Date Of Judgment 19-06-2018, I.t.a v. M/S. Brocade Communication Systems Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 19 DAY OF JUNE 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.305/2017 BETWEEN : 1.Pr. COMMISSIONER OF INCOME TAX, CIT|A}$ FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|$ FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA| BBENGALURU-560095. oD THE ASST. COMMISSIONER OF INCOME-TAX.CIRCLE — 2 (1) (1)|~ FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BBENGALURU-560095._ APPBRLLANTS (BY SRI ARAVIND.K.V., ADV.) AND : M/s BROCADE COMMUNICATIONSYSTEMS PVT. LTD., 4 FLOOR.‘A’ WING, TOWER 3, PHASE I)VRINDAVAN TRCH VILLAGK SEZOUTER RING ROAD.DEKEVARABEBSANAHALLI VILLAGVARTHUR HOBLIBRHNGALURU-56003 PAN: ._. RESPONDENT. (BY SRI T.SURYANARAYANA, ADV.) Date of Judgment 19-06-2018, I.T.A.No.305/2017 The Pr. Commissioner of Income-tax, CIT[A] & Another Vs. M/s. Brocade Communication Systems Pvt. Ltd., 2/8 THIS INCOME TAX APPEAL UNDER SECTION 260-A OF]INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED21.10.2016 PASSED IN IT/TP/JA NO.167/BANG/2015, FOR THEASSESSMENT YEAR 2010-11, PRAYING TO (i) FORMULATE THE)SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ETC. THIS APPEAL COMING ON FOR ADMISSION, THIs DAY, |Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. Aravind.K.V., Adv. for Appellants - RevenueMr. T.Suryanaryana,Adv. for Respondent - Assessee Learned counsel for the Revenue submits thatonly question No.1 arises in the present case and for thequestion No.2 given in the memo of appeal, a separateITA has been filed by the Revenue in I.T.A.No.330/2017—which is pending in this Court. a2Both the learned counsel submit that as far|as the present ITA No.305/2017 is concerned, the sameis covered by the decisions of Hon'ble Supreme Court in M/s.Tata Elxsi Ltd., vs. Asst.Commisstoner ofIncome Tax,decided on|20.10.2015since reported in) Date of Judgment 19-06-2018, I.T.A.No.305/2017 The Pr. Commissioner of Income-tax, CIT[A] & Another Vs. M/s. Brocade Communication Systems Pvt. Ltd., 3/8 (2015) 127 DTR O3S27 (Kar1 andCommisstoner of. Income-tax, Central —- III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 3.The relevant portion of the judgment of theDivision Bench in the case of.M/s.Tata Elxst (supra),1S |quoted below for ready reference:-| “20. From the aforesaid provisions, it 1S|clear that if a assessee wants to claim the benefitof Section 1OA, firstly he must export articles orthings or computer software. Secondly,the saidexport may be done directly by him or'through other exporter after fulfilling theconditions mentioned therein.Thirdly, suchan exportShould yield foreign exchangewhich |Should be brought into the country. If all thesethree conditions are fulfilled, then the object ofenacting Section 10A ts fulfilled and the assesseewould be entitled to the benefit of exemption frompayment of Income Tax Act on the profits andgains derived by the Undertaking from the export. Date of Judgment 19-06-2018, I.T.A.No.305/2017 The Pr. Commissioner of Income-tax, CIT[A] & Another Vs. M/s. Brocade Communication Systems Pvt. Ltd., 4/8 QI.Clause 6.11 ofExim Policydealingwith entitlement for supplies from the DIA states Date of Judgment 19-06-2018, I.T.A.No.305/2017 The Pr. Commissioner of Income-tax, CIT[A] & Another Vs. M/s. Brocade Communication Systems Pvt. Ltd., 4/8 QI.Clause 6.11 ofExim Policydealingwith entitlement for supplies from the DIA states thatsuppliesfromtheDTAToEOU/EHTP/STP/BTP unitswill be regarded as‘deemed export’,besides being eligible for|relevant entitlements under paragraph 6.12 of thePolicy. They will also be eligible for the|additional entitlements mentioned therein. What'is of importance is when a supply is made from|DTA to STP, it does not satisfy the requirementsof export as defined under the Customs Act. |However, for the purpose of Exim Policy, tt istreated as ‘deemed export’. Therefore, when|Section 10A of the Act was introduced togive effect to the Exim Policy, the supplies|made from one STP to another STP has to betreated as ‘deemed export’because Clause6.19 specifically provides for export through|StatusHolder.Itprovidesthatan.EOU/EHATP/STP/BIP unit may export goodsmanufactured/ software developed by it throughother exporter or Status holder recognized underthis policy or any other HOU/EHTP/STP/BTPunit. What follows from this provision is thatto|be eligible for exemption from payment of|income tax, export should earn foreignexchange.It does not mean that the Date of Judgment 19-06-2018, I.T.A.No.305/2017 The Pr. Commissioner of Income-tax, CIT[A] & Another Vs. M/s. Brocade Communication Systems Pvt. Ltd., 5/8 undertaking should personally export goodsmanufactured / software developed by itoutside the country. It may export out ofIndia by itself or export out of India through| anyotherSTPUnit.Oncethe|goodsmanufactured by the assessee is shown to havebeen exported out of India either by the assesseeor by another STP Unit and foreign exchange isdirectly attributable to such export, then SectionIOA of the Act is attracted and such exporter isentitled to benefit of deduction of such profits andgains derived from such export from payment ofincome tax. Therefore, the finding of theauthorities that the assessee has not directlyexported the computer software outside countryand because it supplied the software to anotherSTP unit, which though exported and foreignexchange received was not treated as an exportand was held to be not entitled to the benefit isunsustainable in law. The substantial questionof law is answered in favour of the assessee andagainst the revenue. The appeal is allowed. Theimpugned orders are set aside. The assessee isheld to be entitled to deduction of such profitsand gains derived from the export of the computersoftware. No costs”. Date of Judgment 19-06-2018, I.T.A.No.305/2017 The Pr. Commissioner of Income-tax, CIT[A] & Another Vs. M/s. Brocade Communication Systems Pvt. Ltd., 6/8 4The relevant portion of the judgment of theHon ’bleSupremeCourt1nthe.CASEoT HCL|Technologies Ltd. (supra),is quoted below for readyreference: - “17. The simular nature of controversy, akin|this case, arose before the Karnataka High CourtinCIT v. Tata Elxsi Ltd[2012] 204 Taxman321/17/taxman.com 100/349 ITR 98.The issue|before the Karnataka High Court was whether|the Tribunal was correct in holding that while|computing relief under Section 10A of the IT Act,the amount of communication expenses should be|excluded from the total turnover if the same are.reduced from the export turnover? While giwing|the answer to the issue, the High Court, inter-alia,held that when a particular word is not defined|by the legislature and an ordinary meaning is to|be attributed to it, the said ordinary meaning is tobe in conformity with the context in which it is.used. Hence, what is excluded from ‘exportturnover must also be excluded from ‘totalturnover’, since one of the components of ‘totalturnover|1S|exportTurnover,Anyother|interpretation would run counter to the legislativeintent and would be impermissible. Date of Judgment 19-06-2018, I.T.A.No.305/2017 The Pr. Commissioner of Income-tax, CIT[A] & Another Vs. M/s. Brocade Communication Systems Pvt. Ltd., 7/8 Date of Judgment 19-06-2018, I.T.A.No.305/2017 The Pr. Commissioner of Income-tax, CIT[A] & Another Vs. M/s. Brocade Communication Systems Pvt. Ltd., 7/8 1S. XXXXXX 19, In the instant case, if the deductions onfreight,telecommunicationand|insuranceattributable to the delivery of computer softwareunder Section 10A of the IT Act are allowed onlyin Export Turnover but not from the TotalTurnover then, it would give rise to inadvertent,unlawful, meaningless and wulogical result whichwould cause grave injustice to the Respondentwhich could have never been the intention of thelegislature. 20. Even in common parlance, when theobject of the formula ts to arrive at the profit fromexport business, expenses excluded from exportturnover have to be excluded from total turnoveralso. Otherwise, any other interpretation makesthe formula unworkable and absurd. Hence, weare satisfied that such deduction shall be allowedfrom the total turnover in same proportion aswell”. Date of Judgment 19-06-2018, I.T.A.No.305/2017 The Pr. Commissioner of Income-tax, CIT[A] & Another Vs. M/s. Brocade Communication Systems Pvt. Ltd., 5 8/8 In view of the aforesaid decision, present| appeal filed by the Revenue is disposed of in similar Terms. NC Sd/-.JUDGE. Sd/-.JU DGE