissions made by learned counsel for the parties and have perused the record. From perusal of substantial question of law No.1, we find that the aforesaid substantial question of law is no longer res integra and has already been answered in favour of the assessee by the Supreme Court in 'GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DY. COMMISSIONER OF INCOME-TAX AND ANR.', 394 ITR 449 (SC). In view of aforesaid enunciation of law, the first substantial question of law is answered in favour of the assessee and against the revenue.

10 7. Now we may advert to the second substantial question of law. From perusal of para 17 of the judgment rendered by the Supreme Court in ‘COMMISSIONER OF INCOME-TAX VS. YOKOGAWA INDIA LTD.’, 391 ITR 274, we find that the second substantial question of law is also no longer res integra and has been answered in favour of the assessee by the Supreme Court. Therefore, the second substantial question of law is also answered in favour of the assessee and against the revenue. Insofar as third substantial question of law is concerned, from perusal of paragraphs 147 of the judgment rendered by a bench of this court in 'WIPRO LTD. VS. DCIT', (2016) 383 ITR 179 (KAR), we find that the aforesaid substantial question of law is also no longer res integra and has been answered in favour of the assessee. Therefore, the third substantial question of law is also answered in favour of the assessee and against the revenue. From perusal of paragraph 128 of the judgment rendered by a

11 bench of this court in 'WIPRO LTD. VS. DCIT', (2016) 383 ITR 179 (KAR), we find that the fourth substantial question of law is also required to be answered in favour of the assessee. Therefore, the fourth substantial question of law is also answered in favour of the assessee and against the revenue. From perusal of paragraph 106 of the judgment rendered by a bench of this court in 'WIPRO LTD. VS. DCIT', (2016) 383 ITR 179 (KAR), we find that the fifth substantial question of law is also no longer res integra and has been answered in favour of the assessee. Therefore, the fifth substantial question of law is also answered in favour of the assessee and against the revenue. 8. We have perused paragraphs 12 to 18 of the decision of this court in '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), we find

12 that the sixth substantial question of law is also required to be answered in favour of the assessee and against the revenue. However, in view of submission made by learned Senior counsel for assessee that he does not intend to press substantial question of law No.7, it is not necessary to answer the aforesaid substantial question of law. 9. 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.

13 In view of preceding analysis, the order dated 18.07.2012 except insofar as it pertains to substantial question of law No.7 is hereby quashed. In the result, the appeal is disposed of in terms of the judgment passed by us today in I.T.A.No.464/2017. Sd/- JUDGE Sd/- JUDGE ss