TMI Blog2019 (11) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, the period of lease itself could not be decisive of the question whether the asset was of enduring nature. On these facts, the impugned expenditure was revenue in nature. A similar view was taken in the case of Hoechst Pharmaceuticals Ltd [ 1977 (11) TMI 55 - BOMBAY HIGH COURT] and in the case of Octavious Steel and Co. Ltd [ 1995 (4) TMI 11 - CALCUTTA HIGH COURT] . Considering the nature of expenditure in the light of the judicial decisions, legal expenses have to be allowed u/s 37(1) of the Act. We order accordingly. In so far as the claim of expenditure of legal and professional fees the facts on record show that this amount was deducted by overseas customer while releasing payment against invoices raised by the assessee. The deduction was on account of turnover taxes. In our considered opinion, this deduction by overseas customer is not a tax on profit of business as such but on the applicable laws of those countries. The assessee is very much entitled to deduction in respect of such expenditure u/s 37(1) - assessee has recorded the sales on gross basis, i.e. invoiced amount has been taken as sales, therefore, any deduction from invoiced amount has to be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961 [hereinafter referred to as the Act ] 4. The Assessing Officer was not convinced with the contention of the ld. counsel for the assessee and treated the interest of ₹ 3.83 crores as Income from other sources . 5. Aggrieved, the assessee carried the matter before the ld. CIT(A), but without any success. 6. Before us, the ld. counsel for the assessee drew our attention to the provisions of section 10A(4) of the Act and vehemently stated that as per the provisions, as applicable from A.Y 2001-02, the interest income forms part of the profit from business of industrial undertaking and once the formula is applied as specified in sub-section (4) of section 10A of the Act, the assessee would be entitled for deduction, as the assessee is a 100% EOU, the entire business of the assessee consists of development and export of software. 7. It is the say of the ld. counsel for the assessee that the terminology used in sub-section (4) is Profits of the business of the undertaking in contradiction to the words Profits and gains derived by the assessee from a 100% EOU. According to the ld. counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on FDRs would qualify for deduction under Section 10-B of the Act. The relevant paragraphs 9 and 15 of the said decision are quoted below. 9. The question as to what can constitute as profits and gains derived by a 100% EOU from the export of articles and computer software came for consideration before the Karnataka High Court in CIT v. Motorola India Electronics Pvt. Ltd. (2014) 46 Taxmann.com 167 (Kar). The said appeal before the Karnataka High Court was by the Revenue challenging an order passed by the ITAT which held that the interest payable on FDRs was part of the profits of the business of the undertaking and therefore includible in the income eligible for deduction Sections 10A and 10B of the Act. There the Assessee had earned interest on the deposits lying in the EEFC account as well as interest earned on inter-corporate loans given to sister concerns out of the funds of the undertaking. There was a restriction on the Assessee in that case from making prepayment of its external commercial borrowings ('ECB'). It could repay only to the extent of 10% of the outstanding loan in a year. This made the Assessee temporarily park the balance funds a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Special Bench of the ITAT in Maral Overseas Ltd. (supra) that Section 10A/10B of the Act is a complete code providing the mechanism for computing the 'profits of the business' eligible for deduction u/s 10B of the Act. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s 10B of the Act. 30. The said judgment, in our opinion, rightly distinguishes the judgments on the interpretation of Section 80-HH, 80-IA etc. under Chapter VI-A of the Act in view of Section 80-A (4) of the Act which, with a non-obstante clause which starts with Notwithstanding anything to the contrary contained in Section 10-A or Section 10-AA or Section 10-B or Section 10- BA or in any provisions of this Chapter proceeds to enumerate the various deductions under Chapter VI-A of the Act. 31. Similarly the Division Bench of the Calcutta High Court in CIT v. Hindustan Gum Chemicals Ltd. [2016] 72 taxmann.com. 90/241 Taxman 401 again held that interest earned on Surplus Business Funds deposited with Banks for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted by implication. The submission that the amount earned from interest was not intended to be taken into account for the purpose of giving benefit under subsection (1) of Section 10B may be correct. But the amount of deduction available to a 100% export oriented undertaking is necessarily dependent upon the formula provided in subsection (4). There is, as such, no scope for any controversy that part of the money was earned from interest and not from export. This question came up before the Karnataka High Court and was answered in the case of CIT v. Motorola India Electronics (P.) Ltd. [2014] 46 taxmann.com 167/225 Taxman 11 (Kar.)(Mag.) as follows: In the instant case, the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law. Now the question is whether the interest received and the consideration recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. This Court has observed and held as under: Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasized in a judgment of a Division Bench of this Court, while construing the provisions of Section 10B, in Hindustan Unilever Ltd. v. Deputy Commissioner of Income Tax MANU/MH/0417/2010: [2010] 325 ITR 102 (Bom.) at paragraph 24. The submission of the Revenue placed its reliance on the literal reading of Section 10A under which a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years is to be allowed from the total income of the assessee. The deduction under Section 10A, in our view, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of Section 72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act where an assessee dealing with several activities or commodities may inter alia earn profits and gains from the specified activity and therefore in those cases, the Hon'ble Supreme Court has held that the interest income would not be the income derived from such Undertakings doing such special business activity. 35. The Scheme of Deductions under Chapter VI-A in Sections 80-HH, 80-HHC, 80-IB, etc from the 'Gross Total Income of the Undertaking', which may arise from different specified activities in these provisions and other incomes may exclude interest income from the ambit of Deductions under these provisions, but exemption under Section 10-A and 10-B of the Act encompasses the entire income derived from the business of export of such eligible Undertakings including interest income derived from the temporary parking of funds by such Undertakings in Banks or even Staff loans. The dedicated nature of business or their special geographical locations in STPI or SEZs. etc. makes them a special category of assessees entitled to the incentive in the form of 100% Deduction under Section 10-A or 10-B of the Act, rather than it being a special charact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a whole has to be computed. The phrase total income used in section 10A(1) is, therefore, to be understood as the total income of the STP unit. This is clear from the first proviso to section 10A(1) which makes a reference to the total income of the undertaking and not to the total income of the assessee. The definition of any tern: given in section 2 will apply only when the context does not otherwise require. The placement, language and setting of section 10A cannot mean the total income computed in accordance with the provisions of the Act. Instead, such a phrase in the context of section 10A, means profits and gains of the STP undertaking as understood in its commercial sense. 16. Chapter VI deals with the computation of total income under various heads of income. Section 14 provides for classification of income under various heads of income for the purpose of charge of income tax and computation of total income. The purpose of classification of any income under any head of income is to compute the same. The twin conditions of section 14 are that income is subject to charge of income-tax and is includible in the total income. As the relief under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(45), it : mean that section 10A is to be considered after Chapter VI-A deductions have been exhausted. The deduction under Chapter VI-A are to be given from out of the gross total income. The term gross total income is defined in section 80B(5) to mean the total income computed in accordance with the provisions of Act. before making any deduction under this Chapter. As per the definition of gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include section 10A. In other words, the gross total income would be arrived at after considering section 10A deduction also. Therefore, it would be inappropriate to conclude that section 10A deduction is to be given effect to after Chapter VI-A deductions are exhausted. 19. It is after the deduction under Chapter VI-A that the total income of an assessee as arrived at. Chapter VI- A deductions are the last stage of giving effect to all types of deductions permissible under the Act. At the end of this exercise, the total income is arrived at. Total income is thus, a figure arrived at after giving effect to all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure and the same cannot be allowed u/s 37(1) of the Act. 19. We have given thoughtful consideration to the orders of the authorities below and have carefully perused the relevant material on record. We are of the considered view that the expenses towards registration of stamp duty and legal expenses incurred in connection therewith have to be considered in the light of the provisions of section 37(1) of the Act. 20. The Hon'ble Bombay High Court in the case of Cinecita Pvt Ltd 137 ITR 652 has held The impugned expenditure did not involve any element of premium in the amount claimed as expenditure. It was incurred only to draw up and get registered an effective and proper lease deed and would have remained the same irrespective of the period of lease as long as it was more than one year. Further, the period of lease itself could not be decisive of the question whether the asset was of enduring nature. On these facts, the impugned expenditure was revenue in nature. 21. A similar view was taken by the Hon'ble High Court of Bombay in the case of Hoechst Pharmaceuticals Ltd 113 ITR 877 and in the case of Oct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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