Starmark Services Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 65/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57420 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: DEVARAJ
• Keywords: Depreciation; Question of law; Unabsorbed depreciation
• Section: 143(3); 10B

Judgement Text

PAGE 1 OF 7 ITA NO.65 /BANG/2011 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N K SAINI, ACCOUNANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.65/BANG/2011 (ASST. YEAR 2007-08) STARMARK SERVICES PVT. LTD., NO.3, SANGEETHA TOWERS, 80 FEET ROAD, INDIRANAGAR, BANGALORE-38. - APPELLANT PA NO. AAACI7270H VS THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-12(3), BANGALORE. - RESPONDENT DATE OF HEARING : 10/01/2012 DATE OF PRONOUNCEMENT : 13/01/2012 APPELLANT BY : SHRI DEVARAJ, C.A. RESPONDENT BY : SMT. SUSAN THOMAS JOSE, JCIT O R D E R PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT (A)-III, BANGALORE DATED 01.10 .2010. THE RELEVANT ASSESSMENT YEAR IS 2007-08. 2. THE SOLITARY ISSUE THAT IS RAISED IS WHETHER THE CIT(A) IS JUSTIFIED IN AFFIRMING THE ASSESSING OFFICERS ORDE R IN SETTING OFF OF CURRENT PAGE 2 OF 7 ITA NO.65 /BANG/2011 2 YEAR LOSS UNDER THE HEAD INCOME FROM HOUSE PROPERTY AGAINST THE ELIGIBLE PROFITS UNDER SECTION 10A OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE. FOR THE CONCERNED ASST. YEAR, RETURN O F INCOME WAS FILED ON 4/12/2007 DECLARING NIL INCOME AND CARRIED FORWARD LOSS FROM HOUSE PROPERTY AMOUNTING TO RS.14,85,677/-. THE RETURN WA S SELECTED FOR SCRUTINY BY ISSUANCE OF NOTICE UNDER SECTION 143(2) OF THE AC T. THE SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMP LETED VIDE ORDER DATED 27/7/2009. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT, RECOMPUTED THE DEDUCTION UNDER SECTION 10A OF THE A CT, AFTER MAKING THE FOLLOWING ADJUSTMENTS:- I) THE LOSS ARISING UNDER THE HEAD INCOME FROM HOUSE PROPERTY AMOUNTING TO RS.16,99,941/- WAS SET OFF AGAINST THE INCOME FROM STPI UNIT ELIGIBLE FOR DEDU CTION UNDER SECTION 10A OF THE ACT. THE ASSESSING OFFICE R REJECTED THE CONTENTION OF THE ASSESSEE/APPELLANT T HAT SECTION 10A STANDS AS A STANDALONE BENEFIT AND THAT LOSS ARISING UNDER ANY OTHER HEADS OF INCOME CANNOT BE SE T OFF AGAINST THE INCOME FROM THE ELIGIBLE STPI UNIT. II) THE ASSESSING OFFICER DEDUCTED AN AMOUNT OF RS.46.4 1 LAKHS FROM THE EXPORT TURNOVER BEING THE EXPENSES INCURRED ON LEASE LINE EXPENSES AND TRAVEL EXPENSES (INCURRED IN FOREIGN CURRENCY). THE ASSESSING OFFIC ER REJECTED THE CONTENTION OF THE ASSESSEE THAT IT WAS INVOLVED IN DEVELOPMENT OF COMPUTER SOFTWARE AND EXPENSES INCURRED IN FOREIGN CURRENCY CANNOT BE REDU CED FROM THE EXPORT TURNOVER. III) THE ASSESSING OFFICER FURTHER REJECTED THE ALTERNAT E PLEA OF THE ASSESSEE COMPANY TO REDUCE THE PAGE 3 OF 7 ITA NO.65 /BANG/2011 3 CORRESPONDING EXPENSES INCURRED IN FOREIGN CURRENCY AMOUNTING TO RS.46.41 LAKHS FROM THE TOTAL TURNOVER . WITH THE ABOVE SAID ADJUSTMENTS MADE, THE ASSESSING OFFICER REDUCED THE CLAIM OF THE APPELLANT UNDER SECTION 10A OF THE ACT . IN THE COMPLETED ASSESSMENT, THE TOTAL INCOME OF THE ASSESSEE WAS DE TERMINED AT RS.40.27 LAKHS AND RAISED A DEMAND OF RS.13.55 LAKHS. 4. THE ASSESSEE BEING AGGRIEVED BY THE ORDER OF ASS ESSMENT CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY. 5. THE CIT(A) ALLOWED THE ALTERNATE CONTENTION OF THE ASSESSEE THAT WHEN THE EXPENDITURE OF RS.46.41 LAKHS WAS RED UCED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER WHILE CALCULATING THE DEDUCTION UNDER SECTION 10A OF THE ACT. WITH REFERENCE TO SET OFF OF CURRENT YEAR LOSS UNDER THE HEAD INCOME FROM HOUSE PROPERTY AGAINST THE INCOME OF THE STPI UNIT ELIGIBLE FOR DE DUCTION UNDER SECTION 10A OF THE ACT, THE CIT(A) CONFIRMED THE ORDER OF THE A SSESSING OFFICER. 6. AGGRIEVED BY THE SET OFF OF LOSS UNDER THE HEAD HOUSE PROPERTY AGAINST THE INCOME OF THE STPI UNIT ELIGIB LE FOR DEDUCTION UNDER SECTION 10A OF THE ACT, THE ASSESSEE IS IN APPEAL B EFORE US RAISING THE FOLLOWING EFFECTIVE GROUNDS:- (2) THE LAO ERRED IN SETTING OFF THE CURRENT YEAR LOSS U NDER THE HEAD INCOME FROM HOUSE PROPERTY AGAINST THE ELIGIBLE PROFITS UNDER SECTION 10A. THE LAO FAILED TO FOLLOW THE DECISION OF THE JURISDICTIONAL BENCH OF ITAT ON THE ISSUE. THE LAA ERRED IN CONFIRMING THE ACT ION OF THE LAO. PAGE 4 OF 7 ITA NO.65 /BANG/2011 4 (3) THE LAO ERRED IN NOT PERMITTING CARRY FORWARD OF LOS S UNDER INCOME FROM HOUSE PROPERTY AMOUNTING TO RS.14.86 LAKHS TO THE SUBSEQUENT YEARS. THE LAA ERR ED IN CONFIRMING THE ACTION OF THE LAO. 7. AT THE OUTSET, IT WAS POINTED OUT BY THE ASSESSE E THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE JUDGEMENT OF T HE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V M/S AXA BUSINESS SERVICE S PVT. LTD. & OTHERS (2011-TIOL-711-HC-KAR-II). 8. THE LEARNED DR WAS DULY HEARD. 9 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE HONBLE JURISDICATIONAL HIGH COURT IN THE CASE OF CIT V M/S AXA BUSINESS SERVICES PVT. LTD. (SUPRA) CATEGORICAL LY HELD THAT DEDUCTION U/S 10A IS ON A STAND ALONE BASIS AND THAT NO LOSS ARIS ING UNDER ANY OTHER HEADS OF INCOME CAN BE SET OFF AGAINST THE INCOME FROM TH E ELIGIBLE STPI UNIT. THE RELEVANT FINDINGS OF THE HONBLE HIGH COURT AT PARAS 19, 29 TO 31 READS AS FOLLOWS:- 19. 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. PAGE 5 OF 7 ITA NO.65 /BANG/2011 5 29. 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 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. 30. 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 PAGE 6 OF 7 ITA NO.65 /BANG/2011 6 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. 31. 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 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. 10. THE HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE CITED SUPRA CATEGORICALLY HELD THAT INCOME UNDER SECTION 10A UNI T IS TO BE DEDUCTED AT PAGE 7 OF 7 ITA NO.65 /BANG/2011 7 SOURCE ITSELF AND NOT AFTER COMPUTING THE GROSS TOT AL INCOME. IT WAS FURTHER HELD THAT INCOME ELIGIBLE FOR EXEMPTION UNDER SECTI ON 10A WOULD NOT ENTER INTO COMPUTATION, AS THE SAME HAS TO BE DEDUCTED AT SOURCE LEVEL. THE DICTUM LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IS BINDING ON THE FACTS OF THIS CASE. THEREFORE, WE DIRECT THE ASSE SSING OFFICER TO CALCULATE THE DEDUCTION UNDER SECTION 10A OF THE ACT WITHOUT SETTING OFF OF THE CURRENT YEAR LOSS UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT IS ORDERED ACCORDINGLY. HENCE, GROUNDS RAISED ARE ALLO WED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DAY OF JANUARY, 2012 SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.