TMI Blog2012 (4) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... ded as falling under the head of profits and gains of business or profession. Such income would fall for classification as income from other sources. Computing deduction under section 10A - Held that:- Income from a STPI Unit has to be excluded at source itself before arriving the gross total income Loss of a non- STPI Unit cannot be set off against the income of the STPI Unit while computing the deduction under section 10A of the Act. Brought forward losses and unabsorbed depreciation cannot be adjusted while computing deduction under section 10A of the Act and can be set-off against the income after the completion of tax holiday period. Further the required details have now been made available by the Assessee and it is necessary for the AO to go into the question as to which unit the unabsorbed depreciation pertains to. We therefore set aside the order of CIT(A) on this issue and remand the same to the AO for fresh consideration. - ITA NO. 5235/MUM/2010, ITA NO.5679/MUM/2010 - - - Dated:- 11-4-2012 - SHRI N.V.VASUDEVAN(J.M) SHRI N.K. BILLAIYA(A.M) Revenue by : Shri A.C. Tejpal Assessee by : S/Shri Arvind Sonde / Paresh Shaparia ORDER PER BENCH, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 538 21.03.2005 538 16.03.2005 Mar.05 538 21.04.2005 538 20.04.2005 Total 5936 Further, out of ₹ 40,69,602/- relating to employees contribution to P.F. a sum of ₹ 10,19,700/- as under was also paid within the grace period. Month Amount Due Date (including 5 grace days) Paid Payment date Dec.04 3,42,344 20.01.2005 19.01.2005 Jan.05 3,37,415 20.02.2005 17.02.2005 Feb.05 3,39,941 20.03.2005 19.03.2005 Total: 10,19,700 4. The Assessee pointed out before CIT(A) that payments made with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Court discussed the provisions of S. 2 (24) (x) which provides that amounts received by an assessee from employees towards PF contributions etc shall be income and S. 36 (1) (va) which provides that if such sums are contributed to the employees account in the relevant fund on or before the due date specified in the PF etc legislation, the assessee shall be entitled to a deduction. The Court also noticed that the second Proviso to s. 43B (b) provided that any sum paid by the assessee as an employer by way of contribution to any provident fund etc. shall be allowed as a deduction only if paid on or before the due date specified in 36(1)(va). After the omission of the second Proviso w.e.f 1.4.2004, the deduction is allowable under the first Proviso if the payment is made on or before the due date for furnishing the return of income. In Alom Extrusions 319 ITR 306 (SC), the deletion of the second Proviso has been held to be with retrospective effect. The High Court had to consider whether the benefit of s. 43B can be extended to employees contribution as well which are paid after the due date under the PF law but before the due date for filing the return. The Hon ble Court hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.10-A of the Act, the assessee deducted the following expenditure from the total turnover export turnover: S.No. Particulars Amount (Rs.) 1 Travelling Expenses 1,15,73,886/- 2 Tele Communication Expenses 57,62,895/- 3 Marketing Fees 1,29,90,278/- 4 Professional Fees 6,68,102/- 5 Salaries 20,28,520/- 6 Miscellaneous Expenses 6,35,473/- 7 Marketing Cost 4,88,724/- 8 Conveyance 41,370/- 9 Software Expenses 11,67,400/- Total: 3,53,56,648/- U/S.10-A of the Act, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange in providing the technical services outside India. The Assessee thus argued that the basis for calculating Export Turnover and Total turnover should be the same. The Assessee submitted that in view of above, while computing Total Turnover these items should also be excluded. Since the definition of Export Turnover exclude these items, on the principle of parity, it is necessary that while computing the Total Turnover as well these items should be excluded. Both the Export Turnover and the Total turnover should be calculated on the same basis. The Assessee pointed out that the issue has already been considered and decided accepted the above stand on behalf of the Assessee in the following cases: ITA NO. 5235 5679/MUM/2010(A.Y. 2005-06) (i) Kadri Mills (CBE) Ltd. Vs. Jt. CIT 76 TTJ 38 (Chennai) (ii) ITO vs. Sak Soft Ltd. 20 DTR 514/ 313 ITR 353 / 30 SOT 55 (Chennai) (SB). In the aforesaid decisions, it was held that for the purpose of applying the formula under sub section (4) of section 10B, the freight telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e definition of export turnover cannot form part of the total turnover since the receipts by way of recovery of such expenses cannot be said to represent consideration for the goods exported since total turnover is nothing but the aggregate of the domestic turnover and the export turnover. In the formula prescribed by section 10B(4) the figure of export turnover has to be the same both in the numerator and in the denominator of the formula. It follows that the total turnover cannot include the two items of expenses recovered by the assessee and referred to in the definition of export turnover . The aforesaid decision had been considered and affirmed by the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. Ors. 2011- ITA No.655/Bang/11 TIOL-684-HC-KAR-II wherein it has been held that for the purpose of computation of deduction u/s. 10A of the Act, if any expenditure is excluded from the export turnover, the same has to be excluded from the total turnover also. A similar view has also been taken by the Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. 2010-TIOL-456-HC-MUM-IT. We, therefore, by considering the totality of the facts as di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 110/- 7 Other Interest Income Tax Refund 1,02,284/- Sicom FD Refund 90,882/- Total: 4,66,514/- 18. The Assessee claimed that such interest income had arisen from business activities being interest on margin money, LC margin, F.Ds. kept for running of the business, interest on loans advanced to staff etc. The Assessee submitted that these incomes were to be treated as business income as held in CIT Vs. Indo Swiss Jewels Ltd. (284 ITR 389), CIT Vs. Govinda Choudhary Sons (203 ITR 881) (SC), ACIT Vs. Gallium Equipment Pvt. Ltd. (254 ITR 1) (Del), CIT Vs. Punit Commercial Ltd. (245 ITR 550) (Bom), Sovika Infotek Ltd. Vs. ITO (19 SOT 412) (Born), UCB India (P)Ltd. Vs. ACIT (30 SOT 95) (Bom). Without prejudice, it was argued that the appellant had debited interest paid of ₹ 1,34,97,592/- in the P L a/c. which was to be set-off against interest earned as the interest expenses had direct nexus with the interest income and only the net interest income after such set off has to be excluded from the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted machinery. The interest earned on the short term deposits of the money kept apart for the purposes of business had to be treated as income earned from business and could not be treated as income from other sources. 21. The ld. D.R relied on the orders of the revenue authorities and in particular relied on the decision of the Hon ble Bombay High Court in the case of CIT vs. Swani Spice Mills Pvt. Ltd. (2011) 12 Taxman.com 432(Bom), wherein it was held that surplus funds of an assessee utilized for discounting bills on which assessee receives discounting charges have to be assessed as income from other sources. The Assessee in the case before the Hon ble Bombay High Court was carrying on business of export of seeds, spices and similar goods. Export bills of Assessee against fulfillment of export orders were sent for collection to banks and assesse received discounted vale of sale proceeds. According to Assessee, moneys which were so received were utilized for repayment of its loans. If the Assessee had no export orders and if there was still balance, the Assessee used its funds to discount purchase bills of private parties for short periods of three to five weeks. On such act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to income tax under the head Profits and gains of business or profession . Section 56 stipulates that income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income-tax under the head Income from other sources , if it is not chargeable to income-tax under any of the heads specified in items A to E of Section 14. Hence, income can fall for classification under the head Income from other sources if the income is of a kind which is not to be excluded from total income and if it is not chargeable to income-tax under any of the heads specifically enumerated in items A to E of Section 14. The question of classifying a head of income under section 56 can, therefore arise where it does not form part of any of the specifically enumerated heads. In Para 27 the Hon ble Court observed as follows: 27. Ordinarily, where an Assessee invests funds surplus to the business and earns interest, such income does not constitute business income but falls under the head Income from other sources . Merely because an Assessee carries on business and the income of the business is invested in deposits, that would not result in an inference t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) Miscellaneous Income, Finder Fees Marketing Fees cannot be regarded to as part of turnover of business of the undertaking. b) The entire brought forward depreciation should not be set off against the profits of the STPI Unit. 24. The above ground relates to restriction of deduction claimed u/s. I0A to ₹ 1,41,79,046/- as against ₹ 2,70,38,837/- claimed by the assessee. The restriction in the deduction claimed u/s. I OA was due to the following (i) Inclusion of Miscellaneous Income, Finder Fees Marketing fees in Total Turnover, (ii) Set-off of Unabsorbed Depreciation. 25. (i) Inclusion of Miscellaneous Income, Finder Fees Marketing fees in Total Turnover: The Assessing Officer held that these receipts were incidental to the business of the assesse and therefore includible in the total turnover of the STPI Unit. The assessee submitted that as per section 1OA(4), For the purposes of (sub-section(1) and (IA)], the profits derived from export of articles or things or 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 articles or things o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unit was incurring losses year after year treated the entire unabsorbed depreciation relating to the 1OA unit and reduced the eligible deduction u/s.10-A of the Act. 28. Before CIT(A), the assessee submitted that A.Y.2005-06 was the first year of claim of deduction u/s. 1OA. Prior to that year, the assessee has not claimed any deduction u/s.1OA. Hence, separate unit wise depreciation as per I.T. Act, has not been worked out. Thus, it cannot be held that the entire unabsorbed depreciation relates to the STPI Unit. It was argued that Unabsorbed Depreciation of past year should not be considered while computing Eligible Profits. It was argued that Section 1OA is an incentive or relief section. It should be liberally construed such that it does not act as a punitive section. The legislature itself regards the section to be a deduction section and not an exemption section. Being a deduction section, it should be restricted in application to a case of positive income earning deduction and should not be meant to cover the negative result. In case of an assessee running more than one undertaking, one of them being non-eligible undertaking, the assessee can set-off past losses / depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Tribunal. The learned counsel for the Assessee s limited prayer was that the required details are now available and can be examined by the AO afresh. In this regard it was also submitted that the Hon ble Karnataka High Court has also approved the principle that no set off of unabsorbed depreciation should be made before allowing deduction u/s.10-A of the Act. The learned DR relied on the order of the CIT(A). 33. We have considered the rival submissions. In our view the issue requires fresh adjudication by the AO in the light of the later decision of the Hon ble Karnataka High Court on the issue. In a recent case of CIT Vs. Yokogawa India Ltd., ITA No.78/2011 judgment dated 9.8.2011, the Hon ble Karnataka High Court held that benefit under section 10A of the Income-tax Act, 1961 (the Act ) is in the nature of exemption and not deduction. The benefit continues to retain the character of an exemption and that the profits eligible for relief under section 10A of the Act are to be computed prior to giving effect to the set-off and carry forward provisions under section 70 and 72 of the Act. It has been held as that, the income from a STPI Unit has to be excluded at source ..... X X X X Extracts X X X X X X X X Extracts X X X X
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