Income Tax Appellate Tribunal - Bangalore
M/S Tata Elxsi Ltd.,, Bangalore vs Assessee on 12 June, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT
AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
ITA No.1074/Bang/2012
Assessment year : 2007-08
M/s. Tata Elxsi Ltd., Vs. The Assistant Commissioner of
ITPB Road, Hoody, Income Tax,
Whitefield Road, Circle 12(4),
Bangalore - 560 048. Bangalore.
PAN : AAACT 4872Q
APPELLANT RESPONDENT
ITA No.1295/Bang/2012
Assessment year : 2007-08
The Deputy Commissioner of Vs. M/s. Tata Elxsi Ltd.,
Income Tax, ITPB Road, Hoody,
Circle 12(4), Whitefield Road,
Bangalore. Bangalore - 560 048.
PAN : AAACT 4872Q
APPELLANT RESPONDENT
Assessee by : Shri Padam Chand Khincha, C.A.
Revenue by : Shri S.K. Ambastha, CIT-I (DR)
Date of hearing : 12.06.2013
Date of Pronouncement : 12.06.2013
ITA Nos. 1074 & 1295/Bang/2012
Page 2 of 9
ORDER
Per N.V. Vasudevan, Judicial Member
ITA No.1074/Bang/12 is an appeal by the assessee and ITA
No.1295/Bang/12 is an appeal by the revenue. Both these appeals are directed against the order dated 18.07.2012 of the CIT(Appeals)-III, Bangalore relating to assessment year 2007-08.
2. Ground No.1 raised by the revenue is general in nature and calls for no adjudication. Grounds No. 2 & 3 raised by the revenue reads as follows:-
"2. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that the telecommunication expenses, overseas office expenses, travel and other expenses aggregating to Rs.55,22,17,834 incurred in foreign currency, have to be excluded from the total turnover as well, for computation of deduction u/s 10A of the IT Act whereas such exclusion is permitted to arrive at the export turnover only as per the definitions given in section 10A of the IT Act and total turnover has not been defined in section 10A of the Act.
3. The CIT(A) erred in directing the AO to compute the deduction u/s 10A in the above manner without appreciating that the decision of Hon'ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd., has not become final in view of the pending Department's SLPs before the Hon'ble Supreme Court on this issue."
3. The aforesaid grounds can be conveniently decided together with the grounds raised by the assessee in its appeal, which are as follows:-
ITA Nos. 1074 & 1295/Bang/2012 Page 3 of 9 1.1 The learned Commissioner of Income tax (Appeals) III, Bangalore has erred in concluding that telecommunication charges of Rs. 1,65,41,834/- should be reduced from export turnover in computing deduction under section 10A. On the facts and in the circumstances of the case and laws applicable, telecommunication charges, not having been separately recovered or reflected in the turnover, should not be reduced from export turnover in computing deduction under section 10A.
2.1 The learned Commissioner of Income tax (Appeals) III, Bangalore has erred in concluding that insurance charges paid to Export Credit Guarantee Corporation of India Ltd (ECGC) for protecting the appellant against the risk of loss on account of non payment of the dues by overseas customers due to bankruptcy etc. amounting to Rs. 29,61,000/- should be reduced from export turnover in computing deduction under section 10A.
3.1 The learned Commissioner of Income tax (Appeals) III, Bangalore has erred in concluding that expenses incurred in foreign currency totally amounting to Rs. 53,27,15,000/- should be reduced from export turnover in computing deduction under section 10A. On the facts and in the circumstances of the case and law applicable, expenses incurred in foreign currency should not be reduced from export turnover in computing deduction under section 10A.
4.1 The learned Commissioner of Income tax (Appeals) III, Bangalore has erred in confirming the levy of interest under section 234B of the Act. On the facts and in the circumstances of the case and law applicable, interest under section 234B is not leviable. The appellant denies its liability to pay interest under section 234B.
5.1 In view of the above and other grounds to be adduced at the time of hearing, the appellant company prays that the order passed by the learned Commissioner of Income tax (Appeals) III, in so far it is prejudicial to the appellant, be quashed Or in the alternative
(i) telecommunication charges of Rs. 1,65,41,834/- be not reduced from export turnover in computing deduction under section 10A;
ITA Nos. 1074 & 1295/Bang/2012 Page 4 of 9
(ii) insurance charges of Rs. 29,61,000/- be not reduced from export turnover in computing deduction under section 10A.
(iii) expenses incurred in foreign currency amounting to Rs. 53,27,15,000/- be not reduced from export turnover in computing deduction under section 10A.
(iv) Interest levied under section 234B be deleted."
4. The assessee is a company engaged in the business of design and development of computer software, engineering services, visual computing labs and systems integration. The assessee established units under the Software Technology Parks of India (STPI) scheme. The assessee was entitled to claim deduction u/s. 10A of the Act. While computing the export turnover for the purpose of allowing deduction u/s. 10A of the Act, the AO excluded the following amounts from the export turnover, but did not exclude the same from the total turnover.
Nature of expenses Rs.
Telecommunication expenses 1,65,41,834
ECGC Insurance 29,61,000
Foreign currency 53,27,15,000
expenses (total)
5. The Assessee submitted that Explanation 2 to section 10A defines 'export turnover' to mean consideration in respect of export of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance ITA Nos. 1074 & 1295/Bang/2012 Page 5 of 9 attributable to the delivery of articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing technical services outside India. The Assessee submitted that none of the items of aforesaid items fell within the definition of Export Turnover. Alternatively, it was submitted that if the aforesaid amounts are excluded from the Export Turnover, the same should also be excluded from the Total Turnover. The AO did not accept the claim of the Assessee and excluded the aforesaid items from the Export turnover while computing deduction u/s.10A of the Act.
6. The CIT(A) on the aforesaid issues, following the decision of the Hon'ble High Court of Karnataka in the case of Tata Elxsi Ltd. 349 ITR 98 (Karn.) directed the AO to exclude the aforesaid amounts from the Total turnover also. The CIT(A) did not adjudicate the alternative claim of the Assessee that the aforesaid amounts cannot be excluded from the export turnover.
7. Aggrieved by the order of the CIT(A) in excluding the aforesaid items both from the export turnover and total turnover, the revenue has raised grounds No.2 n& 3 before the Tribunal. Aggrieved by the order of the CIT(Appeals) in not deciding the question as to whether the aforesaid amounts can be excluded from the Export Turnover, the assessee has raised grounds 1.1 and 5.1 before the Tribunal.
ITA Nos. 1074 & 1295/Bang/2012 Page 6 of 9
8. The issue raised by the revenue has now been decided by the Hon'ble High Court of Karnataka in the assessee's own case in 349 ITR 98 (Kar) wherein it has been held that whatever is excluded from export turnover should also be excluded from the total turnover. In view of the aforesaid decision of the Hon'ble High Court of Karnataka, we are of the view that the grounds raised by the assessee in its appeal do not require any adjudication. Consequently grounds 2 & 3 raised by the revenue in its appeal as well as the appeal of the assessee are dismissed. In view of the dismissal of the revenue's grounds of appeal, the learned counsel for the Assessee did not press for adjudication of the grounds raised in Assessee's appeal. Consequently, appeal by the Assessee is dismissed.
9. Grounds 4 & 5 raised by the revenue in its appeal reads as follows:-
"4. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that the deduction u/s 10A should be allowed in respect of profits of 10A units without setting off losses of other STPI units while the deduction can only be computed from the gross total income of the assessee which is the net income computed after setting off the losses in accordance with the provisions of Section 70 of the I.T. Act.
5. The CIT(A) erred in directing the AO to compute the deduction u/s 10A without setting off the losses of 10A unit by relying on the judgment of the Hon'ble High Court of Karnataka in the case of Yokogawa India Ltd. which has not become final in view of the pending Department's SLPs before the Hon'ble Supreme Court on this issue."
ITA Nos. 1074 & 1295/Bang/2012 Page 7 of 9
10. The assessee had many STP undertakings. The STP unit at Mumbai resulted in a loss. Deduction u/s. 10A was claimed by the assessee in respect of the profits of the business of the other STP units which made profits. The AO was of the view that the loss of Mumbai STP unit has to be set off against the profits of the other eligible STP units and deduction has to be allowed only on the profits of the STP units after such set off.
11. On appeal by the assessee, the CIT(Appeals) held that the loss of the STP unit at Mumbai has to be ignored and deduction allowed in respect of the other STP units. In coming to the aforesaid conclusion, the CIT(Appeals) relied on the decision of the Hon'ble High Court of Karnataka in the case of CIT v. Yokogawa India Ltd., ITA No.78/2011 & 918/2011.
12. Aggrieved by the order of the CIT(Appeals), the revenue has preferred grounds No.4 & 5 before the Tribunal.
13. We have heard the rival submissions. In the case of Commissioner of Income Tax Vs M/S Yokogawa India Ltd. (supra), the Hon'ble Karnataka High Court, after an exhaustive discussion on the legal provisions involved, found that the income of a 10A unit has to be excluded at the source itself before arriving at the gross total income and that since this income is not to be included in the income of the ITA Nos. 1074 & 1295/Bang/2012 Page 8 of 9 assessee at all, there was no occasion to set off the losses of the assessee in respect of his other business against the profits of the exempted units. The salient findings of the Hon'ble Court are as below:
"As the income of 10-A unit has to be excluded at source itself before arriving at the gross total income, the loss of non 10-A unit cannot be set off against the income of 10- A unit under Section 72. The loss incurred by the assessee under the head profits and gains of business or profession has to be set off against the profits and gains if any, of any business or profession carried on by such assessee. Therefore as the profits and gains under Section 10-A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would not arise. Similarly, as per Section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current years depreciation under Section 32(2) is to be set off As deduction under Section 10-A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profit and game of the undertaking would not arise. In that view of the matter, the approach of the assessing authority was quite contrary to the aforesaid statutory provisions and the appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of Section 10-A to the assessee. Hence, the main substantial question of law is answered in favour of the assessees and against the Revenue."
14. In view of the clear and unambiguous finding of the jurisdictional High Court of Karnataka, it becomes clear that the unit exempted under section 10A is an insulated entity which has to carry its business performance in isolation from the rest of the appellant's business. In view ITA Nos. 1074 & 1295/Bang/2012 Page 9 of 9 of the decision of the Hon'ble High Court of Karnataka in the case of CIT v. Yokogawa India Ltd. (supra), we are of the view that the order of the CIT(Appeals) does not call for any interference. Consequently grounds 4 & 5 raised by the revenue are also dismissed.
15. In the result, both the appeals are dismissed.
Pronounced in the open court on this 12th day of June, 2013.
Sd/- Sd/-
( N. BARATHVAJA SANKAR ) ( N.V. VASUDEVAN )
Vice President Judicial Member
Bangalore,
Dated, the 12th June, 2013.
Ds/-
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.