DCIT, Bangalore V. M/s Toshiba Software (India) Pvt. Ltd., Bangalore

ITA 808/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5261 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-05-2017
• Assessment Year: misc
• Appeal Filed On: 18-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K R VASUDEVAN SHRI M K
• Keywords: Business income; Earning of tax free income; Question of law; Benefit of exemption
• Section: 10B; 10

Judgement Text

ITA.808 & 748/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIT KUMAR, JUDICIAL MEMBER I.T.A NO.808/BANG/2016 (ASSESSMENT YEAR : 2010-11) JOINT COMMISSIONER OF INCOME-TAX (OSD), CIRCLE -12(4), BENGALURU .. APPELLANT V. M/S. TOSHIBA SOFTWARE (INDIA) P. LTD, (ERSTWHILE TOSHIBA EMBEDDED SOFTWARE (INDIA) P LTD, NO.3A, ESSAE VISHNAVI SOLITAIRE, 3 RD BLOCK, KORAMANGALA, BENGALURU .. RESPONDENT PAN : AAGCS4693C I.T.A NO.748/BANG/2016 (ASSESSMENT YEAR : 2010-11) (BY THE ASSESSEE) ASSESSEE BY : SHRI. K. R. VASUDEVAN, ADVOCATE REVENUE BY : SHRI. M. K. BIJU, JCIT HEARD ON : 30.05.2017 PRONOUNCED ON : 09.06.2017 O R D E R PER LALIT KUMAR, JUDICIAL MEMBER : THESE ARE CROSS APPEALS FILED BY THE REVENUE AND T HE ASSESSEE RESPECTIVELY, AGAINST THE ORDER PASSED BY THE CIT ( A)-7, BENGALURU, DT.28.01.2016, FOR THE ASSESSMENT YEAR 2010-11. ITA.808 & 748/BANG/2016 PAGE - 2 ITA.808/BANG/2016 - REVENUES APPEAL : 02. FOLLOWING ARE THE GROUNDS RAISED BY THE REVENUE BEFORE US : 2. WHETHER THE CIT (A) IS CORRECT IN REVERSING THE FINDING OF THE AO THAT THE EXPENDITURE INCURRED IN FOREIGN CURRENCY, TOWAR DS TELECOMMUNICATION AND TRAVELLING EXPENSES, TO BE DEDUCTED FROM EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.10A OF THE ACT ? 3. WHETHER THE CIT (A) IS CORRECT IN TAKING INTO CO NSIDERATION EXPLANATION 2(IV) OF SECTION 10A OF THE ACT WHICH C LEARLY CONTEMPLATED THAT SUCH EXPENDITURE WAS LIABLE TO BE DEDUCTED FRO M THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.10A OF T HE ACT ? 4. WHETHER THE CIT (A) IS CORRECT IN LAW IN HOLDING THAT THE DEDUCTION U/S.10A SHOULD BE COMPUTED IN THE ABOVE MANNER FOLL OWING THE JUDGMENTS OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. TATA ELXSI WHICH HAS NOT BECOME FINAL SINCE THE SAME HAS NOT B EEN ACCEPTED BY THE DEPARTMENT AND SLPS ARE PENDING BEFORE THE HONBLE APEX COURT ? 03. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. HE SUBMITTED THAT THE ISSUE GROUNDS 2 TO 4 ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONB LE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT V.TATA ELXSI [349 ITR 98]. 04. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIALS ON RECORD. WE FIND THAT THE CIT (A) HAD FOLLOWED T HE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD V. CIT [349 ITR 98], ITA.808 & 748/BANG/2016 PAGE - 3 IN DIRECTING EXCLUSION OF ITEMS DEDUCTED FROM EXPOR T TURNOVER FROM TOTAL TURNOVER ALSO FOR WORKING OUT THE DEDUCTION U/S.10A OF THE ACT. JUST FOR A REASON THAT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE JUDGMENT OF JURISDICTIONAL HIGH COURT WOULD NOT BE A REASON NOT TO FOLLOW THE JURISDICTIONAL HIGH COURTS JUDGMENT. WE DO NOT FI ND ANY LACUNAE IN THE ORDER OF CIT (A). WE UPHOLD THE ORDER OF THE CIT ( A). 05. REVENUES APPEAL IS DISMISSED. ITA.748/BANG/2016 ASSESSEES APPEAL : 06. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : ITA.808 & 748/BANG/2016 PAGE - 4 07. THE LD. AR HAS SUBMITTED THAT THE AO IN THE ASS ESSMENT PROCEEDINGS HAS NOT CONSIDERED THE INCOME FROM OTHER SOURCES EA RNED BY THE ASSESSEE BY WAY OF INTEREST INCOME, AND OTHER INCOME BY WAY OF SERVICE TAX REFUNDS AMOUNTING TO RS.1,40,90,613/- ON THE PRETEXT THAT T HESE INCOME DO NOT HAVE A DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE CO MPANY. IT WAS FURTHER ITA.808 & 748/BANG/2016 PAGE - 5 SUBMITTED THAT IN THE ORDER PASSED BY THE CIT (A) , THE CIT (A) HAS GRANTED THE RELIEF FOR SERVICE TAX REFUNDS AMOUNTING TO RS. 39,58,932/- AND HAD NOT GRANTED THE RELIEF IN RESPECT OF INTEREST INCOME AN D OTHER INCOME. 08. IT WAS SUBMITTED THAT THE CASE OF THE ASSESSEE IS COVERED BY THE JUDGMENTS OF THE JURISDICTIONAL HIGH COURT IN CIT V . MOTOROLA INDIA ELECTRONICS P. LTD [46 TAXMANN.COM167] AND ALSO IN THE MATTER OF M/S. SUBEX LTD V. ITO [ITA.46/2009, DT.28.10.2014. THE L D. AR ALSO RELIED UPON THE FOLLOWING JUDGMENTS : CIT V. HINDUSTAN GUM & CHEMICALS LTD [(2016) 72 TAX MANN.COM 90 (CAL)] ; LIVINGSTONES JEWELLERY (P) LTD V. DCIT [(2009) 31 S OT 323 (MUM- ITAT)] BANK OF BARODA V. H. C. SHRIVATSAVA [(2012) 122 TAX MAN 330 (BOM)] UOI V. KAMALAKSHI FINANCE CORPORATION LTD [AIR 1992 SC 711- 1994)(SC)] K. SUBRAMANIAN V. SIEMENS INDIA LTD [(1983) 15 TAXM AN 594 (BOM)] 09. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. WE FIND THAT IN THE MATTER OF CIT V. MOTOROLA INDIA EL ECTRONICS P. LTD, (SUPRA), THE HONBLE HIGH COURT DEALT WITH THE ISSUE IN PARA 8 AS UNDER : 8. IN THE INSTANT CASE, THE ASSESSEE IS A 100% EOU, W HICH HAS EXPORTED SOFTWARE AND EARNED THE INCOME. A PORTION OF THAT INCOME IS INCLUDED IN EEFC ACCOUNT. YET ANOTHER PORTION OF THE AMOUNT IS INVESTED WITHIN TH E COUNTRY BY WAY OF FIXED DEPOSITS, ANOTHER PORTION OF THE AMOUNT IS INVESTED BY WAY OF LOAN TO THE SISTER ITA.808 & 748/BANG/2016 PAGE - 6 CONCERN WHICH IS DERIVING INTEREST OR THE CONSIDERA TION RECEIVED FROM SALE OF THE IMPORT ENTITLEMENT, WHICH IS PERMISSIBLE IN LAW. NO W THE QUESTION IS WHETHER THE INTEREST RECEIVED AND THE CONSIDERATION RECEIVED BY SALE OF IMPORT ENTITLEMENT IS TO BE CONSTRUED AS INCOME OF THE BUSINESS OF THE UNDER TAKING. THERE IS A DIRECT NEXUS BETWEEN THIS INCOME AND THE INCOME OF THE BUSINESS OF THE UNDERTAKING. THOUGH IT DOES NOT PAR TAKE THE CHARACTER OF A PROFIT AND GAI NS FROM THE SALE OF AN ARTICLE, IT IS THE INCOME WHICH IS DERIVED FROM THE CONSIDERATION REALIZED BY EXPORT OF ARTICLES. IN VIEW OF THE DEFINITION OF INCOME FROM PROFITS AN D GAINS' INCORPORATED IN SUB- SECTION (4), THE ASSESSEE IS ENTITLED TO THE BENEFI T OF EXEMPTION OF THE SAID AMOUNT AS CONTEMPLATED UNDER SECTION 10B OF THE ACT. THERE FORE, THE TRIBUNAL WAS JUSTIFIED IN EXTENDING THE BENEFIT TO THE AFORESAID AMOUNTS ALSO. WE DO NOT FIND ANY MERIT IN THESE APPEALS. THEREFORE, THE FIRST SU BSTANTIAL QUESTION OF LAW RAISED IN ITA NO.428/2007 IS ANSWERED IN FAVOUR OF THE REVENU E AND AGAINST THE ASSESSEE AND THE FIRST SUBSTANTIAL QUESTION OF LAW IN ITA NO .447/2007 IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. AS IS DISCERNIBLE FROM THE ABOVE SAID FACTS OF THE CASE, IT IS CLEAR THAT IN THE CASE OF MOTOROLA INDIA ELECTRONICS P. LTD (S UPRA), THE ASSESSEE WAS COMPELLED TO TEMPORARILY INVEST A PORTION OF THE IN COME IN EEFC AND THE REMAINING WAS TO BE INVESTED IN THE FORM OF FD WAY OF LOAN TO THE SISTER CONCERN. AS THERE WAS A COMPULSION FOR DEPOSITING THE AMOUNT IN FD BY THE ASSESSEE WITH THE SISTER CONCERN ON ACCOUNT OF THE RESTRICTION PLACED BY THE RBI, THE HONBLE JURISDICTIONAL HIGH COURT HAD HELD THAT THERE IS A DIRECT NEXUS BETWEEN THE INCOME AND THE BUSINESS OF THE UNDERTAKING, THOUGH IT DOES NOT PARTAKE THE CHARACTER OF SALE OF ARTICLES OR THINGS. ITA.808 & 748/BANG/2016 PAGE - 7 SIMILARLY, IN THE MATTER OF M/S. SUBEX LTD V. ITO ( SUPRA), THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF D EVELOPMENT AND EXPORT OF SOFTWARE. IT IS A 100% EOU APPROVED BY STPI. I T WAS SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO A NON-CANCELLABLE LEA SE FOR A PERIOD OF 36 MONTHS FROM 01.06.2001 TO 31.05.2004. AS THE ASSES SEE COMPANY DOES NOT CARRY ON ANY ACTIVITY OTHER THAN THE DEVELOPMENT OF SOFTWARE IN CANADA AND THE LET OUT PROPERTY IS NOT CONNECTED WITH THE BUSI NESS OF THE ASSESSEE, PART OF RENTAL HAS BEEN CLAIMED AS PART OF SECTION 10A. IN THAT CASE, THE ISSUE WAS WHETHER IF THE ASSESSEE LET OUT THE LEASED PREM ISES FOR A TEMPORARY PERIOD AND DERIVES RENTAL INCOME, IT WOULD CONSTITU TE THE PROFIT OF THE BUSINESS OF THE UNDERTAKING AND THE ASSESSEE IS ENT ITLED TO THE BENEFIT OF SECTION 10A OF THE ACT. IN THOSE FACTS AND CIRCUMS TANCES OF THE CASE, THE JURISDICTIONAL HIGH COURT RELYING UPON THE EXPLANAT ION GIVEN IN SUB-SECTION (4) TO SECTION 10A, HELD THAT PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR SOFTWARE SHALL BE THE AMOUNT DERIVED FROM THE PR OFIT OF THE BUSINESS OF THE UNDERTAKING. IT WAS FURTHER HELD THAT THOUGH T HE PROFITS ARE NOT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR SOFTWARE, BY V IRTUE OF SUB-SECTION (4), IT IS DEEMED TO BE PROFIT OF THE BUSINESS OF THE UNDER TAKING FOR THE PURPOSE OF EXTENDING THE BENEFIT OF EXEMPTION OF PAYMENT OF TA X U/S.10A. THIS WAS DONE CONSIDERING THE FIXED TERM OF LEASE OF RENTED PREMISES AND NO BUSINESS ITA.808 & 748/BANG/2016 PAGE - 8 ACTIVITY OF THE ASSESSEE FROM THE PREMISES AND IT W AS NECESSARY TO MITIGATE THE LOSS ON ACCOUNT OF NON USAGE OF RENTED PREMISES . SIMILARLY IN THE MATTER OF CIT V. HINDUSTAN GUM & CHEMICALS LTD (SUPRA), THE HONBLE CALCUTTA HIGH COURT HAD HELD THAT THE INTEREST EARNED ON CHE MICAL BUSINESS BY AN 100% EOU DEPOSITED WITH THE BANK IS BUSINESS INCOME . AFTER RELYING UPON THE JUDGMENT OF MOTOROLA INDIA ELECTRONICS P. LTD (SUPRA). IF WE LOOK INTO THE FACTS OF THE PRESENT CASE, WE F IND THAT THE ASSESSEE HAD INVESTED THE SURPLUS FUND AVAILABLE WITH THE CO MPANY FROM THE EXPORT REALISATION AND ADVANCE RECEIPT. IT WAS FURTHER SU BMITTED THAT THE ASSESSEE HAD MADE THE FDS WITH THE BANK FROM THE EXPORT REAL ISATION AND ADVANCE RECEIVED FROM THE ENTITIES TO WHOM EXPORTS WERE REA LISED AND IT WAS FURTHER SUBMITTED THAT THE INTEREST WAS EARNED ON THE SAID FDS BY THE ASSESSEE. THERE WAS NO NECESSITY TO MADE FDRS FROM THE EXPORT SURPLUS AMOUNT FPR THE ASSESSEE BEFORE US. 10. FOR THE PURPOSES OF FALLING IN EXPLANATION TO S UB-SECTION (4) , THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS, I T IS ESSENTIAL THAT THE UNDERTAKING SHALL BE ENTITLED FOR THE BENEFIT OF SU B-SECTION (1), (1A) AND SECTION.10A, IF THE PROFIT IS DERIVED FROM THE BUSI NESS OF THE UNDERTAKING. THE MOOT QUESTION TO BE DECIDED BY US IS WHETHER TH E INTEREST EARNED FROM ITA.808 & 748/BANG/2016 PAGE - 9 THE FDS WITH THE BANK CAN BE SAID TO BE THE PROFIT DERIVED FROM THE BUSINESS OF THE UNDERTAKING. IT IS AN ADMITTED POSITION THAT THE ASSESSEE UNIT WAS SET IN STTP AND SECTION10A IS APPLICABLE TO NEWLY ESTABLISHED UNDER TAKING IN DUTY FREE ZONE DOING EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFT WARE. THUS EARNING INTEREST ON THE FDRS WAS NOT ONE OF THE BUSINESSES OF THE ASSESSEE AND THEREFORE IT CANNOT BE TERMED AS THE PROFIT OF THE ASSESSEE FROM THE BUSINESS OF THE UNDERTAKING. FOR THE PURPOSES OF TREATING TH E INTEREST INCOME EARNED BY THE ASSESSEE THERE HAS TO BE SOME CORRELATION RE LATION BETWEEN INTEREST INCOME AND THE ACTIVITIES OF THE ASSESSEE IN STTP. FURTHER WE HAVE TO KEEP IN MIND THE OBJECT SOUGHT TO BE ACHIEVED BY GIVING THE BENEFIT UNDER SECTION 10 A TO NEWLY ESTABLISHED UNDERTAKING I.E TO EARN E XPORT INCOME BY EXPORTING THE ARTICLE OR THINGS OR COMPUTER SOFTWAR E. IN OUR VIEW, BY DEPOSITING THE SURPLUS AMOUNT IN THE FDR AND EARNIN G INTEREST THEREON, WITHOUT ANY COMPULSION OR NECESSITY, WOULD NOT HELP IN ANY MANNER FOR INCREASE IN EXPORT OF ARTICLE, THINGS OR COMPUTER S OFTWARE. IF THE EARNING OF INTEREST ON THE AMOUNT IN FDR, HAS CORRELATION W ITH DOING OF BUSINESS OF THE ASSESSEE OR COMPULSION OR REQUIREMENT IN DOING THE EXPORT BUSINESS THEN IN THAT EVENTUALITY, THE INTEREST EARNED ON TH E FDR CAN ALLOWED TO BE ITA.808 & 748/BANG/2016 PAGE - 10 TREATED AS EXEMPT INCOME UNDER SECTION 10 A OF THE ACT. AS THERE IS NO CORRELATION OF INTEREST INCOME WITH THE BUSINESS OF ASSESSEE THEREFORE NO INTERFERENCE IN THE ORDER OF LOWER AUTHORITY IS CAL LED FOR. ACCORDINGLY THIS GROUND OF ASSESSEE IS DISMISSED 11. GROUND NO.2 IS WITH RESPECT TO COMPUTATION OF R EVISED PROFITS OF THE UNDERTAKING BY REDUCING THE OTHER INCOME. THE OTHE R INCOME EARNED BY THE ASSESSEE IS AS UNDER : SL. NO. PARTICULARS AMOUNT IN RS. 1 RECEIPT FROM EX-EMPLOYEE TOWARDS BREACH AND VIOLATION OF AGREEMENT 3,28,701 2 REIMBURSEMENT OF DEMURRAGE CHARGES FROM DELL INDIA 76,232 3 SALE OF BATTERY 32,000 4 REIMBURSEMENT OF AMOUNT PAID ON BEHALF OF TOSHIBA JAPAN 51,852 5 OTHER MISCELLANEOUS INCOME 2,811 TOTAL COMMUNICATION CHARGES 4,91,596 FROM THE HEADS OF OTHER INCOME, IT IS CLEAR THAT TH E INCOME EARNED BY THE ASSESSEE WAS FROM THE BUSINESS OF THE UNDERTAKING A ND THE ASSESSEE IS ENTITLED TO THE BENEFIT OF SECTION 10A OF THE ACT. IN VIEW THEREOF, WE ALLOW THIS GROUND OF THE ASSESSEE. ITA.808 & 748/BANG/2016 PAGE - 11 12. GROUND NO.3 IS WITH RESPECT TO NON-GRANT OF CRE DIT OF TAXES PAID ABROAD OF RS.1,37,02,380/-. THIS GROUND WAS NOT PR ESSED BEFORE US AND NOT ARGUED BY THE LD. AR FOR THE ASSESSEE. IN THIS REG ARD, IT WILL BE SUFFICIENT TO ISSUE A DIRECTION TO THE CIT (A) TO GIVE A CLEAR-CU T FINDING ON THIS ISSUE. IN VIEW THEREOF, THIS GROUND IS ALLOWED FOR STATISTICA L PURPOSE. 13. TO SUMMARISE THE RESULT, REVENUES APPEAL IS DI SMISSED AND THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS E. ORDER PRONOUNCED IN THE OPEN COURT ON THE 9TH DAY O F JUNE, 2017. SD/- SD/- (A. K. GARODIA) (LALIT KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR