Tata Elxsi Limited V. The Assistant Commissioner of Income Tax, Circle 12(3), Bangalore

ITA/468/2008

AI Insights

The case involves M/s Tata Elxsi Limited appealing against the order of the Income Tax Appellate Tribunal, Bangalore, which applied Section 80AB of the Income Tax Act, 1961 while computing deductions under Section 80HHE. The primary legal contention was whether the profits from overseas branches should be considered in the computation of eligible profits for deductions under Section 80HHE. The Supreme Court's interpretation of similar provisions in Section 80HHC influenced the court's decision, leading to a partial allowance of the appeal and a remand for re-computation of profits considering the losses from overseas branches.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 807617 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 22-07-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax vs. Shirke Construction Equipment Limited, Income Tax Officer, Bangalore vs. Induflex Products (P) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: JEEVAN NEERALGI
• Assessee Lawyers: CHYTHANYA K
• Keywords: Deduction; Income Tax; Profit computation; Substantial questions of law; Overseas Branches
• Section: 80HHE; 80AB; 260-A

Judgement Text

" - 1 - IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 22ND DAY OF JULY 2014 PRESENT THE HON’BLE MR.JUSTICE N.KUMAR AND THE HON’BLE MR.JUSTICE B. MANOHAR INCOME TAX APPEAL NO.468 OF 2008 BETWEEN: M/S TATA ELXSI LIMITED ITPL ROAD, WHITEFIELD, BANGALORE. RAMADAS KAMATH K. CORPORATE MANAGER – FINANCE. ...APPELLANT (BY SRI. CHYTHANYA K K, ADV.) AND: THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(3), BANGALORE. …RESPONDENT (BY SRI JEEVAN J.NEERALGI, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 31-12-2007 PASSED IN ITA NO.56/BNG/2005 FOR THE ASSESSMENT YEAR 2000-2001, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: i. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, - 2 - ii. ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE ITAT, IN ITA 56/BANG/2005 DATED 31-12-2007, IN THE INTEREST OF JUSTICE AND EQUITY. THIS APPEAL COMING ON FOR HEARING THIS DAY, N. KUMAR J., DELIVERED THE FOLLOWING: J U D G M E N T This appeal is preferred by the assessee challenging the order passed by the Income Tax Appellate Tribunal, Bangalore, holding that, Section 80AB of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) will be applicable while computing deduction under Section 80HHE of the Act and also holding that, it is only the profit of the Branch is to be reduced for the purpose of computing the profit of the business and not the losses. 2. The appeal was admitted to consider the following substantial questions of law on 15.11.2010: (i) On the facts and circumstances of the case, whether the Appellate Tribunal is right in holding that the deduction under Section 80-HHE of the Income Tax Act, 1961 is to be computed after setting off - 3 - of brought forward losses and unabsorbed depreciation that are allowable for the purpose of Section 80- AB of the IT Act? (ii) On the facts and circumstances of the case, whether the Appellate Tribunal is right in confirming the orders of the authorities below to the effect that the losses of overseas branches are not allowed to be added back to the eligible profits on the ground that there was no provision under Section 80-HHE for such adjustments? 3. Insofar as first substantial question of law is concerned, the Supreme Court had an occasion to consider the same in the case of Commissioner of Income Tax –vs- Shirke Construction Equipment Limited reported in (2007) 291 ITR 380 (SC) and held the said substantial question of law in favour of the Revenue and against the assessee. In that view of the matter, the said question of law is answered in favour of the Revenue and against the assessee. - 4 - 4. Insofar as second question of law is concerned, the Supreme Court in the case of Income Tax Officer, Bangalore –vs- Induflex Products (P) Ltd. reported in (2006) 1 SCC 458 held as under: “IPCA Laboratory is an authority for the proposition that adjusted profit of business would be a profit as reduced by the profit derived from the business of exports out of India of trading goods. It is no doubt true that the term “profit” implies positive profit which has to be arrived at after taking into consideration the profit earned from export of both self-manufactured goods and the trading goods and the profits and losses in both the trades have, thus, to be taken into consideration. In the event, if it is found that a loss has occurred, sub-section (3) of Section 80-HHC will have no application.” 5. The said judgment was rendered while interpreting sub-section (3) of Section 80-HHC of the Act. We are now concerned in this case with sub- section (3) of Section 80-HHE of the Act, which is para materia with sub-section (3) of Section 80-HHC of the Act. - 5 - 6. “Profits of the business” is defined under Explanation clause (d) of Section 80-HHE of the Act, which reads as under: “(d) “profits of the business” means the profits of the business as computed under the head “Profits and gains of business or profession” as reduced by- (1) ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India.” 7. As is clear from the aforesaid definition, if the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India is to be reduced, for arriving at the profits of the business, as a corollary it follows that even the losses of such business is to be reduced while arriving at the profits of the business. - 6 - 8. Therefore, in the instant case, as is clear from the statement of computation of income under Section 80-HHE of the Act, a sum of Rs.7,47,17,145/- has been shown as the business profit. If the said profit is arrived at by taking into consideration the loss from overseas office, the said loss of the overseas office has to be added and then the benefit is to be granted to the assessee. Accordingly, the second substantial question of law is answered in favour of the assessee and against the Revenue and for the purpose of computation, the matter is remanded back to the Assessing Officer. Hence, we pass the following order: The appeal is partly allowed. Sd/- JUDGE Sd/- JUDGE KNM/- "