J.P MORGAN SERVICES INDIA P.LTD, MUMBAI V. DCIT CIR 8(2), MUMBAI

ITA 477/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3500 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 09-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-01-2013
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Question of law; Unabsorbed depreciation
• Section: 80C; 143(3); 80HHC; 234B; 28

Judgement Text

, , K, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.477/MUM/2013 ASSESSMENT YEAR: 2008-09 J.P. MORGAN SERVICES INDIA P. LTD., PRISM TOWER, LEVEL NO.9 TO 11, LINK RD, MINDSPACE, MALAD (W) MUMBAI-400064 / VS. DC IT 8( 2 ) AAYAKAR BHAVAN, M.K. RD MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AABCD0503B / ASSESSEE BY SHRI P ORUS KAKA & S HRI DIVESH CHAWLA (AR) / REVENUE BY SHRI N.K. CHAND (DR) / DATE OF HEARING : 06/04/2016 / DATE OF ORDER: 25/05/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE FIN AL ASSESSMENT ORDER PASSED BY THE AO DATED 15.10.2012 U/S 143(3) R.W.S. 144C (II) OF THE INCOME TAX ACT, 1961 , (HEREIN AFTER CALLED AS ACT) IN PURSUANCE TO THE DIRECTIO NS OF THE J.P. MORGAN SERVICES INDIA P. LTD. 2 DISPUTE RESOLUTION PANEL (DRP) GIVEN VIDE ITS ORDER DATED 07.09.2012 FOR A.Y. 2008-09. FIRST WE SHALL TAKE UP ASSESSEES APPEAL: 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI PORUS KAKA & SHRI DIVESH CHAWLA, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND B Y SHRI N.K. CHAND, DEPARTMENTAL REPRESENTATIVE ( CIT-DR) ON BEH ALF OF THE REVENUE. 3. DURING THE COURSE OF HEARING, THE ASSESSEE FILED R EVISED GROUNDS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE HONBLE DRP ERRED IN PROPOSING AND THE DCIT HAS FUR THER ERRED IN CONFIRMING THE ADDITION OF RS.13,09,31,171 /- TO THE INCOME OF THE APPELLANT BY REJECTING THE SUBMISSION S OF THE APPELLANT WHICH STATE THAT IT IS ENGAGED IN PROVISI ON OF BACK OFFICE SUPPORT SERVICES WHICH ARE IN THE NATUR E OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) AS P ER THE INSTRUCTIONS, GUIDANCE, TRAINING AND STANDARD OPERA TING PROCEDURES OF GROUP ENTITIES IN INDIA AND OVERSEAS AND WRONGLY CHARACTERIZING THE APPELLANT AS A KNOWLEDGE PROCESS OUTSOURCING (KPO) COMPANY: 2. THE REFERENCE TO THE ADDL. CIT TRANSFER PRICING 1(5), MUMBAI (TPO) UNDER SECTION 92CA BY THE DCIT WAS BAD IN LAW, IN EXCESS OF JURISDICTION AND/VOID IN LAW. 2.1. THE APPELLANT PRAYS THAT THE BOOK VALUE OF THE INTERNATIONAL TRANSACTIONS OF PROVISION OF ITES, BE HELD TO BE THE ARMS LENGTH PRICE OF THE SAID TRANSACTIONS AS PER THE APPELLANTS TRANSFER PRICING DOCUMENTATION, AND THEREFORE, THE AFORESAID ADDITION MADE BY THE DCIT BE DELETED. 3. ON THE FACTS, IN LAW AND IN THE CIRCUMSTANCES OF THE CASE, THE DCIT ERRED IN HOLDING THAT UNABSORBED DEPRECIATION OF RS.19,89,361 HAS EMANATED FROM EXEM PT J.P. MORGAN SERVICES INDIA P. LTD. 3 UNIT AND ACCORDINGLY SET OFF OF THE SAME AGAINST TH E TAXABLE INCOME COMPUTED AFTER ALLOWING EXEMPTION UN DER SECTION 10A IS DENIED. 4. ON THE FACTS, IN LAW AND IN CIRCUMSTANCES OF THE CASE, THE DCIT ERRED IN TREATING THE INTEREST INCOME ON D EPOSITS WITH BANKS AND OTHER RECEIPTS, AMOUNTING TO RS.8,19,74,580/- AS CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE APPELLANTS CLAIM THAT SUCH INTEREST INCOME AND OTH ER RECEIPTS IS CHARGEABLE TO TAX UNDER THE HEAD PROFI T AND GAINS OF BUSINESS OR PROFESSION AND ELIGIBLE FOR D EDUCTION UNDER SECTION 10A OF THE ACT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE DCIT ERRED IN RESTRICTING THE CREDIT FOR T AXES DEDUCTED AT SOURCES TO RS.3,09,16,615 INSTEAD OF RS.3,15,89,080/- AS CLAIMED IN THE RETURN OF INCOME . 6. ON THE FACTS, IN LAW AND IN CIRCUMSTANCES OF THE PRESENT CASE, THE DCIT ERRED IN LEVYING INTEREST OF RS.55,34,57,352/- UNDER SECTION 234B OF THE ACT. 7. ON THE FACTS, IN LAW AND IN CIRCUMSTANCES OF THE CASE, THE DCIT HAS ERRED IN INITIATING PENALTY PROCEEDING S UNDER SECTION 271(1)(C) READ WITH EXPLANATION 7 OF THE AC T FOR FURNISHING INACCURATE PARTICULARS AND CONCEALMENT O F INCOME. 3.1. DURING THE COURSE OF HEARING IT WAS STATED AT THE VERY OUT SET BY THE LD. COUNSEL OF THE ASSESSEE THAT ALL THE GROUNDS ARE COVERED WITH THE ORDER OF THE TRIBUNAL OF EARLIER Y EARS IN ASSESSEES OWN CASE. IT WAS FURTHER SUBMITTED THAT REVISION IN THE GROUNDS WAS FELT NECESSARY ON ACCOUNT OF THE RE LIEF GRANTED TO THE ASSESSEE ON THE CONCLUSION OF MUTUAL AGREEME NT PROCEDURE (MAP). 4. GROUND NO.1: IT HAS BEEN STATED BY THE LD. COUNSEL THAT OUT OF THE ORIGINAL TP ADDITION OF RS.325,69,94,307 /- (BASED ON THE APPLIED MARK-UP OF 51.93%) MAP HAS BEEN CONCLUD ED FOR J.P. MORGAN SERVICES INDIA P. LTD. 4 RS.312,60,63,136 (95.98% OF THE TOTAL TP ADDITION) AT ARMS LENGTH MARK-UP OF 16.63% AND ACCORDINGLY THE INTERN ATIONAL TRANSACTION OF BACK OFFICE SUPPORT SERVICE RENDERED BY THE ASSESSEE HAS BEEN DETERMINED AT ARMS LENGTH. HENCE , THE ABOVE GROUND HAS BEEN REVISED TO COVER ONLY THE REM AINING ADDITION OF RS. 13,09,31,171/- I.E. 4.02% OF THE TO TAL ADDITION. 4.1. IT HAS BEEN FURTHER SUBMITTED THAT SIMILAR ISSUE A ROSE IN ASSESSMENT YEARS 2006-07 & 2007-08 WHEREIN THE TRIB UNAL VIDE ITS ORDER DATED 30.11.2015 IN ITA NO.8987/MUM/ 2010 ACCEPTED THE PRAYER OF THE ASSESSEE AND APPLIED THE DECISION OF MAP ON REMAINING 4% TRANSACTIONS OF THE ASSESSEE, A S WELL VIZ. TRANSACTIONS PERTAINING TO NON-US ENTITIES. LD. C OUNSEL RELIED UPON THE ORDER OF THE TRIBUNAL. ON THE OTHER HAND, LD. CIT-DR RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT DECISION OF THE MAP WAS PERTAINING TO ONLY TRA NSACTIONS DONE WITH ITS US-AE AND THEREFORE, THE SAME CANNOT BE APPLIED ON TRANSACTIONS DONE WITH OTHER AES. 4.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AS WELL AS ORDER OF THE TRIBUNAL OF A.YS. 2006-07 A ND 2007-08 AND FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL; RELEVANT PORTION OF THE SAME IS REPRODUCE D BELOW: 3.6 WE HAVE GONE THROUGH THE ARGUMENTS MADE BY BOTH THE SIDES AND ALSO THE MATERIAL PLACED BEFORE US FO R OUR CONSIDERATION. IT IS NOTED THAT LETTER DATED 9 TH APRIL 2015 IN F-NO.480/13/2010-FTD-1 HAS BEEN ISSUED IN THE CASE OF THE ASSESSEE COMPANY UNDER MAP PROCEEDINGS FOR A.Y.2006-07 TO 2010-111 BY THE DCIT(OSD), APA-I ON J.P. MORGAN SERVICES INDIA P. LTD. 5 BEHALF OF THE FOREIGN TAX AND TAX RESEARCH DIVISION -I, CENTRAL BOARD OF DIRECT TAXES, NEW DELHI WHEREIN IT HAS BEEN CONFIRMED THAT FOR A.Y.2006-07, FOR US RELATED TRANSACTIONS, THE MARGIN HAS BEEN DETERMINED AT 14. 38% AS AGAINST MARGIN OF 21.58%, AS WAS DETERMINED BY T HE TRANSFER PRICING OFFICER (TPO). IT HAS BEEN FURTHER CLARIFIED BY WAY OF NOTE IN THE SAID LETTER THAT APPORTIONMEN T BETWEEN US AND NON-US ALP AND TP ADJUSTMENT HAD BEEN MARGINED OUT BY THE APA SECTION (OF FT AND TR DIVISION) ON THE BASIS OF US AND NON-US REVENUE . IT IS FURTHER NOTED FROM THE PERUSAL OF THE ANNUAL ACCOUN TS OF THE ASSESSEE COMPANY THAT AGGREGATE TURNOVER HAS BE EN SHOWN AT RS.47,30,521/-, AND NO DISTINCTION HAS BEE N MADE BETWEEN THE US AND NON-US TRANSACTIONS. SIMILARLY IN THE ORDERS PASSED BY THE LOWER AUTHORI TIES ALSO NO SUCH DISTINCTION AS EVER BEEN MADE BY ANY O F THE AUTHORITIES. UNDER THESE CIRCUMSTANCES, IN OUR CONS IDERED VIEW, WHATEVER MARGIN HAS BEEN DETERMINED FOR THE 9 6% OF THE TRANSACTIONS, SAME MARGIN SHOULD BE DETERMINED FOR THE REMAINING 4% TRANSACTIONS AS WELL. IT IS WORTH NOTING THAT, EVEN BEFORE US, NO DISTINCTION IN FACTS OR NA TURE OF TRANSACTIONS HAS BEEN BROUGHT OUT ON RECORD. THEREF ORE, IN OUR CONSIDERATE VIEW, MARK-UP OF 14.38% SHOULD BE DETERMINED FOR THE REMAINING 4% TRANSACTIONS PERTAI NING TO NON-US ENTITIES AS WELL. THE ASSESSEE GETS PART R ELIEF ACCORDINGLY. 4.3. IT HAS BEEN FURTHER BROUGHT TO OUR NOTICE THAT MAR GIN OF THE ASSESSEE @ 16.63% HAS BEEN FOUND TO BE AT ARMS LENGTH PRICE AND NO ADJUSTMENT HAS BEEN SUGGESTED UNDER M AP. IT IS FURTHER NOTED BY US THAT THE TPO/AO HAVE TREATED AL L OF THE TRANSACTIONS AS ONE, BY COMBINING THE TOTAL TURNO VER OF THE ASSESSEE, WHETHER RELATED TO US BASED ENTITIES OR O THERS. EVEN BEFORE US, NO DISTINCTION HAS BEEN MADE OUT BY THE LD. CIT-DR BETWEEN THE TURNOVER MADE BY THE ASSESSEE WITH US BASED ENTITIES AND OTHERS. IN VIEW OF THESE FACTS AND RES PECTFULLY FOLLOWING ORDERS OF EARLIER YEARS, WE DIRECT THE AO /TPO TO APPLY J.P. MORGAN SERVICES INDIA P. LTD. 6 THE ORDER OF MAP ON THE REMAINING 4.02% TRANSACTION S ALSO AND DELETE THE ADDITION. THUS, GROUND NO.1 IS ALLOW ED IN THE MANNER AND TO THE EXTENT OF OUR OBSERVATIONS AS GIV EN ABOVE. 5. GROUND NOS. 2 & 2.1 ARE INFRUCTUOUS AND THEREFORE DISMISSED AS SUCH. 6. GROUND NO.3: IN THIS GROUND, THE ASSESSEE CHALLENGED THE ACTION OF LOWER AUTHORITIES IN HOLDING THAT UNABSOR BED DEPRECIATION OF RS.19,89,361/- EMANATED FROM EXEMPT UNIT AND ACCORDINGLY EXEMPTION U/S 10A OF THE ACT SHOULD BE COMPUTED AFTER SETTING OFF THE AMOUNT OF UNABSORBE D DEPRECATION. 6.1. DURING THE COURSE OF HEARING BOTH THE PARTIES FAIR LY AGREED THAT THIS ISSUE HAS BEEN ARISING IN EARLIER YEARS I .E. IN ASSESSMENT YEARS 2005-06, 2006-07 & 2007-08, WHEREI N THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE FAVOU R OF THE ASSESSEE. 6.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES OF THE IMPUGNED YEAR AS WELL AS EARLIER YEARS. IT I S NOTED THAT IN THE ORDER PASSED FOR A.YS. 2006-07 & 2007-08, TH E TRIBUNAL HAS RELIED UPON ITS ORDER FOR A.Y. 2005-06 AND DIRE CTED THE AO TO ALLOW THE DEDUCTION U/S 10A BEFORE SETTING OFF T HE BROUGHT FORWARD UNABSORBED DEPRECIATION. THE RELEVANT PORTI ON OF THE ORDER OF THE TRIBUNAL IS REPRODUCED BELOW: 4.2. WE HAVE GONE THROUGH, WITH THE ASSISTANCE OF THE PARTIES, THE ORDER OF HONBLE TRIBUNAL FOR A.Y.2005 -06 IN J.P. MORGAN SERVICES INDIA P. LTD. 7 ITA NO.5547/MUM/2009 DATED 23.04.2013, IN ASSESSEE S OWN CASE. THE RELEVANT PARAS OF THE TRIBUNALS ORD ER ARE REPRODUCED HEREIN. 12. THE GRIEVANCE RELATES TO THE SETTING OFF OF TH E UNABSORBED DEPRECIATION. IT IS THE CONTENTION OF TH E ASSESSEE THAT IN COMPUTING INCOME UNDER THE HEAD P ROFITS & GAINS OF BUSINESS OR PROFESSION DEDUCTION U/S. 1 0A SHOULD BE ALLOWED BEFORE SETTING OFF OF BROUGHT FOR WARD BUSINESS LOSS AND UNABSORBED DEPRECIATION AND THE S AME SHOULD BE SET OFF OF AGAINST THE BALANCE TAXABLE IN COME IF ANY. 13. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE ISSUES ARE NOW WELL SETTLED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS BLACK AND VEATCH CONSULTING PVT. LTD. (20 12) 348 ITR 72 (BOM). 14. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONC EDED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSE SSEE. 15. WE HAVE CAREFULLY PERUSED THE FACTS OF THE VASE VIS-A- VIS DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT (SUPRA). THE QUESTION BEFORE THE HONBLE JURISDICTI ONAL HIGH COURT WAS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE INCOME TAX APPELLATE TRIBUNAL WAS CORRECT IN HOLDING THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND LOSSES OF THE UNIT THE INCOME WHICH IS NOT ELIGIBLE FOR DEDUCTION U/S.10A OF THE ACT CANNOT BE SET OFF AGAINST THE CURRENT PROFI T OF THE ELIGIBLE UNIT FOR COMPUTING THE DEDUCTION U/S. 10A OF THE I.T. ACT. 16. THE HONBLE HIGH COURT THUS HELD AS UNDER: SECTION 10A IS A PROVISION WHICH IS IN THE NATURE OF A DEDUCTION AND NOT AN EXEMPTION. THIS WAS EMPHASISED IN A JUDGMENT OF A DIVISION BENCH OF THI S COURT, WHILE CONSTRUING THE PROVISIONS OF SECTION 1 0B, IN HINDUSTAN UNILEVER LTD. V. DEPUTY CIT [2010] 325 ITR 102 (BOM) AT PARAGRAPH 24. THE SUBMISSION OF THE REVENUE PLACED ITS RELIANCE ON THE LITERAL READ ING OF SECTION 10A UNDER WHICH A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT J.P. MORGAN SERVICES INDIA P. LTD. 8 YEARS IS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. THE DEDUCTION UNDER SECTION 10A, IN OUR VIEW, HAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFITS AND GAINS OF BUSINESS. THIS I S ANTERIOR TO THE APPLICATION OF THE PROVISIONS OF SE CTION 72 WHICH DEALS WITH THE CARRY FORWARD AND SET OFF O F BUSINESS LOSSES. A DISTINCTION HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISIONS OF CHAPTER VI-A. SECTION 80A(1) STIPULATES THAT IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE, THERE SHALL BE ALLOWED FROM HIS GROSS TOTAL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH E CHAPTER, THE DEDUCTIONS SPECIFIED IN SECTIONS 80C T O 80U. SECTION 80B(5) DEFINES FOR THE PURPOSES OF CHAPTER VI-A 'GROSS TOTAL INCOME' TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, BEFORE MAKING ANY DEDUCTION UNDER THE CHAPTER. WHAT THE REVENUE IN ESSENCE SEEKS TO ATTAIN IS TO TELESCOPE THE PROVISIONS OF CHAPTER VI -A IN THE CONTEXT OF THE DEDUCTION WHICH IS ALLOWABLE UND ER SECTION 10A, WHICH WOULD NOT BE PERMISSIBLE UNLESS A SPECIFIC STATUTORY PROVISION TO THAT EFFECT WERE TO BE MADE. IN THE ABSENCE THEREOF, SUCH AN APPROACH CANNOT BE ACCEPTED. IN THE CIRCUMSTANCES, THE DECISION OF THE TRIBUNAL WOULD HAVE TO BE AFFIRMED SINCE IT IS PLAIN AND EVIDENT THAT THE DEDUCTION UN DER SECTION 10A HAS TO BE GIVEN AT THE STAGE WHEN THE PROFITS AND GAINS OF BUSINESS ARE COMPUTED IN THE FIRST INSTANCE. SO CONSTRUED, THE APPEAL BY THE REVENUE WOULD NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND SHALL ACCORDINGLY STAND DISMISSED. THERE SHALL BE NO ORDER AS TO COSTS. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE DIRECT THE AO TO ALLO W DEDUCTION U/S. 10A BEFORE SETTING OF THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND BUSINESS LOSS. GROUND NO. 5 TO 9 TAKEN TOGETHER IS ALLOWED. 4.3. IT IS NOTED THAT NONE OF THE PARTIES HAVE DISPUTED THAT FACTS OF BOTH THE YEARS ARE SIMILAR. THERE IS NO CH ANGE IN THE POSITION OF LAW. THE LD. CIT-DR HAS ALSO NOT MA DE ANY DISTINCTION IN THE FACTS OR LEGAL POSITION OF THESE TWO YEARS. J.P. MORGAN SERVICES INDIA P. LTD. 9 THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF COORDINATE BENCH IN ASSESSEES OWN CASE AND THAT OF HONBLE JURISDICTIONAL HIGH COURT, AS HAS BEEN RELI ED BY THE COORDINATE BENCH, WE DIRECT THE AO TO ALLOW DED UCTION U/S 10A BEFORE SETTING OFF OF THE BROUGHT FORWARD UNABSORBED DEPRECIATION. THUS, GROUND NO.2 IS ALLOW ED IN TERMS OF THE ABOVE DIRECTIONS. THUS, RESPECTFULLY FOLLOWING THE ORDER OF THE EARL IER YEARS WE DIRECT THE AO TO ALLOW THE DEDUCTION U/S 10A BEFORE SETTING OFF OF THE BROUGHT FORWARD UNABSORBED DEPRECIATION. THI S GROUND IS ALLOWED. 7. GROUND NO.4: IN THIS GROUND THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF THE LOWER AUTHORITIES IN TREATING THE INTEREST INCOME ON DEPOSITS WITH BANKS AND OTHER RECEIPTS, A MOUNTING TO RS.8,19,74,580/- AS CHARGEABLE TO INCOME-TAX UND ER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE ASS ESSEES CLAIM THAT SUCH INTEREST INCOME AND OTHER RECEIPTS ARE CHARGEABLE TO TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION AND ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. 7.1. DURING COURSE OF HEARING, IT WAS SUBMITTED BY THE LD. COUNSEL THAT THIS ISSUE HAD ALSO ARISEN IN THE EARL IER YEARS WHEREIN IT WAS HELD THAT THE IMPUGNED INTEREST INCO ME WAS INCOME FROM BUSINESS, BUT THE COMPUTATION OF THE AVAILABILITY OF DEDUCTION U/S 10A WAS DIRECTED TO BE DONE IN ACC ORDANCE WITH SUB-SECTION (4) OF SECTION 10A, WHEREAS, THE A SSESSEE SHOULD HAVE BEEN GRANTED 100% DEDUCTION U/S 10A ON THE FULL AMOUNT OF IMPUGNED INTEREST INCOME. J.P. MORGAN SERVICES INDIA P. LTD. 10 7.2. PER CONTRA, LD. CIT-DR SUBMITTED THAT ASSESSEE WAS NOT IN THE BUSINESS OF GIVING LOANS AND EARNING INTERES T THERE FROM. SECTION 10A HAS AN EMBEDDED OBJECT OF EARNING FOREI GN EXCHANGE AND BRINGING THE SAME INTO INDIA, AS IS EV IDENT FROM SUB-SECTION (3) OF SECTION 10A. IT WAS FURTHER SUBM ITTED THAT THE LANGUAGE USED IN SUB-SECTION (1) IS VERY IMPORT ANT, WHICH USES THE PHRASE SUCH PROFITS AND GAINS AS ARE DERI VED FROM A 100% EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLE OR THING OR COMPUTER SOFTWARE. THE LANGUAGE OF SUB-S ECTION (1) IS VERY CLEAR AND STATES WHICH PROFITS ARE TO BE SU BJECTED TO DEDUCTION. 7.3. HE FURTHER SUBMITTED THAT THERE ARE MANY JUDGMENTS WHEREIN IT HAS BEEN HELD THAT UNDER SUCH SITUATIONS THE IMMEDIATE SOURCE OF INTEREST IS DEPOSIT/FDRS/LOANS AND THE SAME CANNOT BE TERMED AS DERIVED FROM EXPORT ORIE NTED UNDERTAKING. THE CONNOTATION DERIVED FROM IS MUCH NARROWER THAN THAT OF THE PHRASE ATTRIBUTABLE TO. HE PLACE D RELIANCE ON FOLLOWING JUDGMENTS: I. LIBERTY INDIA 317 ITR 218 (SC) II. PANDIAN CHEMICALS 262 ITR 278(SC) III. STERLING FOODS 237 ITR 579(SC) IV. SHAH ORIGINALS 327 ITR 19(SC) AND V. SWANI SPICE 332 ITR 288 (SC). 7.4. THE LD. CIT-DR MADE AN ALTERNATIVE ARGUMENT ALSO T HAT IN CASE IMPUGNED INTEREST INCOME IS CONSIDERED AS B USINESS INCOME THEN QUANTIFICATION OF THE AMOUNT OF DEDUCTI ON J.P. MORGAN SERVICES INDIA P. LTD. 11 ALLOWABLE SHOULD BE DONE STRICTLY IN ACCORDANCE WIT H THE MECHANISM OF COMPUTATION PROVIDED UNDER SUB-SECTION (4) OF SECTION 10A, AND THUS, THE ASSESSEE CANNOT BE PROVI DED 100% DEDUCTION ON THE TOTAL AMOUNT OF INTEREST INCOME OF RS.8.19 CRORES. THE DEDUCTION CAN AT THE MOST BE ALLOWED PROPORTIONATELY AS ENVISAGED U/S 10A(4). IN THE REJ OINDER, LD. COUNSEL OF THE ASSESSEE RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT V. LAKSHMI MACHINE WORKS 290 ITR 667 FOR THE PROPOSITION THAT AMOUNT O F INTEREST CANNOT BE INCLUDED IN TOTAL TURNOVER, AND THEREFORE , ASSESSEE WOULD BE ELIGIBLE FOR 100% DEDUCTION ON THE TOTAL A MOUNT OF INTEREST INCOME AND EARNINGS MADE BY THE ASSESSEE F ROM ALL THE SOURCES. 7.5. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES, ORDERS OF THE LOWER AUTHORITIES; ORDERS OF T HE TRIBUNAL OF EARLIER YEARS IN ASSESSEES OWN CASE AS WELL AS JUD GMENTS RELIED UPON BY BOTH THE SIDES. IT IS NOTED BY US TH AT THIS GROUND HAS FOLLOWING TWO FACETS: I. WHETHER THE IMPUGNED AMOUNT OF INTEREST INCOME R ECEIVED BY THE ASSESSEE SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES II. QUANTIFICATION/COMPUTATION OF AMOUNT OF DEDUCTI ON ALLOWABLE U/S 10A ON THE IMPUGNED INTEREST INCOME. 7.6. IT IS NOTED THAT FOR BOTH OF THE ABOVE THE SAID IS SUES, THE TRIBUNAL HAS TAKEN A DECISION IN THE EARLIER YEARS. WITH REGARD TO THE FIRST ISSUE I.E. DETERMINATION OF HEAD OF IN COME, THE J.P. MORGAN SERVICES INDIA P. LTD. 12 TRIBUNAL IN ITS ORDER IN ASSESSEES OWN CASE FOR A. YS. 2006-07 & 2007-08 DATED 30.11.2015 (ITA NO.8987/MUM/2010) H ELD AS UNDER: 5.3. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES AS WELL AS THE ORDERS PASSED BY THE TRIBUNAL IN EARLIER YEARS AND JUDGMENTS RELIED UPON BEFORE US. IT IS NOTED THAT SIMILAR ISSUE CAME UP FOR ADJU DICATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSES SMENT YEAR 2004-05. THE TRIBUNAL HAS DECIDED THIS ISSUE I N ITA NO.7351/M/2007 VIDE ORDER DATED 26 TH JUNE 2009 RELEVANT PARA OF TRIBUNAL ORDER IS REPRODUCED BELOW : COMING TO THE NEXT GRIEVANCE REGARDING INTEREST IN COME NOT BEING CONSIDERED AS INCOME FROM BUSINESS, LD. COUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT SUM O F RS.3,63,042/- BEING INTEREST ON INCOME TAX REFUND, RELATING TO SOFTWARE TECHNOLOGY PARK UNIT I WOULD NOT BE ELI GIBLE FOR DEDUCTION U/S.10A OF THE ACT. HENCE, WE ARE REQUIRE D TO DECIDE ON INTEREST ON FIXED DEPOSIT RS.7,96,223/- A ND INTEREST ON STAFF LOAN OF RS.1,377/-. THERE IS NO D ISPUTE THAT ASSESSEE WAS HUNDRED PER CENT EXPORTER. NO DOU BT THE LD. DEPARTMENTAL REPRESENTATIVE HAS RELIED ON T HE DECISION OF THE KERALA HIGH COURT IN THE CASE OF CI T V. JOSE THOMAS (SUPRA) FOR THE PROPOSITION THAT INTEREST FR OM BANK DEPOSIT COULD NOT BE CONSIDERED AS INCOME FROM BUSI NESS FOR CLAIMING DEDUCTION U/S.80HHC OF THE ACT. HOWEVE R, WE FIND THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PUNIT COMMERCIAL LTD. (SUPRA) HAS HELD THAT WHERE A N ASSESSEE WAS 100% EXPORTER, DEDUCTION U/S.80HHC HAD TO BE GIVEN ON THE ENTIRE BUSINESS INCOME INCLUDING INTEREST ON FIXED DEPOSIT. ACCORDING TO THE HONBLE JURISDIC TIONAL HIGH COURT, ENTIRE PROFITS OF 100% EXPORTER WAS ENT ITLED FOR DEDUCTION U/S.80HHC OF THE ACT. AGAIN THE HONBLE D ELHI HIGH COURT IN THE CASE OF CIT VS. ELTEK S.G. (SUPRA ) HAS HELD THAT THE TERM DERIVED BY AN UNDERTAKING FROM EXPORT OF ARTICLES OF THINGS OR COMPUTER SOFTWARE USED IN SECTION 10A WAS NEITHER AS BROAD AS ATTRIBUTABLE TO NOR A S NARROW AS DERIVED FROM. THOUGH SECTION 80HHC OF T HE ACT USED THE TERM DERIVED FROM, HONBLE JURISDICTIO NS HIGH COURT IN THE CASE OF PUNIT COMMERCIAL LTD. (SUPRA) HELD THAT THE WHOLE FOR THE BUSINESS INCOME WAS ELIGIBLE FOR DEDUCTION U/S.80HHC OF THE ACT. FURTHER TO THIS, WE ALSO J.P. MORGAN SERVICES INDIA P. LTD. 13 FIND THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. LOK HOLDING (SUPRA) HAS CLEARLY HELD THAT IF SURPLUSES WERE DEPOSITED BY THE ASSESSEE OUT OF ITS BUSINESS PROCEEDS INTEREST THERE FROM COULD ONLY BE CONSIDERED AS PART OF PROFITS AND GAINS OF BUSINESS OF THE ASSESSEE. THEREFORE, WE ARE INCLINED TO ALLOW THE C LAIM OF THE ASSESSEE FOR TREATING THE INTEREST FROM FIXED D EPOSIT OF RS.7,96,233/- AND INTEREST ON STAFF LOAN RS.1,377/- AS INCOME FALLING UNDER THE HEAD PROFITS AND GAINS FR OM BUSINESS OR PROFESSION ELIGIBLE FOR DEDUCTION U/S. 10A OF THE ACT. AS FAR AS THE CONTENTION OF THE LEARNED DR THAT SECTION 10A WAS AN EXEMPTION PROVISION WHEREAS SECT ION 80HHC IS A DEDUCTION PROVISION, WE FIND THAT SECTIO N 10A AS SUBSTITUTED BY FINANCE ACT 2000, W.E.F 1.4.2000 CLEARLY MENTIONS IT TO BE A DEDUCTION FROM PROFITS AND GAIN S DERIVED BY AN UNDERTAKING FROM EXPORT OF ARTICLES O F THINGS OR COMPUTER SOFTWARE. THEREFORE, IT CANNOT BE DEEME D AS AN EXEMPTION PROVISION FOR THE IMPUGNED ASSESSMENT YEAR. GROUND NO.2 OF THE ASSESSEE IS THEREFORE, PARTLY AL LOWED. 5.4. FURTHER THIS ISSUE AGAIN CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2005-06, WHE REIN IN ITA NO.5547/M/2009 THE TRIBUNAL VIDE ITS ORDER D ATED 23.4.2013 HELD THAT UNDER: THE SECOND ISSUE RELATES TO THE INTEREST ON DEPOSIT S WHICH THE LOWER AUTHORITIES HAVE TAXED UNDER THE HEAD IN COME FROM OTHER SOURCES REJECTING ASSESSEES CONTENTION THAT INTEREST ON DEPOSITS IS CHARGEABLE TO TAX UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION AND THER EFORE ELIGIBLE FOR DEDUCTION U/S. 10A OF THE ACT. 8. IT IS THE SUBMISSION OF THE COUNSEL THAT THE ISS UE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 2004-05 AND TO SUBSTANTIATE HIS CLAIM , THE ASSESSEE SUBMITTED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE REPORTED IN 33 SOT 327. DRAWING OUR ATTENTION TO PARA-11 OF THE SAID ORDER OF THE TRIBU NAL, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRI BUNAL HAS DIRECTED TO TAX THE INTEREST UNDER THE HEAD PR OFITS & GAINS OF BUSINESS OR PROFESSION. 9. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. J.P. MORGAN SERVICES INDIA P. LTD. 14 10. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOW ER AUTHORITIES AND ALSO THE DECISION OF THE TRIBUNAL I N ASSESSEES OWN CASE (SUPRA). WE FIND THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL ALLOWING THE CLAIM OF THE ASSESSEE FOR TREATING THE INTEREST FROM FIXED DEPOSIT AS INCOME FALLING UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION ELIGIBL E FOR DEDUCTION U/S. 10A OF THE ACT. FACTS BEING IDENTICA L, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL , WE DIRECT THE AO TO TREAT THE INTEREST FROM FIXED DEPO SITS AS INCOME FALLING UNDER THE HEAD PROFITS & GAINS OF B USINESS OR PROFESSION ELIGIBLE FOR DEDUCTION U/S. 10A OF T HE ACT. GROUND NOS. 3 & 4 ARE ACCORDINGLY ALLOWED. 5.5. THE PERUSAL OF THE ORDER OF THE TRIBUNAL SHOWS THA T INCOME OF INTEREST WAS ASSESSED AS INCOME FROM BUSI NESS IN EARLIER YEARS. THERE IS NO CHANGE IN FACTS IN TH E IMPUGNED YEAR AS NOTHING COULD BE BROUGHT ON RECORD BY LD. CIT-DR TO SHOW THAT THERE WAS CHANGE IN FACTS I N THIS YEAR. THEREFORE, RESPECTFULLY FOLLOWING ORDERS OF C OORDINATE BENCH OF EARLIER YEARS IN ASSESEES OWN CASE, WE HO LD THAT INTEREST INCOME, WOULD BE ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. 7.7. DURING THE COURSE OF HEARING BEFORE US, LD. CIT-DR DID NOT MAKE OUT ANY DISTINCTION IN THE FACTS OF THE IM PUGNED YEAR AS COMPARED TO THE FACTS OF THE EARLIER YEARS WITH REGARD TO THE NATURE OF INTEREST INCOME EARNED BY THE ASSESSEE IN THESE YEARS. THUS, WE HAVE NO OPTION BUT TO FOLLOW THE OR DERS OF THE EARLIER YEARS. THEREFORE, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND INTEREST INCOME IS DIRECTED TO BE HELD AS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. 7.8. WITH REGARD TO SECOND ISSUE ALSO IT IS NOTED THAT THE HONBLE BENCH HAS DISCUSSED THIS ISSUE IN DETAIL AN D AFTER ANALYZING THE PROVISIONS AND OBJECTS OF SECTION 10A , IT WAS J.P. MORGAN SERVICES INDIA P. LTD. 15 HELD GIVING DETAILED REASONING THAT DEDUCTION U/S 1 0A ON THE AMOUNT OF DOMESTIC INTEREST INCOME SHALL BE ALLOWAB LE PROPORTIONATELY IN TERMS OF A SPECIFIC MECHANISM AS PROVIDED UNDER SECTION 10A(4). BEFORE DEALING WITH THE NEW A RGUMENTS TAKEN UP BY THE LD. COUNSEL, WE FIND IT APPROPRIATE TO REPRODUCE THE RELEVANT PORTION OF THE AFORESAID ORD ER OF THE TRIBUNAL: 5.6. HAVING DECIDED THE INTEREST INCOME AS INCOME FROM BUSINESS, THE NEXT STEP IS TO COMPUTE THE AMOUNT OF DEDUCTION AVAILABLE U/S 10A ON THE AMOUNT OF AFORES AID INTEREST INCOME. IT IS NOTED THAT THIS ASPECT HAS N OT BEEN DECIDED IN EARLIER YEARS. THEREFORE, THIS ISSUE NEE DS TO BE DECIDED BY US, AS PER PROVISIONS OF SECTION 10A. IT IS FURTHER NOTED THAT IT IS A CASE OF 100% EXPORTER. T HERE ARE NO OTHER LOCAL SALES DONE BY THE ASSESSEE. IT HAS BEEN RIGHTLY CONTENDED BY THE LD. COUNSEL THAT SUB-SECTI ON (4) HAS PROVIDED MECHANISM TO COMPUTE THE AMOUNT OF PRO FIT ELIGIBLE FOR DEDUCTION U/S 10A. FOR THE SAKE OF REA DY REFERENCE SUB-SECTION (4) IS REPRODUCED HEREIN: (4) FOR THE PURPOSE OF [SUB-SECTIONS (1) AND (1A)] , THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PRO FITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTIO N AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF TH E BUSINESS CARRIED ON BY THE UNDERTAKING. 5.7. IN OUR CONSIDERED VIEW, SINCE THE INCOME FROM INTE REST HAS BEEN TREATED AS PART OF BUSINESS INCOME, IT SHA LL BE INCLUDED FOR DETERMINING THE AMOUNT OF TOTAL TURNOV ER OF THE BUSINESS AND ACCORDINGLY THE BENEFIT OF DEDUCTI ON U/S 10A SHALL BE PROVIDED ON THE AMOUNT OF INTEREST INC OME PROPORTIONATELY, IN TERMS OF MECHANISM PROVIDED IN SUB- SECTION (4). IN OTHER WORDS THE AMOUNT OF PROFIT EL IGIBLE FOR DEDUCTION U/S 10A SHALL BE THE AMOUNT WHICH BEARS T O THE PROFITS OF THE BUSINESS OF UNDERTAKING, THE SAME PR OPORTION AS EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER THE BUSINESS OF THE UNDERTAKING OF THE ASSESSEE. THE AO IS DIREC TED TO J.P. MORGAN SERVICES INDIA P. LTD. 16 GRANT THE BENEFIT OF DEDUCTION U/S 10A BY RE-COMPUT ING THE SAME IN TERMS OF OUR DIRECTIONS AS GIVEN ABOVE. 5.8. BEFORE WE PART WITH THIS ISSUE, WE SHALL LIKE TO CLARIFY THAT WE HAVE METICULOUSLY PONDERED OVER THIS ISSUE. IN CASE, CLEAR MANDATE OF SUB-SECTION (4) IS NOT FOLLO WED AND FULL DEDUCTION IS ALLOWED U/S 10A ON THE INTEREST I NCOME, THEN IT MAY YIELD ABSURD RESULTS AND ALSO PROVIDE B ENEFITS TO ASSESSEES WHICH WERE NOT INTENDED TO HAVE BEEN PROVIDED BY THE LEGISLATURE, KEEPING IN VIEW OBJECT IVE OF ENACTMENT OF SECTION 10A. AT TIMES, THERE MAY BE SITUATIONS WHERE INTEREST INCOME WOULD BE OF SIZEAB LE AMOUNT, SOMETIMES EVEN MORE THAN AMOUNT OF PROFITS, AND IN SUCH A SITUATION, IF 100% DEDUCTION IS GRANTED T O THE ASSESSEE, ON THE INTEREST INCOME OR ANY OTHER SIMIL AR INCOME, WITHOUT FOLLOWING MANDATE OF SUB-SECTION (4 ), IT MAY FRUSTRATE THE OBJECTIVE OF SECTION 10A. THEREFO RE, TO AVOID ANY SUCH SITUATION, CLEAR MECHANISM HAS BEEN PROVIDED UNDER SUB-SECTION (4) FOR COMPUTATION PURP OSES. THEREFORE, OUR DECISION IS IN LINE WITH EXPRESS AS WELL AS IMPLIED PROVISIONS OF SECTION 10A. 7.9. FROM THE PERUSAL OF THE ABOVE, IT COMES OUT THAT O BJECT OF SECTION 10A AS IS EMBEDDED IN SECTION 10B/10A IS TO PROVIDE THE TAX CONCESSIONS TO THOSE ASSESSEES WHO ARE EXPO RTING GOODS OUT OF INDIA AND BRINGING FOREIGN EXCHANGE IN TO INDIA. UNDER THESE CIRCUMSTANCES IN CASE 100% DEDUCTION U/ S 10A IS GRANTED ON THE DOMESTIC INCOME EARNED BY THE ASSESS EE ON ACCOUNT OF INTEREST RECEIVED BY IT ON ITS SURPLUS F UNDS RECEIVED THROUGH VARIOUS SOURCES, THEN SUCH A CONCESSION WIL L BE FAR FROM ACHIEVEMENT OF THE OBJECTS OF THESE PROVISIONS . IT SHALL AMOUNT TO MISUSE OF BENEFICIAL PROVISIONS. IN SUPPO RT OF HIS ARGUMENT FOR ALLOWING 100% DEDUCTION ON DOMESTIC IN TEREST INCOME, LD. COUNSEL OF THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. J.P. MORGAN SERVICES INDIA P. LTD. 17 LAKSHMI MACHINE WORKS (SUPRA) FOR THE PROPOSITION T HAT INTEREST CANNOT FORM PART OF THE EXPRESSION TOTAL TURNOVER. 7.10. WE HAVE CAREFULLY GONE THROUGH THE SUBMISSION OF T HE LD. COUNSEL BUT NOT ABLE TO ACCEPT THE SAME, ESPECI ALLY IN VIEW OF PECULIAR PROVISIONS OF SECTION 10A(4), AS HAS BEEN HELD BY THE TRIBUNAL IN THE EARLIER YEARS ALSO THAT SINCE C OMPUTATION MECHANISM HAS BEEN SPECIFICALLY PROVIDED IN THE SEC TION 10A, THEREFORE, COMPUTATION/QUANTIFICATION OF THE AMOUNT OF DEDUCTION ALLOWABLE TO AN ASSESSEE ON THE PROFITS O F THE ELIGIBLE UNDERTAKING HAS TO BE DONE STRICTLY IN ACCORDANCE W ITH LAW ONLY. THE COMPUTATION MECHANISM PROVIDED IN OTHER PROVISIONS FOR COMPUTATION OF DEDUCTION ALLOWABLE T HEREIN SAY IN SECTION 80HHC, CANNOT BE COPIED AND BLINDLY APPL IED UPON PECULIAR PROVISIONS SECTION 10A. EACH SET OF PROVIS IONS, ESPECIALLY BENEFICIAL PROVISIONS, IS STRUCTURED IN SUCH MANNER SO AS TO ENABLE THE ACHIEVEMENT OF OBJECTIVE OF ENA CTMENT OF THE PROVISIONS, AND FOR THIS PURPOSE LOT OF MATERIA L, AFTER A LONG DRAWN PROCESS, GOES INTO CHURNING WHILE DRAFT ING SUCH PROVISIONS. EACH PROVISION MAY STAND ON ITS OWN AND DISTINCT PEDESTAL AND THEREFORE, EACH OF THEM HAS TO BE CARE FULLY AND SEPARATELY DEALT WITH, UNLESS THE TEXT PROVIDES OTH ERWISE. IT IS NOTED BY US THAT HONBLE SUPREME COURT RENDERED THE JUDGMENT IN THE CASE OF LAKSHMI MACHINE WORKS(SUPRA ) SPECIFICALLY IN CONTEXT OF PECULIAR DRAFTING OF PRO VISIONS OF SECTION 80HHC, AS WOULD BE CLEAR FROM THE FIRST REA DING ITSELF OF THE JUDGMENT. FOR THE SAKE OF READY REFERENCE WE HAVE J.P. MORGAN SERVICES INDIA P. LTD. 18 PRODUCED HEREIN SOME RELEVANT OBSERVATIONS FROM THI S JUDGMENT: THE PRINCIPAL REASON FOR ENACTING THE ABOVE FORMUL A WAS TO DISALLOW A PART OF 80HHC CONCESSION WHEN THE ENT IRE DEDUCTION CLAIMED COULD NOT BE REGARDED AS RELATABL E TO EXPORTS. THEREFORE, WHILE INTERPRETING THE WORDS 'T OTAL TURNOVER' IN THE ABOVE FORMULA IN SECTION 80HHC ONE HAS TO GIVE A SCHEMATIC INTERPRETATION TO THAT EXPRESSION. THERE IS ONE MORE REASON FOR GIVING SCHEMATIC INTERPRETATION. THE VARIOUS AMENDMENTS TO SECTION 80HHC SHOW THAT RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT ETC. DO NOT FORM PART OF BUSINESS PROFITS AS THEY HAVE NO NEXUS WITH THE ACTIVITY OF EXPORTS. IF INTEREST OR RENT WAS NOT REGARDED BY THE LEGISLA TURE AS BUSINESS PROFITS, THE QUESTION OF TREATING THE SAME AS PART OF THE TOTAL TURNOVER IN THE ABOVE FORMULA DID NOT ARISE. IN FACT, SECTION 80 HHC HAD TO BE AMENDED SEVERAL TIME S SINCE THE FORMULA ON SEVERAL OCCASIONS GAVE A DISTO RTED FIGURE OF EXPORT PROFITS WHEN RECEIPTS LIKE INTERES T, RENT, COMMISSION ETC. WHICH DID NOT HAVE THE ELEMENT OF TURNOVER GOT INCLUDED IN THE PROFIT AND LOSS ACCOUN T AND CONSEQUENTLY BECAME ENTITLED TO DEDUCTION. THIS WAS CLARIFIED BY THE ABOVE AMENDMENT TO SECTION 80HHC COMMENCING FROM 1.4.92. THE SAID AMENDMENT MADE IT CLEAR THAT THOUGH COMMISSION AND INTEREST EMANATED FROM EXPORTS, THEY DID NOT INVOLVE ANY ELE MENT OF TURNOVER AND MERELY FOR THE REASON THAT COMMISSI ON, INTEREST, RENT ETC. WERE INCLUDED IN THE PROFIT AND LOSS ACCOUNT, THEY DID NOT BECOME ELIGIBLE TO DEDUCTION. WE HAVE TO GIVE PURPOSEFUL INTERPRETATION TO THE ABOVE SECTION. THE SAID SECTION IS ENTIRELY BASED ON THE FORMULA. THE AMENDMENTS FROM TIME TO TIME INDICATE THAT THEY BEC AME NECESSARY IN ORDER TO MAKE THE FORMULA WORKABLE. HENCE, WE HAVE TO GIVE SCHEMATIC INTERPRETATION TO SECTION 80HHC OF THE ACT. THE TAX UNDER THE ACT IS UPON INCOME, PROFITS AND G AINS. IT IS NOT A TAX ON GROSS RECEIPTS. UNDER SECTION 2(24) OF THE ACT THE WORD 'INCOME' INCLUDES PROFITS AND GAINS. T HE CHARGE IS NOT ON GROSS RECEIPTS BUT ON PROFITS AND GAINS. THE CHARGE IS NOT ON GROSS RECEIPTS BUT ON PROFITS AND GAINS PROPERLY SO-CALLED. GROSS RECEIPTS OR SALE PR OCEEDS, J.P. MORGAN SERVICES INDIA P. LTD. 19 HOWEVER, INCLUDE PROFITS. ACCORDING TO 'THE LAW AND PRACTICE OF INCOME TAX' BY KANGA AND PALKHIVALA, TH E WORD 'PROFITS' IN SECTION 28 SHOULD BE UNDERSTOOD IN NORMAL AND PROPER SENSE. HOWEVER, SUBJECT TO SPECIA L REQUIREMENTS OF THE INCOME TAX, PROFITS HAVE GOT TO BE ASSESSED PROVIDED THEY ARE REAL PROFITS. SUCH PROFI TS HAVE TO BE GOT TO BE ASCERTAINED ON ORDINARY PRINCIPLES OF COMMERCIAL TRADING AND ACCOUNTING. HOWEVER, THE INC OME TAX HAS LAID DOWN CERTAIN RULES TO BE APPLIED IN DE CIDING HOW THE TAX SHOULD BE ASSESSED AND EVEN IF THE RESU LT IS TO TAX AS PROFITS WHAT CANNOT BE CONSTRUED AS PROFITS, STILL THE REQUIREMENTS OF THE INCOME TAX MUST BE COMPLIED WIT H. WHERE A DEDUCTION IS NECESSARY IN ORDER TO ASCERTAI N THE PROFITS AND GAINS, SUCH DEDUCTIONS SHOULD BE ALLOWE D. PROFITS SHOULD BE COMPUTED AFTER DEDUCTING THE EXPE NSES INCURRED FOR BUSINESS THOUGH SUCH EXPENSES MAY NOT BE ADMISSIBLE EXPRESSLY UNDER THE ACT, UNLESS SUCH EXP ENSES ARE EXPRESSLY DISALLOWED BY THE ACT [SEE: PAGE 455 OF 'THE LAW AND PRACTICE OF INCOME TAX' BY KANGA AND PALKHIVALA]. THEREFORE, SCHEMATIC INTERPRETATION FOR MAKING THE FORMULA IN SECTION 80HHC WORKABLE CANNOT BE RULED OUT. SIMILARLY, PURPOSEFUL INTERPRE TATION OF SECTION 80HHC WHICH HAS UNDERGONE SO MANY CHANGE S CANNOT BE RULED OUT, PARTICULARLY, WHEN THOSE LEGIS LATIVE CHANGES INDICATE THAT THE LEGISLATURE INTENDED TO E XCLUDE ITEMS LIKE COMMISSION AND INTEREST FROM DEDUCTION O N THE GROUND THAT THEY DID NOT POSSESS ANY ELEMENT OF 'TU RNOVER' EVEN THOUGH COMMISSION AND INTEREST EMANATED FROM EXPORTS. WE HAVE TO READ THE WORDS 'TOTAL TURNOVER' IN SECTION 80HHC AS PART OF THE FORMULA WHICH SOUGH T TO SEGREGATE THE 'EXPORT PROFITS' FROM THE 'BUSINESS P ROFITS'. THEREFORE, WE HAVE TO READ THE FORMULA IN ENTIRETY. IN THAT FORMULA THE ENTIRE BUSINESS PROFITS IS NOT GIVEN DE DUCTION. IT IS THE BUSINESS PROFIT WHICH IS PROPORTIONATELY REDUCED BY THE ABOVE FRACTION/RATIO OF EXPORT TURNOVER W TO TAL TURNOVER WHICH CONSTITUTE 80HHC CONCESSION (DEDUCTI ON). INCOME IN THE NATURE OF 'BUSINESS PROFITS' WAS, THE REFORE, APPORTIONED. THE ABOVE FORMULA FIXED A RATIO IN WHI CH 'BUSINESS PROFITS' UNDER SECTION 28 OF THE ACT HAD TO BE APPORTIONED. THEREFORE, ONE HAS TO GIVE WEIGHTAGE N OT ONLY TO THE WORDS 'TOTAL TURNOVER' BUT ALSO TO THE WORDS 'EXPORT TURNOVER', 'TOTAL EXPORT TURNOVER' AND 'BUSINESS PR OFITS'. J.P. MORGAN SERVICES INDIA P. LTD. 20 THAT IS THE REASON WHY WE HAVE QUOTED HEREINABOVE EXTENSIVELY THE ILLUSTRATION FROM THE DIRECT TAXES (INCOME TAX) READY RECKONER OF THE RELEVANT WORD. IN THE CIRCUMSTANCES, WE CANNOT INTERPRET THE WORDS 'TOTAL TURNOVER' IN THE ABOVE FORMULA WITH REFERENCE TO TH E DEFINITION OF THE WORD 'TURNOVER' IN OTHER LAWS LIK E CENTRAL SALES TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. G OODS FOR EXPORT DO NOT INCUR EXCISE DUTY LIABILITY. AS STATE D ABOVE, EVEN COMMISSION AND INTEREST FORMED A PART OF THE P ROFIT AND LOSS ACCOUNT, HOWEVER, THEY WERE NOT ELIGIBLE F OR DEDUCTION UNDER SECTION 80HHC . THEY WERE NOT ELIGIBLE EVEN WITHOUT THE CLARIFICATION INTRODUCED BY THE LE GISLATURE BY VARIOUS AMENDMENTS BECAUSE THEY DID NOT INVOLVE ANY ELEMENT OF TURNOVER. FURTHER, IN ALL OTHER PROVISIO NS OF THE INCOME TAX, PROFITS AND GAINS WERE REQUIRED TO BE COMPUTED WITH REFERENCE TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE. HOWEVER, AS CAN BE SEEN FROM THE INCOME T AX RULES AND FROM THE ABOVE FORM NO.10CCAC IN THE CASE OF DEDUCTION UNDER SECTION 80HHC A REPORT OF THE AUDIT OR CERTIFYING DEDUCTION BASED ON EXPORT TURNOVER WAS SUFFICIENT. THIS IS BECAUSE THE VERY BASIS FOR COMPUTING SECTION 80HHC DEDUCTION WAS 'BUSINESS PROFITS' AS COMPUTED UNDER SECTION 28, A PORTION OF WHICH HAD TO BE APPORTIONED IN TERMS OF THE ABOVE RATIO O F EXPORT TURNOVER TO TOTAL TURNOVER. SECTION 80HHC(3) WAS A BENEFICIAL SECTION. IT WAS INTENDED TO PROVIDE INCE NTIVES TO PROMOTE EXPORTS. THE INCENTIVE WAS TO EXEMPT PROFIT S RELATABLE TO EXPORTS. IN THE CASE OF COMBINED BUSIN ESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN EXPORT PROFITS BY APPORTIONING THE TOTAL BUSINESS PROFITS ON THE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD O F ARRIVING AT EXPORT PROFITS. THIS METHOD EARLIER EXI STED UNDER EXCESS PROFITS TAX ACT, IT EXISTED IN THE BUSINESS PROFITS TAX ACT. THEREFORE, JUST AS COMMISSION RECEIVED BY AN ASSESSEE IS RELATABLE TO EXPORTS AND YET IT CANNOT FORM PART OF 'TURNOVER', EXCISE DUTY AND SALES TAX ALSO CANNO T FORM PART OF THE 'TURNOVER'. SIMILARLY, 'INTEREST' EMANA TES FROM EXPORTS AND YET 'INTEREST' DOES NOT INVOLVE AN ELEM ENT OF TURNOVER. THE OBJECT OF THE LEGISLATURE IN ENACTING SECTION 80HHC OF THE ACT WAS TO CONFER A BENEFIT ON PROFITS J.P. MORGAN SERVICES INDIA P. LTD. 21 ACCRUING WITH REFERENCE TO EXPORT TURNOVER. THEREFO RE, 'TURNOVER' WAS THE REQUIREMENT. COMMISSION, RENT, I NTEREST ETC. DID NOT INVOLVE ANY TURNOVER. THEREFORE, 90% O F SUCH COMMISSION, INTEREST ETC. WAS EXCLUDED FROM THE PRO FITS DERIVED FROM THE EXPORT. THEREFORE, EVEN WITHOUT TH E CLARIFICATION SUCH ITEMS DID NOT FORM PART OF THE F ORMULA IN SECTION 80HHC(3) FOR THE SIMPLE REASON THAT IT D ID NOT EMANATE FROM THE 'EXPORT TURNOVER', MUCH LESS ANY TURNOVER. EVEN IF THE ASSESSEE WAS AN EXCLUSIVE DEA LER IN EXPORTS, THE SAID COMMISSION WAS NOT INCLUDIBLE AS IT DID NOT SPRING FROM THE 'TURNOVER'. JUST AS INTEREST, C OMMISSION ETC. DID NOT EMANATE FROM THE 'TURNOVER', SO ALSO E XCISE DUTY AND SALES TAX DID NOT EMANATE FROM SUCH TURNOV ER. SINCE EXCISE DUTY AND SALES TAX DID NOT INVOLVE ANY SUCH TURNOVER, SUCH TAXES HAD TO BE EXCLUDED. COMMISSION , INTEREST, RENT ETC. DO YIELD PROFITS, BUT THEY DO N OT PARTAKE OF THE CHARACTER OF TURNOVER AND, THEREFORE, THEY W ERE NOT INCLUDIBLE IN THE 'TOTAL TURNOVER'. THE ABOVE DISCU SSION SHOWS THAT INCOME FROM RENT, COMMISSION ETC. CANNOT BE CONSIDERED AS PART OF BUSINESS PROFITS AND, THEREFO RE, THEY CANNOT BE HELD AS PART OF THE TURNOVER ALSO. IN FAC T, IN CIVIL APPEAL NO.4409 OF 2005, THE ABOVE PROPOSITION HAS B EEN ACCEPTED BY THE A.O. [SEE: PAGE NO.24 OF THE PAPER BOOK], IF SO, THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE 'TOTAL TURNOVER' UNDER SECTION 80HHC(3), OTHERW ISE THE FORMULA BECOMES UNWORKABLE. EMPHASIS SUPPLIED BY UNDERLYING THE RELEVANT OBSER VATIONS. 7.11. WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 80H HC. IT IS NOTED THAT VARIOUS TYPES OF RECEIPTS OF THE N ATURE OF BROKERAGE/COMMISSION, INTEREST, RENT, ETC ARE EXCLU DED FROM THE AMOUNT OF BUSINESS PROFITS AT THE VERY THRESHOL D, AND THEREAFTER BY WAY OF A FORMULA, WHICH IS PECULIAR T O SECTION 80HHC ALONE, THESE TYPES OF RECEIPTS ARE BROUGHT BA CK IN THE FORMULA FOR ALLOWING THE BENEFIT OR DEDUCTION U/S 8 0HHC ON PROPORTIONATE BASIS I.E. IN THE PROPORTION OF EXPO RT TURNOVER TO J.P. MORGAN SERVICES INDIA P. LTD. 22 TOTAL TURNOVER. IN VIEW OF PECULIAR DRAFTING OF S ECTION 80HHC AND ITS FORMULA, A SCHEMATIC INTERPRETATION HAS BEE N GIVEN BY THE HONBLE SUPREME COURT THAT SINCE THESE RECEIPT S ARE EXCLUDED FROM THE BUSINESS PROFIT ITSELF, THEREFO RE THESE CANNOT BE MADE PART OF TURNOVER. THUS, INTERPRETA TION ADOPTED BY THE COURT IN ACCORDANCE WITH THE OVERALL SCHEME OF SECTION 80HHC SHOULD BE APPLIED THERE ONLY AND IT C ANNOT BE BLINDLY APPLIED UPON AN ALTOGETHER DIFFERENT SET OF PROVISIONS. 7.12. IT IS FURTHER NOTED THAT A CAREFUL READING OF PROV ISIONS OF SECTION 10A SUGGEST THAT NOTHING HAS BEEN EXCLUDED FROM THE DEFINITION OF PROFIT OF THE BUSINESS OF THE UNDERT AKING AND DEDUCTION HAS BEEN STIPULATED TO BE ALLOWABLE ON TH E AMOUNT OF THE PROFITS OF THE BUSINESS OF THE UNDERTAKING I N THE PROPORTION OF THE EXPORT TURNOVER TO TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. UNDER THESE CIRCUMSTANCES, IF AN INTERPRETATION IS ADOPTED, AS IS SUGGESTED BY THE LD. COUNSEL OF THE ASSESSEE, THAT NO RECEIPT OF THE NATURE OF INTEREST SHALL FORM PART OF TOTAL TURNOV ER, THEN CLEARLY IT WILL NOT ONLY BE IRRATIONAL BUT APPARENT LY SUCH AN INTERPRETATION SHALL GIVEN RISE TO ABSURD RESULTS, BY ALLOWING THE BENEFIT OF SECTION 10A EVEN IN THOSE RECEIPTS W HICH WERE NOT INTENDED TO BE COVERED U/S 10A BY THE LEGISLAT URE. IT SHALL UNDOUBTEDLY PROVIDE UNINTENDED BENEFIT TO THE TAXPA YERS. IT IS NOTED THAT IN MANY CASES SUCH RECEIPTS MAY BE OF SI ZEABLE AMOUNTS AND SOMETIMES EVEN MORE THAN THE AMOUNT OF BUSINESS PROFITS OF THE ELIGIBLE UNDERTAKING. IN TH E CASE BEFORE US ALSO THE AMOUNT OF INTEREST INCOME EARNED BY THE ASSESSEE J.P. MORGAN SERVICES INDIA P. LTD. 23 FROM THE DOMESTIC SOURCES IS TO BE EXTENT OF RS.8,1 9,74,580/-. IF SUBMISSIONS OF THE ASSESEE ARE ACCEPTED AND 100% DEDUCTION IS ALLOWED U/S 10A ON THIS AMOUNT THEN IT WILL AMOUNT TO PROVIDING TAX CONCESSION WITHOUT ACHIEVIN G THE OBJECT OF ENACTMENT OF SECTION 10A. IN OUR CONSIDER ED VIEW, THE PROVISION OF SECTION 10A DOES NOT PERMIT THE ASSESS EE TO AVAIL 100% DEDUCTION ON THE AMOUNT OF INTEREST INCOME EAR NED BY IT ON DEPOSITS WITH BANK AND OTHER SOURCES IN INDIA. T HUS, WE DIRECT THE AO TO GRANT THE BENEFIT OF DEDUCTION U/S 10A ON PROPORTIONATE BASIS BY INCLUDING THE AMOUNT OF INTE REST IN TOTAL TURNOVER, AS PROVIDED BY SUB SECTION (4) OF S ECTION 10A. THIS GROUND MAY BE TREATED AS PARTLY ALLOWED. 8. GROUND NO.5: IN THIS GROUND, THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF THE AO IN RESTRICTING THE AMOUNT OF T AX DEDUCTED AT SOURCE TO RS.30916615/- INSTEAD OF RS.31589080/- AS WAS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. 8.1. DURING THE COURSE OF HEARING, LD. COUNSEL TO THE A SSESSEE REQUESTED FOR APPROPRIATE DIRECTIONS TO THE AO FOR VERIFICATION OF FACTS AND GRANTING THE CREDIT ACCORDINGLY. THUS, IN VIEW OF THE ABOVE, WE FIND IT APPROPRIATE TO SEND THIS ISSU E BACK TO THE FILE OF THE AO AND DIRECT HIM TO GIVE ADEQUATE OPPO RTUNITY TO THE ASSESSEE TO SUBMIT DETAILS AND REQUISITE DOCUME NTS, AND AFTER VERIFICATION OF REQUISITE FACTS AN APPROPRIAT E AMOUNT OF CREDIT ALLOWABLE TO THE ASSESSEE SHOULD BE GRANTED. THIS GROUND MAY BE TREATED AS PARTLY ALLOWED FOR STATIST ICAL PURPOSES. J.P. MORGAN SERVICES INDIA P. LTD. 24 9. GROUND NOS. 6 & 7 ARE CONSEQUENTIAL AND DISMISSED. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TRE ATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MAY, 2016. SD/- (MAHAVIR SINGH) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED: 25/05 /2016 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()* # !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI