TMI Blog2011 (11) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... the apprehension of the Assessing Officer on this matter and has correctly upheld the assessee’s claim for treating Unit-B as a separate and independent Unit for the purposes of claim of deduction under section 10A of the Act. In this view of the matter, we, therefore, find no merit in the Ground of appeal raised by the Revenue and the same is dismissed accordingly. Incomes by way of sales-tax refund, liabilities no longer required written back and Profit on sale of assets are eligible incomes for computing deduction under section 10A of the Act for Unit-A - ITA No. 787/PN/09, ITA N0 805/PN/09 - - - Dated:- 30-11-2011 - SHRI I C SUDHIR AND SHRI G.S. PANNU, JJ. For the Appellant : Shri Porus Kaka For the Respondent : Shri S K Mishra ORDER PER G S PANNU, AM: The cross-appeals by the Revenue and the assessee arise out of the order of the Commissioner of Income-tax (Appeals)-III, Pune dated 26.3.2009, which in turn have arisen from the order passed by the Assessing Officer under section 143(3)(3) of the Income-tax Act, 1961 ( in short the Act ) pertaining to the assessment year 2004-05. 2. We shall first take up Revenue s appeal, vide ITA No.787/PN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fice no. 4th floor and 5th floor, 27.6.2001 A 6th floor 10.1.2002 7 Pune IT park Bldg. B 34, Aundh Road October, 2003 B 8 Godrej Castle Marine Bund Garden Road, Ruby Hall March, 2004 A Since the past years, the assessee has been claiming deduction under section 10A for the profits relating to the businesses carried out aforesaid at Unit-A and the Assessing Officer has noted that the said period of exemption of ten years was expiring in the assessment year 2005-06. With regard to item 7 of the aforesaid tabulation, the said business Unit classified as Unit-B was set-up during the year under consideration in terms of an STPI approval dated 8.10.2003. The said Unit-B was treated by the assessee as a separate undertaking independent of Unit-A and was claimed to be eligible for benefit of deduction under section 10A in an independent manner, though during the year no deduction in relation to Unit-B was claimed, as it had incurred a loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. The Commissioner of Income-tax (Appeals) has succinctly noted the points raised by the assessee in paras 3.4 and 3.5 of the impugned order, which are not being reproduced herein for the sake of brevity. The Commissioner of Income-tax (Appeals) thereafter called for a Remand report from the Assessing Officer, contents of which have been reproduced in para 3.6 of the impugned order. It transpires that in the remand proceedings, physical inspection of the assessee s business premises housing Unit-B was also carried out by the Department. On the basis of the aforesaid exercise, the Commissioner of Income-tax (Appeals) has thereafter dealt with each of the points made out by the Assessing Officer and ultimately in para 3.9 has concluded that Unit-B is a physically new and separate undertaking which could exist on its own and therefore, the Assessing officer was not justified in treating it as a mere expansion of Unit-A. Not being satisfied with the aforesaid conclusion of the Commissioner of Income-tax (Appeals), Revenue is in appeal before us. 7. Before us, the learned Departmental Representative has argued that the Assessing officer was justified in holding that Unit-B co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith by the Tribunal in its order dated 30.6.2011 in favour of the assessee. A copy of the said order has been placed on record. In sum and substance, the learned Counsel has defended the order of the Commissioner of Income-tax (Appeals) by placing reliance on the findings contained therein. 9. We have carefully considered the rival submissions. In this case, the assessee is a company which is engaged in the business of development of computer software and in the month of November, 2003 it started a new activity of Call Centre which was claimed as Unit-B. The said Unit-B was claimed to be a separate and distinct Unit and was registered with software Technology Parks of India (STPI) vide approval dated 8.10.2003, a copy of which has been placed in Paper Book at page 17. The sum and substance of the case made out by the Assessing Officer is that Unit-B is not to be understood as a separate unit but a mere expansion of the erstwhile Unit-A and, therefore, the Unit-B is not to be reckoned as a separate Unit for the purposes of claim of deduction under section 10A of the Act. The Commissioner of Income-tax (Appeals) has, however, appreciated the plea of the assessee and has held Unit- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 3.8 of the impugned order. The Commissioner of Income-tax (Appeals) has reproduced the terms of the license issued by the Assistant Commissioner of Central Excise dated 20.10.2003 which clearly brings out that the permission to new Unit-B was granted in addition to the permission contained in the original license. Merely because the new permission contains reference to the original license cannot be considered as conclusive that the new Unit is not a separate or independent Unit. In this light, we may also refer to letter dated 8.10.2003 issued by STPI permitting assessee to carry out activities in Unit-B wherein it has been stated as under: This office has no objection to the expansion of your operations to the premises at unit No. 501 to 504, 601 to 604, and 701 to 704, Building B, S. No. 41/C, 41-A.1/5, 34 Pune I.T Park, Bhau Patil Marg Bopodi, Pune 411 003 subject to your fulfilling the Excise Customs related formalities. The aforesaid has been interpreted by the Revenue to infer that the approval by STPI is only an expansion of the old Unit and not to set-up a new and separate Unit. Similar objection in the context of section 10A of the Act was a subjectmatter of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmission or of grant of separate permissions, is not really relevant. What is really to be examined is whether the units are independent of unit and whether the units are covered by the permission or not. In our humble understanding it meets both the tests. We have also noted that it is not an statutory requirement that there has to be separate permission for each unit and therefore just because the permission is granted by the Government by way of amending the original permission letter does not affect the eligibility for deduction u/s 10B in any manner. 42. From the aforesaid, it is quite clear that the manner in which the approval has been granted is not relevant to examine the assessee s case for claim of deduction under section 10A of the Act with respect to the three units. What is really to be examined is as to whether the three units are independent units and that they fulfill the conditions prescribed under section 10A(2) of the Act. There is no prohibition that an expansion in the same line of business achieved by setting up a new independent unit would lead to denial of deduction under section 10A of the Act. In this background, in the earlier part of this order we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparate DOT license has been taken for Unit B, it is clear that Unit B is a physically new and separate undertaking which could exist on its own and, therefore, the AO is not justified in treating as mere expansion of Unit A. This ground of appeal succeeds. 12. The aforesaid conclusion is well supported by the relevant material on record which has not been shown to be incorrect or lacking in bona fides. Another aspect which prevailed with the Assessing Officer was that the intention of the assessee in claiming Unit-B as a separate and independent Unit was to get deduction under section 10A of the Act beyond the period of 10 years, which was expiring in assessment year 2005-06 in relation to Unit-A and that in the earlier years, the expansions were not claimed as separate Units for the purposes of claiming deduction under section 10A of the Act. In our considered opinion, the aforesaid approach of the Assessing Officer is untenable, inasmuch as on facts and in law, as succinctly brought out by the Commissioner of Incometax (Appeals), Unit-B is entitled to be understood as a separate and independent Unit for the purpose of claiming deduction under section 10A of the Act. Moreover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H and section 10A cannot be lost sight of. While the provisions of section 80HH leave margin for interpretation of the phrase profits and gains derived from an industrial undertaking for want of any definition in section 80HH, section 10A categorically clarifies that the profits derived from export of computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such computer software bears to the total turnover of the business carried out by the assessee. The statutory formula prescribed in section 10A, rules out the applicability of the ratio of the judgment of the Hon ble Supreme Court in the case of CIT v. Sterling Food Ltd., given in the context of section 80HH. The AO is, therefore, directed no to exclude the amounts of profit on sale of assets, sales tax refund and liabilities written back from the profits derived from export activities while computing deduction u/s 10A. This ground of appeal succeeds. 14. Against the aforesaid, the learned Departmental Representative has reiterated the arguments set up by the Assessing Officer that the aforesaid incomes do not meet the test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto play. We further note that subsection (4) has been worded on the pattern of section 80-IA, prior to its substitution with effect from 1.4.2000, which referred to profits and gains derived from any business of an industrial undertaking . In the context of section 80IA, the Amritsar Bench of the Tribunal in the case of Dy. CIT v Chaman Lal Sons (2005) 3 SOT 333 (to which one of us, namely the AM, is party) held that in such a worded section, the benefit of deduction has to be made available in respect of purchase and sale which was part and parcel of the business of the industrial undertaking. Thus when sub-section (1) of section 10A is read in juxtaposition to sub-section (4), we are not inclined to accept that only the profits and gains as derived by the undertaking from the export of articles is eligible for deduction. All the profits which have nexus with the business of the undertaking will qualify for deduction. From the facts of the instant case it is noted that the assessee had given FDRs to the bank for obtaining credit facility. Such interest income has nexus with the business of the undertaking and falls under the head Profits and gains of business or profession a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it. In support of this contention, assessee placed reliance on a catena of judicial decisions, including the decision of the Bangalore Bench of the Tribunal in the case of M/s Wipro Ltd. vide ITA Nos 426/Bang/2006, etc. dated 30.5.2008. The Commissioner of Income-tax (Appeals) after considering the detailed submissions of the assessee and the judicial decisions relied upon by the assessee, held that the issue at hand is squarely covered by the ratio of the decision in the case of Navin Bharat Industries Ltd. v. DCIT 90 ITD 1 and that the decision in the case of Wipro Ltd. (supra) relied upon by the assessee did not directly deal with the issue under consideration. He accordingly held that the action of the Assessing Officer in setting-off the loss of Unit B against profit of Unit A was in accordance with law and thus affirmed the same. Aggrieved, assessee is in further appeal before us. 22. Before us, the learned Counsel for the assessee vehemently submitted that the lower authorities were not justified in rejecting the claim of the assessee for computing deduction under section 10A of the Act for the Unit-A without deducting the loss pertaining to Unit-B. In this connection, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s distinct from the case of Navin Bharat Industries Ltd. (supra) where the issue was to work out the total income of the assessee. In the present case, the issue is whether loss of a 10A eligible Unit is liable to be set off against income of another 10A eligible Unit so as to compute the eligible deduction of the latter Unit. The precise question has been the subject matter of consideration by the Cochin Bench in the case of M/s F.C.I Technology Services Ltd. (supra) and in so far as the decision in the case of Navin Bharat Industries Ltd (supra) is concerned, the same is rendered on a different footing. The relevant portion of the order of the Tribunal in the case of M/s F.C.I Technology Services Ltd. (supra) is as under: 4.2 In the present case, while the assessee claims deduction qua its only profit earning s.10A unit by considering it as it s only source of income, the Revenue seeks to adjust the said income against losses from the other two units, one of which is an eligible (u/s 10A) unit, for computing the deduction u/s 10A. The issue of set off or adjustment of sec.10A income against non-section 10A income stands answered by the Tribunal pr its Special Bench decision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion rendered in this appeal would not be applicable to such cases where there are more than one eligible undertaking claiming deduction under section 10A. In this case there is only one eligible undertaking claiming deduction u/s 10A and hence, the loss from the non-eligible unit cannot be set off against the profits of the eligible unit while determining the deductions u/s 10A 4.3 We have given our anxious consideration to the matter, and for the reasons that follow, are not moved in favour of the Revenue s stand. That the deduction u/ss. 10A and 10B, as also as those u/s 80HH, 80HHA, 80I, 80IA, et. Al. are unit-specific, in contradistinction to being assessee-specific, is well-settled, and not in dispute, and for which reference may be made to the decision in the case of Scientific Atlanta India Technology Pvt. Ltd. (supra) itself, wherein this aspect stands emphasized in sufficient detail. That being the basic position in respect of the deduction, the next question in the matter would be with regard to its quantification, i.e. the qualifying amount of profit and gains on which the same is to be allowed or worked at. Against, the deduction being unitspecific and, further, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s 10A in respect of the ISR Centre, Bangalore, is to be computed only qua its profits, i.e., without any adjustment or set off of any loss from any other source, either eligible or non-eligible (u/s 10A). The allocation of preliminary expenses u/s 35D for the purpose could either on some reasonable basis, as turnover, or better still, set off against the specific income(s) of the Unit(s) in relation to the setting up or expansion of which the same stood incurred in the first place. (b). the income that obtains after the deduction u/s 10A, or the unabsorbed claim u/s 10A, as the Tribunal describes it in the case of Scientific Atlanta India Technology Pvt. Ltd. (supra) would stand to be taxed as such, i.e., shall not be set off against any other loss or be carried forward. 25. Following the aforesaid precedent, which has been rendered in similar circumstances, we hold that the Assessing Officer was not justified in rejecting the assessee s claim of computing deduction under section 10A of the Act for the profits of Unit-A without deducting loss pertaining to Unit-B. As a result, we set aside the order of the Commissioner of Income-tax (Appeals) and direct the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the terms export turnover and total turnover only the term export turnover has specifically been defined in section 10A and no specific definition has been given fo the term total turnover . In such a situation, the term total turnover has to be understood as per the common understanding. It needs to be appreciated that although the term total turnover has been defined in section 80HHE, the meaning as per section 80HHE remains restricted to section 80HHE only. The legislature, in all its wisdom, has refrained itself from specifically defining the term total turnover in section 10A and it shall be presumptuous to consider the act of no defining the term total turnover in section 10A as a lapse on the part of the legislature. Rather, such omission indicates the intention of the legislature that the term total turnover in section 10A is to be understood as it is understood in common parlance. Therefore, to my mind, it shall not be correct to import the meaning of the term total turnover from section 80HHE to section 10A. Accordingly, this ground of appeal fails. Being aggrieved with the decision of the Commissioner of Income-tax (Appeals), assessee is in fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t negated the aforesaid argument and held that the expression Export turnover cannot have a different meaning when it forms a constituent part of the Total turnover for the purposes of the application of the formula contained in section 10A(4) of the Act. The following discussion contained in para 7 of the judgment is worthy of notice: 7. The submission which has been urged on behalf of the Revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the Revenue, however, misses the point that the expression total turnover has not been defined at all by Parliament for the purposes of s.10A. However, the expression export turnover has been defined. The definition of export turnover excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression export turnover cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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