MPHASIS LTD V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 12(1)

ITA/280/2019

AI Insights

The case involves Mphasis Ltd., a 100% software export company, which appealed against the decision of the Income Tax Appellate Tribunal (ITAT) that denied them deduction under Section 10B of the Income Tax Act, 1961 for interest earned from fixed deposits. The ITAT and the Assessing Officer had previously held that this interest income had no direct nexus with the business activities of the undertaking. However, referencing the Full Bench decision in Commissioner of Income Tax vs. Hewlett Packard Global Soft Ltd., the High Court of Karnataka overturned this decision, stating that such incidental activities are integral to the export business and should be considered part of the profits and gains derived from the undertaking.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 766796 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 31-10-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax -vs- Hewlett Packard Global Soft Ltd.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: K SURYANARAYANA; TANMAYEE RAJKUMAR
• Keywords: Deduction; Fixed deposits; Income tax appeal; Interest income; Software Export Company
• Section: 56; 10B; 260-A

Judgement Text

" - 1 - ITA.280/2019 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 31ST DAY OF OCTOBER, 2022 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE T G SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 280 OF 2019 BETWEEN: MPHASIS LTD. 1ST FLOOR, WING A BAGMANE WORLD TECHNOLOGY CENTRE, WTC 3 K R PURAM, MARATHAHALLI OUTER RING ROAD MAHADEVPURA BANGALORE-560048 REPRESENTED HEREIN BY ITS SENIOR VICE PRESIDENT MR ARIJIT GANGULY. …APPELLANT (BY SRI K. SURYANARAYANA, SENIOR ADVOCATE FOR SMT.TANMAYEE RAJKUMAR, ADVOCATE) AND: 1. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 12(1) BANGALORE BMTC BUILDING 80 FEET ROAD KORAMANGALA 6TH BLOCK BANGALORE-560 095. 2. PRINCIPAL COMMISSIONER OF INCOME TAX-1 BANGALORE BMTC BUILDING 80 FEET ROAD Digitally signed by MALA K N Location: HIGH COURT OF KARNATAKA - 2 - ITA.280/2019 KORAMANGALA 6TH BLOCK BANGALORE-560 095. …RESPONDENTS (BY SRI E.I. SANMATHI, STANDING COUNSEL) THIS ITA FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 07/06/2017 PASSED IN IT(TP)A NO.1104/BANG/2012, FOR THE ASSESSMENT YEAR 2005- 2006, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ETC,. THIS ITA COMING ON FOR FINAL HEARING THIS DAY, P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT 1. This appeal by the assessee is directed against order dated June 7, 2017 in I.T.(T.P.)A No.1104/Bang/2012 passed by the Income Tax Appellate Tribunal (ITAT). 2. Assessee has raised two questions of law. In our opinion, only following question arises for consideration in this appeal: \"Whether, on the facts and in the circumstances of the case and on a reading of the relevant provision as interpreted the Courts, the Tribunal holding that interest income is not includible in the profits of the business of the Relevant Unit - 3 - ITA.280/2019 eligible for deduction under Section 10B of the Act rendered a decision which is ex facie perverse?\" 3. Briefly stated the facts of the case are, assessee is a 100% Software Export Company. It had earned some interest by virtue of money being parked in the bank in the form of fixed deposits. The Assessing Officer held that assessee is not entitled for deduction under Section 10B of the Income Tax Act, 1961 ('Act' for short) to the extent of the interest earned by the assessee. 4. The Commissioner of Income Tax (Appeals) confirmed the Assessing Officer's order and on further appeal, the Income Tax Appellate Tribunal has also concurred with the view taken by the Assessing Officer holding that the income from the deposits in the bank had no direct first degree nexus with the business activity of the undertaking and accordingly dismissed the appeal. - 4 - ITA.280/2019 5. Sri.K.Suryanarayana, learned Senior Advocate placing reliance on para-37 in Commissioner of Income Tax -vs- Hewlett Packard Global Soft Ltd.1 Submitted that issue is no more res integra and covered by the decision of the Full Court. 6. Sri.E.I.Sanmathi, learned advocate for the Revenue argued opposing the appeal. 7. We have carefully perused the rival contentions and perused the records. 8. The Full Bench in Hewlett Packard's case (supra) has held as follows: \"37. . . . . . . . . . . The incidental activity of parking of Surplus Funds with he Banks or advancing of staff loans by such special category of assessees covered under Section 10-A or 10-B of the Act is integral part of their export business activity and a business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be de-linked from its profits and gains derived by the Undertaking engaged in the export of Articles as envisaged under Section 10-A or Section 10-B of 1 (2017) 87 TAXMANN.COM 182 (Karnataka)(FB) - 5 - ITA.280/2019 the Act and cannot be taxed separately under Section 56 of the Act.\" (emphasis supplied) 9. In view of the law laid down by the Full Bench of this Court, this appeal merits consideration. Hence the following; ORDER (a) Appeal is allowed. (b) Question of law is answered in favour of the assessee and against the revenue. No costs. Sd/- JUDGE Sd/- JUDGE KNM/- "