M/s. TATA INFOTECH LTD., MUMBAI V. ACIT Rg. - 7(3), MUMBAI

ITA 3580/MUM/2005

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62602 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 26-06-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 12-05-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Double taxation relief; Benefit of exemption
• Section: 80HHC; 37(1); 10B; 37; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI L BENCH BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.3578/M/2005 (AY: 1998-1999) ITA NO.3579/M/2005 (AY: 1999-2000) ITA NO.3580/M/2005 (AY: 2000-2001) ITA NO.5577/M/2005 (AY: 2001-2002) TATA CONSULTANCY SERVICES LTD., NIRMAL BUILDING, 9 TH FLOOR, NARIMAN POINT, MUMBAI 400 021. PAN: AAACT0176F APPELLANT VS. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 7(3), AAYAKAR BHAVAN, MUMBAI 400 030. RESPON DENT APPELLANT BY: SHRI P.J. PARDIWALLA & MS. AASIFA KHA N RESPONDENT BY: SHRI MAHESH KUMAR DATE OF HEARING: 9.5.2012 DATE OF ORDER: 4.7.2012 ORDER PER P.M. JAGTAP, A.M: THESE FOUR APPEALS FILED BY THE ASSESSEE AGAINST F OUR SEPARATE ORDERS OF LD. CIT (A) FOR ASSESSMENT YEAR 1998-1999 TO 2001-2002 INVOLVE COMMON ISSUES AND THE SAME THEREFORE HAVE BEEN HEARD TOGETHER AND BEING DISPOS ED OF BY THIS SINGLE COMPOSITE ORDER. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E FOR ASSESSMENT YEAR 1998-99 BEING ITA NO.3578/M/2005 WHICH IS DIRECTED AGAINST THE OR DER OF LD. CIT (A)-23, MUMBAI, DATED 25.2.2005. 3. GROUND NO.1 OF THIS APPEAL RELATING TO DEDUCTION OF COMMON MANAGEMENT AND FACILITY EXPENSES IN COMPUTING THE INCOME ELIGIBLE FOR EXEMP TION U/S 10A HAS NOT BEEN PRESSED BY 2 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 4. GROUND NO. 2.1 AND 2.2 OF THE APPEAL OF THE ASSE SSEE RELATE TO ITS CLAIM FOR RELIEF U/S 90 AND 91 AND THE SAME READ AS UNDER: 2.1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED IN LAW IN HOLDING THAT NO RELIEF UNDER SECTION 90 OUGHT TO BE ALLOWED IN RESPECT OF TAXES PAID OUTSIDE INDIA, ON THE ERRONEOUS GROUND THAT SI NCE THE APPELLANT COMPANY IS ALLOWED DEDUCTION OF 100% UNDER THE PROV ISIONS OF SECTION 80HHE, NO INCOME IS DOUBLE TAXED. 2.2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) ERRED IN LAW AND ON FACTS IN CONCLUDING THAT THE DECISION OF THE ITA T REPORTED IN 82 ITD 695 WHICH WAS IN RESPECT OF RELIEF UNDER SECTION 91 WAS APPLICABLE TO THE APPELLANT COMPANY FOR THE YEAR UNDER APPEAL IN RESP ECT OF RELIEF FOR TAXES PAID UNDER SECTION 90. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LD DR HA S SUBMITTED THAT THESE ISSUES INVOLVED IN GROUND NO. 2.1 AND 2.2 OF THE ASSESSEES APPEAL ARE SQUARELY COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE ORDER OF THE TR IBUNAL PASSED IN ASSESSEES OWN CASE FOR AY 1989-90, IT IS OBSERVED THAT IN ITS ORDER PASSED FOR AY 1990-91 VIDE ITS ORDER DATED 7.12.2006 PASSED IN ITA NO.2973/P/1994, THE COORDIN ATE BENCH OF THIS TRIBUNAL HAS RESTORED SIMILAR ISSUES RELATING TO ASSESSEES CLAIM FOR REL IEF U/S 90 AND 91 AFTER DEALING WITH THE ARGUMENTS OF BOTH THE SIDES IN PARAGRAPH NO. 14 AND 15 OF ITS ORDER WHICH READ AS UNDER: IT IS SUBMITTED BY THE LD. COUNSEL THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ITS ORDER FOR ASSES SMENT YEAR 1989-90 BUT IT IS SUBMITTED THAT THIS ISSUE NEEDS RECONSIDERATION IN THE LIGHT OF THE DECISION IN THE CASE OF CIT VS. BEST & CROMPTON ENGG. LTD. A S REPORTED IN 156 TAXMAN 216. IT IS FURTHER SUBMITTED THAT THIS ISSUE HAS N OT BEEN EXAMINED IN THE CASE WHERE THERE IS A DOUBLE TAXATION AVOIDANCE AGREEMEN T (DTAA) WITH TWO COUNTRIES THAT IS NEW ZEALAND AND JAPAN. OUR ATTENT ION WAS DRAWN TO DTAA WITH NEW ZEALAND AND REPORTED IN 166 ITR (ST.) 90 C LAUSE 2(A) OF ARTICLE 23 AND IT IS SUBMITTED THAT AS PER DTAA WITH THESE TWO COUNTRIES, THE ASSESSEE COMPANY SHOULD BE GIVEN DEDUCTION OF THE ENTIRE TAX ES PAID IN THESE TWO COUNTRIES ON THE INCOME EARNED IN THESE TWO COUNTRI ES AND HENCE GRANTING OF 3 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 RELIEF ONLY UP TO 50% OF THE ENTIRE FOREIGN TAXES P AID IS NOT CORRECT. THE LD DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDER OF THE AUTHO RITIES BELOW AND ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1989-90. WE FIND THAT IN ASSESSMENT YEAR 1989-90 THE ISSUE WAS DECID ED AGAINST THE ASSESSEE AND THERE IS NO DISCUSSION REGARDING DTAA WITH NEW ZEALAND AND JAPAN. IN VIEW OF THIS SUBMISSION OF THE ASSESSEE AND THE FAC T THAT THERE WAS A DTAA OF INDIA WITH THESE TWO COUNTRIES, WE FEEL THAT WHILE DECIDING THE ISSUE, DTAA SHOULD ALSO BE CONSIDERED AND HENCE, WE ARE OF THE OPINION THAT THIS MATTER SHOULD GO BACK TO THE FILE OF THE CIT (A) FOR DECID ING AFRESH AFTER CONSIDERING THE ISSUE IN THE LIGHT OF THESE TWO DTAA OF INDIA W ITH NEW ZEALAND AND JAPAN AND HENCE WE SET ASIDE THE ORDER OF CIT (A) ON THIS ISSUE AND RESTORE IT TO HIS FILE WITH THE DIRECTION THAT HE SHOULD DECIDE THE M ATTER AFRESH AFTER CONSIDERING THE TRIBUNAL ORDER IN ASSESSMENT ORDER 1989-90ALONG WITH DTAA WITH NEW ZEALAND AND JAPAN AND THEN HE SHOULD PASS NECESSARY ORDER AS PER LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING H EARD TO BOTH THE SIDES. 6. AS IS EVIDENT FROM THE RELEVANT PORTION OF THE T RIBUNALS ORDER FOR AY 1990-91 REPRODUCED ABOVE, A SIMILAR ISSUE HAS BEEN RESTORED BY THE TRIBUNAL, TO THE FILE OF THE AO WITH SPECIFIC DIRECTIONS AFTER TAKING INTO CONSIDER ATION THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR AY 1989-90. AS SUBMITTE D BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE SAID DECISION OF THE TRIBUNAL IN AY 1 990-91 HAS BEEN SUBSEQUENTLY FOLLOWED BY THE TRIBUNAL CONSISTENTLY UP TO AY 1996-97 WHILE RE STORING A SIMILAR ISSUE TO THE FILE OF THE AO. KEEPING IN VIEW THE DECISION OF THE TRIBUNAL R ENDERED IN THE EARLIER YEARS I.E. AY 1990- 91 TO 1996-97, WE SET ASIDE THE IMPUGNED ORDER OF T HE LD. CIT (A) ON THESE ISSUES AND RESTORE THE MATTER TO THE FILE OF AO FOR DECIDING T HE SAME AFRESH AS PER THE SAME DIRECTIONS AS GIVEN IN THE TRIBUNALS ORDER FOR EARLIER YEAR. GROUND NO. 2.1 AND 2.2 OF THE ASSESSEES APPEAL ARE ACCORDINGLY TREATED AS ALLOWED FOR STATI STICAL PURPOSES. 7. IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD. CIT (A) IN HOLDING THAT TAXES PAID OUTSIDE INDIA ARE NOT DEDUCTIBLE UN DER THE PROVISIONS OF SEC.37(1) AND R.W.S 40(A)(II) AND SECTION 2(43) OF THE INCOME-TAX ACT, 1961. 4 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 8. AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH THE SIDES AT THE TIME OF HEARING BEFORE US, THE ISSUE INVOLVED IN GROUND NO.3 OF THE ASSESSEES APPEAL IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY T HE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 1993-94 RENDERED VIDE ITS ORDER DAT ED 17.1.2007 PASSED IN ITA NO.4688/MUM/1997 WHEREIN A SIMILAR ISSUE WAS DECIDE D AGAINST THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO.16 OF ITS O RDER. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS ON RECORD AND HAVE GONE THROUGH THE JUDGMENTS CITED BY BOTH SIDES AND RELIED UPON BY AUTHORITIES BELOW. IN THE CASE OF SMITH KLINE AND FRENCH (INDIA) LTD. 219 ITR 561, IT WAS HELD BY HONBLE APEX COURT TAT SUR-TAX UNDER COMPAN IES (PROFITS) SUR-TAX ACT, 1964 IS TAX ON PROFITS WITHIN THE MEANING OF SECTIO N 40(A)(II); AND HENCE NOT AN ALLOWABLE DEDUCTION. IN THE CASE OF CIT VS. KERALA LINES LTD 201 ITR 10 6, THE ISSUE INVOLVED WAS SIMILAR I.E. REGARDING DEDUCTIBILITY OF AMOUNT PAID BY THE ASSESSEE BY WAY OF INCOME TAX AT FOREIGN PORTS AND UNDER THIS FACT, IT WAS HELD BY HONBLE MADRA HIGH COURT THAT THE AMOUNT PAID BY THE ASSESS EE BY WAY OF INCOME TAX AT FOREIGN PORTS IS NOT DEDUCTIBLE UNDER SECTION 37 OF I.T. ACT. IT WAS FURTHER HELD BY HONBLE MADRAS HIGH COURT THAT SINCE, ONCE, IT IS HELD THAT INCOME TAX PAYMENT MADE BY THE ASSESSEE AT THE FOREIGN PORTS I S NOT ALLOWABLE DEDUCTION U/S 37 OF THE ACT, IT WOULD REALLY BE UNNECESSARY T O CONSIDER WHETHER THOSE AMOUNTS SHALL NOT BE DEDUCTIBLE U/S 40(A)(II) OF TH E ACT. THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE F ACTS IN THE CASE OF CIT VS. KERALA LINES LTD (SUPRA); AND HENCE, RESPECTFUL LY FOLLOWING THIS JUDGMENT OF HONBLE MADRAS HIGH COURT, THIS ISSUE IS DECIDED IN FAVOR OF THE REVENUE. REGARDING THE TRIBUNAL JUDGMENT RENDERED IN THE CA SE OF ITO VS. SOUTH EAST ASIA SHIPPING CO. (P) LTD. (SUPRA), WE FIND TH AT IN THIS CASE, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE ON THE BASIS THAT THE TAX LEVIED BY DIFFERENT COUNTRIES IS NOT TAX ON PROFITS; BUT NECESSARY COND ITION PRECEDENT TO EARNING OF PROFITS; AND THEREFORE, IT WAS HELD IN THIS CASE TH AT SECTION 40(A)(II) IS NOT APPLICABLE. WE ARE OF THE CONSIDERED OPINION THAT SINCE, JUDGMENT OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF KERALA LI NES LTD. (SUPRA) IS AGAINST THE ASSESSEE, THE SAME HAS TO BE FOLLOWED IN PREFER ENCE TO THE TRIBUNAL JUDGMENT RENDERED IN THE CASE OF SOUTH EAST AREA SH IPPING CO. (P) LTD. (SUPRA); AND HENCE, WE DECIDE THIS ISSUE IN FAVOUR OF THE REVENUE BY FOLLOWING THIS JUDGMENT OF HONBLE MADRAS HIGH COURT. THIS G ROUND OF THE ASSESSEE IS REJECTED. 5 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 9. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF AY 1993-94, WE RESPECTFULLY FOLLOW THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL FOR AY 1993-94 AND UPHOLD THE DECISION OF THE LD. CIT (A) THAT THE TAXES PAID BY THE ASSESSEE OUTSIDE INDIA A RE NOT DEDUCTIBLE UNDER THE PROVISIONS OF SEC. 37(1) R.W.S 40(A)(II) AND SECTION 2(43). GROU ND NO.3 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED. 10. THE ISSUE RAISED IN GROUND NO.4 RELATES TO ASSE SSEES CLAIM FOR DEDUCTION U/S 80HHC WHICH HAS BEEN RESTRICTED BY THE AO AS WELL AS BY T HE LD. CIT (A). 11. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE COMPANY HAD MADE EXPORT OF ELECTRONIC HARDWARE AND DEDUCTION U/S 80HHC WAS CLA IMED AT RS. 9,28,62,297/- BY TAKING ONLY THE TOTAL TURNOVER OF ONE UNIT NAMELY ELECTRON IC HARDWARE TECHNOLOGY PARK FROM WHICH THE SAID EXPORT WAS MADE. ACCORDINGLY THE AO, WHIL E COMPUTING DEDUCTION U/S 80HHC, THE TOTAL TURNOVER OF THE ASSESSEE COMPANY WAS REQUIRED TO BE TAKEN INTO CONSIDERATION AND NOT JUST THE TOTAL TURNOVER OF ONE UNIT NAMELY ELECTRON IC HARDWARE TECHNOLOGY PARK. HE THEREFORE REQUIRED THE ASSESSEE TO EXPLAIN WHY THE DEDUCTION CLAIMED BY IT U/S 80HHC SHOULD NOT BE RECOMPUTED TAKING ITS TOTAL TURNOVER. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT ITS INDUSTRIAL UNDERTAKIN G NAMELY ELECTRONIC HARDWARE TECHNOLOGY PARK WAS AN INDEPENDENT UNIT WHICH WAS O PERATING FROM A DIFFERENT PREMISES WHERE MANUFACTURING PROCESS WAS CARRIED OUT INDEPEN DENTLY. IT WAS ALSO SUBMITTED THAT SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED IN RESPEC T OF THE SAID INDUSTRIAL UNDERTAKING AND THE ANNUAL ACCOUNTS PREPARED ON THE BASIS OF SEPARA TE BOOKS OF ACCOUNT WERE DULY AUDITED. IT WAS CONTENDED THAT DEDUCTION U/S 80HHC THEREFORE WAS RIGHTLY COMPUTED BY TAKING FINANCIAL DATA OF THE SAID UNIT ALONE AND THERE WAS NO NECESSITY TO TAKE A FIGURE OF TOTAL TURNOVER OF THE ASSESSEE COMPANY AS SUCH WHICH INCL UDED TURNOVER OF ALL THE BUSINESSES OF THE ASSESSEE COMPANY. RELIANCE IN SUPPORT OF THIS CONTENTION WAS PLACED BY THE ASSESSEE 6 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 INTER ALIA ON THE DECISION OF HONBLE MADRAS HIGH C OURT IN THE CASE OF CIT VS. RATHORE BROTHERS 254 ITR 656. 12. THE ASSESSING OFFICER DID NOT FIND MERIT IN THE STAND TAKEN BY THE ASSESSEE ON THIS ISSUE. ACCORDING TO HIM, THE DEDUCTION U/S 80HHC W AS REQUIRED TO BE COMPUTED AS PER THE FORMULA GIVEN IN SUB-SECTION 3 OF THAT SECTION AND SINCE THE PROFIT ELIGIBLE FOR THE SAID DEDUCTION WAS TO BE COMPUTED AS PER THE SAID FORMUL A ON PRORATA BASIS TAKING TOTAL FIGURES OF THE ASSESSEE COMPANY AS A WHOLE, THE COMPUTATION OF DEDUCTION MADE BY THE ASSESSEE TAKING THE FIGURES OF THE CONCERNED INDUSTRIAL UNDE RTAKING IN THE ISOLATION WAS NOT CORRECT. HE THEREFORE RECOMPUTED THE DEDUCTION U/S 80HHC BY TAKING TOTAL FIGURES AT THE ASSESSEE LEVEL AT RS.4,44,67,569/- AND RESTRICTED THE CLAIM OF THE ASSESSEE FOR THE SAID DEDUCTION TO THAT EXTENT. ON APPEAL, THE LD. CIT (A) CONFIRMED THE ACTION OF THE AO ON THIS ISSUE. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SUBMITTED BY THE L EARNED REPRESENTATIVES OF BOTH THE SIDES, THERE ARE DECISIONS OF THE TRIBUNAL AS WELL AS HIGH COURTS TAKING DIFFERENT VIEWS ON THIS ISSUE. ONE VIEW TAKEN IS THAT DEDUCTION U/S 80HHC HAS TO BE COMPUTED BY TAKING THE OVERALL FIGURES AT THE ASSESSEE LEVEL KEEPING IN VI EW THE MANNER AND METHOD OF COMPUTATION PROVIDED SPECIFICALLY IN SUB-SECTION 3 OF SECTION 8 0HHC. THE OTHER VIEW THAT IS TAKEN ON THIS ISSUE IS THAT THE PURPOSE OF FORMULAE GIVEN IN SUB- SECTION 3 OF SECTION 80HHC IS TO COMPUTE THE PROFIT ELIGIBLE FOR DEDUCTION U/S 80HHC ON PROR ATA BASIS WHERE ONLY CONSOLIDATED FIGURES ARE AVAILABLE IN THE ABSENCE OF SEPARATE BOOKS OF A CCOUNT. IT WAS HELD THAT WHEN SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY THE ASSESSEE IN RESPECT OF THE CONCERNED UNIT AND PROFIT ELIGIBLE FOR DEDUCTION U/S 80HHC CAN BE WORKED OUT DIRECTLY ON THE BASIS OF SUCH SEPARATE BOOKS OF ACCOUNT, THE SAME NEEDS TO BE PREFERRED TH AN THE FORMULAE GIVEN IN SUB-SECTION 3 WHICH WORKS OUT SUCH PROFIT ONLY ON PRORATA BASIS. THE LATTER VIEW HAS BEEN TAKEN INTER ALIA BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. RATHORE BROTHERS (SUPRA) AND THE 7 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 SAME BEING IN FAVOUR OF THE ASSESSEE HAS BEEN FOLLO WED INTER ALIA BY THE COORDINATE BENCH OF THIS TRIBUNAL IN ITS DECISION RENDERED IN THE CA SE OF MICO AGENCIES VS. DCIT BY THE ORDER DATED 29.8.2002 PASSED IN ITA NO.4205/M/1995. RESP ECTFULLY FOLLOWING THE SAID DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL, WE DIRECT TH E AO TO ALLOW THE DEDUCTION U/S 80HHC AS COMPUTED ON THE BASIS OF SEPARATE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN RESPECT OF ELECTRONIC HARDWARE TECHNOLOGY PARK. GROUND NO. 4 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. 14. THE ISSUE RAISED IN GROUND NO.5 RELATES TO ASSE SSEES CLAIM FOR EXEMPTION U/S 10A. 15. AS PER THE PROVISIONS OF SECTION 10A PREVALENT AT THE RELEVANT TIME, THE ASSESSEE CLAIMED EXEMPTION U/S 10A FOR A PERIOD OF FIVE YEAR S FROM AY 1991-92 TO 1995-96. THE RELEVANT PROVISIONS OF SEC.10A WERE AMENDED BY INCO ME TAX (SECOND AMENDMENT) ACT, 1998 W.E.F. 1.4.1999 EXTENDING THE BENEFIT OF EXEMP TION U/S 10A FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASS ESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE ELIGIBLE UNDERTAKING BEGAN TO MAN UFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE. RELYING ON THE SAID AMENDMENT MADE IN SECTION 10A, THE ASSESSEE CLAIMED EXEMPTION U/S 10A FOR THE YEAR UNDER CONSIDERATION I.E. 1998-99 ON THE BASIS THAT IT WAS NINTH YEAR FROM THE ASSESS MENT YEAR IN WHICH ITS ELIGIBLE UNDERTAKING BEGAN MANUFACTURE OR PRODUCTION. THE AO HOWEVER DENIED THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10A ON THE GROUND THAT S UCH EXEMPTION WAS NOT CLAIMED BY THE ASSESSEE IN THE PRECEDING TWO YEARS I.E. AY 1996-97 AND 1997-98 AND THE EXTENDED PERIOD OF EXEMPTION UP TO TEN YEARS WAS APPLICABLE ONLY TO THOSE UNDERTAKINGS WHICH WERE CURRENTLY ENJOYING THE BENEFIT OF SECTION 10A. ON APPEAL, THE LD. CIT (A) UPHELD THE DECISION OF THE AO DENYING THE CLAIM OF THE ASSESSE E FOR EXEMPTION U/S 10A RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF TATA TEA LT D. 87 ITD 351 WHEREIN IT WAS HELD THAT WHEN THERE WAS A BREAK OF TWO YEARS IN CLAIMING EXE MPTION U/S 10A, THE YEAR THEREAFTER 8 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 COULD NOT BE CALLED AS A CONSECUTIVE YEAR SO AS TO BE ELIGIBLE FOR CLAIMING THE BENEFIT OF EXTENDED PERIOD OF TEN CONSECUTIVE YEARS AS PER THE AMENDED PROVISIONS. 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL F OR THE ASSESSEE HAS MAINLY RELIED ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS. M/S. DSL SOFTWARE LTD (ITA NO.462/2007 DATED 12.10.2011) WHEREIN EXEMPTION U/S 10B WAS CLAIMED BY THE ASSESSEE INITIALLY FOR A PERIOD OF FIVE YEARS I.E. AY 1993-9 4 TO 1997-98. AS PER THE AMENDMENT MADE IN SECTION 10B, WHICH IS SIMILAR TO THE AMENDMENT M ADE IN SECTION 10A, BY THE INCOME TAX (SECOND AMENDMENT) ACT, 1998 W.E.F. 1.4.1999, THE T AX HOLIDAY WAS EXTENDED TO TEN YEARS. RELYING ON THE SAID AMENDMENT, THE ASSESSEE CLAIMED BENEFIT OF EXEMPTION U/S 10B FOR AY 1999-2000, 2000-2001 AND 2001-2002 WHICH WAS DISALL OWED BY THE ASSESSING OFFICER. ON APPEAL, THE LD. CIT (A) AS WELL AS TRIBUNAL HOWEVER ALLOWED THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10B FOR AY 1999-2000, 2000-2001 AND 2 001-2002. ON FURTHER APPEAL PREFERRED BY THE REVENUE, HONBLE KARNATAKA HIGH CO URT UPHELD THE DECISION OF THE TRIBUNAL HOLDING THAT THE ORDER PASSED BY THE TRIBUNAL AS WE LL AS BY THE FIRST APPELLATE AUTHORITY WAS STRICTLY IN ACCORDANCE WITH LAW AS WELL AS THE SPIR IT AND OBJECT OF THE AMENDING PROVISIONS OF SECTION 10B. THE LEARNED DR IN THIS REGARD HAS SUB MITTED THAT THE ASSESSMENT YEARS INVOLVED IN THE CASE OF M/S. DSL SOFTWARE LTD (SUP RA) WERE 1999-2000 ONWARDS WHEN THE AMENDED PROVISIONS INSERTED W.E.F. 1.4.1999 WERE AP PLICABLE. HE HAS CONTENDED THAT THE ASSESSMENT YEAR INVOLVED IN THE PRESENT CASE IS HOW EVER 1998-99 AND THE AMENDED PROVISIONS NOT BEING THERE ON THE STATUTE AS ON 1.4 .1998, THE ASSESSEE CANNOT CLAIM BENEFIT OF THE SAID AMENDED PROVISIONS FOR AY 1998-99. WE FIND MERIT IN THIS CONTENTION OF THE LEARNED DR. AS A MATTER OF FACT, HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S. DSL SOFTWARE LTD (SUPRA) HAS ALSO MADE THIS POSITION VE RY CLEAR IN PARAGRAPH 8 OF ITS JUDGMENT BY OBSERVING THAT BEFORE AN ASSESSEE CAN CLAIM THE BENEFIT OF TAX HOLIDAY, THE SAID LAW 9 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 GOVERNING THE TAX HOLIDAY SHOULD BE IN FORCE ON THE FIRST DAY OF THE RELEVANT YEAR. SINCE THE PROVISIONS OF SECTION 10B WERE AMENDED W.E.F. 1.4.1 999, HONBLE KARNATAKA HIGH COURT HELD THAT THE ASSESSEE WAS ENTITLED FOR THE BENEFIT AS P ER THE AMENDED PROVISIONS FOR AY 1999- 2000, 2000-2001 AND 2001-2002. IN THE PRESENT CASE , THE ASSESSMENT YEAR INVOLVED IS AY 1998-99 AND SINCE THE PROVISIONS OF SECTION 10A AS AMENDED W.E.F. 1.4.1999 WERE NOT THERE IN THE STATUTE ON THE FIRST DAY OF AY 1998-99, WE H OLD RELYING ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S. DSL SOFTWA RE LTD (SUPRA) THAT THE ASSESSEE CANNOT CLAIM EXEMPTION U/S 10A FOR AY 1998-99 RELYING ON T HE SAID AMENDED PROVISIONS. WE THEREFORE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT (A) DENYING THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10A ALTHOUGH ON DIFFERENT GROUND. GROUND NO.5 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED. 17. THE ISSUE RAISED IN GROUND NO.6 RELATES TO THE ASSESSEES CLAIM FOR DEDUCTION U/S 80HHE WHICH HAS BEEN RESTRICTED BY THE ASSESSING OF FICER. 18. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUT SET SUBMITTED THAT THIS ISSUE RELATING TO COMPUTATION OF DEDUCTION U/S 80HHE IS SIMILAR TO THE ONE INVOLVED IN GROUND NO.4 RELATING TO COMPUTATION OF DEDUCTION U/S 80HHC INASMUCH AS T HE AO HAS COMPUTED THE DEDUCTION U/S 80HHE ON PRORATA BASIS BY RELYING ON SUB-SECTIO N 3 OF SECTION 80HHE WHEREAS THE ASSESSEE HAS CLAIMED THE SAME ON THE BASIS OF SEPAR ATE BOOKS OF ACCOUNT MAINTAINED IN RESPECT OF UNIT ELIGIBLE FOR DEDUCTION U/S 80HHE. HE HAS ALSO SUBMITTED THAT THIS ISSUE HAS NOT BEEN SPECIFICALLY AND SEPARATELY DECIDED BY THE LD. CIT (A) IN HIS IMPUGNED ORDER ALTHOUGH THE SAME WAS RAISED BY TAKING A SPECIFIC G ROUND. HE HAS SUBMITTED THAT THE LD. CIT (A) HOWEVER, HAS DECIDED THIS ISSUE IN THE SUBS EQUENT YEARS WHICH ARE UNDER APPEAL BEFORE THE TRIBUNAL AND SINCE THERE IS ALREADY A DE CISION AVAILABLE ON THIS ISSUE OF THE TRIBUNAL, THE SAME MAY BE CONSIDERED AND DECIDED ON MERIT INSTEAD OF SENDING IT BACK TO 10 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 THE LD. CIT (A) FOR ADJUDICATION. WE FIND MERIT IN THIS CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE AND NOW PROCEED TO CONSIDER AND DECIDE THIS ISSUE ON MERITS. 19. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE ISSUE INVOLVED IN GROUND NO.6 RELATING TO COMPUTATION OF DEDUCTION U/ S 80HHE IS SIMILAR TO THE ONE INVOLVED IN GROUND NO.4 RELATING TO COMPUTATION OF DEDUCTION U/ S 80HHC INASMUCH AS THE DEDUCTION U/S 80HHE WAS COMPUTED BY THE ASSESSEE TAKING THE RELEV ANT FINANCIAL DATA ONLY OF THE CONCERNED UNIT NAMELY SYSTEM INTEGRATION (OVERSEAS) DIVISION FROM WHICH EXPORT OF SOFTWARE OUT OF INDIA WAS MADE. THE AO AND CIT (A) HOWEVER ADOPTED THE RELEVANT FINANCIAL DATA OF ALL THE BUSINESSES OF THE ASSESSE E TOGETHER TO WORKOUT THE PROFIT ELIGIBLE FOR DEDUCTION US/ 80HHE ON PRORATA BASIS WHICH, ACCORD ING TO THEM, WAS IN ACCORDANCE WITH THE PROVISIONS OF SUB-SECTION 3 OF SECTION 80HHE. WHILE DECIDING A SIMILAR ISSUE IN THE CONTEXT OF COMPUTATION OF INCOME U/S 80HHC AS INVOL VED IN THE GROUND NO.4 OF THE ASSESSEES APPEAL, WE HAVE ALREADY CONSIDERED A SIM ILAR CONTROVERSY. AS NOTED BY US IN THE SAID CONTEXT, THERE ARE DECISIONS OF THE TRIBUNAL A S WELL AS HIGH COURTS TAKING DIFFERENT VIEWS ON THIS ISSUE. WE HAVE ALSO REFERRED TO AND DISCUS SED THE VIEWS SO TAKEN BEFORE FINALLY DECIDING THIS ISSUE IN FAVOUR OF THE ASSESSEE BY FO LLOWING THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF RATHORE BROTHERS (SUPRA) WHICH IS IN FAVOUR OF THE ASSESSEE AND WHICH HAS ALREADY BEEN FOLLOWED BY THE COORDINATE B ENCH OF THIS TRIBUNAL. FOLLOWING THE SAID DECISION RENDERED BY US IN THE CONTEXT OF COMP UTATION OF DEDUCTION U/S 80HHC WHILE DECIDING GROUND NO.4 OF THE APPEAL, WE DIRECT THE A O TO ALLOW THE DEDUCTION TO THE ASSESSEE U/S 80HHE ON THE BASIS OF SEPARATE BOOKS OF ACCOUNT MAINTAINED IN RESPECT OF THE CONCERNED UNDERTAKING / UNIT OF THE ASSESSEE NAMELY SYSTEM INTEGRATION (OVERSEAS) DIVISION. GROUND NO.6 IS ACCORDINGLY ALLOWED. 11 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 20. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR AY 1999-2000 BEING ITA NO. 3579/M/2005 WHICH IS DIRECTED AGAINST THE ORDER OF LD. CIT (A)-23, MUMBAI DATED 25.2.2005. 21. GROUND NO.1 OF THIS APPEAL RELATING TO ASSESSEE S CLAIM FOR DEDUCTION OF COMMON MANAGEMENT AND FACILITY EXPENSES, IN COMPUTING THE INCOME ELIGIBLE FOR EXEMPTION U/S 10A HAS NOT BEEN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESS ED. 22. GROUND NOS. 2.1 AND 2.2 OF THE APPEAL OF THE AS SESSEE RELATE TO ITS CLAIM FOR RELIEF U/S 90 AND 91 AND THE SAME READ AS UNDER: 2.1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED IN LAW IN HOLDING THAT NO RELIEF UNDER SECTION 90 OUGHT TO BE ALLOWED IN RESPECT OF TAXES PAID OUTSIDE INDIA, ON THE ERRONEOUS GROUND THAT SI NCE THE APPELLANT COMPANY IS ALLOWED DEDUCTION OF 100% UNDER THE PROV ISIONS OF SECTION 80HHE, NO INCOME IS DOUBLE TAXED. 2.2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) ERRED IN LAW AND ON FACTS IN CONCLUDING THAT THE DECISION OF THE ITA T REPORTED IN 82 ITD 695 WHICH WAS IN RESPECT OF RELIEF UNDER SECTION 91 WAS APPLICABLE TO THE APPELLANT COMPANY FOR THE YEAR UNDER APPEAL IN RESP ECT OF RELIEF FOR TAXES PAID UNDER SECTION 90. 23. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LEARNED DR HAS SUBMITTED THAT THESE ISSUES INVOLVED IN GROUND NO. 2.1 AND 2.2 OF THE ASSESSEE S APPEAL ARE SQUARELY COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR AY 1989-90, IT IS OBSERVED THAT IN ITS ORDER PASSED FOR AY 1990-91 VIDE ITS ORDER DATED 7.12.2006 PASSED IN ITA NO.2973/B/1994, THE COORDINATE BENCH OF THIS TRIBUNAL HAS RESTORED SIMILAR ISSUES RELATING TO ASSESSEES CLAIM FOR RELIEF U/S 90 AND 91 AFTER DEALING WITH THE ARGUMENTS OF BOTH THE SIDES IN PARAGRAPH N O. 14 AND 15 OF ITS ORDER WHICH READ AS UNDER: 12 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 IT IS SUBMITTED BY THE LD. COUNSEL THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ITS ORDER FOR ASSES SMENT YEAR 1989-90 BUT IT IS SUBMITTED THAT THIS ISSUE NEEDS RECONSIDERATION IN THE LIGHT OF THE DECISION IN THE CASE OF CIT VS. BEST & CROMPTON ENGG. LTD. A S REPORTED IN 156 TAXMAN 216. IT IS FURTHER SUBMITTED THAT THIS ISSUE HAS N OT BEEN EXAMINED IN THE CASE WHERE THERE IS A DOUBLE TAXATION AVOIDANCE AGREEMEN T (DTAA) WITH TWO COUNTRIES THAT IS NEW ZEALAND AND JAPAN. OUR ATTENT ION WAS DRAWN TO DTAA WITH NEW ZEALAND AND REPORTED IN 166 ITR (ST.) 90 C LAUSE 2(A) OF ARTICLE 23 AND IT IS SUBMITTED THAT AS PER DTAA WITH THESE TWO COUNTRIES, THE ASSESSEE COMPANY SHOULD BE GIVEN DEDUCTION OF THE ENTIRE TAX ES PAID IN THESE TWO COUNTRIES ON THE INCOME EARNED IN THESE TWO COUNTRI ES AND HENCE GRANTING OF RELIEF ONLY UP TO 50% OF THE ENTIRE FOREIGN TAXES P AID IS NOT CORRECT. THE LD DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDER OF THE AUTHO RITIES BELOW AND ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1989-90. WE FIND THAT IN ASSESSMENT YEAR 1989-90 THE ISSUE WAS DECID ED AGAINST THE ASSESSEE AND THERE IS NO DISCUSSION REGARDING DTAA WITH NEW ZEALAND AND JAPAN. IN VIEW OF THIS SUBMISSION OF THE ASSESSEE AND THE FAC T THAT THERE WAS A DTAA OF INDIA WITH THESE TWO COUNTRIES, WE FEEL THAT WHILE DECIDING THE ISSUE, DTAA SHOULD ALSO BE CONSIDERED AND HENCE, WE ARE OF THE OPINION THAT THIS MATTER SHOULD GO BACK TO THE FILE OF THE CIT (A) FOR DECID ING AFRESH AFTER CONSIDERING THE ISSUE IN THE LIGHT OF THESE TWO DTAA OF INDIA W ITH NEW ZEALAND AND JAPAN AND HENCE WE SET ASIDE THE ORDER OF CIT (A) ON THIS ISSUE AND RESTORE IT TO HIS FILE WITH THE DIRECTION THAT HE SHOULD DECIDE THE M ATTER AFRESH AFTER CONSIDERING THE TRIBUNAL ORDER IN ASSESSMENT ORDER 1989-90ALONG WITH DTAA WITH NEW ZEALAND AND JAPAN AND THEN HE SHOULD PASS NECESSARY ORDER AS PER LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING H EARD TO BOTH THE SIDES. 24. AS IS EVIDENT FROM THE RELEVANT PORTION OF THE TRIBUNALS ORDER FOR AY 1990-91 REPRODUCED ABOVE, A SIMILAR ISSUE HAS BEEN RESTORED BY THE TRIBUNAL, TO THE FILE OF THE AO WITH SPECIFIC DIRECTIONS AFTER TAKING INTO CONSIDER ATION THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR AY 1989-90. AS SUBMITTE D BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE SAID DECISION OF THE TRIBUNAL IN AY 1 990-91 HAS BEEN SUBSEQUENTLY FOLLOWED BY THE TRIBUNAL CONSISTENTLY UP TO AY 1996-97 WHILE RE STORING A SIMILAR ISSUE TO THE FILE OF THE AO. KEEPING IN VIEW THE DECISION OF THE TRIBUNAL R ENDERED IN THE EARLIER YEARS I.E. AY 1990- 91 TO 1996-97, WE SET ASIDE THE IMPUGNED ORDER OF T HE LD CIT (A) ON THESE ISSUES AND RESTORE THE MATTER TO THE FILE OF AO FOR DECIDING T HE SAME AFRESH AS PER THE SAME DIRECTIONS AS GIVEN IN THE TRIBUNALS ORDER FOR EARLIER YEARS. 13 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 25. GROUND NO. 2.1 AND 2.2 OF THE ASSESSEES APPEAL ARE ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 26. IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD CIT (A) IN HOLDING THAT TAXES PAID OUTSIDE INDIA ARE NOT DEDUCTIBLE UN DER THE PROVISIONS OF SEC.37(1) AND R.W.S 40(A)(II) AND SECTION 2(43) OF THE INCOME-TAX ACT, 1961. 27. AS AGREED BY THE LEARNED REPRESENTATIVES OF BOT H THE SIDES AT THE TIME OF HEARING BEFORE US, THE ISSUE INVOLVED IN THE GROUND NO.3 OF THE ASSESSEES APPEAL IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE B Y THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 1993-94 RENDERED VIDE IT S ORDER DATED 17.1.2007 IN ITA NO.4688/MM/1997 WHEREIN A SIMILAR ISSUE WAS DECIDED AGAINST THE ORDER FOR THE FOLLOWING REASONS GIVEN IN PARA 16 OF ITS ORDER. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS ON RECORD AND HAVE GONE THROUGH THE JUDGMENTS CITED BY BOTH SIDES AND RELIED UPON BY AUTHORITIES BELOW. IN THE CASE OF SMITH KLINE AND FRENCH (INDIA) LTD. 219 ITR 561, IT WAS HELD BY HONBLE APEX COURT TAT SUR-TAX UNDER COMPAN IES (PROFITS) SUR-TAX ACT, 1964 IS TAX ON PROFITS WITHIN THE MEANING OF SECTIO N 40(A)(II); AND HENCE NOT AN ALLOWABLE DEDUCTION. IN THE CASE OF CIT VS. KERALA LINES LTD 201 ITR 10 6, THE ISSUE INVOLVED WAS SIMILAR I.E. REGARDING DEDUCTIBILITY OF AMOUNT PAID BY THE ASSESSEE BY WAY OF INCOME TAX AT FOREIGN PORTS AND UNDER THIS FACT, IT WAS HELD BY HONBLE MADRA HIGH COURT THAT THE AMOUNT PAID BY THE ASSESS EE BY WAY OF INCOME TAX AT FOREIGN PORTS IS NOT DEDUCTIBLE UNDER SECTION 37 OF I.T. ACT. IT WAS FURTHER HELD BY HONBLE MADRAS HIGH COURT THAT SINCE, ONCE, IT IS HELD THAT INCOME TAX PAYMENT MADE BY THE ASSESSEE AT THE FOREIGN PORTS I S NOT ALLOWABLE DEDUCTION U/S 37 OF THE ACT, IT WOULD REALLY BE UNNECESSARY T O CONSIDER WHETHER THOSE AMOUNTS SHALL NOT BE DEDUCTIBLE U/S 40(A)(II) OF TH E ACT. THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE F ACTS IN THE CASE OF CIT VS. KERALA LINES LTD (SUPRA); AND HENCE, RESPECTFUL LY FOLLOWING THIS JUDGMENT OF HONBLE MADRAS HIGH COURT, THIS ISSUE IS DECIDED IN FAVOR OF THE REVENUE. REGARDING THE TRIBUNAL JUDGMENT RENDERED IN THE CA SE OF ITO VS. SOUTH EAST ASIA SHIPPING CO. (P) LTD. (SUPRA), WE FIND TH AT IN THIS CASE, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE ON THE BASIS THAT THE TAX LEVIED BY DIFFERENT COUNTRIES IS NOT TAX ON PROFITS; BUT NECESSARY COND ITION PRECEDENT TO EARNING OF PROFITS; AND THEREFORE, IT WAS HELD IN THIS CASE TH AT SECTION 40(A)(II) IS NOT 14 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 APPLICABLE. WE ARE OF THE CONSIDERED OPINION THAT SINCE, JUDGMENT OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF KERALA LI NES LTD. (SUPRA) IS AGAINST THE ASSESSEE, THE SAME HAS TO BE FOLLOWED IN PREFER ENCE TO THE TRIBUNAL JUDGMENT RENDERED IN THE CASE OF SOUTH EAST AREA SH IPPING CO. (P) LTD. (SUPRA); AND HENCE, WE DECIDE THIS ISSUE IN FAVOUR OF THE REVENUE BY FOLLOWING THIS JUDGMENT OF HONBLE MADRAS HIGH COURT. THIS G ROUND OF THE ASSESSEE IS REJECTED. 28. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF AY 1993-94, WE RESPECTFULLY FOLLOW THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL FOR AY 1993-94 AND UPHOLD THE DECISION OF THE LD CIT (A) THAT THE TAXES PAID BY THE ASSESSEE OUTSIDE INDIA A RE NOT DEDUCTIBLE UNDER THE PROVISIONS OF SEC. 37(1) R.W.S 40(A)(II) AND SECTION 2(43). GROU ND NO.3 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED. 29. THE ISSUE RAISED IN GROUND NO.4 RELATES TO THE ASSESSEES CLAIM FOR EXEMPTION U/S 10A FOR AY 1999-2000 BASED ON THE AMENDMENT MADE BY THE INCOME TAX (SECOND AMENDMENT) ACT, 1998 W.E.F. 1.4.1999. 30. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR ISSUE HAS ALREADY BEEN CONSIDERED BY US IN THE APPEAL OF THE ASSESSEE FOR AY 1998-99 WHEREIN A SIMILAR CLAIM MADE BY THE ASSESSEE HAS BEEN HELD TO BE NOT ALLOWABLE ON THE G ROUND THAT THE RELEVANT AMENDED PROVISIONS WERE NOT IN THE STATUTE ON THE FIRST DAY OF THAT ASSESSMENT YEAR. IN SO FAR AS THE AY 1999-2000 IS CONCERNED, THE SAID AMENDMENT MADE W.E.F. 1.4.1999 WAS VERY MUCH IN THE STATUTE ON THE FIRST DAY OF THE RELEVANT ASSESS MENT YEAR AND THE ASSESSEE IN OUR OPINION THEREFORE WAS ENTITLED TO CLAIM EXEMPTION U/S 10A R ELYING ON THE SAID AMENDMENT AS HELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S . DLS SOFTWARE LTD (SUPRA). WE 15 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 THEREFORE DIRECT THE AO TO ALLOW THE CLAIM OF THE A SSESSEE FOR EXEMPTION U/S 10A FOR AY 1999-2000 AND ALLOW THE GROUND NO.4 OF THE ASSESSEE S APPEAL. 31. AS REGARDS GROUND NO.5 OF THE APPEAL OF THE ASS ESSEE FOR THE AY 1999-2000 IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING T O COMPUTATION OF DEDUCTION U/S 80HHE IS SIMILAR TO THE ONE INVOLVED IN GROUND NO.6 OF THE A SSESSEES APPEAL FOR AY 1998-99 WHICH HAS BEEN DECIDED BY US IN PARAGRAPH NO. 19 OF THIS ORDER. FOLLOWING OUR DECISION IN AY 1998-99, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSE SSEE AND ALLOW GROUND NO.5. 32. IN THE ADDITIONAL GROUND FILED BY THE ASSESSEE AND ADMITTED BY US, THE ISSUE RELATING TO COMPUTATION OF DEDUCTION U/S 80HHC HAS BEEN RAIS ED WHICH IS SIMILAR TO THE ONE INVOLVED IN GROUND NO.4 OF THE ASSESSEES APPEAL FOR AY 1998 -99 WHICH HAS BEEN DECIDED BY US IN PARAGRAPH NO. 13 OF THIS ORDER. FOLLOWING OUR DECI SION RENDERED IN AY 1998-99, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND ALLOW ADDI TIONAL GROUND RAISED BY THE ASSESSEE IN AY 1999-2000. 33. NOW, WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E FOR AY 2000-2001 BEING ITA NO.3580/M/ 2005 WHICH IS DIRECTED AGAINST THE ORDER OF THE LD. CIT (A)-23, MUMBAI DATED 25.2.2005. 34. GROUND NO.1 OF THIS APPEAL IS RELATING TO DEDUC TION OF COMMON MANAGEMENT AND FACILITY EXPENSES IN COMPUTING THE INCOME ELIGIBLE FOR EXEMPTION U/S 10A HAS NOT BEEN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 35. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD CIT (A) IN HOLDING THAT TAXES PAID OUTSIDE INDIA ARE NOT DEDUCTABLE UN DER THE PROVISIONS OF SEC.37(1) AND R.W.S 40(A)(II) AND SECTION 2(43) OF THE INCOME-TAX ACT, 1961. 16 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 36. AS AGREED BY THE LEARNED REPRESENTATIVES OF BOT H THE SIDES AT THE TIME OF HEARING BEFORE US, THE ISSUE INVOLVED IN THE GROUND NO.2 OF THE ASSESSEES APPEAL IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE B Y THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 1993-94 RENDERED VIDE IT S ORDER DATED 17.1.2007 IN ITA NO.4688/MUM/1997 WHEREIN A SIMILAR ISSUE WAS DECIDE D AGAINST THE ORDER FOR THE FOLLOWING REASONS GIVEN IN PARA 16 OF ITS ORDER. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS ON RECORD AND HAVE GONE THROUGH THE JUDGMENTS CITED BY BOTH SIDES AND RELIED UPON BY AUTHORITIES BELOW. IN THE CASE OF SMITH KLINE AND FRENCH (INDIA) LTD. 219 ITR 561, IT WAS HELD BY HONBLE APEX COURT TAT SUR-TAX UNDER COMPAN IES (PROFITS) SUR-TAX ACT, 1964 IS TAX ON PROFITS WITHIN THE MEANING OF SECTIO N 40(A)(II); AND HENCE NOT AN ALLOWABLE DEDUCTION. IN THE CASE OF CIT VS. KERALA LINES LTD 201 ITR 10 6, THE ISSUE INVOLVED WAS SIMILAR I.E. REGARDING DEDUCTIBILITY OF AMOUNT PAID BY THE ASSESSEE BY WAY OF INCOME TAX AT FOREIGN PORTS AND UNDER THIS FACT, IT WAS HELD BY HONBLE MADRA HIGH COURT THAT THE AMOUNT PAID BY THE ASSESS EE BY WAY OF INCOME TAX AT FOREIGN PORTS IS NOT DEDUCTIBLE UNDER SECTION 37 OF I.T. ACT. IT WAS FURTHER HELD BY HONBLE MADRAS HIGH COURT THAT SINCE, ONCE, IT IS HELD THAT INCOME TAX PAYMENT MADE BY THE ASSESSEE AT THE FOREIGN PORTS I S NOT ALLOWABLE DEDUCTION U/S 37 OF THE ACT, IT WOULD REALLY BE UNNECESSARY T O CONSIDER WHETHER THOSE AMOUNTS SHALL NOT BE DEDUCTIBLE U/S 40(A)(II) OF TH E ACT. THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE F ACTS IN THE CASE OF CIT VS. KERALA LINES LTD (SUPRA); AND HENCE, RESPECTFUL LY FOLLOWING THIS JUDGMENT OF HONBLE MADRAS HIGH COURT, THIS ISSUE IS DECIDED IN FAVOR OF THE REVENUE. REGARDING THE TRIBUNAL JUDGMENT RENDERED IN THE CA SE OF ITO VS. SOUTH EAST ASIA SHIPPING CO. (P) LTD. (SUPRA), WE FIND TH AT IN THIS CASE, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE ON THE BASIS THAT THE TAX LEVIED BY DIFFERENT COUNTRIES IS NOT TAX ON PROFITS; BUT NECESSARY COND ITION PRECEDENT TO EARNING OF PROFITS; AND THEREFORE, IT WAS HELD IN THIS CASE TH AT SECTION 40(A)(II) IS NOT APPLICABLE. WE ARE OF THE CONSIDERED OPINION THAT SINCE, JUDGMENT OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF KERALA LI NES LTD. (SUPRA) IS AGAINST THE ASSESSEE, THE SAME HAS TO BE FOLLOWED IN PREFER ENCE TO THE TRIBUNAL JUDGMENT RENDERED IN THE CASE OF SOUTH EAST AREA SH IPPING CO. (P) LTD. (SUPRA); AND HENCE, WE DECIDE THIS ISSUE IN FAVOUR OF THE REVENUE BY FOLLOWING THIS JUDGMENT OF HONBLE MADRAS HIGH COURT. THIS G ROUND OF THE ASSESSEE IS REJECTED. 17 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 37. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF AY 1993-94, WE RESPECTFULLY FOLLOW THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL FOR AY 1993-94 AND UPHOLD THE DECISION OF THE LD. CIT (A) THAT THE TAXES PAID BY THE ASSESSEE OUTSIDE INDIA A RE NOT DEDUCTIBLE UNDER THE PROVISIONS OF SEC. 37(1) R.W.S 40(A)(II) AND SECTION 2(43). GROU ND NO.2 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED. 38. THE ISSUE RAISED IN GROUND NO.3 OF THIS APPEAL RELATES TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT (A) ON ACCOUNT OF PROVISION FOR PENSION MADE BY THE ASSESSEE COMPANY FOR ITS MANAGING DIRECTOR. 39. AT THE TIME OF HEARING BEFORE US, THE LEARNED R EPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR AY 199 6-97 BY ITS COMMON ORDER DATED 17.1.2007 WHEREIN A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARAGRA PH 85 OF ITS ORDER. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS ON RECORD. WE FIND THAT RELIANCE WAS PLACED BY LEA RNED AR OF THE ASSESSEE ON THE JUDGMENT OF HONBLE APEX COURT RENDERED IN T HE CASE OF BHARAT EARTH MOVERS (SUPRA) BEFORE LEARNED CIT (A) ALSO. AFTER CONSIDERING THIS JUDGMENT, THIS ISSUE WAS DECIDED BY LEARNED CIT (A) AGAINST T HE ASSESSEE ON THE BASIS THAT REGARDING THE PROVISION FOR PENSION, IT CANNOT BE SAID THAT IT IS BASED ON A REASONABLE CERTAINTY, AS THE NUMBER OF YEARS FOR WHICH A PARTICULAR PERSON IS GOING TO RECEIVE PENSION IS NOT KNOWN WITH ANY C ERTAINTY. FOR THIS REASON ALONE, DISALLOWANCE MADE BY THE ASSESSING OFFICER O N THIS ACCOUNT OF RS. 31,44,105/- WAS UPHELD BY LEARNED CIT (A). WE ARE NOT IN AGREEMENT WITH LEARNED CIT (A) ON TH IS ACCOUNT IN VIEW OF THE JUDGMENT OF HONBLE APEX COURT IN THE CASE O F BHARAT EARTH MOVERS (SURPA) BECAUSE IT WAS HELD BY HONBLE APEX COURT I N THIS CASE THAT DEDUCTION SHOULD BE ALLOWED IF A BUSINESS LIABILITY HAS DEFIN ITELY ARISEN IN THE ACCOUNTING YEAR, ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIF IED AND DISCHARGED AT A FUTURE DATE. IT WAS ALSO HELD THAT IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH A REASONABLE CERTAINTY, ALTHOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. 18 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 WE ARE OF THE CONSIDERED OPINION THAT SINCE THE VA LUATION WAS DONE BY THE ASSESSEE ON THE BASIS OF ACTUARIAL VALUATION, I T CANNOT BE SAID THAT THE LIABILITY WAS NOT DETERMINED WITH A REASONABLE CERT AINTY. WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE IS ALSO COVERED IN FAVOR OF THE ASSESSEE BY THIS JUDGMENT OF HONBLE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS (SURPA); AND RESPECTFULLY FOLLOWING THE SAME, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALLOW ED. 40. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO AY 1996-97, WE RESP ECTFULLY FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL FOR AY 1996-97 AN D DELETE THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT (A) ON THIS ISSUE. GROUND NO.3 IS ACCORDINGLY ALLOWED. 41. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR AY 2001-2002 BEING ITA NO.5577/M/2005 WHICH IS DIRECTED AGAINST THE ORDER OF LD. CIT (A)-23, MUMBAI, DATED 10.5.2005. 42. GROUND NO.1 OF THIS APPEAL IS RELATING TO DEDUC TION OF COMMON MANAGEMENT AND FACILITY EXPENSES. IN COMPUTING THE INCOME ELIGIBL E FOR EXEMPTION U/S 10A HAS NOT BEEN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 43. AS REGARDS GROUND NO.2 OF THE ASSESSEES APPEAL FOR AY 2001-2002, IT IS OBSERVED THAT THE ISSUES INVOLVED THEREIN RELATING TO ASSESS EES CLAIM FOR RELIEF U/S 90 AND 91 ARE SIMILAR TO THE ISSUES INVOLVED IN GROUND NO. 2.1 AN D 2.2 OF THE ASSESSEES APPEAL FOR AY 1998-99 WHICH HAVE ALREADY BEEN DECIDED BY US IN PA RAGRAPH NO.6 OF THIS ORDER. FOLLOWING OUR DECISION RENDERED IN AY 1998-99, WE SET ASIDE T HE ORDER OF THE LD. CIT (A) ON THESE ISSUES AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTIONS AS GIVEN BY THE TRIBUNAL IN THE EAR LIER YEARS. GROUND NO.2 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 19 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 44. THE ISSUE RAISED IN GROUND NO.3 RELATES TO THE DISPUTE AS REGARDS THE HEAD OF INCOME UNDER WHICH INCOME FROM INTEREST IS ASSESSABLE TO T AX WHETHER UNDER THE HEAD INCOME FROM OTHER SOURCES AS HELD BY THE AUTHORITIES BELOW OR UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AS CLAIMED BY THE ASSESSEE. 45. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR ISSUE WAS INVOLVED IN ASSESSEES OWN CASE FOR AY 1993-94 AND THE TRIBUNAL BY ITS COM MON ORDER DATED 17.1.2007 (SUPRA) DECIDED THE SAME AGAINST THE ASSESSEE HOLDING THAT INTEREST INCOME IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE WAS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE TRIBUNAL HOWEVER ACCEPTED THE A LTERNATIVE CONTENTION OF THE ASSESSEE THAT ONLY NET INTEREST INCOME SHOULD BE ASSESSED UN DER THE HEAD INCOME FROM OTHER SOURCES AFTER DEDUCTING EXPENSES INCURRED FOR EARNING THE S AID INCOME AND NET INTEREST SO DETERMINED SHOULD BE EXCLUDED FROM THE BUSINESS PRO FIT OF THE ASSESSEE FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC. RESPECTFULLY F OLLOWING THE SAID DECISION OF THE TRIBUNAL ON THE SIMILAR ISSUE IN ASSESSEES OWN CAS E FOR AY 1993-94, WE UPHOLD THE ACTION OF THE AUTHORITIES BELOW IN ASSESSING THE INTEREST INC OME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ALTERNATIVE CONTENTION OF THE ASSESSE E HOWEVER IS ACCEPTED AND THE AO IS DIRECTED TO DETERMINE AND EXCLUDE ONLY THE NET INTE REST INCOME FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC. GROUND NO.3 IS ACCORDINGLY PARTLY ALLOWED. 46. GROUND NO.4, OF THIS APPEAL RELATING TO DEDUCTI ON OF COMMON MANAGEMENT AND FACILITY EXPENSES IN COMPUTING THE INCOME ELIGIBLE FOR EXEMPTION U/S 10A HAS NOT BEEN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 20 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 47. AS REGARDS GROUND NO.5.1 AND 5.2 OF THIS APPEAL , IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING TO COMPUTATION OF DEDUCTI ON U/S 80HHE IS SIMILAR TO THE ONE INVOLVED IN ASSESSEES APPEAL FOR AY 1998-99 WHICH HAS BEEN DECIDED BY US IN PARAGRAPH NO.19 OF THIS ORDER. FOLLOWING OUR DECISION RENDER ED IN AY 1998-99, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND ALLOW GROUND NO. 5.1 AND 5.2. 48. AS REGARDS GROUND NO.5.3, IT IS OBSERVED THAT T HE ISSUE INVOLVED THEREIN RELATING TO EXCLUSION OF EXCISE DUTY AND SALES TAX FROM THE TO TAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHE IS SQUARELY COVERED B Y THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SUDARSHAN CHEMICA LS INDUSTRIES LTD. 245 ITR 769 AND IN THE CASE OF COMMISSIONER OF INCOME-TAX VS LAKSHMI M ACHINE WORKS (SC) 290 ITR 667. RESPECTFULLY FOLLOWING THE SAID DECISIONS OF THE HO NBLE JURISDICTIONAL HIGH COURT, WE REVERSE THE IMPUGNED ORDER OF THE LD. CIT (A) ON THIS ISSUE AND DIRECT THE AO TO EXCLUDE EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER FOR THE PUR POSE OF COMPUTING DEDUCTION U/S 80HHE. GROUND NO. 5.3 IS ACCORDINGLY ALLOWED. 49. IN THE RESULT, ALL THE FOUR APPEALS OF THE ASSE SSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4.7.2012. SD/- SD/- (AMIT SHUKLA) (P.M. J AGTAP) JUDICIAL MEMBER ACCOUNTANT M EMBER DATE : 4.7.2012 AT : MUMBAI OKK 21 ITA NOS. 3578, 3579, 3580 & 5577/M/2005 COPY TO : 1. TATA CONSULTANCY SERVICES LTD., MUMBAI. 2. ACIT, CIRCLE 7(3), MUMBAI. 3. THE CIT(A) CONCERNED. 4. THE CIT, MUMBAI CONCERNED 5. THE DR L BENCH, ITAT, MUMBAI 6. GUARD FILE // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI.