Commissioner Of Income Tax Ltu v. M/S. Tata Consultancy Services

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1778 OF 2016 Commissioner of Income Tax LTU..Appellant VersusM/s. Tata Consultancy Services..Respondents Mr. Tejveer Singh for appellantMr. Porus Kaka, Senior Advocate with Mr. MANISH Kanth I/b. SrihariIyer for respondents. P.C. In this appeal filed by the revenue, following question arises:- “(a)Whetheronthefactsandcircumstances of the case and in law, the ITAT has erredin upholding the order of CIT (A) in allowing the claimunder section 10A of the I.T. Act on units on whichdeduction under section 90HHE of the IT Act was beingclaimed and also on the method of computation ofdeduction under section 10A of the IT Act, 1961?” 2]Before adverting to this question, we may record that the revenue’s appeal contains several other questions concerning 9-itxa-1778-16 transfer pricing adjustments. However, it is an agreed positionbetween the Advocates of both sides, that in case of the presentassessee, between Government of India and that of United States ofAmerica, a Mutually Agreed Procedure has been followed and finalagreement is arrived at. In view of this development, theseadditional questions have become academic in nature and we have,therefore, not examined the same. 3]The sole surviving question arises in following factualbackground. One of the activities that the respondent assessee isengaged in, is manufacture and export of computer software. Inrelation to such income, the assessee was previously claimingdeduction in terms of section 80HHE of the Income Tax Act, 1961(for short Act). 4]Under Finance Act of 2000, the provisions of section 10Acame to be amended giving benefit of deduction in relation to theincome from the manufacturing activities of computer softwaredevelopment for export. This amendment would take effect from1/4/2001. In the return of income filed for the assessment year 9-itxa-1778-16 2005-06, the assessee had claimed such deduction in terms ofsection 10A of the Act, instead of section 80HHE. We are informedthat for all assessment years post 1/4/2001, the assessee had madesuch a change in claim of deduction. Be that as it may, we areconcerned with the revenue’s stand in relation to the presentassessment year. The revenue opposed such a claim on twogrounds. Firstly, that in view of sub-section (5) of section 80HHE ofthe Act, the assessee could not have made any such claim undersection 10A. The second contention of the revenue is that in anycase, section 10A as amended with effect from 1/4/2001, wouldcover only those industries which set up manufacturing activity ofcomputer software after the said date. In other words, according tothe revenue, this benefit would not be available to the existingindustries. 5]Apart from this opposition to the very claim of theassessee's deduction, the revenue also questioned the computationof such claim arguing that the freight and insurance expenditurewhich is to be deleted from the export turnover, cannot be excludedfor the purpose of computing the total turnover. 5]Apart from this opposition to the very claim of theassessee's deduction, the revenue also questioned the computationof such claim arguing that the freight and insurance expenditurewhich is to be deleted from the export turnover, cannot be excludedfor the purpose of computing the total turnover. 6]Section 80HHE of the Act pertains to deduction inrespect of profits from export of computer software etc. Sub-section(5) of section 80 HHE provides that where deduction under saidsection is claimed and allowed in respect of the profits of thebusiness referred in sub-section (1) for any assessment year, nodeduction shall be allowed in relation to such profits under any otherprovision of the Act for the same or any other assessment year.What subsection (5) of section 80 HHE thus prohibits is the claim ofdeduction allowed under section 80HHE under any other provision,be it in the same assessment year or in other assessment year. Inthe present case, it is not even the ground of the revenue that thededuction under section 10A of the Act claimed by the assessee inthe present year is in relation to profit for which the assessee wasgranted deduction under section 80HHE. Sub-section 5 of section80 HHE of the Act, therefore, in the present case would have noapplicability. We are fortified in our view by a division bench judgeent of Delhi High Court in the case of Commissioner Income Tax Vs.Damco Solutions Pvt. Ltd., reported in 200 Taxman page 26 inwhich it was observed as under:- “2.This stand of the Assessing Officer wasrepelled by the CIT (A) holding that the purpose of sub-section (5) of section 80HHE was to avoid doublebenefit and that would not mean that if the assessee fora particular assessment year wanted relief only undersection 10A of the Act that would be denied to theassessee. The only embargo was not to give reliefunder both the provisions.” 7]Coming to the revenue’s second objection to theassessee’s claim of deduction under section 10A of the Act, we mayrecall, that the assessee had admittedly started manufacturingcomputer software for export prior to 1[st] April 2001, when section10A was substituted by the Finance Act of 2000. It was under thisamendment that the profit and gains derived by an undertaking fromexport of computer software came to be covered for deductionunder section 10A. The revenue contends that this benefit wouldnot be available to an industry which was already existing andengaged in such activity. However, the interpretation of the revenuewould render the first proviso to subsection (1) of section 10A whollyredundant. This proviso reads as under:- “10A(1) ….. Provided that where in computing the total incomeof the undertaking for any assessment year, its profitsand gains had not been included by application of theprovisions of this section as it stood immediately beforeits substitution by the Finance Act, 2000, the undertakingshall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid tenconsecutive assessment years. 8]As per this proviso, therefore, while computing totalincome of the undertaking for any assessment year, the profit andgain which had not been included prior to the introduction of FinanceAct, 2000, such an undertaking would be entitled to deduction asper sub-section (1) only for the unexpired period of 10 consecutiveassessment years. In plain terms, therefore, this proviso wouldapply to an industry which was already in existence, engaged inmanufacturing and export of computer software when the saidamendment was made in section 10A. However, such an industrywould be eligible to claim that deduction in relation to profit and gainarising out of such activity only for remainder of the period of 10assessment years, which could be claimed for consequentassessment years alone. 9-itxa-1778-16 9-itxa-1778-16 9]If the revenue’s interpretation of sub-section (1) ofsection 10 were to be accepted, then, this proviso would berendered redundant. 10]Coming to the revenue’s contention in relation to thecomputation of benefit of section 10A of the Act, this issue issquarely covered by the judgement of Supreme Court in the case ofCommissioner of Income Tax Vs. HCL Technologies, reported in 404ITR 719,in which the Court held that the total turnover for thepurpose of section 10 of the Act cannot be understood as defined forthe purpose of section 80 HHE. It was further held that thus theexpenses which are to be excluded from the export turnover, wouldalso have to be excluded for the purpose of computing totalturnover. 12]In the result, no question of law arises. Appeal isdismissed. (SARANG V. KOTWAL, J) (AKIL KURESHI, J)