Tca/872/2017 Of Commissioner Of Income Tax v. M/S Lasonindia Pvt. Ltd • In Tax Case (Appeal)

IN THE HIGH COURT OF JUDICATURE AT MADRAS Commissioner of Income Tax, Chennai …Appellant-Vs-M/s.Sankhya Technologies Pvt Ltd. NO.13/2 III Floor, Jayalakshmipuram,1st street, Nungambakkam,Chennai 34 …Respondent Prayer : Tax Case Appeal filed under Section 260-A of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal,Madras'CBenchdated23.9.2016inI.T,A.No.589/Mds/2015 against the order of the Commissioner ofIncome Tax (Appeals-15) Chennai dated 12.01.2015 in I.T.A. No.(049/13-14/A-15 for assessment year 2003-2004 passed underSection 143(3) and 250 of I.T. Act 1961 against the order dated30.10.2006 in PAN SA.244/ on the file of the IncomeTax officer(OSD) Company Cirle VI(1) Chennai 34. The Court was held by Video Conference as per the Resolutionof the Full Court dated 3[rd] July 2020, by the Judges at theirrespective residences and the counsel, and staff of the Courtappearing from their respective residences. 2. This Appeal has been filed by the Revenue against theorder of the learned Tribunal dated 23.09.2016 for AssessmentYear 2003-04, by which the learned Tribunal decided against theRevenue that the Assessee was entitled to include the intereston bank deposits for the purpose of claiming deduction /exemption under Section 10A of the Act. 3. The substantial question of law raised in the presentappeal is given hereunder.“Whether on the facts and in the circumstances ofthe case the Tribunal was right in holding that theassessee company is eligible for setoff of business https://hcservices.ecourts.gov.in/hcservices/ loss uls 10A against the other income like interestincome etc., by applying the provision of section70, when the assessee itself had returned businessloss u/s. 10A?” 4. The relevant findings of the learned Tribunal are quotedbelow for ready reference. 7.We have heard the rival submissions, perused thematerialon record and judicial decisions. The cruxof the issue being denial of set off of income fromother sources against business loss u/s lOA unit.The Assessing Officer in the re-assessmentproceedings has , segregated the business lossseparately and allowed exemption u/s lOA and madeaddition of interest < 23,60,578/- under incomefrom other sources. The CIT(A) upheld the action ofthe Assessing Officer relying on the judgment ofKarn~taka High Court in Yokogawa India. Ltd.(supra)and came to a conclusion that there should be nexusbetween the income earned in respectof theindustrial unde'rtaking. 8.The ld. DR explained that it is in the nature ofexempted businessloss. As against the above, theId. AR submitted that under the provisions of sec.70(1), set off of loss for one source againstincome from another source under the same head ofincome is allowed. By applying this provision theassessee-company has f adjusted and set off theother income including the interest income with thebusiness loss u/s lOA of the Act and filed thereturn of income. Further there was an amendment tothis provision where deduction u/s lOA has to betreated as a deduction from total income,therefore, the assesseeby applying the provisionhas claimed the set off against the businessloss.The decisionsrelied by the Id. AR are in support ofhis arguments wherein held that the loss of lOBunit is available for set off u/s 70. So, sameprinciple applies to the provisions of lOA. We findthat a similar issue was considered by thejurisdictional High Court in the case of CIT vs M/sLasonIndia Pvt. Ltd • in Tax case (Appeal) NO.1529of 2007 dated 29.10.2013 wherein it was held asunder: "6. In the light of the circular issuedby the Government of India, CentralBoard of Direct Taxes, we do not findthe contention of the Revenueremains any "6. In the light of the circular issuedby the Government of India, CentralBoard of Direct Taxes, we do not findthe contention of the Revenueremains any longer res integra for this court toconsider the same. In this decisionrendered in T.C(A) Nos. 72 & 73 of 2009,dated 22.10.2013, Commissioner of Incometax vs Mis Pentasoft Technologies Ltdthis Court has also considered theeffect of the circular as well as thedecision of the Bombay High Court in thecase of Commissionerof Income-tax vsGalaxy Surfactants Ltd, reported in 343ITR 108 and Hindustan Unilever Ltd vsDeputy Commissioner of Income-taxreported in [2010] 325 ITR 102[Bom] asregards the set off of loss suffered bythe assesseein ineligible unit asagainst the profit of eligible unit infavour of the assessee. In the light ofthe Circular above, referred to and thedecision of this Court, we hold that theassesseeis entitled to set off of thelossesas against the income of theeligible unit, so long as the loss wasnot liable to be excludedin the categoryeven under lOB of the Income Tax Act." 9. Therefore, considering the apparent facts,material on record and judicial decisions andprovisions of sec. 70 of the Act, we are of theopinion that the assessee company is eligible forset off of business loss against other incomeincluding interest under the same head. And theAssessing Officer is directed to allow set off ofthe other income with business loss determined u/slOA of the Act. 10.In the result, appeal of the assessee isallowed. Order pronounced on Friday, 23'dSeptember, 2016, at Chennai. 5. It has been brought to the notice of this Court thatthere is a judgment of the Full Bench of the Karnataka HighCourt, to which one of us (Dr.Vineet Kothari, J.) was a party,in which the Full Bench has held that the interest on bankdeposits is also eligible to be included in the profits of 100%Export Oriented Units for the purpose of claiming deductionunder Section 10A / 10B of the Income Tax Act. The relevantportion of the judgment of the Full Bench of the Karnataka HighCourt is quoted below.“35. The Scheme of Deductions under Chapter VIA inSections 80-HH, 80-HHC, 80-IB, etc from the ‘Gross 10.In the result, appeal of the assessee isallowed. Order pronounced on Friday, 23'dSeptember, 2016, at Chennai. 5. It has been brought to the notice of this Court thatthere is a judgment of the Full Bench of the Karnataka HighCourt, to which one of us (Dr.Vineet Kothari, J.) was a party,in which the Full Bench has held that the interest on bankdeposits is also eligible to be included in the profits of 100%Export Oriented Units for the purpose of claiming deductionunder Section 10A / 10B of the Income Tax Act. The relevantportion of the judgment of the Full Bench of the Karnataka HighCourt is quoted below.“35. The Scheme of Deductions under Chapter VIA inSections 80-HH, 80-HHC, 80-IB, etc from the ‘Gross Total Income of the Undertaking’, which may arisefrom different specified activities in theseprovisions and other incomes may exclude interestincome from the ambit of Deductions under theseprovisions, but exemption under Section 10-A and10-B of the Act encompasses the entire incomederived from the business of export of sucheligible Undertakings including interest incomederived from the temporary parking of funds bysuch Undertakings in Banks or even Staff loans. Thededicated nature of business or their specialgeographical locations in STPI or SEZs. etc. makesthem a special category of assessees entitled tothe incentive in the form of 100% Deduction underSection 10-A or 10-B of the Act, rather than itbeing a special character of income entitled toDeduction from Gross Total Income under Chapter VIAunder Section 80-HH, etc. The computation of incomeentitled to exemption under Section 10-A or 10-B ofthe Act is done at the prior stage of computationof Income from Profits and Gains of Business as perSections 28 to 44 under Part-D of Chapter IV before‘Gross Total Income’ as defined under Section 80-B(5) is computed and after which the considerationof various Deductions under Chapter VI-A in Section80HH etc. comes into picture. Therefore analogy ofChapter VI Deductions cannot be telescoped orimported in Section 10-A or 10-B of the Act. Thewords ‘derived by an Undertaking’ in Section 10-Aor 10-B are different from ‘derived from’ employedin Section 80-HH etc. Therefore all Profits andGains of the Undertaking including the incidentalincome by way of interest on Bank Deposits or Staffloans would be entitled to 100% exemption ordeduction under Section 10-A and 10-B of the Act.Such interest income arises in the ordinary courseof export business of the Undertaking even thoughnot as a direct result of export but from the BankDeposits etc., and is therefore eligible for 100%deduction. 36. We have to take a purposive interpretation ofthe Scheme of the Act for the exemption underSection 10-A/10-B of the Act and for the object ofgranting such incentive to the special class ofassessees selected by the Parliament, the play-in-the-joints is allowed to the Legislature and theliberal interpretation of the exemption provisionsto make a purposive interpretation, was alsopropounded by Hon’ble Supreme Court in thefollowing cases:- 36. We have to take a purposive interpretation ofthe Scheme of the Act for the exemption underSection 10-A/10-B of the Act and for the object ofgranting such incentive to the special class ofassessees selected by the Parliament, the play-in-the-joints is allowed to the Legislature and theliberal interpretation of the exemption provisionsto make a purposive interpretation, was alsopropounded by Hon’ble Supreme Court in thefollowing cases:- “I] In Bajaj Tempo Ltd., Bombay Vs.Commissioner of Income Tax, Bombay,[(1992) 3 SCC 78], the Hon’ble SupremeCourt held that:- “5. … ..Since aprovision intended for promoting economicgrowth has to be interpreted liberally,the restriction on it, too, has to beconstrued so as to advance the objectiveof the section and not to frustrate it.But that turned out to be the,unintended, consequence of construing theclause literally, as was done by the HighCourt for which it cannot be blamed, asthe provision is susceptible of suchconstruction if the purpose behind itsenactment, the objective it sought toachieve and the mischief it intended tocontrol is lost sight of. One way ofreading it is that the clause excludesany undertaking formed by transfer to itof any building, plant or machinery usedpreviously in any other business. Noobjection could have been taken to suchreading but when the result of reading insuch plain and simple manner is analysedthen it appears that literal constructionwould not be proper. …” II] In R.K. Garg v. Union of India,[(1981) 4 SCC 675] = [1982. SCC (Tax) 30p.690], the Hon’ble Apex Court has heldas under:- “8. Another rule of equalimportance is that laws relating toeconomic activities should be viewed withgreater latitude than laws touching civilrights such as freedom of speech,religion etc. It has been said by no lessa person than Holmes, J., that thelegislature should be allowed some playin the joints, because it has to dealwith complex problems which do not admitof solution through any doctrinaire orstrait-jacket formula and this isparticularly true in case of legislationdealing with economic matters, where,having regard to the nature of theproblems required to be dealt with,greater play in the joints has to beallowed to the legislature. The courtshould feel more inclined to give judicialdeferencetolegislativejudgment in the field of economicregulation than in other areas wherefundamental human rights are involved.Nowhere has this admonition been morefelicitously expressed than in Morey v.Doud [351 US 457 : 1 L Ed 2d 1485 (1957)]where Frankfurter, J., said in hisinimitable style: “In the utilities, taxand economic regulation cases, there aregood reasons for judicial self-restraintif not judicial deference to legislativejudgment. The legislature after all hasthe affirmative responsibility. Thecourts have only the power to destroy,not to reconstruct. When these are addedto the complexity of economic regulation,the uncertainty, the liability to error,the bewildering conflict of the experts,and the number of times the judges havebeen overruled by events — self-limitation can be seen to be the path tojudicialwisdomandinstitutionalprestige and stability.” The Court mustalways remember that “legislation isdirected to practical problems, that theeconomic mechanism is highly sensitiveand complex, that many problems aresingular and contingent, that laws arenot abstract propositions and do notrelate to abstract units and are not tobe measured by abstract symmetry”; “thatexact wisdom and nice adaption of remedyare not always possible” and that“judgment is largely a prophecy based onmeagre and uninterpreted experience”.Everylegislationparticularlyineconomic matters is essentially empiricand it is based on experimentation orwhat one may call trial and error methodand therefore it cannot provide for allpossible situations or anticipate allpossible abuses. There may be cruditiesandinequitiesincomplicatedexperimental economic legislation but onthat account alone it cannot be struckdown as invalid.” 37.On the above legal position discussed by us, weare of the opinion that the Respondent assessee was entitled to 100% exemption or deduction underSection 10-A of the Act in respect of the interestincome earned by it on the deposits made by it withthe Banks in the ordinary course of its businessand also interest earned by it from the staff loansand such interest income would not be taxable as‘Income from other Sources’ under Section 56 of theAct. The incidental activity of parking of SurplusFunds with the Banks or advancing of staff loans bysuch special category of assessees covered underSection 10-A or 10-B of the Act is integral part oftheir export business activity and a businessdecision taken in view of the commercial expediencyand the interest income earned incidentally cannotbe de-linked from its profits and gains derived bythe Undertaking engaged in the export of Articlesas envisaged under Section 10-A or Section 10-B ofthe Act and cannot be taxed separately underSection 56 of the Act.38. We therefore affirm and agree with the viewexpressed by the first Division Bench of this Courtin the case of M/s. Motorola India Electronics (P)Ltd.(supra) and we do not agree with the view takenby the subsequent Division Bench on 10/04/2014 inthe present case. 39. Both the questions thus framed above areanswered in favour of the Respondent Assessee andagainst the Revenue in the terms indicated aboveand the matter is sent back to the Division Benchfor deciding this Appeal in accordance with theaforesaid opinion.” 6. Having heard the learned counsel for the AppellantRevenue, we are of the considered opinion that the controversyinvolved in the present appeal filed by the Revenue is squarelycovered by the decision of the Full Bench of the Karnataka HighCourt cited supra, to which we respectfully agree and thesubstantial question of law raised in this appeal is answered infavour of the Assessee and against the Revenue. 7. In view of the aforesaid, the appeal is dismissed andanswering the question of law in favour of the respondentAssessee and against the appellant Revenue. No costs. Assistant Registrar 1.Income Tax Appellate Tribunal, Madras 'C' Bench. 6. Having heard the learned counsel for the AppellantRevenue, we are of the considered opinion that the controversyinvolved in the present appeal filed by the Revenue is squarelycovered by the decision of the Full Bench of the Karnataka HighCourt cited supra, to which we respectfully agree and thesubstantial question of law raised in this appeal is answered infavour of the Assessee and against the Revenue. 7. In view of the aforesaid, the appeal is dismissed andanswering the question of law in favour of the respondentAssessee and against the appellant Revenue. No costs. Assistant Registrar 1.Income Tax Appellate Tribunal, Madras 'C' Bench. 2.The Commissioner of Income Tax (Appeals)15ChennaiChennai 3.The Income Tax Officer(OSD)Company Cirle VI(1) Chennai 34.Company Cirle VI(1) Chennai 34. T.C.A.No.872 of 2017 RGN(CO)SP(08/10/2020)