Karnataka High Court
The Commissioner Of Income Tax vs M/S. Tyco Electronics Corporation ... on 21 February, 2012
Bench: N.Kumar, Ravi Malimath
IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 215T DAY OF FEBRUARY THE HON'BLE MR.JusT1q;f bN.KU.M'A'R:.:'_'v A - AND A A . _ THE HON'BLE MR.Jus*rI<:_E RA'\/,1'MALIiYi'ATi-1../_VV :1 ITA.NO.383 or-.A2oo9 A A BETWEEN: A A A 1. The Commissioner of...In_co.m'egtiaxfi'A C.R.Bui|ding.,--.Queen§s Road, Bangalorefigg ' _ ' 2. The Assistanf;i;on5rni.ss'i:on.er"of Incov:'r'i'evA-tax, . Ci e-- 1 2(3); VC.,_R«..Bu«i.lMd'i ng ,. _' Queens Road,' Bangalore, S " ...APPELLANTS (By -V K_..V . Ara-v_i Ag"./o.r:ate) "E.leeti-oriics Corporation India'APvt'Lt"df_.,.A1' "TE'~Park~",' 22"B, Dodenakundi 2"" Phase, 4 Industriai...Area, Whitefield Road, " V'Bangga|or.e. ...RESPONDENT
._ A K.P.Kumar, Sr.Counse| for M/s. King & King partridge, Advocates) V This ITA filed under section 260--A of I.T.Act, 1961 arising out of order dated 13.02.2009 passed in ITA.No.1229/Bang/2007, for the Assessment year 2002-03, praying to formulate the substantial que-stri-ofr'is"0f law stated therein, allow the appeal and set§"as.lde__i'the». orders passed by the ITAT, Ba5l'Q'alore'vt." _i'n:
ITA.No.1229/Bang/2007, dated 13.02.2009,__"=.confirming"
the order of the Appellate Commissi.oner_ &H'coInfirm__:~th'e_ order passed by the Assistant Commisjsiosner'*Qf"--1n.comej Tax, Circle--12(3), Bangalore. " " ' ~ This ITA coming on for h.:ea.r_ing t'l'.i.s J., delivered the following:- ' " r "
:_ 'A|L--.t The revenue hasV_pf'reVfe.r_ref;l t't'iiVs"l5ap.p5eal challenging the order pa'ssé::yj.i1.by"-.the_ "Txrit5u.:nal""granting relief to the BSSESSEE. 1 ., 2 2 this appeal was admitted to consider tthe following"substantial questions of law:
l/l/h'eth_er.the Tribunal was correct in holding A {'that though the assessee has brought export proceeds into the country after expiry of time stipulated under Section 104(3) of the Act, in it view of the subsequent ratification the assessee is entitled for deduction under Section 10A of the Act, when the provisions of V Section 104(3) does subsequent ratiflcation.5K__ 0' V' 2
2. Whether the was correct * 0' that, the assessee "entitled to expenses of a sum forfeited by the KIADB during ;_April assessment year:2002--f03"'on:':thetgroundthalt, the assessee V.in_:th.e"'fina'ncia/ year relevant to 20.02203?
3; """ -.1/l/l7'ethé;r'~thet-Tribunal'ficommitted an error in
-. 'holciiiig:ftfza4t;.t::ti2--e'assessee is entitled to claim 0' ._Lélexpleinses"o_f"R'sL§8,83, 71 7/-- in the assessment ,,y:»rarv2002'e0V3".when the liability was crystalized .__durin"g... _____ the financial year relevant to
-assessment year 2003-04 ?
the Tribunal was correct in holding Vi brought forward business loss and V unabsorbed depreciation should not be adjusted before computing deduction under Section 10A of the Act?
3. The assessee company is in the business of manufacturing and trading in electrical and electronic intqD:/ connection devices. For the assessment year 2002-03, the assessee filed return of income on October declaring a book profit of Rs.4,30,34,505/--. was processed under Section 1¢iS(1) Rs.18,17,829/- was granted on selected for scrutiny undefi___. Sect.i_on 13.10.2003, a notice under issued.
The assessee was heard..,_"j~
4. Fir§t An arri'ou'i_i.t outmof export proceeds has not within the stipulated time within six months. By a letter date'd'--..29v.O§.-2OQ4;«.t~he assessee stated that they had ma_dé. applica"tio.n.._to the Reserve Bank of India seeking 'e»x't'ensiQri~.o'f.time to receive the proceeds but no approval h'ad"*been'S'-'gra.hted. Since the entire proceeds has been subsequentléy realized, they contended that they would be if "v~.f_*eVnfti't.ledHto the full benefit of Section 10A. The Assessing 'Authority did not extend the benefit of Section 10A of the V Act on the ground that the export proceeds was after the stipulated time. The Appellate M upheld the said order. However, t.*1e"TrI bunal .ta¢ii..n¢:et..or.« the relevant letters in the paper »comp_il'atioiri* filed them, at pages 1 to 17. They'.Lal»so notic_ed.aVV-lettehirssued " 0 by the Reserve Bank of IndVAi.a---d"a-ted.._19.11.2005, which showed that the asses's'ee-.w'a_sf'}.diirectééliito approach the authorised dealer VHSBC.":ThVe're'a_fter'. letter dated 05.05.2006, t~h'eg_a_'sses_see ..req<ue'stjedV____f_or renewal. The authorised d4eavl.er1"i'ni'orme.dthe'assessee as under;-
"R.EAVL_AIS{l"T1:@.ivV_OF"EXPO/?i["PFiOCEEDS V __ .ltli/ithrei'erence.__ta your letter dated 22""
October 2Q0i5..ijVa_nd..:i"0."V'~" April 2005, we confirm _that'y.oMu" haifei'~o"ur--§~'iiapprova/ for extension of Kati/tie forV.'re.a/igation of export proceeds for the mentioned in the annexure amounting to . This is in accordance with AP ""l'DIR'.V'S'_eries Circular No.20 dated 28"' January 20:o2."° We also confirm that the bills have been 0' H realized within such extended time." _ 7 _.
7. Per contra, the learned Senior Co.tj'n.se| appearing for the assessee supported the impugned"'oVrd44eifiV V.
8. Section 1OA(3) reads asgunder:~;"'"hi' "(3) This section :'».:4aPi?/is}:
undertaking, if the sa/evgproceedsiiof articles _ things or computer softvvare, exp0rted_c;ut"aot"' it India are received, in, orxb.rolught.,into,' "India_5y the assessee in con}/eirtib/er .r'oregign~iexchange, within a period of end of the pre vio year or, :,it/'\(:ij.t'hinA"s~iJ_j_€/7v further period behalf. *1.
iiii For purposes of this as the .--compe.tent:.author.i.ty:Ima'y a//ow in this sub fsectioni,' ~ ~ . the .'e'>gpression "competent authority?'/n'e_aris the;/izeserve Bank of India or 'such otherauthority. as is authorised under any a,'ft._.iaWt.gforg.Athe'ti/neiybeing in force for regulating ' V. ~ payments' and dealings in foreign exchange."
reading of the aforesaid provision makes it clear that the assessee to be entitled to the benefit of ,éS.e'ct--io'n 10A, the sale proceeds would have to be brought \/ into the country within a period of six mont--h's"fro'_rntheencl of the previous year. However, ;'t'lie legislatsilréil-..,,..h'a:5A consciously in express wor'ds"*--~has vested itheA~{p0.we.r to -, * extend the time limit for the competent authority chooses to Therefore, the six months' period pir'es.cr'i:bed_;;_S"&"'n§£..'j_"rfiandatory. A discretion _the:competentffauthority to extend the in cases where the sale -beyond the period of time prescribedlyundler séailldfféplrovision. The only condition is thatpiltlhe. salelproceediss would have to be received. If the . sale p_roVce.e:'cis are not received within 6 months period, all ~th'fa_t_«th'e'°_asse'ss'ee has to do is to make a request to the con:pe'ten't";authority for extension of time. Ofcourse, he "has to'"make all efforts to receive the sale proceeds from '7-thefjforeign buyer expeditiously. Granting of extension of "time is the discretion of the competent authority. But once such a discretion is exercised and the time is extended, the assessee would be entitled to the benefit of the same.
li./
9. The statute does not prescribe any time.-.__l_imit within which the application is to be made for extension of time and the period competent authority has to pass-T"an:--.ord'_eri:
behind this provision appears proceeds are received inVl'I.ri:d~i_a then' authority vested witvh__.the extend time, exercises the discretion,Vt_he"'assesse'eV:_shorulcl be entitled to the benefit. :..I!'.::,:,tfl5t Tribunal was justified in of the Appellate Comm'i'ssi'o.n,er.' weljltravsllthemiiissessing Officer and in 'It is in consonance with the express Vused'._Vin=.the statute. Therefore, we do not s__ubst'a'nce.__iri the said contention. Therefore, the .-firstsvubstan'ti--al question of law is answered in favour of 'thief assessee' and against the revenue.
" Second and Third Substantial Questions of Law: ll./' _10_.
The assessee company was allotted a 2 lease~cum~sale basis by the KIADB on assessee company could not;v';constru'l:t stipulated time and hence, the allotment of site was forfeited::'o--n JjThe 2' A assessee claimed an ekpe-nse"o'f (including the forfeiture of deposit and penalty paid of was done in April 2002,?"fa-§c0ffi:ce"ivi:>Adi-sallowed the aforesaid amount """ «'t«h_'e""financial year 2001-02. Accordlinglly, shown as loss on KIADB project' i.sV}adfd_ed~~--"nback to the total income of the ass_esse.pe. .¢i_Aggri'eve--d"by the same, the assessee preferred "app-e_al Appellate Commissioner, who confirmed tne'%said.'orr'de:r. In an appeal against the said order, the Tribunali. held that the assessee booked the loss in the financial year 2001-02 as required under the Accounting 'Standards issued under Section 145(2) of the Act. As the said claim for loss is in accordance with the Accounting \x/ _11_ Standards, the Tribunal allowed themsame..'"'Avg§*i=ie'ved--_by_" A the same, the revenue is in appeal}: A'. - A
11. The learned Counsel foi;_th-.e revenue~.assa--i_ling'~. the impugned order conteii.d'js'~~._»that' a~drni'ttedly '' A forfeiture took place on 18,A04w:f2LQ.O2,oA.thnellassessee can claim loss only for the and not for 2oo1-02. Whenthve asises'se:e mercantile practice, 13i4¢Stiii'ed""i"n booking the loss for A In support of his content_ion_, -heir-'epi-Sled'lon«vti}vo__j:idgments of the Apex Court. '°i?.er" .C(V)_nA'tAiT_<',ll,V'*~"'llVthe learned Senior Counsel
-"'...,_appfe:aring .__for the .... assessee relied on the accounting 's.ta'ii-dardis", '_w.h::"i'c.h is extracted in the order of the Appellate .Tr.ib'una.l supported the impugned order. 1_3~.~ _vfl7he Apex Court in the case of Morvi Industries V v"s.V__A2Commissioner of Income Tax reported in (1971) 82 ITR 835 (SC) has held at Para 11 as under:-- "xxxx K/' _13_ deals with the receipt of income while the ._ accrual of income is dealt with in c/.(b) of thata.__K*_V sub--section. "
14. The Apex Court in the,.c.as_e of"Co'r'r*:.ir'n.issiorzV "
Income Tax vs. A.Gajapathy Naidu reptottedgin.' '(--1964cA)H53.' ITR 114 (sc) has held at para 11 as-under.'-- * * " T "Under this definition' acceptediby this Court, an income"~~accrues':érises when"the assessee acquires' a.e_rightf7to receji}.(e" the same. It is common place"thatVtl7.ere' principal methods o;f"a_.cc.o'unt/_'ng for..Vtl'ié"income, profits and the cash basis and the"--mercantile basis. The latter Vvsystemlvohft "brings into credit what isA£106.immediately':gV'i't becomes legally due and . before is..actually" received; and it brings into expenditure the amount for which a legal _liability-.has been incurred before it is actually " The book profits are taken for the of assessment of tax, though the ~. vcredit amount is not realized or the debit amount is not actually disbursed. If an income accrues within a particular year, it is liable to
-14..
be assessed in the succeeding year.
does the right to receive an amount contract accrue or arise to the assessec":,_:'"
come into existence? That dep.ends_"upon'.';Vthe terms of a particular contra-ctr? u/V0.1...otherf.,___ it relevant provision of the_Act hasbeen gbiiought hi to our notice-for there i'sflnone wtzici:..,pifov;-fies' an exception that thoughaiivassessee" 'do_es_not acquire a right 'to_.freceive-_ a.r;~.._in,c"o~me under a contract in a particular"'acco'unting__hf.-year, by some fiction'--the§;amhount..:re'c_eived:by him in a subseqzj1'e'nt":f:_;ye'ar c*onnection with the contra.ct,-ijfhough._§not._out of a right a'ccrued?}to jhjiirwthe htéérlier year, could be related' 'earlier year and made taxable alo)'1g."wit=h:""the income of that year. But ; ' that legal, position is sought to be reached by a h process of'Vre'as'oVning found favour with English is said that on the basis of proper commercial accounting practice, if a traivsaction takes place in a particular year, all "that has accrued in respect of it, irrespective of A the year when it accrues, should belong to the A year of transaction and for the purpose of reaching that result closed accounts could be' V _l5_ reopened. Whether this principle is justified in the English law, it has no place under Indian IT Act. When an ITO proceeds to a particular income in the assessment, should ask himself, inter alia{ two '- namely : (i) what is the system adopted by the assessee?u7an}:lV_A.(ii) it is mercantile system of 'accouuntaincy, .subjec.t"'t~o. the deemed provisions, when has t/'xei right} to receive that amo':u~n_t he comes to the conclusion thaVt_a_'suchf*a righftfvaccrued or arose tof the particular accounting»/;;;y¢a;;'.A sh:_allVv"inciude the said income the succeeding conferred on the I-7_'O Act.::"to're/ate back an income that__accrue.d or arose' in a subsequent year to Vanotherfear/i'erA"vyear on the ground that the ~ '5:,sa__io' incom"ea._r_ose out of an earlier transaction. A l\l2or..'s:'the question of reopening of accounts 'i'elea{ant"-in' the matter of ascertaining when a ' particuilahr income accrued or arose. Section 34 ofsthe Act empowers the ITO to assess the income which escaped assessment or was ..5under--assessed in the relevant assessment _.16._ year. Subject to the provisions of the section and following the procedure prescribedfi"
thereunder, he can include the escaped income"-.2'-- and reassess the assessee on the i" V which the earlier assessment was «A too, under s. 35 of the:;.JAc'teth'e_g mentioned therein canVrectii:"y__n-7istakes._Aeither"
of their own motion or'iwf:-en suAc'hVmista.l{'eS_:are. brought to their noticextbiy .a pa'rt.yi'to the proceedings. Fonthat thecorrect item may be taken intoVVconstidLer:ation.the matter of assess_me__nt. even in those4_gi'here3,_is _nVo..Vv"reope'ning of the accountsrot. a reassessment is' or*§:.;t.he"-m--istal<e~~is'§ corrected on the basis' of the..actua!:in.corne accrued or received by assessee.:"W:e'do not see any relevancy of the guestion tor' reopening of accounts in c_onsidering'---.the question when an assessee acqu.ire--d_a right to receive an amount." the aforesaid judgments, it is clear that the moinent the income accrues, the assessee gets a xlested right to claim that amount even though it it/"
-17..
may not be immediately received by him. The _ income is not to be equated with thegreceipt"of"th'eg ii'..co-rne_._4 If it is a mercantile system of account'ancy,«'=su'bject"t:t:s..__tlie_rt deemed provisions, it has to':_b'e_Vfoun'd. out whlenfthgea tight to receive that amount accrues."-If such a"rig_ht accrued or arose to the assessee --~i.nfa t~_art;_icuI"a.r*accounting year, he can include the__said Aignco_me'._in:_the asse'ssment of the succeeding asse's:s.nnent._year:': _ .
16. IVn"»v4f_a':_t,.';'.the:.Acc_ou_ntijng Standards prescribed by the Ceantralifiiayerlriment' as under:--
V __ .l'}4lcCOu_n'ting:y'policies adopted by an assessee*shou.ld'be'*si;ch so as to represent a _true--"andv fair the state of affairs if the business,"profession or vocation in the financial istatevrnents prepared and presented on the "_jsucl7 accounting policies. For this pt/r,:2isés} the major considerations governing "selection and application of accounting policies are the following namely.'- l. Prudence -- Provisions should be made for all known liabilities and losses even V _18_ though the amount cannot _ determined with certainty and represe.nts: ~.
only a best estimate in the light available information; _ V _V ii. Substance over form The fjvaéccounting'1-.___'_:Q0 f treatment and pre_sentatio"n._ in 0' statements of transa_ction's .__ai2dl"e\/en"ts"
should be governed': by 'their' lsubstanice and not merelii the /eg;zal..for'm;_ 0 iii. Materiallty - Finianiciallvstatenjents should dis_C..~'ose_ 0' 'items, the of_:'w_hichV imighitlllinfluence the 1decisions'' user; of the financial "st3tem'ents§"' 17; kiln the in'sAta-ntcase, the assessee was allotted a site_;_by KIAIVDB' he deposited Rs.29,40,000/-- towards atthe"saidlllfailjotment. As he could not construct the building 1 "tVh'e,:sVti'pu'lated time, on 31.07.2001, the assessee deposited sum of Rs.29,43,717/-- as the charges for .00"-__V"'*deTlayitintnot utilizing the said land for the purpose for it was allotted. Subsequently, the assessee decided to surrender the land to the KIADB as the project could notv _ 19 _ be commenced. As per the terms of the contract between the assessee and the KIADB, if the assessee commit breach, the amount deposited by liable to be forfeited. Therefore, amount of Rs.58,83,717/- holding refundable. According to the' having been forfeited on amount cannot be claimed as in _year'A2001--02 for the assessment year facts, it is clear that before March 2002. Ontg, the land in terms of the amount paid towards'a_l,l'otm'ent and the penalty is liable to be forfeited.' by the l<.'IAl5B. Therefore, the right to forfeit acVc'r1iea's'lfto:"th_e the moment surrender took place. the financial year 2001-02 for the as"s«essn1en't~"year 2002-03. Hence, the assessee is entitled tQ,clai'm:'loss of the said amount to be forfeited by KIADB the aforesaid period. Merely because the actual l/ -20- order of forfeiture was passed on 18"' April 2002, that date has no relevance in so far as the date of accrual gisbstoploe considered. In that view of the matter, the justified in granting benefit to theHassessee-.».~.:':iiehce,.Awe answer the 2"" and 3"' substantial Zquéstiaognsi"ofVl'a-w favour of the assessee and a.qa-inst theV_r"evenue';
18. Fgurgh Substantial This Court had an this question in the case, ftnicome Tax vs. M/s.Yakogawag---India__ No.78/2011 and other connec'teo" on"'C9'-"(})8--2011, wherein it was held b H _ Vth_eA'inCoun7e of 10-A unit has to he excluded"at:V__sot:.lrce itself before arriving at the "total income, the loss of non 10-A unit
- set off against the income of 10-A unit section 72. The loss incurred by the assessee under the head profits and gains of business of profession has to be set off against the profits and gams if any, of any business or profession carried on by such assessee. \)(/ -21- Therefore, as the profits and gains under section 10-A is not be included in the income of assessee at all, the question of setting loss of the assessee of any profits andqg-ains"o'f~i A ~ business against such profitsmand gai;7sifof't:heV undertaking would not arise.
section 72(2), unabsorbed /oss-._iis to first set off and» ._th.ereafter V _un.abso'rbed depreciation treated as cu'rr,ent,_year'depreciation under section is As deduction under section 10--'A$ has' from the total inco.._fhe__ ofi'the':ass§cS$e€,-v,_ question of unabsorffbedf"busiiiessloss :Vbeihg""'set off against such profit. the 'undertaking would that-b the matter, the approach"'Vvo:f..:tl7e"~assessing authority was quite contrary toV.th'e"afo'res'aid statutory provisions and _.the appellate "Commissioner as well as the Ttibttnal w'ere....fu/ly justified in setting aside the V --. said assessment order and granting the benefit of QTAS-action:-1-0--A to the assessee. Hence, the main substantial question of law is answered in favour ..ofgthe assessees and against the Revenue." ...22...
19. In that view of the matter, the fgurth substantial question of law is answered in favou_rV~.c_:>T«4.tth.e assessee and against the revenue.
For the aforesaid reasons, iné "a'ppe«a| -is,dey'QVi'd"pf'7 merits and hence it is dismissed.
fir'