Karnataka High Court
The Commissioner Of Income Tax vs M/S Kvaneer Process India Ltd on 21 March, 2012
Bench: N.Kumar, Ravi Malimath
HGH COUKT OF KARNATAKAHEGH CCEURT OF KARNATAKA HIGH COURT OF KARNATAKA HIGH COURT OF KARNATAKA HIGH COURT OF KARNATAVKAM HIGH CO
IN THE FHGH COURT OF KAR?€ATPsKA AT BAHGALQRE
DATED THIS THE 2131: DAY 01?' MARSH
PRE SE HT
TIE HOBFBLE MR.JL1'S'HCE 22'. :§:LI f<.e£:{:}*ZA..:'~ % T 1 V
AND
THE HQNBLE. I\'IR..JUF_5'4_'I'ICJ's?«.5'--1..7_i':A;-'w.v'I V'
I'I'fi.Ncs. 2006- T
ITA.Nos. L161. :1%e3,1 ié_5g_;4L16?'%§ %: :74, 2 173;
1131/2006' .a.rm_ ITA._t,f:R.OB';;§¢s.:3j08% sgos am:
rm.Ng;s;kT: 43:53, 'ximg 1 :67, 2 am 1 173,
1181*..ijgoc:z5: ' M %
3E'rwEmia% %
cf Income Tax,
* CV-.':R:;B32.i1cBIz1g, Queenfa Road
. :Ba_r;ggls:;rs5
" ..?;';Ti*1éV'D7'&put;€'C0mmissionez' :3? income
'1' Csnfi-al Circle-V,
C'R,B'11fid£:1g, Queens Road
Emigalbre. APPELLANTS CGMMON
3 ' ' V' M .'I'I1irurn.aj«5:sh, Adm ca ice)
Iun wmu ur KAKNATAKA man COURT or: KARNATAKA HIGH COURT or KARNATAKA HIGH COURT or KARNATAKA HIGH coutzfr or: KARNA1-AKA %%%H:EW
H
AND:
M} adohn Brown Tecinmlogiea
India Private Limited,
No.19, Pirmemse Road
Bangalore. RESPONDENT 11539:'
M] slivaneer Procms India T _ I€o.19,PirmeroseRoad _ ';
Bangalore. ...RESPOH1_3'E_NT Hi :'r~;~'..m;s;H'2.1<:*H3.;' 1 166,1 174, aI1d"1,1 81/0&5 (By Sriyuths This r:'As';:;m %fiM% zzsw. of I.T.Act, cut" c'i7..¢i::*3§='.;' passed in I'I'A.Hos. 617} Bang./2092, 1E_4«78~,'.'Ba::Vg/2602, 713; Bang/1999, 490; HHHH Bang/2002, 1532/ Ba11g7!?.€_X)2," .g2§:_'>1<,f "4.B'az;gf.":L999, 153:3; Bang/2002 resp&1:ix.-'e:_1y'fi11* thgaagi-aisment years 1".-795-96; 1998-99; 1996-O°r,1999=0C;'19'§38499; 1997-98; 1994-95; 1998- 99 '?roAfm?r:iulate the substantial cgumtions of ustateci atherein and to aliow the appeal arfl set aaiae i"fhe'. ordérqiasaed by the: ITAT, Bangalore in ,«£TA.N_da,. .' 6v17}' Bang/2002, 1478fBangf2OQ2, 713; _ E190} Bang/2003, 147%} Bangffiwg, H _1:3<3%2;HLTH* V _ _ V-,':?;C>o2, 251/ Bang[19%, 1533; Bang/2002 rc§pec:1isa:iy'dawd 22.3.2006 and confirm $1: order of mg Appcaflate Comxnfisioner cxznfuming the ordar passézi__ the Assistant Director cf Income Tax, Circle- V ' - H ".FI,.Ba11ga1ore, H rm.z:RQB.Nos. O8iz1I'1'A.1151 06 E4 ITA.C.'.R<3B.Nos.3 % inITA.117-4 06 IR ITA.CROB.No.5/10 in §TA.1166!0é ' V rrA.N$;.1:63, 1154,116?1%ka§l.%T,Hi' 1 HIGH COURT OF KARNATAKA HIGH COURT OF KARNATAKA HIGH' COURT OF KARNATAKA HIGH COURT OF KARNATAKA HIGH COURTOF KARNATAKAA éHéfGéH""CC § M] sfivarxeer Pxucess (I)(P) Limited Formeriy M] sliarrveer John Brown (M?) Limiteti, Represented by its Director M.J.Shanta Ram Pra;v.er1T--1Y knowzi as Va1de1Erhg1flfl9' »1"11_'_ 1% ' ' : " . ' Censtruction Private Limited, _ "
No.19, Pirmrose Road " ' " ' Bangalore. . . CROSS OBJECTOR 'm[1rrA.2/Q8. "
M1 s.Kvan¢er Procws (IMP) Limited Formerly M] s.Kanx.~a¢:r Jahn BrF;:>wi:2.y _ (I)(P) Limited, V Represented by its Direcmr' v M.J.Shanta Ram _ " V No.19, Pirmroaie Roaefi . .4 ' ' Bangalore. . 1'-T'A.3 I 08 Mzs. Valdel E.n,g;511eé.ra. 1. Constmxetio'm .Liz.11it6<i',VV-- ' Formgsriy as "3--._K?Ia11eer Pia um Limtea % % Represented bf;-.its~ .Dir&z»:§t<>r as ' N=§__.'i13, glviegadoofihvvkiamion, Hosur Road % 'Bar3gé:}s§1':;5'25....CROSS OBJECTOR IN ITA.5;' 10 .._--.._........
- 'V *1.T.'lfheV'C;3mIniz33ion;er of Income Tax, ._ Qmfitral Circlc, C.R.Bui1ding, Quacna Raaci VBangal<:re. < x V' Beputy Commissioner cfinscome Tax, Central Circle-V, HIGH COURT or KARNATAKAHIGH comm or KARNATAKA HIGH' COURT or KARNATAKA HIGH COURT or KARNATAKA HIGH com or KARNATAKA HIGH Cc C.R.Buflding, Queem Read Bamalore. RESPQNDERTS
-O-O-C}-O--0~ 'lbw: I'I'A,Cmbs. am filed 'V 1 read with Order XLI Rule 22 gr <:1=z:,_ 1mz3.,V_fa.-xi XLI Ruie 22 of CFC: 1§GB .;é2,1f'?1.Of crder dated 22.3.2006 for thc Aasaa:"szmcnt»}?:¢:1* * 1995-% in IT:-'x_.E€¢£. 713;'}3?1%!' i999,'» ' 1532! Bargf 2&3; 617} ._ to formulate the sui:a_tam%1V_____q'}'z.1g3:sa'gjonzs "eff stated thmssin and to allowthe c;'os_s' *€B}'.;§¢2¢1§i0n3 arising out of the erder af ITB..Ho.
'?13fBang[19'99;. - ._1532fIB*é2ng--!V_iiC?32 and 617/Bang} 199E':'«__ djat¢d*%2g.3.20o5. on for final cfmpczaal d..9;3n J1 fiezfivered flu:
'.
.....;»~.........
A *--«;1jii:a¢ :se§:ii!:1i'«§§:f.3peah ralatc tn the vary same assmsrneni years: In fact, the ' 'x_'§I"8f31'f¢d filter: cmsa--ob_}'ectfr3ns in three. afl these appeab and cross--- arc taken up for wmfieratizm together and A " of by £1115 Gammon order.
2. The assesses is caring on the busirms of providing drawmg, cieségns, fabric.-ating ané HGH couirr or KARNATAKA HIGH COURT or KARNATAKA HIGH COURT or KARNATAKA men COURT GP KARNATAKA men COURT or KARNATAKA men do installing drillm equipment for oil platforms etg. The yeara.'I'hc mama: was taken up for o ofthae Income Tax Act. 1951 "The Act') at tin rate of of:
way of forem abo chhned deduction the Act. Tho assesses sang Section 80- IA and _¢_2Vi"' . He aha 80-HI-{B of the bum by the said order, the AA 'a.nappealt:ot.heAppelJam granted pmm 1-..-ms. In thn appeal before the Tribunal the deduction X both under Sections 80-IA and 80-0 was alkawed. T12 Tribunal also held in no hr an Section80-Ohoonoemednheassesaeeiaentitledtao HIGH COURT or KARNATAKA HIGH c_oum' or KARNATAKA HIGH coum or KARNATAKA HIGH couar or KARNATAKA HIGH counr or KARNATAKA HIGH bmmafii 01113.' on the net income. Thus, of tlw assases for deductian an Tharefore, the assesaee in ' cross-cbjeation wherws _;*evé$i11¥é* [has ~ *' "mm" of those prcsvisiszzns sf Law.
3.' law framed for 1: ' gaunt relfief in faveur at' the 'V tfiat it was cntit.led far deduction 3 80-IA esf me Act Without the Appellate. csmmseonm in holding assessee was mt manufiacturillg 9113"
article or my did it have workers cvamisting of 'car: car nwre am per Section 80- mzmm awn Act? \/ HGH COU OF KARNATAKAHIGH O_0'URT OF KARNATAKAV HIGH COURT OF KARNATAKA HIGH COURT OFOOKARNATAKA HIGHOCOURT OF KARNATAKAO HIGHAOCO
2) 3} Whether the Tribunal was correct in proceeding in hofl that the be emmed to claim so-0 1" b° r°nd°r°T O O 1O % oommny in Whether in n sons. and two d1fi'er-an' t Qouu be entitled to ~ on the same the financial coat and expenses which had in be
5) worl:ingoutthedaductionunderSection80-
HHBoftheAct'u"and Whethar flu Tribunal was justifiad in the factsoftllecaaeinholdmthat Sec1ion80- V/ O daduction shall mt be afiowabk rm'"gros.s amount of foreign excmnge Indm' am further, ii swag afiowm an net foreigh {Mia Le... fareign exc%ha'13ge foreign' " V the be an 30-11% was substitutrfi by mm me» m;2m1% 'u§{.'§e:_f mmgzoaz. in m instance case, w'E:: are V cafigwéfnésd with the aaamsmsnt 3;-ears '1£l€_}":3*2m)D. Tfmefom, the substituted applicaticxn to the facts of this case. wh1ch' wag there on the stanxte book perm' :-
te: sub$f?:.it11t:Ec:n, reads as urfiez':-
mm com or KARNATAKAHIGH cougar or KARNATAKA HIGH couar or KARNATAKA HIGH coum or KARNATAKA HIGH courrr or KARNATAKAA HIGH cc "wfxeretlrmgfia tmzaiinxzome afar: amassam includes any prafits and gains derived from any busimc.-as étzf an ifiiuatrial umdefialdzzg or a hcxtcl or operation cf a ship (such businesa ~lIGH COURT OF KARNATAKAHIGH COURT OF KARNATAKA HIGH COURT OF KARNATAKA HIGH COURT OF KARNATAKA VHIMGAHA COURTAMOP KARNATAKAA HIGH CC being hereinafter referred tr) aa the eligible businwa), to which this section appiiea, there shall, in accordance and subject he the provisions of section, be allawed, in % total income of cieduction from auch of an amount ¢q21'.2i.._m iii»: specified in sub-s~?$c.t:_i¢:1_ {5} féfig such number 91' ass'ése££:péiit V Vas specified in » -.
5. % by Finance Act No.2/19971; éfiect frmn 1.4.1991.
several amcndmcnts were are of 21:3 relexmncze in aemamg mmk is. A peruaal of the aforwaid . . " that the assessw is entitixed to fieduoaon a-om tht: prafits and gains if it is total gross incmne of the assesses in the provided in the said Svaction. This Section was & applicable ta inciustrial Lmdertakinga, which " the conditions which are mentioned in the sub \\/ 'IGH COURT OF KARNATAKA HIGHV-'COURT or KARNATAKA HIGH COURT OF KARNATAKA HIGH COURT OF KARNATAKA HIGH COURT OF KARNATAKA Trmsn 10 aecti:m(2). More importantly the assesses ahcuki be in the business of manufacturing er production cgf-.'5arxy article or thing and he must have employed workers in the said man1.Lfact11r5m pmcegg K V' an with the aid of power and £3392':
the prooes3_<:arrie& oi': withnigfi %» power. The; benefit under wé;s . the V Appellate mam ground that the activities 'AA:§2ii3'@:3sa2: is neither and that he has workers in the said the Tribunal has 21215.
that assesses En carrying on fafls "p1;{:>duc¢e" am! that ha has smpleycd 'azgra workers and wnrknng' with the aid af mnditicrxs prwcribevci in the are fizlfiiled. It is that firniing, V " assailed by thc revenue in thwe appealsk
6. Lmrned Counsel for the revenue contends pointing out from the judgemant cf Em fippefiata \\/ WGH coum or KARNATAKAHIGH coum or KARNATAKA HIGH COURT or KARNATAKA HIGH COURT or KARNAIAKA ruun wum ur .ww.,.....\.. ...,. 11
Commgasioner where at para 15.2, the activities of the nuance hnvabeenlistedamlon that basis he that it is neither manufacturing activity activity and therefore Section sum .1. _ V % submits that the activities oxr1'b3V_r'th",-3: h in the nature of and rightly me to the in the submitted tlrmt for the on manufacmring and to that. other activities, which tlmefom, Section 80-IA in not atu-acted.
8. 'I'heact1vitiaa,whicharecarriedonbyt.he ' as per one ofthe agrement are as under:
\\/ 'lGH COURT OF KARNATAKA HIGH $OURT OF KARNATAKA HIGH COURT OF KARNATAKA HIGH COURTOF KARNATAKAM HIGH COURT OF KARNATAKA HIGH {Q i' 5"
10. 12 Design and Engincerizg Sersdce. Mudmat a_nalys'm.
Fabricaticm E Review. k :
Prov1d' tyechrufl " prcparatiszm of »' " T_ operation stamp ufg Prowdme. etch. ._ % Rev1ew' .. apfprl V. ' :« .__ V . 'M V" Fabrication _ 1 procurement. vendnr data in 'V drawings , documents and. _ ' A' the contractor of
V' " f . __ élmissional inconsistencies thcrein. " Detailed engineering sf the platform facflitim.
Preparation af technical specificafion. \/ HGH COURT or KARNATAKAHIGH COURT or KARNATAKA HIGH COURT OF KARNATAKA HIGH coum" or mxnnmm mun wum ur ~u.m........-.... W
11.
12. 13;
14.
15.
16. V 13 Structural dfiigns of jackars, piles, pipes, top sides, etx;:., Preparation of Materials' balanee. Preparatinnfrev1ew' of ' specification for s:*.1e:ct:i9ib§9§VsL:1'\sa:'-5141:. -I' Prepare electrigt ésyéiem 3'33' gv ' procedure.
Prepare vc 1Ae§ ign, locgfiion fig and and tcchrfical «ion vendor ' cna:asc;gu:¢:»g%k%%p:%ovidea by Lmz... Q .99 'V of v\%n:;:ior'a projast.
. A' of inspection pxnaedmw.
of vscndora dczcumentatieyn. Issue of inspe.-ction release notes. T11: Appeflatz Commissianczr aficr taking ' of all these atstivities has categoricafly held that most of these activitjns fall in the catgary cf preparing \x/ 'IGH COURT OF KARNATAKA HIGH-'CHOURT OF KARNATAKA HIGH COURT OF KARNATAKA HIGH COURTOF KARNATAKA MHKSH COURTAAOF KARNATAKAA HIGH 14 enginezering drawings, dmigxs and othsr technical know how as claimed by the assessee. In addition ta the assessca has ofibred certain other facilities cormern, which do not fall under % 3
10. The Supreme Couifi: "
comuzsazoamzz or :1vconm . _-my vs} V L' zmu LT11, reportgzi in 330 i52*1<2 5a¢grf§ (ac) has heki that Section VI-A which 'leak with incomes.
Where assmsee incltzdw any Qifiyvvfiixsirms at' an industrial 80 - LA appiiaa, there 3112111 in and subject to the provisions uf " _ xbgv-,3-}§Qw¢d, in computing the total inrmme a. deduction fimn such profits and gains of equal tr: 9. specific perwntage far such of assessment years as specified in Section V ' For deciding the present ::x;ntrovc:r33*, it would ba ___3sufic?1er2t to notice that the groans total income cf an 8.856-2'i8€:fi must inciudc profits deszrivacl from any businms \/ HGH courrr or KARNATAKAHIGH COURT or KARNATAKA HIGH courrr or KARNATAKA HIGH coumos KARNATAKA HIGH COURT or KARNATAKA msncc 15 (eligible) of an induatrial mzdertaking which in terms of Section 80--IA (12) {b} 33 given the 321% meaning"'~as £5 assigtwd to that expression vfide ExpLa11ati<bz3...t§;_»VS§&§éfié§:1A .333. As could be seen Earn the 333, an industrial defined tn mean any Inter' cdicz, in the manufactur' V.V.:vé;\:r1;f' pfé>';v$s*:ii1g.':'a;fVVVgoods. fimrefcm, till 2009 was most defined undar _thc 2009 w.e.f 1.420% {fig which reads as with as grammjcax in a nswliving _ »'cir~ §§artic1e or thing,» Is; A ' _ V _____ in tmn:sforr:na®z:z1 of the _V6bje¢t«...vor article or thing into a new and V' vvé11fs§;i1'$:(:t.V.10bject er artficle at thirg having 9. name, character and use; at " .. {E} V britging inn: existencs sf a new ané t object or arias' he or thing with a ' difierent chemical composition or int@a1 structureg"
'IGH COURT or KARNATAKA HIGH-'COURT OF KARNATAKA HIGH COURT or KARNATAKA HIGH comm or KARNATAKA mm-s coumr or mxmmum mum 16 'I'herefore, the word 'manufacture' as uxxderstoad in the context of income tax law is that if an 3.323855% intx) existence a new and distinct abject amounm m xmznufacttxrizig activ'i:y r.:V£isé_ V' falls under Section 80-IA. In useful tr: refer to the of'VApe.;g L' case of scmxrzrzc z1vaLm:t::§_é:"NG H oL?;sE'-1P.2K;.rn. vs. comasszoamle or reportd in (19 86} 0f the word If is czpptied to the date and ether '$9'. "mm """ semiae' as speajieéc: agreement, it will be difimit to_;ré.»-m'.st that these dammenis as book wauzcz fali' within the dafinzxian cf t be disputed fthax these documents will have ta be treated as a "book"
V. * fiiictionary meaning of that word is nothing but a 1"--§ "£2'AA'number of sheets of paper, parchynentz, eta, wz'th V' or printing on them; fastened together aiang one x/ HGH COURT OF KARNATAKAHIGH CGURT OF KARNATAKA HIGH COURT OF KARNATAKA VHIGHCOURT OF KARNATAKA HIGH COURTOF KARNATAKA 'HlGH CC 17 edge, usually between protvective covers; Iirw-my or sdentxjic work, anthology, eta, wzd jbrwrz from a; magazine, mm, etc.' New Warfd Didionwyj. But apart fiom K the question is whether fimcztional test indimed agmge. of rendermg' such documer'iVtk;z:Vi_i§;»:z_VV By thew doamzents to meme it to can be rm doubt that thassé to p€?fO?"m in the in fact it is with the and up~to--ézzre sets sf was able to commence its mizeiq; and these dacumerzts realiy of the 1.mszne.ss' of mmmfactw'mg' the . ' in question. Tnxe, by thernselues, these V did not perforrn any mgdtanical opervmdons czr but that cwmot militate agaznst' their bemg' a. wplant since they were in a sense the basic tools afthe \x/ 'IGH COURT or KARNATAKA HIGH VCQURT or KARNATAKA HIGH coumr or KARNATAKA HIGH COURT as KARNATAKA HIGH comm' or KARNATAKA HIGH 18 assmwfi trade hazing a fizzfrly enduring utility, thaugh owing to tecémoiogxloal advances, they might or in ooume oftfme become obsolete. We are, of the view that the capital asset assessw, namely, the of drcavings, designs; plafig other Eiteramre fizlls within mzd is; therefore, a deprecgiifile :4 A H 11, in the case of vs. DATACQN3 9°.) LTD. ss rm 66 ciealing with the hfindustrial cmnpany" and on by the assmee is either man' ' V t>'f"g0Voda or erxgaged in the proomsirxg of :~ doxzemfl into ane mmther " the stage from the resetting of the basic AA dam right up to the harzdingcuer affhefinai ' sfaternents its the customers is one integrated awfvity. V HGH COURT OF KARNATAKAHIGH CQURT OFKARNATAKA HIGH COURT OF KARNATAKA HIGH COURT OF KARNATAKA "HlGH COURT OF KARNATAKA HIGH CC 19 In the cm-riezzi out by the company there is aphysioai transfvrrnafion of blank cxzrds and biw stationery punched. cards and statements bound. % f% _ form of cz book Punched statements made in the ;ahn%of%<a A dr1'7"erent fiwn blank "
a:m!:inuous stcztionarg} 2. '-
afier the entire gmpzezga is comparable <1 mmmfixmmhg éf I: be mm the vauchers and the customer and the required £:ia1cz:zoe~ salsa anahjsis, etc
ziustqznen In all thase aaivifiies, the has to pzay an amve mile by :30- Such in our opinion, .. fairiy fa}: within the cxnnczept of " jzirooessirzg of goods, if not manufacture of 5 goads. - lL/ wen comzr or KARNATAKA HIGH-COURT or KARNATAKA HIGH coum or KARNATAKA HIGH couwr or-' KARNATAKA HIGH COURT or KARNATAKA HIGH = 20 This vicw has been found favour by the Apex Court. in thc decision of COflm'5SIO.&R OF I.N'C% V8. Pmnsss coxsvzznwcy Am' remrteci in (2001) 248 me 1 7:.
12. The Apex Court c%ss1o2\rER or #5'. .3. ' in (2009; 313 m2 :49fsc9 «dc-aiiggwgzh 'mizszgg of Trade and CO3I3.tnt':1'C'=€:' hc1d ai:
the two is and crass» wéth tecfznafagiml :0 mange our thirtking ' iike gaads, march andise ca.-33 c:fB. Surésh, the bought rzgm af zzwieus and had recorfied movies on ma- éreiegzisazxg rights to Star 'EV. fisvr five gems Z 5:': has a Eitnited lifi-2}. Heme such ''rights' _ certainly fall in the category afartides .' czftrade and aommeroe, hence, merchandise.' 'V nan coum or KARNATAKAHIGH cmmr or KARNATAKA HIGH coum or KARNATAKA HIGH COURT or KARNATAKA HIGH E0021 'or KARNATAKA % HIGH cc 21
13. In the instant case, as it is clear from the copy of the agreement, the activities of the at-féessee involvm various activifies as per the {if their clients. It is ciient specific _.saL3, _ '~.if£% 2 incorparation of clicnts data documanm detailed design' of facilitiw, preparation of }dims{§h§§W,:Vfgrevsew' of instaliation related " equipment specific: for Llagal _ 'fjrocedurc and hem by the waacztixzitiw fall in the camgary drawings, designs and other Therefore, the assessm mtg new and fiistinguishcd. product 'which are client specific as per their tmreaficr advise the chants in tire, production accorciing to the designs' and édvise thc clignt in its ingtallation aftar the goods are bmught intro cvountry fer kk i:ma11.ation. In other Words, What: is transfer:-m to ma K/L coum' Oi'-"KARNATAKAHIGH coumr-or KARNATAKA HIGH courtr or KARNATAKA HIGH COURT or5 kARNA*rAkA' COUW ot="k1tRNA*rAKA HiGH"i¢bU"k'r" 22
client is not the intellectual property, the oormidgfation of which is an supply of drawing. Instruction given for preparim according tn the drawing: and &;.bc._it3 ' it is installed. 'Therefore, % ........ .1. .....
'manufacture' or prqdgoe Even if with the service by way of advie of of materials, the uni! or a production on am! tttemtot-e, the 'n~i1mt extending the hemat of section in the Mht ofthe undbputed record. The Tribunal has also 2.-chad' tm, k seL'er€2:L decisions on the subject. Thus the question nflnw is azmwamd in favour ofthe asae.ao= ac and against the revenue. The material on trsczmu that the assesses tan enlpbyed nearly about 400 persom as work fierce to carry out it \\/ 115+; caum or KARNATAKA HIGH-'COURT or KARNATAKA HIGH COURT or KARNATAKAL men courw or KARNATAKA HIGH COURT or KARNATAKA Hr%c; H 23 activitiea. T115 word Worker uaad in the Sccfioz1r}amwt be cauatrued in the context of the Act, £§47, The: meanim ef the word 'warififgxif nnted in the coming': of dij' activity carriefi on by tbc ae.s¢ssae.._ 'w11ich.fi3;.t§i11;z1 , exzzhazg '-
qualmcad paras:-m I ;)tk1erw71se, the is ' an im it has czngageari more of draftsman, __p~e:z3'sVVcV:2'x1a who are:
qua.%Aénd., . Tribunai was justified in of Sec1:ion 384$ tn the assesses, substantial qumtistzrxa cf ham is answered asaeaaee arfi agaixmt 'aha mvexme. Afie gg§_s___tim of law 30.3 :
E4. fismswer to this quastimsn revnhas mufi the V' 'i1'1t¢r;;rrr:=*{atém:2 {sf Séxfitififi 80 - G Wkfich. Wfifi in force at V. the reievamfz paint of time which mafia ms mlder :~ 1 coma' or KARNATAKAHIGH COURT er KARNATAKA HIGH COURT or KARNATAKA HIGH cotm'r%oF%k}Lki¢i2.'rb;kX"Hi2:;Htf6URT or KARNATAKA HIGH counr % 24 '80-ODeluetianinreIyecto:fmoyal:1u___._ etc... am certain scexgn Where the gross total income ofan 5 _.__ % being an Indian company [or a than a company) who imluda my . wfayjj. 6?
commission, fees or 1' received by the
Government of g orHa"Afet*eigt1 enterprise in the use outside India * 'imnmdon, model," process, or __m_ I-nfirmafion ;'% co . 1 or or agreed to be V_ _mad'e 'a.va~fla\ble""' or provided tn such ~ enterprise by the aasessee, or 1,¢v*:t':m_:1aiderat:ion of 2[technic-al or eervioes] rendered or agreed to be'%%;mx1em1 outside India to such or ent:erpu"ne by the assesses,
11....) am! such income is received in convertible fiareign exclmnga in India, or having been received in convertible foreign exchange outside India, 'as brought into India, by or on behalf of the aeaeasee in \'~\/' EH COURTAOF KARNATAKA HIGH comm' or KARNATAKA HIGH COURT or KARNATAKA HIGH couirrOF""kAiiNAi'AkA"H%iéH %%éOU%k1" 6i= KARNATAKA %m%GH% can 25 aooordancewithanylawforthetimebeirg' in force for nagulatrhg payments dealings in fimeigrxq exchaxge, there shail' alhwed, in accordance with and .ubj§ctk%Tk§a% * the pmvnno' ' rm of this secti5n,._e;
an amount equal to ptgr in computing thc inoo.fi_:ge ".of"'v;:t11e '2[.....]; ~ 2 is received in six mantis from or where the for Comnxiaaioner is to be recorded in is, for reasons ~ h%....c¢mt1'ol. unable to do so within period of at monflu, within such as the Chief Commissioner or may allow in this behalsfi ~. tinn - for the purposes of this "convertible foreign emclmnge" means foraignezxchamewhiohhforthetimebeing trcatedbytheReaerveBankofIndiaas oomnarflble foreign axchangc for the COURT or KARNATAKAHIGH coumr er KARNATAKA HIGHTCOURT or KARNATAKA HIGH couR'r or tk2{RN2\*rAkA% Htefittttdbuttrbrt KARWNATAKA HIGH counr 26 purposes ofthelaw forthetime being force for regulating payments and 5(ii) "£orengn' 8nterprn' a" mean; who5nanon-resident; _' 6(iii) uarv1ca' rendered outside 3 rendered from India s]r1aIi'*:.'it)tS1'J-.1VV<ViV£:
services in Ixn*iia}g" V'-» 15- expxatnaefmtt season further make" it or agreed to be service rendered 'Iherefe'ree,:_"it. are rendered in India. to the bmgfit of Section 30- if the assessee it rendering the service' then he is entitled to the benefit of so-o of the Act. In the imam case, the K; 0% has rendering service from India. which menace' "was bang' made use ofby the foreign en1:erprm' e outside the country. Therefore, it in not a ease of being ' \/ nGH couR'r or KARNATAKAHIGH cousysr or KARNATAKA HIGH coum' or KARNATAKA HIGH count or KARNATAKA HIGH COURT or-' KARNATAKA HIGH Cd service being rendered imidc India. Evan um fizreign enterprise use of tfcm service the as-swam afim" manufactufmg thg though bmought it into same, the materiai on &7mG'1z;_s &3 = G has rm: mnéered any service. ' with the entire pmjact. on the circuhr Dime is rendered from Enzfigfis tliereforc, Section we is rightly extended the said substantial quwtion of law fawn: cf the asaesse-2 and ' gggan of law 30.3:
§iI:'*=._ P; sirnilar quvwtiem arms ftrr mmidwafion nb¢foi'€:_. ;tE'}ias court in the case af comnssrormz our mt um as-tow vs» ms, fl& mm . Lfifl Whfirfim the quwtiim was as to Whether the asgcsses £3 antitkmd to ths b¢I'1fifi?..»Gf Smtiorz 80-1-LHC \}/ *oum-- on? KARNATAKAHIGH COURTOF; KARNATAKA men COURT or KARNATAKA HIGH COURTVOFMVKARNATAKA men countess mxmmm nmn t»...uu..~. t 23 and80-IoftheAct. Inthatcasettxhazurtheldaa u.nder:- V» 'From the aforesaid ~ provhionn and the law declared ' Courts in': clear all the.8mt.ion's deductions in respect {of _ "
ineomu" are ir;xc':ependent= of 1 other. Therefore, 80-I are each I3 deduction both on the gross tntnl it:Izc'iI:-*pe1«1i2¢Vé:1ti*-,r. Sub- cbarthat which in énoiwéfi .o'ied,uctk2mV Section 'that' such profits deductions _» under any other Chnptar under the "" 'C? in respect of The stress on the and, gdm of such eligible V' the case of Section 80- ia the profit: and gains from
- business. Under the provisions 'bf VI-A of the Act, various .. are allowedtothe asaeaaee who have to certain requirements specified under the relevant Section. The total deduction: under Chapter VI A of the Act are restricted to the gross total profits in respect of the aaaessee as a whole. In Explanatory note in Circuhr R0372 it is stated that the object of Section 80-IA is not to curtail the \\/t 1 coum" 6? KARNATAKA HiGH C0"L!R"i':_;0F KARNATAKA HIGH COURT OF KARNATAKA "HIGH COURT OF KARNATAKA HIGH CGUR1' OF KARNATAKA Hlewcotutz 29 doductions obtainabhe under various provhiom under the heading -- 'C daductians 'm. respect of inoonxea.' Therafizre, Section 80 IA (fi--}f_' L"
efibcm the allowability of deduct.i6na_.T"'vvt."'*«t * and not computation and _ 'I'11adeducI:'mntnwlIich.:the.;u.'au¢§6--i8 V' ' entitled to under this is computed at the 'of' anew' "
deductions and net at "the got" j contention of the deducted should be deducted cut bftlae the
-bus;_i2f14a'ss"j' is to be . it would contrary to ____ u not statutory ' atweli Clause (baa) to tn» Section 80-V-HHC, when held that Section:
" 'C' - deductions in oi'. inoomm' are ' of ach other and the ' to claim deductim more than one Section, the * .._:"»--.._Adeciu;:tion has to be necessarily in the ' um gaim arrived at afiar the claim in 'aern:n ofthe .. aforesaid Seotkan. However. the overall q."c1aim under both Sections has to be neotricted in th: total profits and gains of such efgibh business fmom groan total income.'
17. Section 80-18. and Section 80-O both fell un1erthel'nandingdeducti3rninrespectofce.rta.i:i \/ ma coum or KARNATAKA HIGH COURT or KARNATAKA HIGH COURT or KARNATAKA HIGH coum or KARNATAKA HIGH COURT or VKARNAATAKA HIGH 4
1...
31 aficecatfien of overheads in c-«onq>utin.g the: dedugfinn is nfisary and that even to the atexlt of 29%- afiowea in $113 facts of thme mam. satisfied that there is no Tribunal an lama isau: :3fT'&4;j:<iur§1i:?§'r1 mm, The aaimtamial do 11:11:
afimc fez»: mmiderafiifl.' wge; &er::h'nc to amwer rm saga aag.aa;mmiq filed by the assesseae it was éssessaee is entided the bcznefit. {if the gross total iwmc which t5:§trI:1éi'«P1$._.éi fmeign exchange. The intention *A Sactism ia E9 acttnd the benefit of H in respect of the %'cszé~ngn exchange E w.-:2 oflwrwisa, it was zztrxntazzded that if the: VA Ems spent arzy fsreégn mmhange in the inoome, what has 'me be daductnd is zmiy the foreigr1 exchange as expuatzditure out of the grass total mcmme and Efifiilefii. has is be mmndezi am such inmme. Xx/"
COURT or KARNATAKAHIGH couR'r.o'.= KARNATAKA HfGH COURT or KARNATAKA HIGH COURTOF KARNATAKA men couR~r~o:=mnmmuA nmmmum % 30 incomes both are independent of each other. In of deduction under both the Sectiorm. W" "mm" "Dd" 'mh S°°'°°' "W3! W3 ' the total profits and of Section 80-IA was 1;?'éxia1:1.oe'.'€cvi*,~A.NVcoV§.2, I988, winch' came into ' limitation was not there: years. This question of 1:12 assesses and ' ~ » % has my: am in the facts and case, the additional allocation of T;fiE:§urxa1 }* has reheat' on the prmc' iples ofthe decision AAoftfied'ribunal in the cane ofM.N. msmn 5 co. rm m=s*'.452/ Bang /97 and others, which it has followed L Section we. The allocation, tlmrefore, has been upheld» by the Tribunal on the ground tmt no lx/ COURT OFVKARNATAKAHIGH couR1r.o:~é KARNATAKA HIGH COURT or KARNATAKA HIGH COURTOF KARNATAKA HIGH COURTOFKARNATAKA r-mm cu-um ~ 32 InfactinthecaseofA8BT.
rax vs. neon mrenmma an srs:m%g5'?.f;. z;;t~n reported in fl006} 28711:: 201 a Division A. _ court has held that deduction my be; ' the net income and not on tig:
income afizer deduction __ tntarm:~ unt L' of hwome derived fqr the purpose of of the Act and Tribunal the nature of c1edug::tio:a 80-AB and pass orders in 13,3'. WEB alternatively"
has to be incurred, it mg: in foreign mhange 'm tn be into consideration as the twin object of export oftechnical-lmow how and earning whange fin' the country as made it clear by the % As it is clear from Section 80-0 the benefit 11nderflusaidpm'ovisionhtobeextex1dedonthe H coum" or KARNATAKA HIGH coumt or KARNATAKA HIGH COURT or KARNATAKA HIGH courrr or= KARNATAKA HIGH court? or KARNATAKA HIGH com 33 V tixabk income. Taxable income: is not grosa__,___tota1 income. Any tax ?n fmble to be pail on the naimijfiit-,,pf expendimre incurred. The Tm; naceauarily deducted out of 'i.: 1u order to arrive at the taxable «.ma.~m m mm' of &=w ' in Indian and therefiarc, when the payment of W' °" '.:_\\\§fl awmt» 916 % « or The Tribunal was also contended the word used in not in Section so-o unlike section so- ' ' the parliamentwanted to attend the only no the 'profit 'without having used the word and as the said word is conspicuously absent, maanmg' in this Section, has tn he noted in the nature: ofvbencfit that B extendcd i.e., on income: and k/ IIGH COURT or KARNATAKAHIGH coum OFVKARNATAKA HIGH COURT or KARNATAKA HIGH COURT or KARNATAKA HIGH COURT or KARNATAKA fiHiéH 65 not an pumfit, In the ccntmt in which extended be tha asamsesc Lmfierr totai ixxcom E arrived at!' «V axpcndiums, out of thc gr-:ms'_tota§l'* " L. ' mere absence cf the word oiithe word inmma in the c0n:t;fi ":zwf vs.7<:»uME&A not make any Tim mt rebevant ts mg fafim to» the finding of the "13-ibuglgzis mggm 3%' the case. jthe mavzseg, we xdo mt see any er"zr§§x:"'in 22¢ by the Triburmin There is rm ,' (tress-objectitan and t.heref*>re, the ME cf Emu: in arzszxrered in famur cf tlw mfienaég agamst aha assmee.
'fl. In the rmult, the czréer afthe Trihuxml is ' V' " L1ph<":§d and all the: aeve:-31 appea:-215 filcd bf! the resvenlw [XX the three cross objectio1;m___»filed Sd/-
FUDGE _ JUDGE W m "
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