Madras High Court
The Commissioner Of Income Tax - ... vs M/S.Sra Systems Ltd on 2 March, 2021
T.C.A.No.975 of 2010
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATE: 02.03.2021
CORAM:
THE HON'BLE MR. JUSTICE M.DURAISWAMY
AND
THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI
T.C.A.No.975 of 2010
The Commissioner of Income Tax - III
Chennai. ... Appellant
Vs.
M/s.SRA Systems Ltd.,
No.100, Valluvar Kottam High Road,
Nungambakkam, Chennai – 600 034. ... Respondent
Appeal preferred under Section 260A of the Income Tax Act,
1961, against the order of the Income Tax Appellate Tribunal, Chennai,
"B" Bench, dated 31.03.2010 in I.T.A.No.175/Mds/2010.
For Appellant : Mr.J.Narayanasamy,
Senior Standing Counsel
For Respondent : Mr.R.Sivaraman
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T.C.A.No.975 of 2010
JUDGMENT
(Judgment was delivered by M.DURAISWAMY, J.)
Challenging the order passed in I.T.A.No.175/Mds/2010 in
respect of the assessment year 2005-06 on the file of the Income Tax
Appellate Tribunal, Chennai “B” Bench, the Revenue has filed the above
appeal.
2.While completing the assessment of the assessee – Company for
the assessment year 2005-06, the Assessing Officer found that the
assessee incurred an amount of Rs.6,67,478/- towards internet expenses
for export of Software. The assessee contended that as the amount is
excluded from export turnover, the same should be reduced from the total
turnover also. The Assessing Officer rejected this contention and added
the same amount to the total turnover. The Assessing Officer further
found that the assessee did not fulfill the conditions for deductions under
Section 10A laid down in Clauses (ii) & (iii) of Section 10A(2) since the
Company was found to have been formed by re-construction and by the
transfer to a new business of plant and machinery previously used. The
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T.C.A.No.975 of 2010
assessee relied on the Tribunal's decision in its favour for the assessment
year 2002-03. The Assessing Officer held that the new undertaking was
substantially the same old existing business. In this case, the alleged new
unit had employed the assets of erstwhile units and it was not treated as a
separate and distinct unit for determining its profits. Aggrieved by the
order passed by the Assessing Officer, the assessee filed an appeal before
the Commissioner of Income Tax (Appeals). Regarding the deduction of
internet expenses from the total turnover the Commissioner of Income
Tax (Appeals) following the decision of the Special Bench of the
Tribunal in Income Tax Officer Vs. Sak Soft Ltd. Reported in 121 TTJ
865, held that the Assessing Officer was not correct in deducting the
amount from the total turnover when computing the deduction under
Section 10A. The Commissioner of Income Tax (Appeals) ultimately
decided the issue against the Department. Aggrieved by the order of the
Commissioner of Income Tax (Appeals), the Revenue filed an appeal
before the Income Tax Appellate Tribunal. Regarding the deduction of
internet expenses from the total turnover, the Tribunal dismissed the
Revenue's appeal. Aggrieved by the order of the Income Tax Appellate
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T.C.A.No.975 of 2010
Tribunal, the Revenue has filed the above appeal.
3.The above appeal has been admitted 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 internet expenses incurred in foreign exchange
should be reduced from the total turnover for the purpose of
computing deduction under Section 10A?
2)Whether on the facts and in the circumstances of
the case, the Income Tax Appellate Tribunal was right in
holding that the assessee was entitled to deduction under
Section 10A in respect of the alleged new unit even though
the said unit had been substantially made up using the assets
of the old units and thus not fulfilling the conditions laid
down in clauses (ii) and (iii) of Section 10A(2)?
3)Whether on the facts and in the circumstances of
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T.C.A.No.975 of 2010
the case, the Income Tax Appellate Tribunal was right in
holding that the assessee's claim for deduction under Section
10A was to be allowed before adjusting brought forward
losses and unabsorbed depreciation?”
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 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
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T.C.A.No.975 of 2010
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 Income-
tax, Central – III Vs. HCL Technologies Ltd.]
“...
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
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T.C.A.No.975 of 2010
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 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
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T.C.A.No.975 of 2010
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, 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
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T.C.A.No.975 of 2010
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 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
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T.C.A.No.975 of 2010
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.”
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
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T.C.A.No.975 of 2010
Section 263 itself has been set aside, the cause of action for
re-assessment does not survive.”
(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
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T.C.A.No.975 of 2010
the Assessment order by computing the total income by way
of brought forward or carry forward the depreciation
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.”
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T.C.A.No.975 of 2010
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 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.
[M.D., J.] [T.V.T.S., J.]
Index : Yes/No 02.03.2021
Internet : Yes
va
M.DURAISWAMY, J.
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T.C.A.No.975 of 2010
and
T.V.THAMILSELVI, J.
va
To
The Income Tax Appellate Tribunal, Chennai, "B" Bench
T.C.A.No.975 of 2010
02.03.2021
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