The Commissioner Of Income Tax,Chennai v. M/S. Isoft R & D Pvt. Ltd.,New

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 01.04.2021 CORAM: THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI T.C.A.No.418 of 2013 The Commissioner of Income Tax,Chennai. ... Appellant/Appellant v. M/s. iSoft R & D Pvt. Ltd.,New No.19, Hafiz Court,Kodambakkam, Chennai – 600 034.. ... Respondent/Respondent Appeal preferred under Section 260A of the Income TaxAct, 1961, against the order of the Income Tax AppellateTribunal, Chennai, "D" Bench, dated 31.07.2012 inI.T.A.No.329Mds/2012 for the Assessment Year 2005-2006against the order of the Commissioner of Income Tax (Appeals)-IV, Chennai-34 dated 01/11/2011 in ITA No.421 & 435/11-12/A-IVand arising out of Assessment order of the AssistantCommissioner of Income Tax, Gandhi Salai, Chennai-34 dated22/10/2008 in G.I.no./P.A.No.AAAC17884D. For Appellant : Mr.Karthik Ranganathan Senior Standing Counsel For Respondent : Ms. Sriniranjani Srinivasan (Judgment was delivered by M. DURAISWAMY, J.) Challenging the order passed in I.T.A.No.329Mds/2012 inrespect of the Assessment Year 2005-2006 on the file of theIncome Tax Appellate Tribunal, Chennai, "D" Bench (forbrevity, the Tribunal), the Revenue has filed the aboveappeal. 2. The above appeal was admitted on the followingsubstantial questions of law: “ Whether under the facts andcircumstances of the case, the Income TaxAppellate Tribunal was right in holdinghttps://hcservices.ecourts.gov.in/hcservices/that the travelling expenditure incurred in foreign currency is to be reduced from thetotal turnover also for the purpose ofcomputation of deduction under section 10A ofthe Act?" 3. When the appeal is taken up for hearing, Mr.KarthikRanganathan, learned Senior Standing Counsel appearing forthe appellant fairly submitted that the above question oflaw is covered by the decision of thisCourt dated 02.03.2021 made in T.C.A. No.975 of 2010[The Commissioner of Income Tax - III v. M/s. SRA SystemsLtd., Chennai], wherein this Court held as follows: “... 4.When the appeal is taken up for hearing,Mr.R.Sivaraman, learned counsel appearing for therespondent submitted that the Question of Law no.1is covered by the decision of the Hon'ble SupremeCourt reported in [2018] 93 taxmann.com 33 (SC)[Commissioner of Income-tax, Central – III Vs. HCLTechnologies Ltd.], an un-reported judgment of theDivision Bench of this Court dated 10.01.2019 madein T.C.A.Nos.1257 & 1258 of 2009 [Commissioner ofIncome Tax, Chennai Vs. M/s.Sak Soft Ltd.] and theQuestion of Law no.2 is covered by the decision ofthis Bench dated 19.01.2021 made in T.C.A.Nos.1470to 1472 of 2010 [Commissioner of Income Tax, ChennaiVs. M/s.S.R.A. Systems Ltd., No.100, Valluvar KottamHigh Road, Nungambakkam, Chennai] and the Questionof law no.3 is covered by the decision of theDivision Bench of this Court dated 18.03.2020 madein T.C.A.No.228 of 2011 [M/s.Comstar AutomativeTechnologies Private Ltd., (formerly known asVisteon Powertrain Control Systems India PrivateLimited, Keelakaranai Village, Malrosapuram Post,Maraimalai Nagar, Chengalpattu District- 603 204 Vs.The Deputy Commissioner of Income Tax, CompanyCircle – I (3), 121, Nungambakkam High Road, Chennai– 600 034]. 5.It would be appropriate to extract therelevant portions of the judgments relied upon bythe learned counsel for the respondent.(i)[2018] 93 taxmann.com 33 (SC) [Commissionerof Income-tax, Central – III Vs. HCL TechnologiesLtd.]“... 19.In the instant case, if the deductions onfreight,telecommunicationandinsuranceattributable to the delivery of computer softwareunder Section 10A of the IT Act are allowed onlyin Export Turnover but not from the Total Turnoverthen, it would give rise to inadvertent, unlawful,meaningless and illogical result which would causehttps://hcservices.ecourts.gov.in/hcservices/grave injustice to the Respondent which could have 5.It would be appropriate to extract therelevant portions of the judgments relied upon bythe learned counsel for the respondent.(i)[2018] 93 taxmann.com 33 (SC) [Commissionerof Income-tax, Central – III Vs. HCL TechnologiesLtd.]“... 19.In the instant case, if the deductions onfreight,telecommunicationandinsuranceattributable to the delivery of computer softwareunder Section 10A of the IT Act are allowed onlyin Export Turnover but not from the Total Turnoverthen, it would give rise to inadvertent, unlawful,meaningless and illogical result which would causehttps://hcservices.ecourts.gov.in/hcservices/grave injustice to the Respondent which could have never been the intention of the legislature. 20.Even in the common parlance, when theobject of the formula is to arrive at the profitfrom export business, expenses excluded fromexport turnover have to be excluded from totalturnover also. Otherwise any other interpretationmakes the formula unworkable and absurd. Hence, weare satisfied that such deduction shall be allowedfrom the total turnover in same proportion aswell. 21.On the issue of expenses on technicalservices provided outside, we have to follow thesame principle of interpretation as followed inthe case of expenses of freight, telecommunicationetc., otherwise the formula of calculation wouldbe futile. Hence, in the same way, expensesincurred in foreign exchange for providing thetechnical services outside shall be allowed toexclude from the total turnover.”(ii)Following the ratio laid down by theHon'ble Supreme Court, the Division Bench of thisCourt, by order dated 10.01.2019 in T.C.A.Nos.1257 &1258 of 2009 [Commissioner of Income Tax, ChennaiVs. M/s.Sak Soft Ltd.] decided the Question of lawagainst the Revenue and 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:- “... 5.As the issue of allowability of deductionunder Section 10A is common to all the threeAssessment Years, all the three Tax Appeals aretaken up together and disposed of by this commonjudgment. For the Assessment Year 2000-01, theassessee had filed its return of income on29.11.2000. The assessee claimed that it waseligible for deduction under Section 10B. Thereturn was processed on 28.03.2002. Subsequently,the Assessing Officer had reason to believe thatincome chargeable to tax had escaped assessment onaccount of the assessee Company being ineligiblefor deduction under Section 10A. Subsequently, anotice dated 22.03.2007 was issued under Section148 and after giving an opportunity of hearing,the scrutiny assessment order was passed on17.12.2007, disallowing the entire claim ofhttps://hcservices.ecourts.gov.in/hcservices/deduction under Section 10B. Further, the expenditure incurred for the renovation andrepairs of the rented premises of the assesseeCompany was disallowed by the Assessing Officer onthe ground that such expenses were in the natureof capital expenditure. The Assessing Officer inhis re-assessment order noted that in terms ofSection 10B(ii) an undertaking in order to beeligible for deduction under Section 10B must notbe formed by splitting up or reconstruction of abusiness already in existence. Further, theAssessing Officer held that deduction underSection 10B was not available to the assesseeCompany in view of the provisions of Section 10B(iii) which stipulate that eligible business isnot formed by transfer to a new business of plantand machinery previously used for any purpose. TheAssessing Officer found that the assessee had notcomplied with both these conditions, hence, it wasnot entitled to any deduction under Section 10B. 6.For the Assessment Year 2002-03, in thecase of the assessee Company itself, the IncomeTax Appellate Tribunal “C” Bench, Chennai haddealt with the applicability of Clauses (ii) and(iii) of Section 10A(2) in its order dated16.05.2008 in I.T.A.No.2255/Mds/06. The Tribunal,after taking into consideration the decision ofApex Court reported in 107 ITR 195 [TextileMachinery Corporation Limited Vs. CIT] held asfollows: “... this is not a case of setting up of anew business, but only transfer of business placeof existing business to a new place located inSTPI area and thereafter, getting the approvalfrom the authorities, the assessee become entitledto deduction under Section 10A. Merely because byshifting the business from one place to anotherand keeping some of the plant and machinery asthose are bearing charge of financial institution,does not violate Clause (ii) and (iii) of SubClause (2) to Section 10A of the Income Tax Act.” 7.The order passed by the Income TaxAppellate Tribunal was challenged by theDepartment in T.C.A.No.1916 of 2008 and theHon'ble Division Bench of this Court by itsjudgment dated 26.10.2018 confirmed the order ofthe Income Tax Appellate Tribunal dated 16.05.2008made in I.T.A.No.2255/Mds/06 for the AssessmentYear 2002-03 and dismissed the appeal. In view ofthe judgment of the Hon'ble Division Bench of thisCourt, it is clear that the applicability ofClauses (ii) and (iii) of Sub Clause (2) toSection 10B of the Act, the impugned order passed https://hcservices.ecourts.gov.in/hcservices/ by the Income Tax Appellate Tribunal is proper. Inview of the order passed by the Income TaxAppellateTribunaldated16.05.2008inI.T.A.No.2255/Mds/06 and the judgment passed bythe Hon'ble Division Bench of this Court on26.10.2018 in Tax Case Appeal No.1916 of 2008, theassessee Company would be entitled to deductionunder Section 10A and disallowance made by theAssessing Officer was not correct. Since the orderpassed under Section 263 itself has been setaside, the cause of action for re-assessment doesnot 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 PrivateLtd., (formerly known as Visteon Powertrain ControlSystems India Private Limited, Keelakaranai Village,Malrosapuram Post, Maraimalai Nagar, ChengalpattuDistrict- 603 204 Vs. The Deputy Commissioner ofIncome Tax, Company Circle – I (3), 121,Nungambakkam High Road, Chennai – 600 034], theDivision Bench held as follows:“...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 madewhile computing the gross total income of theeligible undertaking (like the Assessee) underChapter IV of the Act and not at the stage ofcomputation of the total income under Chapter VIof the Act. 28.Here is the case in hand, the total incomewas first arrived at by the Revenue through theAssessing Officer in the Assessment order bycomputing the total income by way of broughtforward or carry forward the depreciationallowance of the earlier Assessment years and setoff the unabsorbed depreciation first and makingthe return Nil, thereby leaving the Assessee in aposition where it could not claim an deductionunder Section 10B as there was no income after setoff of carry forward depreciation and unabsorbeddepreciation from earlier years. 29.This method of computing the income in thepresent case made by the Revenue is totallyagainst the said law as has been declared by teHon'ble Apex Court in the aforesaid decision inCommissioner of Income-tax v. Yokogawa India Ltd.,(cited supra).https://hcservices.ecourts.gov.in/hcservices/ 29.This method of computing the income in thepresent case made by the Revenue is totallyagainst the said law as has been declared by teHon'ble Apex Court in the aforesaid decision inCommissioner of Income-tax v. Yokogawa India Ltd.,(cited supra).https://hcservices.ecourts.gov.in/hcservices/ 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 theHon'ble Apex Court. Therefore, we are of the viewthat, the Substantial Question of Law raised inthis Appeal is covered by the said decision,therefore, it can be answered accordingly.” 6.Mr.KIarthik Ranganathan learned SeniorStanding Counsel appearing for the appellant fairlysubmitted that the issues involved in the presentappeal are covered by the decision relied upon bythe learned counsel for the respondent. 7.In view of the submissions made by thelearned counsel on either side, we are convincedthat the Questions of Law involved in the presentappeal are covered by the decisions relied upon bythe learned counsel for the respondent, cited supra.Following the decisions of the Hon'ble Supreme Courtand the decisions of this Court, the Questions ofLaw are decided against the Revenue and in favour ofthe assessee. The appeal is liable to be dismissed.Accordingly, the Tax Case Appeal is dismissed. Nocosts.” 4. Ms. Sriniranjani Srinivasan, learned counselappearing for the respondent-assessee submittedthat following the judgments referred above, the question oflaw may be decided in favour of the assessee and the appealmay be dismissed. 5. In view of the submissions made by the learned counselon either side, following the decision of this court dated02.03.2021 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. //True copy// 1. The Income Tax Appellate Tribunal, Chennai,"D" Bench. https://hcservices.ecourts.gov.in/hcservices/ 2. The Commissioner of Income Tax (Appeals)-IV, 121, Mahatma Gandhi Road, Chennai-34. 121, Mahatma Gandhi Road, Chennai-34. 3. The Assistant Commissioner of Income Tax, Company Circle(II)(3), Room No.513, V, Floor, New Block, 121 Mahatma Gandhi Salai, Chennai-34. Company Circle(II)(3), Room No.513, V, Floor, New Block, 121 Mahatma Gandhi Salai, Chennai-34. 4. The Assistant Registrar, Income Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Chennai-34 Income Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Chennai-34 +1cc to Mr.N.Muthukumar, Advocate SR.No.21510 T.C.A.No. 418 of 2013GPL(CO)GMY(03/05/2021)