IBS SOFTWARE SERVICES V. DY.COMMISSIONER OF INCOME TAX, TVM

ITA/411/2010

AI Insights

The case involves IBS Software Services Private Limited, a 100% Export Oriented Unit (EOU) and software exporter, which claimed benefits under the Software Technology Parks (STP) Scheme and sought a complete exemption from income tax under a notification issued under the Foreign Trade (Development and Regulation) Act, 1992. The Assessing Officer granted benefits under Section 10A of the Income Tax Act, 1961, but not the complete exemption under the FTDR Act. The Tribunal upheld the Assessing Officer's decision, leading to the current appeals. The main legal questions were whether the assessee was eligible for the exemption under the FTDR Act and whether certain reimbursements to the assessee should be excluded from the total turnover.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 755171 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 20-07-2018
• Assessment Year: misc
• Other Referred Cases: CIT v. HCL Technologies Ltd. [(2018) 404 ITR 719 (SC)]
• Laws Referred To: Foreign Trade (Development and Regulation) Act, 1992, Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: P K R MENON; JOSE JOSEPH
• Assessee Lawyers: E K NANDAKUMAR; P BENNY THOMAS; P GOPINATH; K JOHN MATHAI
• Keywords: 100% Export Oriented Unit; Exemption; Export Turnover; Income Tax; Total Turnover
• Section: 3; 10A

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY, THE 20TH DAY OF JULY 2018 / 29TH ASHADHA, 1940 I.T.A.No.411 of 2010 ----------------------------- AGAINST THE ORDER IN I.T.A.NO.847/COCH/2007 DATED 13.07.2010 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN. [ASSESSMENT YEAR 2004-05] --------------------- APPELLANT(S)/ RESPONDENT IN ITA:- -------------------------------------------------------- IBS SOFTWARE SERVICES PRIVATE LIMITED, 521-524, NILA, TECHNOPARK CAMPUS, TRIVANDRUM (PAN.AAACI 6825N). BY ADVS.SRI.E.K.NANDAKUMAR [SENIOR ADVOCATE] SRI.P.BENNY THOMAS SRI.P.GOPINATH SRI.K.JOHN MATHAI RESPONDENT(S)/ APPELLANT IN ITA:- -------------------------------------------------------- DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I(1), THIRUVANANTHAPURAM. BY SENIOR COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.P.K.R.MENON. BY STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES ) SRI.JOSE JOSEPH. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 20-07-2018, ALONG WITH I.T.A.NO.412 OF 2010 & CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:- I.T.A.NO.411 OF 2010 APPENDIX APPELLANT'S ANNEXURES:- ------------------------------------------- ANNEXURE-A TRUE COPY OF THE NOTIFICATION NO.SO.243(E) DATED 22.3.1994. ANNEXURE-B THE TEXT OF THE FOREIGN TRADE DEVELOPMENT AND REGULATION ACT, 1992. ANNEXURE-C TRUE COPY OF THE ASSESSMENT ORDER DATED 27.12.2006. ANNEXURE-D TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 30.05.2007. ANNEXURE-E TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH DATED 13.7.2010. RESPONDENT'S ANNEXURES:- ---------------------------------------------- NIL. vku/- [ true copy ] K. Vinod Chandran & Ashok Menon, JJ. ----------------------------------------------------------- I.T.A.Nos.411, 412, 415, 416 & 418 of 2010 ----------------------------------------------------------- Dated, this the 20th day of July, 2018 JUDGMENT Vinod Chandran, J: Four appeals by the assessee [I.T.A.Nos.411, 412, 415 & 418 of 2010] and one by the Revenue [I.T.A.No.416 of 2010]. The appeals of the assessee raise a common question insofar as the exemption applicable to them being a 100% Export Oriented Unit [EOU]. 2. The question of law raised, in the case of the assessee, is re-framed as follows: Whether the assessee is eligible to exemption under Annexure-A notification brought out by virtue of Section 3 of Foreign Trade (Development and Regulation) Act, 1992 [for brevity “FTDR Act”]? 3. The assessee was granted benefits by the Assessing Officer under Section 10A of the Income Tax Act, 1961 [for brevity “IT Act”]. The assessee took up the matter in appeal, asserting that they are entitled to blanket exemption as available ITA.411 of 2010 & - 2 - connected cases under Annexure-A notification [produced in the assessee's appeals]. The first appellate authority allowed the same. The Revenue filed an appeal before the Tribunal, which held that the assessee can claim exemption only under the IT Act. 4. The question that arose in the Revenue's appeal is as to whether the travel charges, telephone charges and professional consultancy charges reimbursed by the foreign client for services rendered outside the country are to be excluded from the total turnover under Section 10A of the IT Act when the same has to be excluded from the export turnover. The Tribunal found that when the same is excluded from the numerator, it has to be necessarily excluded from the denominator also; numerator being the export turnover and denominator being the total turnover. 5. The question of law raised in the Revenue's appeal is as follows: Whether the reimbursement of expenses obtained by the assessee for services rendered outside the country has to be excluded from the total turnover, since it stands excluded from the export turnover? 6. The assessee is a 100% EOU and a software exporter, who claimed benefit under the Software Technology ITA.411 of 2010 & - 3 - connected cases Parks (STP) Scheme formulated by the Central Government under Section 3 of the FTDR Act. The notification at Annexure-A was under Section 3 of the FTDR Act, which granted complete exemption from the income tax payable for five years from the date of commencement. The Assessing Officer, however, refused to grant the claim under the notification at Annexure-A, but allowed it under Section 10A of the IT Act. The Tribunal reversed the order of the CIT and upheld that of the Assessing Officer. The assessee had contended before the Tribunal that even though the exemption was not specifically provided under the IT Act, the exemption provided under the Unit Trust of India Act, 1963, the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 and the Small and Medium Enterprises Development Act, 2006 were granted independent of the IT Act. 7. The Tribunal, according to us, rightly found that all the aforesaid enactments had a non obstante clause, conferring the provisions there under to have overriding effect over any other provision of law; which is absent in the FTDR Act. The STP Scheme as floated by the Government of India and the notification issued under the FTDR Act would enable the ITA.411 of 2010 & - 4 - connected cases assessee to claim the deduction as available under the IT Act is the finding of the Tribunal. We are in agreement with the finding so entered by the Tribunal. We are informed that the assessee, after the aforesaid order of the Tribunal, has, for the subsequent years, claimed the benefit under Section 10A of the IT Act. In such circumstances, the question of law raised in the appeals of the assessee is answered in favour of the Revenue and against the assessee. The appeals filed by the assessee stand dismissed. 8. As far as the question of law raised in the appeal of the Revenue, the issue is no longer res integra and is covered by the decision of the Hon'ble Supreme Court in CIT v. HCL Technologies Ltd. [(2018) 404 ITR 719 (SC)]. Suffice it to extract paragraph 19: “19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under section 10A of the Income-tax 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”. ITA.411 of 2010 & - 5 - connected cases The order of the Tribunal to that extent is unassailable. The question of law is answered, following the judgment of the Hon'ble Supreme Court, in favour of the assessee and against the Revenue. The appeal filed by the Revenue stands dismissed. Ordered accordingly. Parties are left to suffer their respective costs. Sd/- K.Vinod Chandran Judge Sd/- Ashok Menon Judge vku/- [ true copy ] "