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1/19 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 23RD DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.77/2016
BETWEEN:
PR.COMMISSIONER OF INCOME TAX, CENTRAL REVENUE BUILDINGS, QUEENS ROAD, BANGALORE - 560 001.
DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(3), BANGALORE.
…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
Date of Judgment 23-07-2018 I.T.A.No.77 /2016 Pr.Commissioner of Income Tax & Anr., Vs. M/s. GE Medical Systems India Pvt. Ltd.,
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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 FORMULATED 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.333/BANG/2011 FOR ASSESSMENT YEAR 2005-06.
THIS I.T.A. COMING ON FOR ADMISSION, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. E.I.Sanmathi, Adv. for Appellants-Revenue
The appellants-Revenue have filed this appeal u/s. 260A of the Income Tax Act, 1961 (for short ‘Act’) raising purportedly certain substantial questions of law arising from the order of the Income Tax Appellate Tribunal, Bangalore Bench ‘A’ (for short ‘Tribunal’) dated 30.06.2015 passed in I.T(TP)A No.333/Bang/2011 for the A.Y.2005-06.
The proposed substantial questions of law framed in the memorandum of appeal by the appellants- Revenue is quoted below for ready reference:
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“1. Whether on the facts and in the circumstances of the case, the Tribunal and CIT erred in the Tribunal for A.Y.2004-05 has excluded comparable namely, M/s. Vimta Labs Ltd from the list of comparables on the ground that the company is into contract research activities whereas the taxpayer renders engineering design services in its engineering services segment and deleted the adjustment of Rs.2,15,55,631/- even when the analyzing the materials on record established that the said comparable satisfied all the required tests otherwise the Tribunal ought to have remanded the matter for fresh determination since the other companies retained by Tribunal were also of not same field?
Whether the Tribunal is justified in directing the assessing officer to recomputed the deduction under section 10A after 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
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expenses have to be reduced only from the export turnover?
“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?”
The substantial question of law No.2 is covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of Income-tax, Central – III vs. HCL Technologies Ltd. [2018] 93 Taxmann.com 33(SC). The relevant portion of the judgment of the Hon’ble Supreme Court in the case of HCL Technologies Ltd. (supra), is quoted below for ready reference:-
“17. The similar nature of controversy, akin this case, arose before the Karnataka High Court
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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.
XXXXXX
In the instant case, if the deductions on freight, telecommunication and insurance 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,
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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”.
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: 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
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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:
In a recent judgment of this Court in ITA No.564/2016 and connected matters (decided on 12.06.2018) the substantial question of law No.3 has been considered and we quote the relevant findings of the learned Tribunal hereunder for ready reference:
“10. Before dealing with the arguments raised by the learned counsel for the appellants-Revenue despite 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
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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 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
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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).
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
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appropriate to deal with his arguments 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 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.
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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 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
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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 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.
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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 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’.
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
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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 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
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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.”
In view of the above said findings, we do not find any substantial question of law arising for our consideration on this issue since the very same substantial question of law has been already answered by this Court against the appellants-Revenue and in favour of the Respondent-assessee. 5. Moreover, the controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536/2015 c/w 537/2015 dated 25.06.2018 [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:
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“ 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 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
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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.
We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an ‘Arm’s Length Price’ in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not 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.”
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In the circumstances, having heard the learned Counsel appearing for the appellants-Revenue, We are of the considered opinion that no substantial question of law arises for consideration in the present case.
Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Copy of this order be sent to the Respondent- assessee forthwith.
Sd/- JUDGE
Sd/-
JUDGE