ITO, Bangalore V. M/s SPA Computer Pvt. Ltd., Bangalore

ITA 842/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51351 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P H NARGUNKAR
• Assessee Lawyers: G S PRASHANTH
• Keywords: Depreciation; Question of law; Unabsorbed depreciation
• Section: 10B; 10

Judgement Text

ITA.842/BANG/2010 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI. GEORGE GEORGE K. JUDICIAL MEMBER I.T.A NO.842/BANG/2010 (ASSESSMENT YEAR : 2006-07) INCOME-TAX OFFICER, WARD-12(2), BANGALORE .. APPELLANT V. M/S. SPA COMPUTER P. LTD., A-4, NGEF ANCILLARY INDUSTRIAL AREA, MAHADEVAPURA POST, BANGALORE .. RESPONDENT APPELLANT BY : SHRI. P. H. NARGUNKAR, ADDL.CIT RESPONDENT BY : SHRI. G. S. PRASHANTH, CA DATE OF HEARING : 29.11.2011 DATE OF PRONOUNCEMENT : 29.11.2011 O R D E R PER N. BARATHVAJA SANKAR, VICE PRESIDENT : THIS IS AN APPEAL FILED BY THE REVENUE IN THE CASE OF ASSESSEE M/S. SPA COMPUTER P. LTD., BANGALORE, FOR THE ASSES SMENT YEAR 2006- 07, AGAINST THE ORDER OF THE COMMISSIONER OF INCOME -TAX(A)-III, BANGALORE. ITA.842/BANG/2010 PAGE - 2 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS FOLLOWS : (I) THE LEARNED COMMISSIONER OF INCOME-TAX(A) ERRED IN LAW IN DIRECTING THE ASSESSING OFFICER TO EXCLUD E TELECOMMUNICATION CHARGES INCURRED FOR DELIVERY OF SOFTWARE AND OTHER EXPENSES INCURRED IN FOREIGN CURRENCY FOR RENDERING TECHNICAL SERVICES OUTSIDE INDIA FROM TOT AL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S .10A OF THE INCOME TAX ACT, 1961. (II) THE LEARNED COMMISSIONER OF INCOME-TAX(A) ERRE D IN HOLDING THAT LOSS OF NON STPI UNIT SHOULD NOT BE SET OFF AGAINST PROFITS OF STPI UNITS FOR COMPUTING THE DED UCTION U/S.10A WHEREAS SECTION 10A DEDUCTION IS ALLOWABLE FROM GROSS TOTAL INCOME ARRIVED AT AFTER SETTING OFF LOS S OF ANY OTHER BUSINESS LOSS.' 3. THE FIRST ISSUE RELATES TO EXCLUSION OF TELECOMM UNICATION EXPENSES OF ` .1,49,628/- INCURRED FOR DELIVERY OF SOFTWARE AND OTHER EXPENSES INCURRED IN FOREIGN CURRENCY FOR RENDERING TECHNICAL SERVICES OUTSIDE INDIA FROM TOTAL TURNOVER FOR THE PURPOSE O F COMPUTING DEDUCTION U/S.10A OF THE INCOME TAX ACT, 1961. THE BRIEF FACTS ARE THAT THE ASSESSEE HAD DURING THE YEAR INCURRED TELECOMMU NICATION CHARGES OF ` .1,49,628/- ON DELIVERY OF SOFTWARE OUTSIDE INDIA AND ALSO INCURRED EXPENSES OF ` .8,10,671/- IN FOREIGN CURRENCY FOR RENDERING TECHN ICAL SERVICES OUTSIDE INDIA. THE ASSESSING OFFICER IN H IS ASSESSMENT ORDER HELD THAT THESE TWO EXPENSES ARE RESPECTIVELY EXPEN SES WHICH ARE ITA.842/BANG/2010 PAGE - 3 ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE O UTSIDE INDIA AND EXPENSES INCURRED IN FOREIGN CURRENCY FOR RENDERING TECHNICAL SERVICES OUTSIDE INDIA AND THEREFORE IN ACCORDANCE WITH CLAU SE (IV) OF EXPLANATION 2 APPEARING BELOW SUB-SECTION 8 OF SECT ION 10A, THE ASSESSING OFFICER REDUCED THE SAID EXPENSE FROM THE EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A. THE ASSE SSING OFFICER HOWEVER DECLINED TO REDUCE THE SAID EXPENSES FROM T HE TOTAL TURNOVER OF THE ASSESSEE. BEING AGGRIEVED BY THE ACTION OF THE ASSESSING OFFICER THE ASSESSEE APPROACHED THE COMMISSIONER OF INCOME- TAX(A) WHO DEALT WITH THE ISSUE IN DETAIL AND AGREED WITH THE ACTION OF THE ASSESSING OFFICER, BY OBSERVING AS UNDER : '..I DO NOT FIND MERIT IN THE REASON FURNISHED BY THE APPELLANT FOR NOT EXCLUDING THE TWO EXPENSES FROM THE EXPORT TURNOVER . I THEREFORE TREAT THE ENTIRE AMOUNT OF TELECOMMUNICATION CHARGES OF ` .1,49,628/- AS EXPENSES ATTRIBUTABLE TO THE DELIVERY OF COMPUTER S OFTWARE OUTSIDE INDIA AND ALSO HOLD THE ENTIRE AMOUNT OF ` .8,10,671/- AS EXPENSES INCURRED IN FOREIGN CURRENCY FOR RENDERING TECHNICAL SERVICES O UTSIDE INDIA AND THEREFORE HOLD THE SAID AMOUNTS AS EXCLUDIBLE FROM THE DECLARED EXPORT TURNOVER OF THE APPELLANT IN ARRIVING AT EXPORT TUR NOVER FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 10A. THE ACTION OF THE ASSESSING OFFICER IN THIS REGARD IS THEREFORE SUSTA INED.' ITA.842/BANG/2010 PAGE - 4 NOT CONVINCED WITH THE ABOVE DECISION OF THE COMMIS SIONER OF INCOME-TAX(A), THE ASSESSEE HAS COME IN APPEAL BEFO RE US. 4. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERIA LS ON RECORD. IN IDENTICAL FACTS AND CIRCUMSTANCES, WHILE ADJUDIC ATING THIS ISSUE, THE BANGALORE BENCH OF THE TRIBUNAL HAS DISMISSED THE R EVENUE'S APPEAL, BY RELYING ON THE JUDGEMENTS OF THE HONBLE KARNATA KA HIGH COURT IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OTHERS (201 1-TIOL-684-HC- KAR-II) ; HONBLE MUMBAI HIGH COURT IN THE CASE OF CIT V GEM PLUS JEWELLERY INDIA LTD. (330 ITR 175) AND THE ORDER OF THE SPECIAL BENCH IN THE CASE OF ITO V M/S SAK SOFT LTD. (313 ITR 353 ). FOLLOWING THE SAME, WE DISMISS THIS GROUND OF THE REVENUE. 5. THE SECOND GROUND TAKEN BY THE REVENUE IS THAT THE LOSS IN RESPECT OF NON-STPI UNIT SHOULD NOT BE SET OFF. TH E FACTS IN RELATION TO THIS GROUND ARE THAT THE ASSESSEE HAS TWO UNITS OUT OF WHICH ONE IS A STPI UNIT AND IS ENGAGED IN THE DEVELOPMENT AND EXP ORT OF COMPUTER SOFTWARE, WHILE THE OTHER IS A NON-STPI UNIT WHICH IMPORTS ETHERNET SWITCHES AND WNX SOFTWARE AND MARKETS THEM IN INDIA . THE ASSESSING OFFICER INCLUDED THE TURNOVER OF THE NON- STPI UNIT IN THE TOTAL TURNOVER OF THE STPI UNIT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.10A. THIS ACTION OF THE ASSESSING OF FICER WAS ITA.842/BANG/2010 PAGE - 5 CHALLENGED BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME-TAX(A). THE ASSESSEE'S CLAIM BEFORE THE COMMISSIONER OF INC OME-TAX(A) WAS THAT THE STPI AND NON-STPI UNITS ARE SEPARATE AND I NDEPENDENT OF EACH OTHER AND HENCE, THE 'TOTAL TURNOVER' FOR THE PURPO SE OF COMPUTING DEDUCTION UNDER SECTION 10A SHOULD INCLUDE ONLY THE TURNOVER OF THE STPI UNIT AND NOT THE TURNOVER OF THE NON-STPI UNIT . IT WAS SUBMITTED THAT BOTH THE UNITS WERE MAINTAINING SEPARATE BOOKS OF ACCOUNT AND INCOME FROM NON-STPI UNIT WAS OFFERED TO TAX SEPARA TELY. THE COMMISSIONER OF INCOME-TAX(A) ALLOWED THE ASSESSEE' S CLAIM BY OBSERVING AS UNDER IN PARA 8.3 OF HIS ORDER : '8.3 ON CONSIDERATION OF THE MATTER, I AGREE WITH T HE CLAIM OF THE APPELLANT AND HOLD THAT AS THE NON-STPI UNIT WAS AN INDEPENDENT UNDERTAKING ENGAGED IN BUSINESS WHICH W AS IN NO WAY RELATED TO THE SOFTWARE DEVELOPMENT DONE BY THE STPI UNIT, THE PROFIT AND LOSS OF THE TWO UNITS ARE TO B E COMPUTED INDEPENDENTLY AND THEREFORE THE TURNOVER OF THE NON -STPI UNIT CANNOT BE INCLUDED AS PART OF THE TURNOVER OF THE S TPI UNIT. IN THIS REGARD I ALSO PLACE RELIANCE ON THE DECISION I N THE CASE OF M/S. IGATE GLOBAL SOLUTIONS LTD., V. ACIT (SUPRA). THE ASSESSING OFFICER IS THEREFORE DIRECTED NOT TO INCL UDE THE TURNOVER OF THE NON-STPI UNIT IN THE 'TOTAL TURNOVE R' FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 1 0A.' 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO GON E THROUGH THE MATERIALS ON RECORD. WE FIND THAT THIS ISSUE IS CO VERED BY THE DECISION ITA.842/BANG/2010 PAGE - 6 OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX AND OTHERS V. YOKOGAWA INDIA LTD AND OT HERS IN ITA NOS.78,140, 141 OF 2011, 256, 254/2010, 772, 66,816 ,817, 364, 698, 236, 207, 420/2009, 1028/2008, 248,88/2007, DATED.0 9.08.2011. AFTER GOING THROUGH THE ABOVE DECISION, WE ARE INCLINED T O AGREE WITH THE DECISION OF THE COMMISSIONER OF INCOME-TAX(A), BY P LACING RELIANCE ON THE OBSERVATIONS OF THE HIGH COURT IN PARAS 29, 30 AND 31 OF THE ORDER, WHICH READS AS FOLLOWS : '29. AFTER MAKING ALL SUCH COMPUTATIONS THE ASSESSE E WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARRY FORWARD OF LOSS AS PROVIDED UNDER SECTION 72 OF THE ACT. THAT IS THE BENEFIT WHICH IS GIVEN TO THE ASSESSEE UNDER THE ACT IRRESPECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CARRYING ON. THE SAID BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS UNDER SECTION 10B OF THE ACT. THE EXPRESSION 'DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY AN 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 T HAT THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS FROM COMP UTER 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 THINGS OR COMPUTER SOFT WARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING. THEREFORE, IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE THAN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10A IT IS THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUT ER SOFTWARE ITA.842/BANG/2010 PAGE - 7 FROM THE BUSINESS OF THE UNDERTAKING ALONE THAT HAS TO BE TAKEN INTO CONSIDERATION AND SUCH PROFIT IS NOT TO BE INC LUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY AFTER THE DEDUC TION OF THE SAID 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 10 A. IN THE YEAR WHEN THE ASSESSEE HAS OPTED OUT, THE NORMAL PROVISI ONS OF THE ACT WOULD APPLY. THE PROFITS DERIVED BY HIM FROM THE S TP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE S UBJECT TO VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CH APTER VI-A. IF IN SUCH A YEAR, THE ASSESSEE HAS SUFFERED LOSSES, S UCH LOSSES WOULD BE SUBJECT TO INTER SOURCE AND INTER HEAD SET OFF. THE BALANCE IF ANY THEREAFTER CAN BE CARRIED FORWARD FOR BEING SET OFF AGAINST PROFITS OF THE SUBSEQUENT ASSESSMENT YEARS IN THE N ORMAL COURSE. UNABSORBED DEPRECIATION ALSO MERITS A SIMILAR TREAT MENT. 31. AS THE INCOME OF 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, T HE LOSS OF NON 10A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10A UN IT UNDER SECTION 72. THE LOSS INCURRED BY THE ASSESSEE UNDER THE HE AD PROFITS AND GAINS OF BUSINESS OR PROFESSION HAS TO BE SET OFF A GAINST THE PROFITS AND GAINS IF ANY, OF ANY BUSINESS OR PROFESSION CAR RIED ON BY SUCH ASSESSEE. THEREFORE AS THE PROFITS AND GAINS UNDER SECTION 10A IS NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE AT AL L, THE QUESTION OF SETTING OFF THE LOSS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AGAINST SUCH PROFITS AND GAINS OF THE UNDE RTAKING WOULD ITA.842/BANG/2010 PAGE - 8 NOT ARISE. SIMILARLY, AS PER SECTION 72(2), UNABSO RBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORB ED DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION UNDER SECTION 32(2) IS TO BE SET OFF. AS DEDUCTION UNDER SECTION 10A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF U NABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. IN THAT VIEW OF THE M ATTER, THE APPROACH OF THE ASSESSING AUTHORITY WAS QUITE CONTR ARY TO THE AFORESAID STATUTORY PROVISIONS AND THE APPELLATE CO MMISSIONER AS WELL AS THE TRIBUNAL WAS FULLY JUSTIFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRANTING THE BENEFIT OF SECTIO N 10A TO THE ASSESSEE. HENCE, THE MAIN SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEES AND AGAINST THE REVENUE. ' 6. IN VIEW OF THE ABOVE HIGH COURT DECISION, WE DIS MISS THIS GROUND TAKEN BY THE REVENUE. 7. IN THE RESULT, THE REVENUE'S APPEAL IS DISMISSED . ORDER PRONOUNCED IN OPEN COURT AT THE TIME OF HEARI NG ON 29.11.2011. SD/- SD/- (GEORGE GEORGE K) (N. BARATHVAJA SANKAR) JUDICIAL MEMBER VICE PRESIDENT