Principal Commissioner Of Income Tax - 4 v. M/S. Mizpah Publishing Services Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 15.04.2021 CORAM: THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE R.HEMALATHA T.C.A.No.426 of 2016 Principal Commissioner of Income Tax - 4,No. 121, Mahatma Gandhi Road,Chennai - 600 034. ... Appellant vs. M/s. Mizpah Publishing Services Pvt. Ltd.,No.6A, VGP First Main Road,East Coast Road, Injambakkam,Chennai - 600 041.PAN : AAC CM 6195 M ...Respondent Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Chennai, "C" Bench, dated 31.12.2015 in I.T.A.No.2124/Mds/2015for the Assessment Year 2006-2007. Preferred against the order passed by the commissioner ofIncome Tax(Appeals)-8, Chennai-34 dated 31/08/2015 made in ITANo.81/2011-12. Preferred against the order passed by theAssistant Commissioner of Income Tax, Company circle-IV(3),Chennai dated 30/08/2011 for the Assessment year 2006-2007.For Appellant : Mr.S. Rajesh Standing CounselFor Respondent : Mr. M.P. Senthil Kumar JUDGMENT (Judgment was delivered by M. DURAISWAMY, J.) Challenging the order passed in I.T.A.No.2124/Mds/2015 inrespect of the Assessment Year 2006-2007 on the file of theIncome Tax Appellate Tribunal, Chennai, "C" Bench (for brevity,the Tribunal), the Revenue has filed the above appeal. 2. The above appeal was admitted on the followingsubstantial questions of law: “ Whether om the facts and circumstancesof the case, the Appellate Tribunal was rightin holding that the expenditure in foreignexchange is to be excluded from both exportturnover and total turnover while computingeligible deduction under section 10A of theIncome Tax Act?" 3. When the appeal is taken up for hearing,Mr.S. Rajesh,learned Standing Counsel appearing for the appellant fairlysubmitted that the above question of law is covered by thedecision of this Court dated 02.03.2021 made inT.C.A. No.975 of 2010 [The Commissioner of Income Tax - III v.M/s. SRA Systems Ltd., Chennai], wherein this Court held asfollows: “... 4.When the appeal is taken up for hearing,Mr.R.Sivaraman, learned counsel appearing for therespondent submitted that the Question of Law no.1 iscovered by the decision of the Hon'ble Supreme Courtreported in [2018] 93 taxmann.com 33 (SC) [Commissionerof Income-tax, Central – III Vs. HCL TechnologiesLtd.], an un-reported judgment of the Division Bench ofthis Court dated 10.01.2019 made in T.C.A.Nos.1257 &1258 of 2009 [Commissioner of Income Tax, Chennai Vs.M/s.Sak Soft Ltd.] and the Question of Law no.2 iscovered by the decision of this Bench dated 19.01.2021made in T.C.A.Nos.1470 to 1472 of 2010 [Commissioner ofIncome Tax, Chennai Vs. M/s.S.R.A. Systems Ltd.,No.100, Valluvar Kottam High Road, Nungambakkam,Chennai] and the Question of law no.3 is covered by thedecision of the Division Bench of this Court dated18.03.2020 made in T.C.A.No.228 of 2011 [M/s.ComstarAutomative Technologies Private Ltd., (formerly knownas Visteon Powertrain Control Systems India PrivateLimited, Keelakaranai Village, Malrosapuram Post,Maraimalai Nagar, Chengalpattu District- 603 204 Vs.The Deputy Commissioner of Income Tax, Company Circle –I (3), 121, Nungambakkam High Road, Chennai – 600 034]. 5.It would be appropriate to extract the relevantportions of the judgments relied upon by the learnedcounsel for the respondent.(i)[2018] 93 taxmann.com 33 (SC) [Commissioner ofIncome-tax, Central – III Vs. HCL Technologies Ltd.] “... 19.In the instant case, if the deductions onfreight, telecommunication and insurance attributableto the delivery of computer software under Section10A of the IT Act are allowed only in Export Turnoverbut not from the Total Turnover then, it would giverise to inadvertent, unlawful, meaningless andillogical result which would cause grave injustice tothe Respondent which could have never been theintention of the legislature. 5.It would be appropriate to extract the relevantportions of the judgments relied upon by the learnedcounsel for the respondent.(i)[2018] 93 taxmann.com 33 (SC) [Commissioner ofIncome-tax, Central – III Vs. HCL Technologies Ltd.] “... 19.In the instant case, if the deductions onfreight, telecommunication and insurance attributableto the delivery of computer software under Section10A of the IT Act are allowed only in Export Turnoverbut not from the Total Turnover then, it would giverise to inadvertent, unlawful, meaningless andillogical result which would cause grave injustice tothe Respondent which could have never been theintention of the legislature. 20.Even in the common parlance, when the objectof the formula is to arrive at the profit from exportbusiness, expenses excluded from export turnover haveto be excluded from total turnover also. Otherwiseany other interpretation makes the formula unworkableand absurd. Hence, we are satisfied that suchdeduction shall be allowed from the total turnover insame proportion as well. 21.On the issue of expenses on technicalservices provided outside, we have to follow the sameprinciple of interpretation as followed in the caseof expenses of freight, telecommunication etc.,otherwise the formula of calculation would be futile.Hence, in the same way, expenses incurred in foreignexchange for providing the technical services outsideshall be allowed to exclude from the total turnover.” (ii)Following the ratio laid down by the Hon'bleSupreme Court, the Division Bench of this Court, byorder dated 10.01.2019 in T.C.A.Nos.1257 & 1258 of 2009[Commissioner of Income Tax, Chennai Vs. M/s.Sak SoftLtd.] decided the Question of law against the Revenueand in favour of the assessee. (iii)Un-reported judgment of this Bench dated19.01.2021 dated T.C.A.Nos.1470 to 1472 of 2010[Commissioner of Income Tax, Chennai Vs. M/s.S.R.A.Systems Ltd., No.100, Valluvar Kottam High Road,Nungambakkam, Chennai], this Bench held as follows:- Assessment Years, all the three Tax Appeals are takenup together and disposed of by this common judgment.For the Assessment Year 2000-01, the assessee hadfiled its return of income on 29.11.2000. Theassessee claimed that it was eligible for deductionunder Section 10B. The return was processed on28.03.2002. Subsequently, the Assessing Officer hadreason to believe that income chargeable to tax hadescaped assessment on account of the assessee Companybeing ineligible for deduction under Section 10A.Subsequently, a notice dated 22.03.2007 was issuedunder Section 148 and after giving an opportunity ofhearing, the scrutiny assessment order was passed on17.12.2007, disallowing the entire claim of deductionunder Section 10B. Further, the expenditure incurredfor the renovation and repairs of the rented premisesof the assessee Company was disallowed by theAssessing Officer on the ground that such expenseswere in the nature of capital expenditure. TheAssessing Officer in his re-assessment order notedthat in terms of Section 10B(ii) an undertaking inorder to be eligible for deduction under Section 10Bmust not be formed by splitting up or reconstructionof a business already in existence. Further, theAssessing Officer held that deduction under Section10B was not available to the assessee Company in viewof the provisions of Section 10B(iii) which stipulatethat eligible business is not formed by transfer to anew business of plant and machinery previously usedfor any purpose. The Assessing Officer found that theassessee had not complied with both these conditions,hence, it was not entitled to any deduction underSection 10B. 6.For the Assessment Year 2002-03, in the caseof the assessee Company itself, the Income TaxAppellate Tribunal “C” Bench, Chennai had dealt withthe applicability of Clauses (ii) and (iii) ofSection 10A(2) in its order dated 16.05.2008 inI.T.A.No.2255/Mds/06. The Tribunal, after taking intoconsideration the decision of Apex Court reported in107 ITR 195 [Textile Machinery Corporation LimitedVs. CIT] held as follows:“... this is not a case of setting up of a newbusiness, but only transfer of business place ofexisting business to a new place located in STPI areaand thereafter, getting the approval from theauthorities, the assessee become entitled todeduction under Section 10A. Merely because byshifting the business from one place to another and keeping some of the plant and machinery as those arebearing charge of financial institution, does notviolate Clause (ii) and (iii) of Sub Clause (2) toSection 10A of the Income Tax Act.” 7.The order passed by the Income Tax AppellateTribunal was challenged by the Department inT.C.A.No.1916 of 2008 and the Hon'ble Division Benchof this Court by its judgment dated 26.10.2018confirmed the order of the Income Tax AppellateTribunaldated16.05.2008madeinI.T.A.No.2255/Mds/06 for the Assessment Year 2002-03and dismissed the appeal. In view of the judgment ofthe Hon'ble Division Bench of this Court, it is clearthat the applicability of Clauses (ii) and (iii) ofSub Clause (2) to Section 10B of the Act, theimpugned order passed by the Income Tax AppellateTribunal is proper. In view of the order passed bythe Income Tax Appellate Tribunal dated 16.05.2008 inI.T.A.No.2255/Mds/06 and the judgment passed by theHon'ble Division Bench of this Court on 26.10.2018 inTax Case Appeal No.1916 of 2008, the assessee Companywould be entitled to deduction under Section 10A anddisallowance made by the Assessing Officer was notcorrect. Since the order passed under Section 263itself has been set aside, the cause of action forre-assessment does not survive.” (iv)Un-reported judgment of a Division Bench ofthis Court dated 18.03.2020 made in T.C.A.No.228 of2011 [M/s.Comstar Automative Technologies Private Ltd.,(formerly known as Visteon Powertrain Control SystemsIndiaPrivateLimited,KeelakaranaiVillage,Malrosapuram Post, Maraimalai Nagar, ChengalpattuDistrict- 603 204 Vs. The Deputy Commissioner of IncomeTax, Company Circle – I (3), 121, Nungambakkam HighRoad, Chennai – 600 034], the Division Bench held asfollows: “... 27.Therefore the law has been settled by thesaid decision of the Hon'ble Apex Court, where inclear terms, it has been held that, the deductionseither under Section 10A or 10B would be made whilecomputing the gross total income of the eligibleundertaking (like the Assessee) under Chapter IV ofthe Act and not at the stage of computation of thetotal income under Chapter VI of the Act. 28.Here is the case in hand, the total incomewas first arrived at by the Revenue through the Assessing Officer in the Assessment order bycomputing the total income by way of brought forwardor carry forward the depreciation allowance of theearlier Assessment years and set off the unabsorbeddepreciation first and making the return Nil, therebyleaving the Assessee in a position where it could notclaim an deduction under Section 10B as there was noincome after set off of carry forward depreciationand unabsorbed depreciation from earlier years. 29.This method of computing the income in thepresent case made by the Revenue is totally againstthe said law as has been declared by te Hon'ble ApexCourt in the aforesaid decision in Commissioner ofIncome-tax v. Yokogawa India Ltd., (cited supra). 28.Here is the case in hand, the total incomewas first arrived at by the Revenue through the Assessing Officer in the Assessment order bycomputing the total income by way of brought forwardor carry forward the depreciation allowance of theearlier Assessment years and set off the unabsorbeddepreciation first and making the return Nil, therebyleaving the Assessee in a position where it could notclaim an deduction under Section 10B as there was noincome after set off of carry forward depreciationand unabsorbed depreciation from earlier years. 29.This method of computing the income in thepresent case made by the Revenue is totally againstthe said law as has been declared by te Hon'ble ApexCourt in the aforesaid decision in Commissioner ofIncome-tax v. Yokogawa India Ltd., (cited supra). 30.Therefore we have no hesitation to holdthat, the decision of the ITAT, which is impugnedherein, would not stand in the legal scrutiny, inview of the law having been declared by the Hon'bleApex Court. Therefore, we are of the view that, theSubstantial Question of Law raised in this Appeal iscovered by the said decision, therefore, it can beanswered accordingly.” 6. Mr.Karthik Ranganathan learned Senior StandingCounsel appearing for the appellant fairly submittedthat the issues involved in the present appeal arecovered by the decision relied upon by the learnedcounsel for the respondent. 7.In view of the submissions made by the learnedcounsel on either side, we are convinced that theQuestions of Law involved in the present appeal arecovered by the decisions relied upon by the learnedcounsel for the respondent, cited supra. Following thedecisions of the Hon'ble Supreme Court and thedecisions of this Court, the Questions of Law aredecided against the Revenue and in favour of theassessee. The appeal is liable to be dismissed.Accordingly, the Tax Case Appeal is dismissed. Nocosts.” 4. Mr. M.P. Senthil Kumar, learned counsel appearing forthe respondent-assessee submitted that followingthe judgments referred above, the question of law may be decidedin favour of the assessee and the appeal may be dismissed. 5. In view of the submissions made by the learned counselon either side, following the decision of this court dated https://hcservices.ecourts.gov.in/hcservices/ 02.03.2021 made in T.C.A.No.975 of 2010 [cited supra], theQuestion of Law is decided against the Revenue and in favourof the assessee. The appeal is liable to be dismissed.Accordingly, the Tax Case Appeal is dismissed. No costs. Sd/-Assistant Registrar //True Copy// Sub Assistant Registrar Rj To1. The Income Tax Appellate Tribunal, Chennai,"C" Bench.2. The Principal Commissioner of Income Tax-4, Chennai 343. The Commissioner of Income Tax(Appeals)-8, Chennai 344. The Assistant Commissioner of Income Tax, Company circle IV(3), Chennai.T.C.A.No. 426 of 2016PM(CO)NS(03/05/2021)