PR COMMISSIONER OF INCOME TAX vs. M/S GE MEDICAL SYSTEMS INDIA PVT.LTD

1/16 IN THE HIGH COURT OF KARNATAKA, BENGALURU

DATED THIS THE 25TH DAY OF JULY 2018

PRESENT

THE HON'BLE Dr.JUSTICE VINEET KOTHARI

AND

THE HON’BLE Mrs.JUSTICE S.SUJATHA

I.T.A.No.78/2016

BETWEEN:

…APPELLANTS

(BY Mr.E.I.SANMATHI, ADV.)

AND:

M/S. GE MEDICAL SYSTEMS INDIA PVT.LTD., 122. PART-1, EPIP, WHITEFIELD ROAD, BANGALORE-560 006. PAN:AAACG 7655G.

…RESPONDENT (BY Mr. ANKUR PAI, ADV.)

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THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULDATED BY THE HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 30/06/2015 PASSED BY THE ITAT, ‘A’ BENCH, BENGALURU IN APPEAL PROCEEDINGS NO. IT (TP)A NO. 337/BANG/2011 FOR ASSESSMENT YEAR 2004-05, ANNEXURE A AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT IN THE INTEREST OF JUSTICE.

THIS I.T.A. COMING ON FOR ADMISSION, THIS DAY Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-

JUDGMENT

Mr.E.I.Sanmathi, Adv. for Appellants-Revenue Mr.Ankur Pai, Adv. for Respondent-Assessee

The Appellants - Revenue have filed this appeal raising purported substantial questions of law arising from the Order of the learned Income Tax Appellate Tribunal Bench ’A’, Bangalore, Annexure A dated 30/06/2015 in IT(TP)A.No.337/Bang/2011 for AY 2004-05.

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(2) Whether the Tribunal is justified in directing the assessing officer to recomputed the deduction under section 10A after

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reducing those expenses that were reduced only from export turnover, to reduce from the total turnover also, without appreciating that there is no provision in section 10A to the effect that such expenses should also be reduced from the total turnover, as clause (ix) of the Explanation to section 10A provides that such expenses have to be reduced only from the export turnover?

(3) Whether on the facts and in the circumstances of the Tribunal erred in setting aside the disallowance of Rs.27,25,570/- on profit from sale of spare parts which was excluded from 10A claim as it did not pertain to profit earned from export of manufactured item which cannot become part of 10A income and said activity was only trading activity and not manufacturing activity?

(4) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of the claim of the assessee for

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Rs. 58,07,090/- from the export turnover due to the assessee’s failure to substantiate its claim that foreign currency was brought to the country within six months in accordance with the provisions of section 10A(3) of the Act by following the decision of this Hon’ble Court in case of Tyco electronics Corporation India P. Ltd (2012) 22 Taxman.com 267(KAR) even when no such relief can be granted under section 10A(3) of the Act and the decision relied upon by it has not reached finality?”

“17. The similar nature of controversy, akin this case, arose before the Karnataka

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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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attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature. 20. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also.

Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well”.

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Regarding substantial question of law No:1: “9. As far as the revenue’s appeal against the deletion of Vimta Labs Ltd., from the list of comparables is concerned, though the learned Departmental Representative has relied upon the order of the AO, we find that the TPO has, in the remand report (which is reproduced at 14.2.1 of the order of the CIT (A) has stated that Vimta Labs Ltd., was into contracting, research and technical activity and therefore is functionally dissimilar to the assessee. Since the TPO himself has agreed that the said company is not comparable to the assessee-company, we do not see any reason to interfere with the order of the CIT (A) on this issue and the revenue’s ground of appeal on this issue is rejected.”

Regarding substantial question of law No.3:

“(iii) As regards exclusion of profit from sale of spare part and components of Rs.27,25,570/-, we find that the CIT(A) confirmed the disallowance by following the decision of the ITAT in the case of GEBE Pvt. Ltd., i.e. a group company of the

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assessee on identical facts. The learned counsel for the assessee submitted that the CIT(A) has followed the decision of the Tribunal in the case of Group of companies for the assessment year 2003-04 whereas the Tribunal, in the case of GE BE Pvt. Ltd., in ITA No.815/Bang/2010 dated 06/12/2013 for the assessment year has considered the issue by following the decision of the Special Bench of the Tribunal, Indore in the case of Maral Overseas Ltd. vs. ACIT (136 ITD 177)(SB)(Indore) to hold that the claim of the assessee that profits from trading activity of the spare parts is also to be considered for the purpose of deduction u/s 10B of the Act should be accepted. The learned Departmental Representative, on the other hand, relied upon the judgment of the Hon’ble Supreme Court in the case of Liberty India Ltd. reported in (2009) 317 ITR 0218.”

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“14. As regards adjustments made to export turnover and profits of the business in computing deduction u/s 10A of the Act, we find that it consists of the following three adjustments:

(1) Deduction of Rs.58,07,090/- from the export turnover due to the assessee’s failure to substantiate its claim that foreign currency was brought to the country within six months in accordance with the provisions of sec.10A(3) of the Act.

As regards this issue, we find that the assessee had filed before the CIT(A), a copy of the certificate issued by HSBC dated 26/05/2005 confirming that export bills of the assessee booked prior to 31/12/2004 have been closed. The CIT(A) has considered the fact that the assessee had applied for

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extension of time for remittance of proceedings and that the entire sale proceeds were realized subsequently and the bank certificate to this effect was submitted by the assessee during the assessment proceedings and that the AO has not taken cognizance of the same. The CIT(A) has therefore granted relief to the assessee on the basis of the above evidence. The learned Departmental Representative has not been able to produce any evidence to rebut this finding of the CIT(A). On the other hand, the learned counsel for the assessee has placed reliance upon the judgment of the Hon’ble Karnataka High Court in the case of CIT vs. Tyco Electronics Corpn.India (P) Ltd., (2012) 22 Taxman.com 267(Kar.) wherein the Hon’ble High Court at para 9 of its order has held as under:

“9. A reading of the aforesaid provision makes it clear that the assessee to be entitled to the benefit of section 10A, the sale proceeds would have to be brought into the country within a period of six months from the

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end of the previous year. However, the legislature has consciously in express words has vested the power to extend the time limit for the said benefit, if the competent authority chooses to allow the said benefit. Therefore, the six months’ period prescribed is not mandatory. A discretion is vested with the competent authority to extend the said benefit of the section even in cases where the sale proceeds are received beyond the period of time prescribed under the said provision. The only condition is that the sale proceeds would have to be received. If the sale proceeds are not received within 6 months period, all that the assessee has to do is to make a request to the competent authority for extension of time. Of course, he has to make all efforts to receive the sale proceeds from the foreign buyer expeditiously. Granting to extension of time is the discretion of the competent authority. But once such a discretion is exercised and the time is extended, the assessee would be entitled to the benefit of the same.

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9a. The statute does not prescribe any time-limit within which the application is to be made for such an extension of time and the period within which the competent authority has to pass an order. The object behind this provision appears to be that once the sale proceeds are received in India though late and the authority vested with the power to extend the time, exercises the discretion, the assessee should be entitled to the benefit. In that view of the matter, the Tribunal was justified in setting aside the order of the Appellate Commissioner as well as the Assessing Officer and in extending the said benefit. It is in consonance with the express words used in the statute. Therefore, we do not find any substance in the said contention. Therefore, the first substantial question of law is answered in favour of the assessee and against the revenue.”

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[Prl. Commissioner of Income Tax & Anr. V/s. M/s.Softbrands India Pvt. Ltd.,] wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the Judgment is quoted below for ready reference: “ Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial question of law. On

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the other hand, the appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law. 56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.

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at all a sufficient reason to invoke Section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.” 8. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question of law arises for consideration in the present case.

Sd/- JUDGE

Sd/-

JUDGE