The Commissioner Of Income Tax vs M/S Processor Systems (I) Pvt Ltd on 22 February, 2012

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Karnataka High Court

The Commissioner Of Income Tax vs M/S Processor Systems (I) Pvt Ltd on 22 February, 2012

Bench: N.Kumar, Ravi Malimath

 

This ITA.No.439/2007 filed under section 260--A of
I.T.Act, 1961 arising out of order dated 23.11.2006 passed

in ITA.No.3836/BNG/2004, for the Assessment
2000-01, praying to formulate the substantial questi__o*ns"of;  3
law stated therein, allow the appeal and set aside"»tjii-e,' 
order passed by the ITAT, Bangalo._rej*-. in "

ITAJwx3836/BNG/2004 cnmed 23.1L;oo6.conﬁnn'¢he

orders of the Appellate Commissioner"and'-,confir'i'n_ the .
order passed by the Income Tax '».,Off§'ce.r, War.d_--"12"(i-)..,

Bangalore. _ 

"Th8 ITA.Nou440/2007'fHed under secuonﬂzso-A of
I.T.Act, 1961 arising out of order dated--.23.11'.2.006 passed
in ITA.No.3837/BNG/2004., for"'"'th.e 'As_sessm'e'rit'V year
2001-2002, praying to formi;ll_at'e the subvstantial questions
of law stated therein, allow the i'app"ea_l_ian_'dV set aside the
order passed ._by .t--he_f= ITAT,'  Bangalore in
ITA.No.3837/BN_G,/2.004 dated.j.23~..1'1v.'_2QO6'f'confirming the
orders of the _,Appe?iii'ate.. Co'mmissioner"a'nd confirm the
order passed 'byfth'e*l._Incojmé'- .__T'a,x7._O»fficer, Ward-12(1),
Bangalore. ~     ~  

These [for hearing this day,
N . KUMAR 3,', d,elivered'e«th'e.fol.|,oys.iing : --

0; ;uDeMENT

_Ti%.e,r,evenue Vhavs.-preferred these appeals challenging

"the the Tribunal dismissing the appeals

  filed"Ab'y'léthe.'reyenue and affirming the orders passed by

the Appe.llat_e VCommissioner who held that the assessee is

 er_Ttitled~«_.to the benefit of Section 10A of the Income Tax

0']; jAcg 1961. VD///"/



2. The assessee is engaged in development and
export of software/hardware. The assessee has plan.tVVan;d~.._

machinery of Rs.13,15,083/-- as on 31.03.1993..§'_and'5.'the.

same is Rs.16,65,116/-- as on 31.03.1994 as co'uld.:jbe'''seen 34  

from fixed asset schedule. The written._-do.wn'=va~lue asV:'o'n'2iVe_*

01.04.1993 in respect of machineryilwas' 
and additions made during 
bringing the gross block'  The value of
the machinery used in thve...n.e_w.  to the
Assessing   Value of the
machinery  The assessee
pointed   Rsj.1y38,59,994/-- was made

to plant aiidé'machin'eryQ""wVh'ich was received from the

foreign;'customers.""ll This 'represents certain plant and

W_machiriery"l:'received on returnable basis from foreign

customelirs-.4:"a.,nd.01'-ori no cost basis. Therefore, it was

 conteri«ded___"'th7at if that machinery is taken into

3'"'::T'.:"~co'nsiVderati--o'n, the value of the machinery used in the new

béusiness would not exceed 20% of the value of the

x/



These appeals came to be admitted on

to consider the following substantial que4s.tiV_o.ns~._

 

22.623509

of law:

in holding that ownership of
not relevant for the purpose 
deduction u/s.10A'hof"'~»the A'ct__ withou't._;'tal<ing
into account the i°".condition's«.it 'stipulated
u/s.10A(2) ofithe  of the Att that
the total valueof   or plant so
transferre_d doe;   of the total
  niachinert} or'plarit already used in
the  'the."asses:;eeh?
2.  'the 'Appe/lahteiwﬁuthorities were correct
 in' hovldinigi  the value of plant and
' machinierytof:Rs..':ei;358,59,994/-- claimed to have
bro'ught...;*n A"by"":the assessee on /ease basis
 sh_ou/d°be....treated as an asset exceeding 80%
_V  tA.of:"'~-the existing asset when computing
  u/s.10A of the Act despite this
V.  not being owned by the assessee

 g_nor reflected in the ﬁxed asset schedule?

1. Whether the Appellate Autheorities 'we.?é_v.cor.rect  ht  

u/n



 

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fulfilled by an undertaking to be eligible for the said

exemption. Sub-clause 1, 2 and 3 of Section 10A 

10A. (1) Subject to the proyisions 

section, a deduction of sj:uchwpifofits'1'an:d

gains as are derived by an1'underta_.%ing = by 

from the export of orthinhg-s  

computer software forh"a: period' oflteni
consecutive assetssmpéht   ~-- beginning
with the assessnvdenthhyehar' reié.iiant'V__to the
previous A ' -- year yin" " e V I uncfertakin g
begins: ]:f;an'ufa€Cture_4'  produce such

arti:/es-for"th'mgs"-or computer software, as

 ti"re.ca'5e niay be, 'sha//A 'ijen-all//0 wed from the

 total income' 'o,fth_e"'assessee :

Provhidedc that computing the total

 income' of the": undertaking for any

 :assessrnenvt...year, its proﬁts and gains had

_VAnoe£'--[been included by application of the

T' ~,4'9:'roi/isioris of this section as it stood

irniriediate/y before its substitution by the

" I. V"F{nance Act, 2000, the undertaking shall
be entitled to deduction referred to in this

sub-section only for the unexpired period



 

Pro

_12_

vided also that no deduction under this

section shall be allowed to

undertaking for the assessment   
[2012]  as  f

beginning on the 1st day of April,

and subsequent years.

any 

1[(1A) Notwithstanding anything contained_' 

(i) L

sub-section (1 ), the 'deduction',/lb. ~. " '

computing the   

undertaking, which begins., to .. manufacture?

or produce articles of  .or".computer
software during  pre'vious__. rele vant
to any assessme'nt"year_:comrrien«cing on or
aftefgfhe    in any
special ," shall be, -

I
i

i'undre"rj  cent of profits and gains
aderived'r3*om'the*-export of such articles or

 or'V.corf1p,ute_r4'software for a period

of five' vco'ns'ecu'tive assessment years

 Eb_,eginnin'g" 'vv-with the assessment year

.,vreA./.e~va'r~r.t__ to the previous year in which the

 "un--deitaking begins to manufacture or

produce such articles or things or

.. computer software, as the case may be,

A profits

and thereafter, ﬁfty per cent of such

and gains for further two

V.



 

-15....

(a) has been utilised for any purpose other

than those referred to in sub-section (18),  

the amount so utilised; or

(b) has not been utilised before the expiry 

the period speciﬁed in sub"-c/ause' '

clause (a) of sub-section (;tB),_the amounté'-.  

not so utilised,

shall be deemed to be the'profits,¥'' .

(i) in a case referred to in clause (a),  the?

year in which ,amount 'vb/asV_b'so% utilised;
or bi bi .' if  V __ i   
(ii) in a caser'referre"d'to,1i.n."c1ause'- (b), in the
year €follo_vyir7.g" th'e""period of
three   sub-'clause (i) of
,clause1(a)':'o:fVvsubfsectio'ri"(1't3),
and shall   accordingly. ]
(2) '7"h..i_s" isectionHappl.ies"J to any undertaking
V. _ which fulfils all the following conditions,

  .....

) ha-svA"begun or begins to manufacture or vvpro.duc§e..-v"artic/es or things or computer softwgare during the previous year relevant if ,. the assessment year----

' * :(a) commencing on or after the 1st day of 'A April, 1981, in any free trade zone; or

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12. Further Explanation 2 makes it clear that twenty per cent of the value of the machinery or plan~t.,:is..»_to_ be calculated on the total value of the machine--:"y ~ used in the business.

13. Neither in Section_10A(V42~). in .S.'ec:'tivoi1 there is any requirement in lawt.:tl*iat the aV_s'ses=se'e:shoVuld own the machinery before saidexemption. The requirement of law :ass'essxfeell_'s_hould use the machinery or machinery or plant or any' used for any purpose is transferredwtoyhﬁalarifevir the total value of the machinery so transferred should not exceed 20°/o"of"thejtotal'value of the machinery or plant, ..t'heri':,_tihe,>_ass.essee"is'*--e-ntitled to the benefit. In addition to used, is transferred to an undertaking, the assess.e'eT__:s.ses the plant and machinery which he has ".received"b;y way of import and uses it in the business. In ":iCaAlclu"l'a.ting 20%, the total value of the machinery and .___""'pla;nt used in the business is to be taken into consideration '/

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and not the total value of the plant and machinery, which he was using earlier, which he has transferred to t.lj'e.,:'n..ew_ undertaking.

14. In the instant case, it ls{JnAot:'ir'iidispuAte:_':t'i1at;theit total value of the plant and machine.ry/--which,'.iz&'i§s' owned 'V by the assessee is Rs.44,93,797~/€.". Out of.V_tfie:.'-thia~t,Mualue of the old machinery/':'~.i._s o.n'l§/h which amounts to more than 24t)'Cv'/o C')i; But if the value of the. is worth consideration, the total value él_'n""the business would be Rs.1,83,:S3,'7i91'/'-:.VVVfill/igfithhv«refer.en.ce to the same, the plant and machin--e"i'y which Ai's_lus"ed and transferred to the new .u_ndeiftak:ng is only 'Rs-;--13,15,083/--, which is less than 20% Vzofof the machinery used in the business. Th.etrefore,_é.'th.Ve<:assessee is entitled to the benefit of Vb"-«___'vexemptiont.under Section 10A of the Act and that is what 'the,/¥p_pellate Commissioner as well as the Tribunal has _.._'"heVld. In that view of the matter, we do not see any merit A/, ..23._.

in these appeals. Accordingly, the substantiai questions of law are answered in favour of the assessee and aga--«i_hs-tf"th'e_ revenue. The appeais are dismissed.

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Karnataka High Court

The Commissioner Of Income Tax vs M/S Processor Systems (I) Pvt Ltd on 22 February, 2012

Bench: N.Kumar, Ravi Malimath