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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 12th DAY OF JUNE 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.564/2016 C/W I.T.A.No.561/2016, I.T.A.No.562/2016, I.T.A.No.563/2016 And I.T.A.No.258/2010
I.T.A.No.564/2016
BETWEEN:
THE Pr. COMMISSIONER OF INCOME-TAX, CIT(A) 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE -11(4), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA, BENGALURU-560 095.
…APPELLANTS (By Mr. ARAVIND K.V. ADV.)
AND:
M/S. INTERNATIONAL STONES INDIA PVT. LTD., No.55/12, ALANKAR APARTMENTS FLAT No.1, 39TH CROSS, 14TH MAIN JAYANAGAR 4TH T BLOCK, BENGALURU-560041. PAN: AABCI 1821R.
…RESPONDENT (By Mr. S. PARTHASARATHI, ADV.) R
Date of Judgment 12-06-2018 I.T.A.No.564/2016 & connected matters The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. International Stones India Pvt. Ltd.,
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THIS I.T.A IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA No.1474/BANG/2014 DATED 20/01/2016 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(4), BENGALURU & ETC.
I.T.A.No.561/2016
BETWEEN:
THE Pr. COMMISSIONER OF INCOME-TAX, CIT(A) 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE -11(4), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA, BENGALURU-560 095.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. INTERNATIONAL STONES INDIA PVT. LTD., No.55/12, ALANKAR APARTMENTS FLAT No.1, 39TH CROSS, 14TH MAIN JAYANAGAR 4TH T BLOCK BENGALURU-560041 PAN: AABCI 1821R.
…RESPONDENT (By Mr. S. PARTHASARATHI, ADV.)
THIS I.T.A IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA No.539/BANG/2014 DATED 20/01/2016 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(4), BENGALURU & ETC.
Date of Judgment 12-06-2018 I.T.A.No.564/2016 & connected matters The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. International Stones India Pvt. Ltd.,
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I.T.A.No.562/2016
BETWEEN:
THE Pr. COMMISSIONER OF INCOME-TAX, CIT(A) 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE -11(4), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA, BENGALURU-560 095.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. INTERNATIONAL STONES INDIA PVT. LTD., No.55/12, ALANKAR APARTMENTS FLAT No.1, 39TH CROSS, 14TH MAIN JAYANAGAR 4TH T BLOCK BENGALURU-560041 PAN: AABCI 1821R.
…RESPONDENT (By Mr. S. PARTHASARATHI, ADV.)
THIS I.T.A IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA No.608/BANG/2014 DATED 20/01/2016 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(4), BENGALURU & ETC.
I.T.A.No.563/2016
BETWEEN:
THE Pr. COMMISSIONER OF INCOME-TAX, CIT(A) 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095.
Date of Judgment 12-06-2018 I.T.A.No.564/2016 & connected matters The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. International Stones India Pvt. Ltd.,
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THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE -11(4), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA, BENGALURU-560 095.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. INTERNATIONAL STONES INDIA PVT. LTD., No.55/12, ALANKAR APARTMENTS FLAT No.1, 39TH CROSS, 14TH MAIN JAYANAGAR 4TH T BLOCK BENGALURU-560041 PAN: AABCI 1821R.
…RESPONDENT (By Mr. S. PARTHASARATHI, ADV.)
THIS I.T.A IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA No.1332/BANG/2014 DATED 20/01/2016 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(4), BENGALURU & ETC.
I.T.A.No.258/2010
BETWEEN:
THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD BANGALORE.
THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-11(4), C.R. BUILDING QUEENS ROAD, BANGALORE.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
Date of Judgment 12-06-2018 I.T.A.No.564/2016 & connected matters The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. International Stones India Pvt. Ltd.,
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AND:
M/S. INTERNATIONAL STONES INDIA PVT. LTD., No.55/12, ALANKAR APARTMENT FLAT No.1, 39TH CROSS, 14TH MAIN JAYANAGAR, BENGALURU-560041
…RESPONDENT (By Mr. S. PARTHASARATHI, ADV.)
THIS I.T.A IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BENGALURU IN ITA No.814/BNG/2009, DATED 19/03/2010, CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(4), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY & ETC.
THESE I.T.A.s COMING ON FOR HEARING, THIS DAY Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants - Revenue Mr. S. Parthasarathi, Adv. for Respondents - Assessee
These appeals have been filed by the Revenue – Income Tax Department against the Respondent- assessee M/s. International Stones India Pvt. Ltd., raising certain substantial questions of law to be arising out of an order of ITAT dated 20.10.2016 for Assessment Years 2009-10, 2010-11, 2011-12.
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The facts of the case are illustrally taken from ITA No.564/2016.
The learned Tribunal in the impugned order held that the assessee is entitled to the deduction of its profits and gains from its business u/s.10B of the Income Tax Act, 1961, the assessee being 100% Export Oriented Unit (EOU) for these assessment years in respect of the ‘deemed export of goods’ made by it during the period in question through a third party.
The Revenue has suggested the substantial questions of law in the Memorandum of Appeal filed by it.
At the outset, learned counsel for the Appellants-Revenue, Mr.K.V.Aravind fairly submitted that as far as Question No.2 regarding the expenses incurred by the assessee towards Freight and Insurance charges to be reduced from the ‘Export Turnover’ was concerned, the same was required to be reduced from
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the ‘Total Turnover’ also is the question no longer res integra and the said issue is covered against the Revenue by the judgment of the Hon’ble Supreme Court of India in the case of Commissioner of Income-tax, Central – III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC), in which the Hon’ble Supreme Court dealing with a case of similar nature u/s.80HHC and u/s.80HHE held that the object of formula in S.10A for computation of deduction is to arrive at profit from export business, therefore expenses excluded from ‘Export Turnover’ have to be excluded from ‘Total Turnover’ also and any other interpretation in this regard would make the formula as prescribed u/s.10A(4) of the Act to arrive at a proportionate deduction in respect of ‘Export Turnover’ in comparison with ‘Total Turnover’ will be rendered unworkable and absurd and therefore, such deduction of expenses shall be made from ‘Total Turnover’ also in the same proportion as well.
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In view of the aforesaid binding precedent, learned counsel for the appellant-Revenue fairly does not press the said question.
The other question with regard to the deduction allowable to the Respondent-assessee, M/s. International Stones India Pvt. Ltd., in the present case, the question as framed by the Revenue in the Memorandum of Appeal deserves to be reframed in the following manner:- “Whether in the facts and circumstances of the case, the Respondent-assessee is entitled to deduction u/S.10B of the Act in respect of the ‘Deemed Export’ of goods made by it during the period in question through a third party or not?”.
At the outset, we may note that a similar controversy came to be decided by the co-ordinate Bench of this Court in the case of M/s.Tata Elxsi Ltd., vs. Asst.Commissioner of Income Tax, decided on
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20.10.2015 since reported in (2015) 127 DTR 0327 (Kar), the Division Bench of this Court for the purpose of S.10A of the Act held the assessee entitled to the benefit of such deduction in respect of “Deemed Exports” made by it, while the goods in question were sold by the assessee M/s.Tata Elxsi Ltd., to another STP unit within India M/s.Texas Instruments India Pvt. Ltd., (TIIPL) for the purpose of export outside India.
The Division Bench of this Court discussed in detail the definition of ‘Export Turnover’, the Exim Policy and held that the purpose of giving the deduction to the assessee u/s.10A of the Act in respect of the export of goods made by it in terms of Exim Policy was to fetch foreign currency against such exports and in view of the fact that export was so made by another STP Unit (TIIPL), to whom the goods in question were sold by the assessee-M/s.Tata Elxsi Ltd., the foreign
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currency was received and shared by both the STP Units, therefore, the conditions of S.10A were satisfied and the assessee - M/s.Tata Elxsi Ltd., was entitled to deduction u/s.10A of the Act.
The relevant portion of the judgment of the Division Bench in the case of M/s.Tata Elxsi (supra), is quoted below for ready reference:- “20. From the aforesaid provisions, it is clear that if a assessee wants to claim the benefit of Section 10A, firstly he must export articles or things or computer software. Secondly, the said export may be done directly by him or through other exporter after fulfilling the conditions mentioned therein. Thirdly, such an export should yield foreign exchange which should be brought into the country. If all these three conditions are fulfilled, then the object of enacting Section 10A is fulfilled and the assessee would be entitled to the benefit of exemption from payment of Income Tax Act on the profits and gains derived by the Undertaking from the export. 21. Clause 6.11 of Exim Policy dealing with entitlement for supplies from the DTA states
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that supplies from the DTA to EOU/EHTP/STP/BTP units will be regarded as ‘deemed export’, besides being eligible for relevant entitlements under paragraph 6.12 of the Policy. They will also be eligible for the additional entitlements mentioned therein. What is of importance is when a supply is made from DTA to STP, it does not satisfy the requirements of export as defined under the Customs Act. However, for the purpose of Exim Policy, it is treated as ‘deemed export’. Therefore, when Section 10A of the Act was introduced to give effect to the Exim Policy, the supplies made from one STP to another STP has to be treated as ‘deemed export’ because Clause 6.19 specifically provides for export through Status Holder. It provides that an EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through other exporter or Status holder recognized under this policy or any other EOU/EHTP/STP/BTP unit. What follows from this provision is that to be eligible for exemption from payment of income tax, export should earn foreign exchange. It does not mean that the undertaking should personally export goods manufactured / software developed by it
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outside the country. It may export out of India by itself or export out of India through any other STP Unit.
Once the goods manufactured by the assessee is shown to have been exported out of India either by the assessee or by another STP Unit and foreign exchange is directly attributable to such export, then Section 10A of the Act is attracted and such exporter is entitled to benefit of deduction of such profits and gains derived from such export from payment of income tax. Therefore, the finding of the authorities that the assessee has not directly exported the computer software outside country and because it supplied the software to another STP unit, which though exported and foreign exchange received was not treated as an export and was held to be not entitled to the benefit is unsustainable in law. The substantial question of law is answered in favour of the assessee and against the revenue. The appeal is allowed. The impugned orders are set aside. The assessee is held to be entitled to deduction of such profits and gains derived from the export of the computer software. No costs”.
Before dealing with the arguments raised by the learned counsel for the appellants-Revenue despite
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the aforesaid Division Bench judgment of this Court u/s.10A of the Act, we may note these provisions in the I.T.Act, 1961, in Chapter-III providing for “Incomes which do not form part of total income”, in the series of S.10A (Special provision in respect of newly established undertakings in free trade zone etc.) S.10AA (Special provisions in respect of newly established Units in Special Economic Zones), S.10B (Special provisions in respect of newly established hundred per cent export oriented undertakings), S.10BA (Special provisions in respect of export of certain articles or things), S.10BB (Meaning of computer programmes in certain cases), S.10C (Special provision in respect of certain industrial undertakings in North-Eastern Region).
All these aforesaid provisions were intended to provide for incentive or benefit of exemption or deduction from the total income in respect of profit and gain earned by the Undertaking of the specified nature
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falling in the specified category as specified in these provisions. The substantive terms of these provisions are in pari materia defining the criteria for specification of the units or nature of assessee, who will be entitled to such deduction viz. SEZ, 100% EOU, North-East India Territory etc., subject to fulfillment of certain other conditions as well.
As far as Sections 10A and 10B are concerned, besides the nature of unit being different Free Trade Zone Unit (S.10A) and 100% EOU Unit (S.10B), the substance of these provisions is the same, the difference is only in the categories of assessee covered by these two sections separately. While S.10A covers newly established undertakings in Free Trade Zone (FTZ), S.10B of the Act covers the case of newly established 100% Export Oriented Undertakings (EOUs).
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As far as the quantum of deduction to be computed on the basis of the ‘Export Turnover’ of the assessee is concerned, sub-section(1) of both these provisions are in pari materia. The deduction is allowed in respect of the profit and gains as are derived by the eligible unit from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year in which, the Undertaking begins to manufacture or produce such articles or things or computer software.
Therefore, prima-facie, we felt that the controversy involved in the present appeals for S.10B benefit filed by the Revenue is also covered by the decision of the co-ordinate Bench of this Court in the case of M/s.Tata Elxsi Ltd., (supra) u/S.10A of the Act, but, since the learned counsel for the Revenue has raised certain arguments for our consideration, we considered it appropriate to deal with his arguments
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before answering the substantial question of law framed by us as given above.
The first argument raised by the learned counsel for the appellants-Revenue Mr.K.V.Aravind is that S.10B applies only if an Undertaking satisfies the condition as prescribed in sub-section(2) thereof, vide clause(1) of sub-section(2) requires the assessee to manufacture or produce any articles or things or computer software and clause(2) requires that such assessee unit is not formed by the splitting up or the reconstruction of a business already in existence or it is not formed by transfer of plant and machineries previously used, to the assessee-unit in question.
The learned counsel for the Revenue urged that since the assessee-unit has to manufacture the articles or things or computer software in question, only the export of goods or articles or things or computer software manufactured by the assessee-unit itself
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should be considered for the purpose of computing the deduction u/s.10B of the Act and the “Deemed Export” of such goods or articles through a third party cannot be considered in this regard.
We cannot accept the aforesaid submission for two reasons:-
(i) Firstly, sub-section (2), in our opinion, only determines the eligibility of the unit in question, while sub-section(1) of S.10B is the main provision which grants the deduction in respect of profit and gains to the assessee-unit in question. It is true that the assessee- unit in question in order to be entitled to avail the benefit of S.10B of the Act has to be a manufacturing unit and it cannot be merely a trading house, but on a plain reading of sub-section(1) the deduction u/s.10B cannot be restricted to the goods manufactured or produced by the assessee-unit himself or itself. There is no restriction imposed in sub-section(2) of S.10B on
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the quantum of deduction eligible u/s.10B(1) of the Act with reference to export of goods manufactured by unit itself. The purpose of sub-section (2) is only to ensure that the conditions of unit not formed by splitting up of a new industrial unit and which is engaged in manufacturing of goods and articles is satisfied by the assessee in question. We do not see any restriction of export of goods purchased from the domestic units also by the assessee to be included for the purpose of deduction u/s.10B(1) of the Act.
(ii) Secondly, the Division Bench of this Court in M/s.Tata Elxsi’s case (supra) has already dealt with this aspect of the matter that even the deemed export of the goods sold by a unit covered likewise u/s.10A of the Act, which also incorporates the similar sub-section(2) as contained in S.10B of the Act, that while such goods are sold within India to another STP unit, which as per the Exim Policy, the Union of India treats as ‘Deemed
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Export’ and if a similarly situated assessee in a Free Trade Zone has been held entitled to the benefit of deduction u/s.10A, in respect of the exports made through a third party or another units located in India within STP only, with which reason, we respectfully agree, there is no reason to exclude such ‘Deemed Export’ being taken into account as ‘Export Turnover’ for the purpose of S.10B of the Act also.
For both these reasons, we cannot accept the aforesaid submissions of the learned counsel for the Revenue and the contention therefore is liable to be rejected and the same is accordingly rejected.
Another contention which was raised by the learned counsel for the Revenue before us is that in sub-section (1) of S.10B, the words used “profit and gains as are derived by a 100% Export Oriented Unit Undertaking”, he emphasized the words “by the Undertaking” and therefore, submitted that for this
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reason, the export in question should take place directly from the hands of Undertaking in question itself and not through a third party. He also submitted that like in the case of M/s.Tata Elxsi (supra), both the units were located in the same STP area. In the present case, the entity through whom the export has been made by the assessee is not 100% Export Oriented Unit and therefore, the benefit of S.10B should be denied to the Respondent-assessee before this Court.
We are unable to accept even this submission of learned counsel for the appellant-Revenue. We do not find any good reason to take a narrow and pedantic approach in construing the words “by an Undertaking” and restricting the benefit u/s.10B of the Act only in respect of the direct export of such goods manufactured by such Unit as contended by the learned counsel for the appellant-Revenue.
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As held by the Division Bench of this Court in M/s.Tata Elxsi’s case, the purpose of giving these deductions in these special provisions is to encourage exports and fetch foreign currency in terms of Exim Policy propounded and announced by the Union of India.
The ‘Deemed Export’ by the assessee Undertaking even through a third party who has exported such goods to a Foreign country and has fetched Foreign Currency for India, still remains a ‘Deemed Export’ in the hands of the assessee undertaking also. If the Parliament intended to put any restrictive meaning for curtailing the said deduction, such words could be employed in sub-section(1) itself, which could have excluded ‘Deemed Export’ from the ambit and scope of word ‘export’ employed in sub- section(1) of S.10B of the Act. The Explanation defining ‘Export Turnover’ in both these provisions does not make any such distinction between the ‘Direct Export’ and ‘Deemed Export’.
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For a harmonious reading of these provisions of the Act which are undoubtedly beneficial provisions, the word ‘export’ read with the background of Exim Policy of Union of India would certainly include ‘Deemed Export’ also within the ambit and scope of the ‘Export Turnover’ as explained in Explanation-2 of sub- section (9A) of the said S.10B of the Act.
Therefore, both the contentions raised by the learned counsel for the appellant-Revenue to restrict the deduction in the hands of the respondent-assessee by excluding the ‘Deemed Exports’, does not have any merit and the said contention deserves to be rejected and the same is accordingly rejected.
The appellant-Revenue before us was unable to establish that both the Respondents-assessees before us and the entity through whom such export was made by the assessee for the period in question, have claimed
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any double or repetitive benefit u/s.10B of the Act for the same transaction of export.
Therefore, we are clearly of the opinion that the issue raised in the present case by the Revenue is squarely covered by the decision of the Division Bench of this Court in M/s.Tata Elxsi’s case (supra) and we respectfully agree with a view expressed by the earlier Division Bench and therefore, we answer the said substantial question of law framed above against the Revenue and in favour of the assessee and the appeals filed by the Revenue deserves to be dismissed and the same are accordingly dismissed. No costs.
Sd/- JUDGE
Sd/-
JUDGE
Srl.