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2018 (12) TMI 1806

..... o 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as 'Income from other Sources' under Section 56 of the Act. The incidental activity of parking of Surplus Funds with the Banks or advancing of staff loans by such special category of assessee covered under Section 10-A or 10-B of the Act is integral part of their export business activity and a business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be de-linked from its profits and gains derived by the Undertaking engaged in the export of Articles as envisaged under Section 10-A or Section 10-B of the Act and cannot be taxed separately under Section 56 of the Act. Treating export sale proceeds realized subsequently as part of current year export turnover by CIT-A - HELD THAT:- The finding of the ld. CIT(A) is in accordance with law laid down by the jurisdictional High Court in the case of Wipro Ltd. vs. DCIT [2015 (10) TMI 826 - KARNATAKA .....

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..... : Shri Padamchand Khincha, CA. Revenue by : Shri Pradeep Kumar, CIT(DR) ORDER Inturi Rama Rao, AM : ITA Nos.1516 & 1517/Bang/2017 are appeals by the revenue directed against the order of the ld. Commissioner of Income-tax(Appeals),[CIT(A)], Mysore, dated 30/06/2016 for the assessment years 2010-11 and 2011-12. ITA No.1222/Bang/2017 is the cross appeal filed by the assessee directed against the order of the ld.CIT(A),Mysore, dated 30/6/2016 for the assessment year 2011-12. 2. Since common issues are involved, all these appeals are disposed of by this common order for the sake of convenience. ITA No.1516/Bang/2017: 3. This is an appeal filed by the revenue directed against the order of the ld.CIT(A), Mysore, dated 30/06/2016 for the assessment year 2010-11. 4. Briefly, the facts of the case are as under: The respondent-assessee is a company duly incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of distribution of computer systems etc. The return of income for the assessment year 2010-11 was filed on 30/09/2010 declaring nil income under normal provisions and book profits u/s 115JB of ₹ 7,77,33,533/-. Against the said return of inco .....

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..... . As regards export sales of ₹ 27,68,91,445/- not realized within prescribed time, the ld.CIT(A), referring to the provisions of section 155(11A) of the Act, held that the same should be considered as export turnover of the current year, placing reliance on the decision of the Hon ble Karnataka High Court in the case of Wipro Ltd v CIT in ITA No. 879 of 2008 and other connected matters decision dated 25/3/2015. 6.1 As regards set off of loss of 10A eligible units at Bombay against profits of 10A eligible units at Bangalore, the ld.CIT(A), following the decision of the ITAT in assessee s own case for assessment year 2007-08 held that loss should not be set off against 10A eligible units. 6.2 Regarding insurance expenditure of ₹ 41,62,00,820/- incurred in foreign currency, the ld. CIT(A) held that same should be reduced from export turnover as well as total turnover following the decision of the Tribunal in the assessee s own case. 6.3 As regards expenditure in foreign currency, the ld.CIT(A) held that same was not incurred for the purpose of export of software and therefore should not be reduced from export turnover. 7. Being aggrieved, revenue is in appeal before us rai .....

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..... ounds mentioned above. 8. Ground Nos.1, 7 and 8 are general in nature and do not require any adjudication. 9. Ground No.2 challenges the finding of the ld.CIT(A) that other income is also eligible for exemption u/s 10A of the Act. The issue in this ground of appeal is settled by the Full Bench decision of the Hon ble Karnataka High Court in the case of CIT vs. Hewlett Packard Global Soft Ltd.(2018)(402 ITR 453)(Kar.)(FB) wherein the Hon ble High Court, after referring to its earlier judgment in Motorola India Electronics (P.) Ltd. [2014] 46 taxmann.com 167 held as follows: 34. We are of the considered opinion that the above referred decisions relied upon by the learned counsel for the Revenue, Mr. Aravind do not cover the cases under Sections 10-A and 10B of the Act which are special provisions and complete code in themselves and deal with profits and gains derived by the assessee of a special nature and character like 100% Export Oriented Units (EOUs.) situated in Special Economic Zones (SEZs), STPI, etc., where the entire profits and gains of the entire Undertaking making 100% exports of articles including software as is the fact in the present case, the assessee is given 100% de .....

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..... ng the incidental income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10-A and 10-B of the Act. Such interest income arises in the ordinary course of export business of the Undertaking even though not as a direct result of export but from the Bank Deposits etc., and is therefore eligible for 100% deduction. 36. We have to take a purposive interpretation of the Scheme of the Act for the exemption under Section 10-A/10-B of the Act and for the object of granting such incentive to the special class of assessees selected by the Parliament, the play-inthe-joints is allowed to the Legislature and the liberal interpretation of the exemption provisions to make a purposive interpretation, was also propounded by Hon'ble Supreme Court in the following cases:- [I] In Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480, the Hon'ble Supreme Court held that:- "5. . . . . . Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. But that turned out to be the, un .....

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..... prestige and stability." The Court must always remember that "legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry"; "that exact wisdom and nice adaption of remedy are not always possible" and that "judgment is largely a prophecy based on meagre and uninterpreted experience". Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid.' 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the B .....

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..... inance Act, 2000 would be merely suggestive and not determinative of what is provided by the Section as amended, in contrast to what was provided by the un-amended Section. The true and correct purport and effect of the amended Section will have to be construed from the language used and not merely from the fact that it has been retained in Chapter III. The introduction of the word 'deduction' in Section 10A by the amendment, in the absence of any contrary material, and in view of the scope of the deductions contemplated by Section 10A as already discussed, it has to be understood that the Section embodies a clear enunciation of the legislative decision to alter its nature from one providing for exemption to one providing for deductions. 14. The difference between the two expressions 'exemption' and 'deduction', though broadly may appear to be the same i.e. immunity from taxation, the practical effect of it in the light of the specific provisions contained in different parts of the Act would be wholly different. The above implications cannot be more obvious than from the case of Civil Appeal Nos. 8563/2013, 8564/2013 and civil appeal arising out of SLP(C) No .....

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..... This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, "The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision." 17. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 7 .....

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..... g/2017: 15. This is the cross-appeal filed by the assessee directed against the order of the ld.CIT(A), Mysore, dated 30/06/2016 for the assessment year 2011-12. 16. The assessee raised the following grounds of appeal: 1.1 The CIT(A) has erred in concluding advances written back to profit and loss account amounting to ₹ 46.97.000 is not eligible for deduction under section 10A. 1.2 The Iearned CIT(A) has erred in not appreciating that customer advances written back to Profit and loss account amounting to ₹ 46,97,000/- constitutes profits of the business of the STPI unit and consequently the same is eligible for deduction under section 10A. 2.1 The learned Commissioner of Income tax (Appeals) Mysore has erred in confirming the levy of interest under section 234B and 234C of the Act. On the facts and in the circumstances of the case and law applicable, interest under section 234B and 234C is not leviable appellant denies its liability to pay interest under section 234B and 234C. 3.1 In view of the above and other grounds to be adduced at the time or hearing. the appellant company prays that the order passed by the learned Commissioner of Income tax (Appeals) Mysore. in so .....

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