Madras High Court
The Commissioner Of Income Tax vs M/S.Chengepond Technologies ... on 3 August, 2021
T.C.A.Nos.466 to 469 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 03.08.2021
CORAM
The Honourable Mr.Justice T.S.SIVAGNANAM
and
The Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP
T.C.A.Nos.466 to 469 of 2015
and
M.P.Nos.1, 1 & 1 of 2015
The Commissioner of Income tax,
Chennai. .. Appellant in all Appeals
-vs-
M/s.Chengepond Technologies Pvt. Ltd.,
No.7, II Crescent Park Road, Gandhi Nagar,
Adyar, Chennai-600 020. .. Respondent in all Appeals
Prayer in T.C.A.No.466 of 2015 :- Appeal under Section 260A of the
Income Tax Act, 1961 against the order dated 30.11.2012 made in
I.T.A.No.2222/Mds/2008 on the file of the Income Tax Appellate Tribunal
'A' Bench, Chennai for the assessment year 2004-05.
Prayer in T.C.A.No.467 of 2015 :- Appeal under Section 260A of the
Income Tax Act, 1961 against the order dated 30.11.2012 made in
C.O.No.81/Mds/2009 in I.T.A.No.2222/Mds/2008 on the file of the Income
Page 1 of 14
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T.C.A.Nos.466 to 469 of 2015
Tax Appellate Tribunal 'A' Bench, Chennai for the assessment year 2004-
05.
Prayer in T.C.A.No.468 of 2015 :- Appeal under Section 260A of the
Income Tax Act, 1961 against the order dated 30.11.2012 made in
I.T.A.No.2223/Mds/2008 on the file of the Income Tax Appellate Tribunal
'A' Bench, Chennai for the assessment year 2005-06.
Prayer in T.C.A.No.469 of 2015 :- Appeal under Section 260A of the
Income Tax Act, 1961 against the order dated 30.11.2012 made in
C.O.No.82/Mds/2009 in I.T.A.No.2223/Mds/2008 on the file of the Income
Tax Appellate Tribunal 'A' Bench, Chennai for the assessment year 2005-
06.
For Appellant : Ms.R.Hemalatha,
(In all Appeals) Senior Standing Counsel
For Respondent : Mr.R.Sivaraman
(In all Appeals)
******
COMMON JUDGMENT
(Delivered by T.S.Sivagnanam, J.)
These appeals, by the appellant/Revenue, filed under Section 260A of
the Income Tax Act, 1961 (hereinafter referred to as “the Act”) are directed
against the order dated 30.11.2012, made in I.T.A.No.2222/Mds/2008,
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C.O.No.81/Mds/2009 in I.T.A.No.2222/Mds/2008,
I.T.A.No.2223/Mds/2008 and C.O.No.82/Mds/2009 in
I.T.A.No.2223/Mds/2008 for the assessment years 2004-05 and 2005-06.
2.The appeals were admitted on 29.07.2015, on the following
substantial questions of law:-
“1.Whether on the facts and in the circumstances
of the case the Income Tax Appellate Tribunal was right
in holding that the exclusion of establishment and
maintenance expenses pertaining to foreign branch from
export turnover while claiming relief u/s 10 for the AY
2004-05 and 2005-06?
2.Whether on the facts and in the circumstances of
the case, the Income Tax Appellate Tribunal was right in
holding that 50% of the telecommunication expense both
from the export turnover and total turnover is to be made
while computing deduction u/s 10A for the AY 2004-05
and 2005-06? and
3.Whether on the facts and in the circumstances of
the case, the Income Tax Appellate Tribunal was right in
granting deduction u/s 10A without setting of brought
forward losses especially when Section 2(45) clearly
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defines the total income as an amount referred to in
Section 5 computed in the manner laid down under the
Income Tax Act and therefore the total income to be
worked out after giving effect to provisions of Sections
71 and 72 contained in Chapter VI of the Income Tax
Act?”
3.Heard Ms.R.Hemalatha, learned Senior Standing Counsel for the
appellant/Revenue and Mr.R.Sivaraman, learned counsel for the
respondent/assessee.
4.It is not disputed before us that all the substantial questions of law,
which have been framed for consideration in these appeals, have been
considered by the Division Bench of this Court in the case of CIT vs. SRA
Systems Ltd., [T.C.A.No.975 of 2010 dated 02.03.2021]. The relevant
paragraphs of the judgment read as follows:-
“4.When the appeal is taken up for hearing,
Mr.R.Sivaraman, learned counsel appearing for the
respondent submitted that the Question of Law no.1 is
covered by the decision of the Hon'ble Supreme Court
reported in [2018] 93 taxmann.com 33 (SC) [Commissioner
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T.C.A.Nos.466 to 469 of 2015
of Income-tax, Central – III Vs. HCL Technologies Ltd.], an
un-reported judgment of the Division Bench of this Court
dated 10.01.2019 made in T.C.A.Nos.1257 & 1258 of 2009
[Commissioner of Income Tax, Chennai Vs. M/s.Sak Soft
Ltd.] and the Question of Law no.2 is covered by the
decision of this Bench dated 19.01.2021 made in
T.C.A.Nos.1470 to 1472 of 2010 [Commissioner of Income
Tax, Chennai Vs. M/s.S.R.A. Systems Ltd., No.100, Valluvar
Kottam High Road, Nungambakkam, Chennai] and the
Question of law no.3 is covered by the decision of the
Division Bench of this Court dated 18.03.2020 made in
T.C.A.No.228 of 2011 [M/s.Comstar Automative
Technologies Private Ltd., (formerly known as Visteon
Powertrain Control Systems India Private Limited,
Keelakaranai Village, Malrosapuram Post, Maraimalai
Nagar, Chengalpattu District- 603 204 Vs. The Deputy
Commissioner of Income Tax, Company Circle – I (3), 121,
Nungambakkam High Road, Chennai – 600 034].
5.It would be appropriate to extract the relevant
portions of the judgments relied upon by the learned counsel
for the respondent.
(i) [2018] 93 taxmann.com 33 (SC) [Commissioner of
Incometax, Central – III Vs. HCL Technologies Ltd.]
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“...
19.In the instant case, if the deductions on
freight, telecommunication and insurance
attributable to the delivery of computer software
under Section 10A of the IT Act are allowed only in
Export Turnover but not from the Total Turnover
then, it would give rise to inadvertent, unlawful,
meaningless and illogical result which would cause
grave injustice to the Respondent which could have
never been the intention of the legislature.
20.Even in the common parlance, when the
object of the formula is to arrive at the profit from
export business, expenses excluded from export
turnover have to be excluded from total turnover
also. Otherwise any other interpretation makes the
formula unworkable and absurd. Hence, we are
satisfied that such deduction shall be allowed from
the total turnover in same proportion as well.
21.On the issue of expenses on technical
services provided outside, we have to follow the
same principle of interpretation as followed in the
case of expenses of freight, telecommunication etc.,
otherwise the formula of calculation would be
futile. Hence, in the same way, expenses incurred in
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foreign exchange for providing the technical
services outside shall be allowed to exclude from
the total turnover.”
(ii) Following the ratio laid down by the Hon'ble
Supreme Court, the Division Bench of this Court, by order
dated 10.01.2019 in T.C.A.Nos.1257 & 1258 of 2009
[Commissioner of Income Tax, Chennai Vs. M/s.Sak Soft
Ltd.] decided the Question of law against the Revenue and in
favour of the assessee.
(iii) Un-reported judgment of this Bench dated
19.01.2021 dated T.C.A.Nos.1470 to 1472 of 2010
[Commissioner of Income Tax, Chennai Vs. M/s.S.R.A.
Systems Ltd., No.100, Valluvar Kottam High Road,
Nungambakkam, Chennai], this Bench held as follows:
“...
5.As the issue of allowability of deduction
under Section 10A is common to all the three
Assessment Years, all the three Tax Appeals are
taken up together and disposed of by this common
judgment. For the Assessment Year 2000-01, the
assessee had filed its return of income on
29.11.2000. The assessee claimed that it was
eligible for deduction under Section 10B. The
return was processed on 28.03.2002. Subsequently,
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the Assessing Officer had reason to believe that
income chargeable to tax had escaped assessment
on account of the assessee Company being
ineligible for deduction under Section 10A.
Subsequently, a notice dated 22.03.2007 was issued
under Section 148 and after giving an opportunity
of hearing, the scrutiny assessment order was
passed on 17.12.2007, disallowing the entire claim
of deduction under Section 10B. Further, the
expenditure incurred for the renovation and repairs
of the rented premises of the assessee Company
was disallowed by the Assessing Officer on the
ground that such expenses were in the nature of
capital expenditure. The Assessing Officer in his
re-assessment order noted that in terms of Section
10B(ii) an undertaking in order to be eligible for
deduction under Section 10B must not be formed by
splitting up or reconstruction of a business already
in existence. Further, the Assessing Officer held
that deduction under Section 10B was not available
to the assessee Company in view of the provisions
of Section 10B(iii) which stipulate that eligible
business is not formed by transfer to a new
business of plant and machinery previously used
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for any purpose. The Assessing Officer found that
the assessee had not complied with both these
conditions, hence, it was not entitled to any
deduction under Section 10B.
6.For the Assessment Year 2002-03, in the
case of the assessee Company itself, the Income
Tax Appellate Tribunal “C” Bench, Chennai had
dealt with the applicability of Clauses (ii) and (iii)
of Section 10A(2) in its order dated 16.05.2008 in
I.T.A.No.2255/Mds/06. The Tribunal, after taking
into consideration the decision of Apex Court
reported in 107 ITR 195 [Textile Machinery
Corporation Limited Vs. CIT] held as follows:
“... this is not a case of setting up of a new
business, but only transfer of business place of
existing business to a new place located in STPI
area and thereafter, getting the approval from the
authorities, the assessee become entitled to
deduction under Section 10A. Merely because by
shifting the business from one place to another and
keeping some of the plant and machinery as those
are bearing charge of financial institution, does not
violate Clause (ii) and (iii) of Sub Clause (2) to
Section 10A of the Income Tax Act.”
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7.The order passed by the Income Tax
Appellate Tribunal was challenged by the
Department in T.C.A.No.1916 of 2008 and the
Hon'ble Division Bench of this Court by its
judgment dated 26.10.2018 confirmed the order of
the Income Tax Appellate Tribunal dated
16.05.2008 made in I.T.A.No.2255/Mds/06 for the
Assessment Year 2002-03 and dismissed the
appeal. In view of the judgment of the Hon'ble
Division Bench of this Court, it is clear that the
applicability of Clauses (ii) and (iii) of Sub Clause
(2) to Section 10B of the Act, the impugned order
passed by the Income Tax Appellate Tribunal is
proper. In view of the order passed by the Income
Tax Appellate Tribunal dated 16.05.2008 in
I.T.A.No.2255/Mds/06 and the judgment passed by
the Hon'ble Division Bench of this Court on
26.10.2018 in Tax Case Appeal No.1916 of 2008,
the assessee Company would be entitled to
deduction under Section 10A and disallowance
made by the Assessing Officer was not correct.
Since the order passed under Section 263 itself has
been set aside, the cause of action for re-
assessment does not survive.”
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(iv) Un-reported judgment of a Division Bench of this
Court dated 18.03.2020 made in T.C.A.No.228 of 2011
[M/s.Comstar Automative Technologies Private Ltd.,
(formerly known as Visteon Powertrain Control Systems
India Private Limited, Keelakaranai Village, Malrosapuram
Post, Maraimalai Nagar, Chengalpattu District- 603 204 Vs.
The Deputy Commissioner of Income Tax, Company Circle
– I (3), 121, Nungambakkam High Road, Chennai – 600
034], the Division Bench held as follows:
“...
27.Therefore the law has been settled by the
said decision of the Hon'ble Apex Court, where in
clear terms, it has been held that, the deductions
either under Section 10A or 10B would be made
while computing the gross total income of the
eligible undertaking (like the Assessee) under
Chapter IV of the Act and not at the stage of
computation of the total income under Chapter VI
of the Act.
28.Here is the case in hand, the total income
was first arrived at by the Revenue through the
Assessing Officer in the Assessment order by
computing the total income by way of brought
forward or carry forward the depreciation
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allowance of the earlier Assessment years and set
off the unabsorbed depreciation first and making
the return Nil, thereby leaving the Assessee in a
position where it could not claim an deduction
under Section 10B as there was no income after set
off of carry forward depreciation and unabsorbed
depreciation from earlier years.
29.This method of computing the income in
the present case made by the Revenue is totally
against the said law as has been declared by te
Hon'ble Apex Court in the aforesaid decision in
Commissioner of Income-tax v. Yokogawa India
Ltd., (cited supra).
30.Therefore we have no hesitation to hold
that, the decision of the ITAT, which is impugned
herein, would not stand in the legal scrutiny, in
view of the law having been declared by the
Hon'ble Apex Court. Therefore, we are of the view
that, the Substantial Question of Law raised in this
Appeal is covered by the said decision, therefore, it
can be answered accordingly.”
6.Mr.J.Narayanasamy, learned Senior Standing
Counsel appearing for the appellant fairly submitted that the
issues involved in the present appeal are covered by the
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decision relied upon by the learned counsel for the
respondent.
7.In view of the submissions made by the learned
counsel on either side, we are convinced that the Questions of
Law involved in the present appeal are covered by the
decisions relied upon by the learned counsel for the
respondent, cited supra. Following the decisions of the
Hon'ble Supreme Court and the decisions of this Court, the
Questions of Law are decided against the Revenue and in
favour of the assessee. The appeal is liable to be dismissed.
Accordingly, the Tax Case Appeal is dismissed. No costs.”
Following the above decision, these tax case appeals are dismissed.
No costs. Consequently, connected miscellaneous petitions are closed.
(T.S.S., J.) (S.S.K., J.)
03.08.2021
Index: Yes/ No
Speaking Order : Yes/ No
abr
To
The Income Tax Appellate Tribunal 'A' Bench, Chennai.
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T.C.A.Nos.466 to 469 of 2015
T.S.Sivagnanam, J.
and
Sathi Kumar Sukumara Kurup, J.
(abr)
T.C.A.Nos.466 to 469 of 2015
03.08.2021
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