M/s Mindtree Ltd., Bangalore V. ACIT, Bangalore

ITA 1204/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63642 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 05-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI CITII
• Assessee Lawyers: CHYTHANYA K K
• Keywords: Depreciation; Question of law; Unabsorbed depreciation
• Section: 244A; 10B

Judgement Text

PAGE 1 OF 7 ITA NO.120 4/BANG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO. 1204/BANG/2011 (ASST. YEAR 2005-06) M/S MIND TREE LTD. (FORMERLY MINDTREE CONSULTING PRIVATE LTD.), GLOBAL VILLAGE, RVCE POST, MYLASANDRA, MYSORE ROAD, BANGALORE. PA NO.AABCM8839K VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE- 12(1). BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 12.09.2012 DATE OF PRONOUNCEMENT : 14.09.2012 APPELLANT BY : SHRI CHYTHANYA K K, ADVOCATE REVENUE BY : SHRI FARHAT HUSSAIN QURESHI, CIT-II OR DER PER GEORGE GEORGE K : THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), BANGALORE DATED 24/10/2011. T HE RELEVANT ASSESSMENT YEAR IS 2005-06. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN SOF TWARE DEVELOPMENT AND ALLIED SERVICES. THE RETURN OF INC OME FOR THE ASSESSMENT YEAR 2005-06 WAS FILED ON 30/10/2005 DECLARING NIL I NCOME AFTER CLAIMING DEDUCTION UNDER SECTION 10B OF THE ACT AMOUNTING TO RS.13,50,89,407/-. THE RETURN WAS TAKEN UP FOR SCRUTINY BY ISSUANCE OF N OTICE UNDER SECTION 143(2) OF THE ACT AND THE SCRUTINY ASSESSMENT WAS CO MPLETED VIDE ORDER PAGE 2 OF 7 ITA NO.120 4/BANG/2011 2 DATED 28/12/2007. IN THE SCRUTINY ASSESSMENT COMPLE TED, THE ASSESSING OFFICER HAD DISALLOWED THE RELIEF CLAIMED UNDER SEC TION 10B AMOUNTING TO RS.13,50,89,407/-. THE ASSESSING OFFICER NOTICED T HAT THE ASSESSEE WAS HAVING THE TOTAL ACCUMULATED BUSINESS LOSS BROUGHT FORWARD FROM EARLIER YEARS TO THE TUNE OF RS.10,20,93,100/- AND THE ACCUM ULATED DEPRECIATION LOSS TO THE TUNE OF RS.12,69,99,475/- AND HENCE, TH E INCOME FROM BUSINESS AMOUNTING TO RS.16,17,49,127/- HAS TO BE SET OFF FI RST AGAINST THE BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION A ND THEREAFTER ONLY, DEDUCTION UNDER SECTION 10B IS TO BE CALCULATED. S INCE, AFTER THE SET OFF OF BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION, T HE TOTAL INCOME WOULD BE NIL, THE ASSESSING OFFICER HELD THAT THE ASSESSE E IS NOT ENTITLED TO ANY DEDUCTION UNDER SECTION 10B OF THE ACT. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN A PPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. THE FIRST APPELLATE AUTHORITY, REFERRING TO THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CAMBAY ELECTRIC SU PPLY INDUSTRIAL CO. LTD. V CIT REPORTED IN 113 ITR 84 (SC) AND FOLLOWING THE ORDER OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S INTELLINET TECHNOLOGIES INDIA PRIVATE LIMITED V ITO IN ITA NO.1021/BANG/2009, DIS MISSED THE APPEAL OF THE ASSESSEE. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING CONCISE GROUNDS OF APPEAL:- PAGE 3 OF 7 ITA NO.120 4/BANG/2011 3 I) THE LEARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDING TH E ACTION OF THE LEARNED ASSESSING OFFICER IN COMPUTIN G THE PROFITS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 10B AFTER GIVING EFFECT TO THE SET OFF OF BROUGHT FORWA RD BUSINESS LOSS AND DEPRECIATION. II) THE LEARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDING TH E ACTION OF THE LEARNED ASSESSING OFFICER IN LEVYING INTEREST UNDER SECTION 234D ON INTEREST GRANTED ON REFUND UNDER SECTION 244A. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT INTEREST UNDER SECTION 23 4D CAN BE LEVIED ONLY IN RESPECT OF REFUND OF TAX AND NOT I N RESPECT OF INTEREST GRANTED ON SUCH REFUND. THE LE ARNED CIT(A) HAS FAILED TO APPRECIATE THAT INTEREST UNDER SECTION 234D COULD BE LEVIED ONLY ON THE WHOLE OR T HE EXCESS AMOUNT SO REFUNDED AND INTEREST GRANTED UND ER SECTION 244A CANNOT BE REGARDED AS EXCESS AMOUNT REFUNDED TO THE APPELLANT. 6. AT THE VERY OUTSET, THE LEARNED AR SUBMITTED THA T THE FIRST GROUND RAISED IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V YOKO GAWA INDIA LTD. REPORTED IN 341 ITR 385. THE LEARNED AR SUBMITTED THAT THE SECOND GROUND, NAMELY, CHARGING OF INTEREST UNDER SECTION 234D MAY BE LEFT OPEN, IF THE FIRST GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. 7. THE LEARNED DR FAIRLY SUBMITTED THAT THE FIRST G ROUND RAISED IS COVERED BY THE JUDGEMENT OF THE HONBLE JURISDICTION AL HIGH COURT IN THE ABOVE MENTIONED CASE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) CATEGORICALLY HELD THAT DEDUCTION U/S 10A IS ALLOWABLE PAGE 4 OF 7 ITA NO.120 4/BANG/2011 4 WITHOUT SETTING OFF THE BROUGHT FORWARD LOSS AND UN ABSORBED DEPRECIATION OF OTHER UNITS. THE RELEVANT FINDINGS OF THE HON BLE HIGH COURT AT PARAS 19, 20, 31 TO 33 READS AS FOLLOWS:- 19. IT IS AFTER THE DEDUCTION UNDER CHAPTER VI-A T HAT THE TOTAL INCOME OF AN ASSESSEE AS ARRIVED AT. CHA PTER VI-A DEDUCTIONS ARE THE LAST STAGE OF GIVING EFFECT TO ALL TYPES OF DEDUCTIONS PERMISSIBLE UNDER THE ACT. AT T HE END OF THIS EXERCISE, THE TOTAL INCOME IS ARRIVED A T. TOTAL INCOME IS THUS, A FIGURE ARRIVED AT AFTER GIVING EF FECT TO ALL DEDUCTIONS UNDER THE ACT. THERE CANNOT BE ANY FURTHER DEDUCTION FROM THE TOTAL INCOME AS THE TOTA L INCOME IS ITSELF ARRIVED AT AFTER ALL DEDUCTIONS. 20. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVI NG AT THE GROSS TOTAL INCOME OF THE ASSESSEE. THE INCOM E OF 10A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NO T AFTER COMPUTING THE GROSS TOTAL INCOME. THE TOTAL INCOME USED IN THE PROVISIONS OF SECTION 10A IN THIS CONTE XT MEANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN SECTION 2(45). HENCE, T HE INCOME ELIGIBLE FOR EXEMPTION U/S 10A WOULD NOT ENT ER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCTED AT SOURCE LEVEL. 31. AFTER MAKING ALL SUCH COMPUTATION THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARR Y FORWARD OF LOSS AS PROVIDED U/S 72 OF THE ACT. TH AT IS THE BENEFIT WHICH IS GIVEN TO THE ASSESSEE UNDER TH E ACT IRRESPECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CARRYING ON. THE SAID BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS U/S 10B OF THE ACT. THE EXPRESSION DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY A N UNDERTAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE, HAS TO BE UNDERSTOOD IN THE CONTEXT WITH WHICH THE SAID PROVISION IS INSERTED IN CHAPTER III OF THE PAGE 5 OF 7 ITA NO.120 4/BANG/2011 5 ACT. SUB-SECTION (4) OF SECTION 10A CLARIFIES THIS POSITION. IT PROVIDES THAT THE PROFITS DERIVED FRO M EXPORT OF ARTICLES OR THINGS FROM COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF T HE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THIN GS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF TH E BUSINESS CARRIED ON BY THE UNDERTAKING. THEREFORE, IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE TH AN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10A IT I S THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FROM THE BUSINESS OF THE UNDERTAK ING ALONE THAT HAS TO BE TAKEN INTO CONSIDERATION AND S UCH PROFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY AFTER THE DEDUCTION OF THE SAI D PROFITS AND GAINS, THE INCOME OF THE ASSESSEE HAS T O BE COMPUTED. 32. THE PROVISIONS OF THIS SUB-SECTION WILL APPLY E VEN IN THE CASE WHERE AN ASSESSEE HAS OPTED OUT OF SECTION 10A BY EXERCISING HIS OPTION UNDER SUB-SECTION (8). AS DISCUSSED, IT IS PERMISSIBLE FOR AN ASSESSEE TO OPT IN AND OPT OUT OF SECTION 10A. IN THE YEAR WHEN THE ASSESS EE HAS OPTED OUT, THE NORMAL PROVISIONS OF THE ACT WOU LD APPLY. THE PROFITS DERIVED BY HIM FROM THE STP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE SUBJECT TO VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CHAPTER VI-A. IF IN SUCH A YEAR, THE ASSESSEE H AS SUFFERED LOSSES, SUCH LOSSES WOULD BE SUBJECT TO IN TER SOURCE AND INTER HEAD SET OFF. THE BALANCE IF ANY THEREAFTER CAN BE CARRIED FORWARD, FOR BEING SET OF F AGAINST PROFITS OF THE SUBSEQUENT ASSESSMENT YEARS I N THE NORMAL COURSE. UNABSORBED DEPRECIATION ALSO ME RITS A SIMILAR TREATMENT. 33. AS THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED A T SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL IN COME, THE LOSS OF NON 10-A UNIT CANNOT BE SET OFF AGAINST THE PAGE 6 OF 7 ITA NO.120 4/BANG/2011 6 INCOME OF 10-A UNIT U/S 72. THE LOSS INCURRED BY TH E ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS OR PROFESSION HAS TO BE SET OFF AGAINST THE PROFITS AN D GAINS IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY SU CH ASSESSEE. THEREFORE AS THE PROFITS AND GAINS UNDER SECTION 10-A IS NOT BE INCLUDED IN THE INCOME OF TH E ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LO SS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AG AINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY, AS PER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION U /S 32(2) IS TO BE SET OFF. AS DEDUCTION U/S 10A HAS T O BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WO ULD NOT ARISE. IN THAT VIEW OF THE MATTER, THE APPROAC H OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO THE AFORESAID STATUTORY PROVISIONS AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUST IFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRAN TING THE BENEFIT OF SECTION 10A TO BE ASSESSEE. HENCE, THE MAIN SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAV OUR OF THE ASSESSEES AND AGAINST THE REVENUE. 8.1 THE FACTS BEING IDENTICAL, RESPECTFULLY FOLLOW ING THE DICTUM LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. REPORTED IN 341 ITR 385, WE HOLD THAT THE DEDU CTION UNDER SECTION 10B OF THE ACT IS TO BE CALCULATED WITHOUT SETTING OFF OF CARRIED FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION. THEREFO RE, WE REVERSE THE ORDERS OF THE INCOME TAX AUTHORITIES AND HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 10B OF THE ACT, PROVIDED THE OTHER CONDITIONS MENTIONED UNDER THE SECTION ARE SATISFIED. IT IS O RDERED ACCORDINGLY. PAGE 7 OF 7 ITA NO.120 4/BANG/2011 7 8.2 SINCE WE HAVE DECIDED THE ISSUE ON MERITS IN F AVOUR OF THE ASSESSEE, THE SECOND GROUND RAISED IS NOT ADJUDICAT ED UPON AND HENCE, GROUND NO.2 IS DISPOSED OFF AS INFRUCTUOUS. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DAY OF SEPTEMBER, 2012. SD/- SD/- (JASON P BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.