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2020 (11) TMI 379 - KARNATAKA HIGH COURTExemption u/s 10A - estimated overhead expenses of STP units and non STP units should be taken into account for computing exemption u/s 10A - Whether the appellate authority were correct in accepting the estimation in respect of payments to sub contractors, royalties, technical fees, communication expenses based on the turnover? - HELD THAT:- CIT(A) has concluded that since, the assessee has identified the turnover relating to STPI units and there is a reasonable basis for quantifying direct and indirect expenses pertaining to STPI units, the income pertaining to STPI units and therefore, exemption under Section 10A of the Act can be worked out. The tribunal in para 22 of its order has held that the assessee has units spread over various part of the country and may be abroad, the only plausible method of reasonable of allocating the overhead expenses is by relating them to the turnover. Thus, the tribunal has affirmed the finding that the aforesaid exercise would result in determination of the profit to a near accurate figure or a reasonable figure and has upheld the order of the Commissioner of Income Tax (Appeals) to the extent of ₹ 68,72,88,748/- holding the same to be a reasonable figure. The aforesaid concurrent findings of fact are based on meticulous appreciation of evidence on record. The tribunal has rightly held that the allocation of the overhead expenses have to be made on turnover basis. No perversity in the aforesaid concurrent findings of fact could be pointed out. For the aforementioned reasons, we answer the first and second substantial question of law against the revenue and in favour of the assessee. Requirement of holding of separate accounts for STP and non STP units - HELD THAT:- In the instant case, in sub-Section (2) of Section 10A of the Act, there is no requirement of maintenance of separate accounts and the assessee is entitled to exemption under Section 10A of the Act. Therefore, the assessee cannot be deprived of the benefit of Section 10A of the Act, on the ground that it had not maintained separate accounts. It is pertinent to note that even in the substituted section viz., under Section 10(2) of the Act, there is no requirement to maintain separate accounts. The requirement of maintenance of separate accounts has been provided in STPI Registration Scheme and no consequences for its non compliance have been prescribed. Therefore, the same has rightly been held to be directory. Thus, the third substantial question of law is also answered against the revenue and in favour of the assessee. Double deduction - payments made to sub contractors who have separately exported and have been issued foreign inward remittance certificate and have also claimed 10A exemption - HELD THAT:- CIT-A held that sub contractor has given software support activity to the assessee and not to the customers of the assessee. It has further been held that the employees of the sub contractors are operating from the STP unit itself and the sub contractors have claimed exemption under Section 10A of the Act on the basis of foreign inward remittance certificate, which has no bearing with regard to assessee's claim of exemption under Section 10A of the Act. It has further been held that the question of double deduction being claimed does not arise as to the extent the assessee has paid to the sub contractors the profits claimed as exempt by the assessee stand reduced. The aforesaid finding has been affirmed by the tribunal in para 22 of its order. Therefore, in the fact situation of the case, the question of double deduction does not arise. Fourth substantial question of law is also answered against the revenue and in favour of the assessee. Violation of the condition prescribed under Section 10A(2)(ia) - entitled to exemption under Section 10A of the Act when the export (56.056%) is less than 75% of the total sales as contemplated under Section 10A(2)(1a) of the Act - HELD THAT:- undertaking which beings to manufacture or produce any article or thing on or after 01.04.1995, its export of such articles or things are not less than 75% of the total sales thereof during the Previous Year. Thus, the total export has to be not less than 75% of the total sales. However, the Commissioner of Income Tax (Appeals) has held that there is no provision under Section 10A of the Act, which requires such a condition to be fulfilled and no finding in this regard has been recorded by the tribunal. Therefore, the order passed by the tribunal to the extent of fulfillment of the requirement under Section 10A(2)(ia) of the Act cannot be sustained. Accordingly, the fifth substantial question of law is answered.
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