Date Of Judgment 21-06-2018, Ita v. M/S Lsi India Research & Development Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 21 DAY OF JUNE 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.606/2017 BETWEEN : 1.PRINCIPAL COMMISSIONER OF INCOME TAX-4BMTC COMPLEX, KORAMANGALA, |BENGALURUBMTC COMPLEX, KORAMANGALA, |BENGALURU «|THERE DEPUTLY COMMISSIONER OINCOME TAX, CIRCLE 4(1)(1),BMTC COMPLEX, KORAMANGALA, |BENGALURU_ APPBLLANTS| (BY SRI E.L.SANMATHI, ADV.) AND : M/s LSI INDIA RESEARCH & |DEVELOPMENT PVT. LITD.,BLOCK C, GLOBAL TECHNOLOGY PARK,MARATHAHALLI, OUTER RING ROAD,|DEVARABEESANAHALLI,BENGALURU,PAN: AABCM 160/(/N.. RESPONDENT. THIS IJI.T.A. IS FILED UNDER SECTION 260-A OF]INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED|29.01.2017 PASSED IN I[T(TP)A NO.34/BANG/2016, FOR THEASSESSMENT YEAR 2011-2012. PRAYING TO (a) DECIDE THE.FOREGOING QUESTION OF LAW AND / OR SUCH OTHER,QUESTIONS OF LAW AS MAY BE FORMULATED BY THE) Date of Judgment 21-06-2018, ITA No.606/2017 Principal Commissioner of Income Tax-4 & another Vs. M/s LSI India Research & Development Pvt. Ltd. 2/7 HON BLE COURT AS DEEMED FIT. (b) SET ASIDE THE.APPELLATK ORDER DATED 25.01.2017 PASSED BY THE.INCOME TAX APPELLATE TRIBUNAL, C BENCH, BENGALURU,IN APPEAL PROCEEDINGS NO. IT(TP)A NO.34/BANG/2016 FOR:THR ASSHKSSMENT YEAR 2011-12 AS SOUGHT FOR IN THISAPPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT. Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: THIS APPEAL COMING ON FOR ORDERS, THIS DAY, JU DBiGMENT Mr. E.IL.SANMATHI,Adv. for Appellants - Learned Counsel tor the Revenue submits that theissue involved in this Appeal is covered by the decisions ot thisCourt1n M/s.TataElxsiLtd.,DS,Asst.CommissionerofIncomeTax,decidedOT)20.10.2015since reported in.(2015) 127 DTR 0327(Kar)1 andCommissioner of Income-tax, Central — IIIvs. HCL Technologies Ltd., [2018] 93 Taxmann.com33(SC). ?)The relevant portion of the judgment of the Division Bench in the case ot|M/s.Tata Elxsi (supra),1S |quoted below for ready reference:- Date of Judgment 21-06-2018, ITA No.606/2017 Principal Commissioner of Income Tax-4 & another Vs. M/s LSI India Research & Development Pvt. Ltd. 3/7 “20. From the aforesaid provisions, it 1sclear 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 exchangewhichShould be brought into the country. If all thesethree conditions are fulfilled, then the object ofenacting Section 10A its 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. QI.Clause 6.11 ofExim Policydealingwith entitlement for supplies from the DIA statesthatsuppliesfromtheDTAtoEOU/EHTP/ STP/BTP unitswill be regarded as‘deemed export’,besides being eligible forrelevant entitlements under paragraph 6.12 of thePolicy. They will also be eligible for theadditional entitlements mentioned therein. Whatis of importance is when a supply is made fromDTA to STP, it does not satisfy the requirementsof export as defined under the Customs Act. Date of Judgment 21-06-2018, ITA No.606/2017 Principal Commissioner of Income Tax-4 & another Vs. M/s LSI India Research & Development Pvt. Ltd. 4/7 QI.Clause 6.11 ofExim Policydealingwith entitlement for supplies from the DIA statesthatsuppliesfromtheDTAtoEOU/EHTP/ STP/BTP unitswill be regarded as‘deemed export’,besides being eligible forrelevant entitlements under paragraph 6.12 of thePolicy. They will also be eligible for theadditional entitlements mentioned therein. Whatis of importance is when a supply is made fromDTA to STP, it does not satisfy the requirementsof export as defined under the Customs Act. Date of Judgment 21-06-2018, ITA No.606/2017 Principal Commissioner of Income Tax-4 & another Vs. M/s LSI India Research & Development Pvt. Ltd. 4/7 However, for the purpose of Exim Policy, it istreated as ‘deemed export. Therefore, whenSection 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 Clause|6.19 specifically provides for export throughStatus|Holder.ItprovidesthataT?EOU/EHTP/STP/BIP unit may export goodsmanufactured/software developed by it throughother exporter or Status holder recognized underthis policy or any other EOU/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.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 is|directly attributable to such export, then SectionIOA of the Act is attracted and such exporter isentitled to benefit of deduction of such profits and| Date of Judgment 21-06-2018, ITA No.606/2017 Principal Commissioner of Income Tax-4 & another Vs. M/s LSI India Research & Development Pvt. Ltd. 5/7 gains 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 anotherOTP 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”. a |The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCL|Technologies Ltd. (supra),is quoted below for readyreference: - “17. The similar nature of controversy, akinthis 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| Date of Judgment 21-06-2018, ITA No.606/2017 Principal Commissioner of Income Tax-4 & another Vs. M/s LSI India Research & Development Pvt. Ltd. 6/7 the Tribunal was correct in holding that whilecomputing relief under Section 1OA of the IT Act,the amount of communication expenses should beexcluded from the total turnover tf the same arereduced from the export turnoverP While givingthe answer to the issue, the High Court, inter-alia,held that when a particular word is not definedby the legislature and an ordinary meaning is tobe attributed to it, the said ordinary meaning is tobe in conformity with the context in which it isused. Hence, what is excluded from ‘exportturnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘totalturnover’1Sexportturnover.Anyotherinterpretation would run counter to the legislativeintent and would be impermissible. | 1S. XXXXXX 6/7 the Tribunal was correct in holding that whilecomputing relief under Section 1OA of the IT Act,the amount of communication expenses should beexcluded from the total turnover tf the same arereduced from the export turnoverP While givingthe answer to the issue, the High Court, inter-alia,held that when a particular word is not definedby the legislature and an ordinary meaning is tobe attributed to it, the said ordinary meaning is tobe in conformity with the context in which it isused. Hence, what is excluded from ‘exportturnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘totalturnover’1Sexportturnover.Anyotherinterpretation would run counter to the legislativeintent and would be impermissible. | 1S. XXXXXX 19. In the instant case, if the deductions on|freight,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 illogical result whichwould cause grave injustice to the Respondent which 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”. 5.|In view of the atoresaid decisions, the present appeal filed by the Revenue is disposed of in same terms. Copy of this Order be sent to the Respondent-ASS@ESSEE. AN/- Sd/-.JUDGE| Sd/-.JUDGE|