Ita/1068/2008 Of The Commissioner Of Income Tax v. M/S Evershine Infotech Pvt Ltd

IN THB HIGH COURT OF KARNATAKA AT BANGALOREDATED THIS THE 7 DAY OF JULY 2014 PRESEHBN THR HON BLE MR. JUSTICE N. KUMAR. AND THR HON’BLE MR. JUSTICK B MANOHAR. ITA No.1068 OF 2008 "#$ITA.No.108/2010 BETWEEN; 1. The Commissioner of Income-Tax,|C R Building, —Queens Road,Bangalore.2.The Income Tax Officer,Ward-11(1),C R BuildingQueens Road,Bangalore.APPRLLANTS COMMON(By Sri K V Aravind, Advocate) AND: M/s.Evershine Infotech Pvt. Ltd.,No.15, 2[*3]Floor, ©Vittal Mallya RoadBangalore-560 OO1._ RBSPONDENT COMMON(By Sri S Parthasarathi, Advocate) These ITAs are filed under Section ZJ60-A ot I.T.Act, 1961 arising out of order dated 18.7.2008 passedin ITA.No.798/BNG/2007 and ITA.No.611/Bang/2009,for the Assessment Year 2003-04 and 2005-06, prayingto formulate the substantial questions of law statedtherein and to allow the appeal and set aside the orderpassedby|theITAT,Bangalore|1n ITANo.798/BNG/2007 and ITA.No.611/Bang/2009, dated18.7.2008 and 30.10.2009 confirming the orders of theAppellate Commissioner and confirm the order passedby the Income Tax Officer, Ward-11(1), Bangalore. These appeals coming on for hearing this day, |N. KUMAR, J.delivered the following:- JUDGMENT These two appeals are preferred by the revenue.relating to two assessment years of the same assesseewhere the Tribunal upholding the order passed by theappellate authority held that the assessee had madesubstantial value addition before the product isdelivered and therefore entitled to benefit under Section|10A of the Income Tax Act. © D2 The assessee is in the business of providingmedical transcription facilities. It is an I.T. enabledservice. The case of the assessee was taken up forscrutiny. The assessing authority noticed that a sum ofRs.93,92,523/-was debited in the accounts as'technical service charges. These charges were paid toTarget Transcriptions (P) Ltd, Infy communications (P)Ltd., and Xen Call Centre. The assessing Officertherefore concluded that the services were not rendered|in the STPI facility but were rendered out side since thework was sub-contracted. He was of the view that the|activity of the assessee should be carried out in thecustoms bonded area only. Therefore, the assessingauthoritydenied.deductionunderSection100A.Agerieved by the said order, the assessee preferred anappeal to the Commissioner of Income Tax(Appeals). | The Appellate Authority noticed that the totalexpenditure on administration and development was.Rs.73,42,962/-. Out of this payments aggregatingRs.93,95,232/- were made to three companies referred to supra. The total payment made to sub contractorscomes to Rs.93,95,933/-. A payment of Rs.22,75,381/-.was made to Target Transcriptions (P) Limited who.carried out the activity in the premises of the assessee. ©The balance payment of Rs.31,20,152/- was made toXen Call Centre and Infy Communications (P) Limited, ©who carried out the work outside. Therefore, onlypaymentoT|Rs.31,20,152/-WaSmade.TO )1A-contractors who carried out the work outside the'premises. The transcription work done by _ subcontractors 1S in crude form and cannot be delivered in such form to the overseas customers. Subsequently,processing is done which involves preparation ofpreliminary/ basic medical records, proofing/editing etc. To ensure quality a number of checks are employed. —This involves a lot of work. Besides checking themedical records prepared as aforesaid for errors in theformats, details relating to medical language and thename of the drugs, selection in a systematic/cyclicalrandom manner of online/offline files from specific accounts are vetted and verified. Only after all thetranscription work is double checked and _ verifieproperly the product is fit for export. The material andfiles are sent to sub contractors for transcription. On.completion of work the same are returned to theassessee. The product cannot be exported without finalprocessing, proofing, quality check and converting thematerialintouploadable|E€Xportqualitywork.Therefore, only one portion of the payment made to sub-contractors is in respect of work done outside thefacility. Therefore, the appellate authority was of theview that substantial value addition was made before|the product is delivered. Therefore, the appeal wasallowed and the benefit of Section 1OA was extended to the assessee. Aggrieved by the said order, the revenuepreferred an appeal to the Tribunal. — The Tribunal on re-appreciation of the entire.material on record, after taking note of the discussionmade by the appellate authority was of the view that theproducts made by sub-contractors cannot be delivered in such form to overseas customers. In other words, the)assessee has to process it before exporting it. Therefore,the assessee has made substantial value addition beforethe product is delivered. Therefore, the appellateauthority was justified in extending the benefit ofsection 1OA to the assessee. Accordingly, the appealcame to be dismissed. Aggrieved by the said order, therevenue is in appeal. 3.|The substantial questions of law which wereframed at the time of admitting these appeals are asunder:-. “(a)Whether|the|appellateauthorities were correct in holding that|assessee would be entitled to claim§deduction under Section 10A of the Act|in respect ofproducts manufactured and|produced by third parties as there was|value addition to the same by relying on|the|BoardcircularNo. 1/05dated6.1.9005.whichWAasapplicablefo provisions of Section 10B of the Act? (b)Whether|theappellateauthorities were correct in holding that'the assessee would be entitled todeduction under Section 10A of the Act'there|LUaAvalue|additiontothe|productedmanufacturedbythirdparties which was exported by theassessee without there being any proofto substantiate the same and especiallywhen SIPI approval was granted to theassessee to manufacture and produce|within the custom bonded area?” 4Substantial question of law No.2:.Hrom the aforesaid material on record it is clear that the'assessee is in the business of transcribing medicaltranscription. It has outsourced portion of its work andmade payment of Rs.31,20,152/-. The work done bythe sub contractor is in crude form and cannot be!delivered in such form to the overseas customers. The'§assessee has to process the said product so as to makeit marketable. In other words, as rightly pointed out bythe appellate authorities value addition has to be done. It is only when that value addition is made, the saidproduct is exported, foreign exchange is earned. Themanufacture or production done by the assessee, whichis eligible for exemption under Section 10A would beapplicable because the transaction done by the sub-contractors in the crude form undergoes a change in theprocess of the assessee. Therefore, both the authoritieson caretul examination oft the facts of the case haverightly held that the assessee is entitled to the benefit ofsection 10OA. We do not see any justification to interferewith the said finding of fact concurrently recorded bytheappellateauthorities.Therefore, theabove|substantial question of law is answered in favour of theassessee and against the revenue. 5In the light of our finding on question No.2,question No.1 does not arise for consideration in thisappeal. Accordingly, the said question is not answered. 6. 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