The Commissioner Of Income Tax,Chennai v. M/S.changepond Technologies P Ltd.,Plot

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMANDTHE HONOURABLE MR.JUSTICE SATHI KUMAR SUKUMARA KURUP T.C.A.NOS.229 OF 2015 & 444 OF 2016 T.C.A.No.229 of 2015 :- The Commissioner of Income tax,Chennai. .. Appellant -vs- M/s.Changepond Technologies P Ltd.,Plot No.112, 2[nd] Road, SIPCOT I, Park 2,Old Mahabalipuram Road,Siruseri, Chennai-600 103... Respondent Appeal under Section 260A of the Income Tax Act, 1961against the order dated 20.11.2013 made in I.T.A.No.1408(Mds)/2013 on the file of the Income Tax Appellate Tribunal 'B' Bench,Chennai for the assessment year 2009-10. Against the Appellateorder of the Commissioner of Income Tax (Appeals)-IX, Chennai-600 034 dated 28.03.2013 and made in ITA.No.521/2011-2012 forthe Assessment year 2009-2010; and against the Assessment orderof the Assistant Commissioner of Income-Tax, Company circle-1(3), Chennai-600034,dated30.12.2011andmade inPAN/GIR.No.AABCC3252G for the Assessment year 2010-11. T.C.A.No.444 of 2016 :- The Commissioner of Income tax,Chennai... Appellant -vs- M/s.Changepond Technologies P Ltd.,Plot H-1, 2[nd] Main Road,SIPCOT IT Park, OMR Siruseri,Chennai-600 103.PAN: .. RespondentAppeal under Section 260A of the Income Tax Act, 1961againsttheorderdated13.11.2015madeinI.T.A.No.1901/Mds/2015 on the file of the Income Tax Appellate https://hcservices.ecourts.gov.in/hcservices/ Tribunal 'C' Bench, Chennai for the assessment year 2010-11.Against the Appellate order of the Commissioner of Income Tax(Appeals)-I, Chennai-600 034 dated 28.05.2015 and made inITA.No.370/13-14/A-1 (New.No.ITA86/CIT(A)-1/2013-14) for theAssessment year 2010-2011; and against the Assessment order ofthe Assistant Commissioner of Income-Tax, Company circle-1(3),Chennai, dated 28.03.2013 and made in PAN/GIR.No. forthe Assessment year 2010-11. COMMON JUDGMENT (Delivered by T.S.Sivagnanam, J.) T.C.A.No.229 of 2015, filed by the appellant/Revenue, underSection 260A of the Income Tax Act, 1961, is directed againstthe order dated 20.11.2013 made in I.T.A.No.1408(Mds)/2013 onthe file of the Income Tax Appellate Tribunal 'B' Bench, Chennaifor the assessment year 2009-10, which was admitted on23.07.2015, on the following substantial questions of law:-“i) Whether on the facts and in thecircumstances of the case, the Appellate Tribunalwas right in directing the Assessing Officer torecompute the income in the light of the decisionof the Special Bench in the case of Sak Soft byexcluding the freight and insurance expenses bothfrom the Export turnover and also from the Totalturnover while computing deduction under Section10A of the Income Tax Act? and ii) Is not the finding of the Tribunal bad,especially when Explanation 2(iv) to Section 10Adefines the word "Export Turnover" whereby it hadbeen clearly stated that it would not includefreight, telecommunication charges insuranceattributable to the delivery of the articles orthings or computer software outside India orexpenses if any incurred in foreign exchangewhile providing the technical services outsideIndia?” under Section 260A of the Income Tax Act, 1961 is directedagainsttheorderdated13.11.2015madeinI.T.A.No.1901/Mds/2015 on the file of the Income Tax AppellateTribunal 'C' Bench, Chennai for the assessment year 2010-11,which was admitted on 12.08.2016, on the following substantialquestions of law:- "1. Whether on the facts and in thecircumstances of the case, the Tribunal was rightin directing the AO to allow deduction claimedu/s.10A in respect of Siruseri unit? 2. Is not the finding of the Tribunal badespecially when there is transfer of more than50% of the technical manpower which resulted insplitting / reconstruction of the existing unitat Adyar and no exemption could be granted underSection 10A? under Section 260A of the Income Tax Act, 1961 is directedagainsttheorderdated13.11.2015madeinI.T.A.No.1901/Mds/2015 on the file of the Income Tax AppellateTribunal 'C' Bench, Chennai for the assessment year 2010-11,which was admitted on 12.08.2016, on the following substantialquestions of law:- "1. Whether on the facts and in thecircumstances of the case, the Tribunal was rightin directing the AO to allow deduction claimedu/s.10A in respect of Siruseri unit? 2. Is not the finding of the Tribunal badespecially when there is transfer of more than50% of the technical manpower which resulted insplitting / reconstruction of the existing unitat Adyar and no exemption could be granted underSection 10A? 3. Whether on the facts and in thecircumstance of the case the Tribunal was rightin not considering the fact that the Adyar unitwas closed by 31.03.2009 which proves that theSiruseri unit was formed only out ofreconstruction of the assets, however partiallyfrom Adyar unit and there is no continuity ofbusiness operation from both the undertaking? and 4. Whether on the facts and in thecircumstance of the case the Assessee wasentitled to claim deduction u/s.10A withoutfulfilling the conditions laid down in Sec.10(A)(2)(ii) and Sect.10A(2)(iii)." 3.Heard Ms.R.Hemalatha, learned Senior Standing Counsel forthe appellant/Revenue and Mr.R.Sivaraman, learned counsel forthe respondent/assessee. 4.Identical substantial questions of law, though wordedslightly in a different form, were considered by us inT.C.A.Nos.466 to 469 of 2015 and the appeals filed by theRevenue were dismissed on 03.08.2021. The operative portion ofthe judgment reads as follows:- “4.It is not disputed before us that all thesubstantial questions of law, which have been framedfor consideration in these appeals, have beenconsidered by the Division Bench of this Court in thecase of CIT vs. SRA Systems Ltd., [T.C.A.No.975 of2010 dated 02.03.2021]. The relevant paragraphs ofthe judgment read 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.1 is covered by the decision of the Hon'ble Supreme Courtreported 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 made inT.C.A.Nos.1257 & 1258 of 2009 [Commissioner of IncomeTax, Chennai Vs. M/s.Sak Soft Ltd.] and the Questionof Law no.2 is covered by the decision of this Benchdated 19.01.2021 made in T.C.A.Nos.1470 to 1472 of2010 [Commissioner of Income Tax, Chennai Vs.M/s.S.R.A. Systems Ltd., No.100, Valluvar KottamHigh Road, Nungambakkam, Chennai] and the Question oflaw no.3 is covered by the decision of the DivisionBench of this Court dated 18.03.2020 made inT.C.A.No.228 of 2011 [M/s.Comstar AutomativeTechnologies Private Ltd., (formerly known as VisteonPowertrain Control Systems India Private Limited,Keelakaranai Village, Malrosapuram Post, MaraimalaiNagar, Chengalpattu District- 603 204 Vs. The DeputyCommissioner 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) [Commissionerof Incometax, Central – III Vs. HCL Technologies Ltd.]“... 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) [Commissionerof Incometax, Central – III Vs. HCL Technologies Ltd.]“... 19.In the instant case, if the deductionson freight, telecommunication and insuranceattributable to the delivery of computersoftware under Section 10A of the IT Act areallowed only in Export Turnover but not fromthe Total Turnover then, it would give riseto inadvertent, unlawful, meaningless andillogical result which would cause graveinjustice to the Respondent which could havenever been the intention of the legislature. 20.Even in the common parlance, when theobject of the formula is to arrive at theprofit from export business, expensesexcluded from export turnover have to beexcluded from total turnover also. Otherwiseany other interpretation makes the formulaunworkable and absurd. Hence, we aresatisfied that such deduction shall beallowed from the total turnover in sameproportion as well.21.On the issue of expenses on technicalservices provided outside, we have to follow the same principle of interpretation asfollowed in the case of expenses of freight,telecommunication etc., otherwise the formulaof calculation would be futile. Hence, in thesame way, expenses incurred in foreignexchange for providing the technical servicesoutside shall be allowed to exclude from thetotal 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 of2009 [Commissioner of Income Tax, Chennai Vs. M/s.SakSoft Ltd.] decided the Question of law against theRevenue 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 ofdeduction under Section 10A is common to allthe three Assessment Years, all the three TaxAppeals are taken up together and disposed ofby this common judgment. For the AssessmentYear 2000-01, the assessee had filed itsreturn of income on 29.11.2000. The assesseeclaimed that it was eligible for deductionunder Section 10B. The return was processedon 28.03.2002. Subsequently, the AssessingOfficer had reason to believe that incomechargeable to tax had escaped assessment onaccount of the assessee Company beingineligible for deduction under Section 10A.Subsequently, a notice dated 22.03.2007 wasissued under Section 148 and after giving anopportunity of hearing, the scrutinyassessment order was passed on 17.12.2007,disallowing the entire claim of deductionunder Section 10B. Further, the expenditureincurred for the renovation and repairs ofthe rented premises of the assessee Companywas disallowed by the Assessing Officer onthe ground that such expenses were in thenature of capital expenditure. The AssessingOfficer in his re-assessment order noted thatin terms of Section 10B(ii) an undertaking inorder to be eligible for deduction underSection 10B must not be formed by splittingup or reconstruction of a business already in existence. Further, the Assessing Officerheld that deduction under Section 10B was notavailable to the assessee Company in view ofthe provisions of Section 10B(iii) whichstipulate that eligible business is notformed by transfer to a new business of plantand machinery previously used for anypurpose. The Assessing Officer found that theassessee had not complied with both theseconditions, hence, it was not entitled to anydeduction under Section 10B.6.For the Assessment Year 2002-03, in thecase of the assessee Company itself, theIncome Tax Appellate Tribunal “C” Bench,Chennai had dealt with the applicability ofClauses (ii) and (iii) of Section 10A(2) initsorderdated16.05.2008inI.T.A.No.2255/Mds/06. The Tribunal, aftertaking into consideration the decision ofApex Court reported in 107 ITR 195 [TextileMachinery Corporation Limited Vs. CIT] heldas follows:“... this is not a case of setting up ofa new business, but only transfer of businessplace of existing business to a new placelocated in STPI area and thereafter, gettingthe approval from the authorities, theassessee become entitled to deduction underSection 10A. Merely because by shifting thebusiness from one place to another andkeeping some of the plant and machinery asthose are bearing charge of financialinstitution, does not violate Clause (ii) and(iii) of Sub Clause (2) to Section 10A of theIncome 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 orderof the Income Tax Appellate Tribunal dated16.05.2008 made in I.T.A.No.2255/Mds/06 forthe Assessment Year 2002-03 and dismissed theappeal. In view of the judgment of theHon'ble Division Bench of this Court, it isclear that the applicability of Clauses (ii)and (iii) of Sub Clause (2) to Section 10B ofthe Act, the impugned order passed by theIncome Tax Appellate Tribunal is proper. Inview of the order passed by the Income Tax Appellate Tribunal dated 16.05.2008 inI.T.A.No.2255/Mds/06 and the judgment passedby the Hon'ble Division Bench of this Courton 26.10.2018 in Tax Case Appeal No.1916 of2008, the assessee Company would be entitledto deduction under Section 10A anddisallowance made by the Assessing Officerwas not correct. Since the order passed underSection 263 itself has been set aside, thecause of action for re-assessment does notsurvive.” (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, NungambakkamHigh Road, Chennai – 600 034], the Division Benchheld as follows: “... 27.Therefore the law has been settled bythe said decision of the Hon'ble Apex Court,where in clear terms, it has been held that,the deductions either under Section 10A or10B would be made while computing the grosstotal income of the eligible undertaking(like the Assessee) under Chapter IV of theAct and not at the stage of computation ofthe total income under Chapter VI of the Act. 28.Here is the case in hand, the totalincome was first arrived at by the Revenuethrough the Assessing Officer in theAssessment order by computing the totalincome by way of brought forward or carryforward the depreciation allowance of theearlier Assessment years and set off theunabsorbed depreciation first and making thereturn Nil, thereby leaving the Assessee in aposition where it could not claim andeduction under Section 10B as there was noincome after set off of carry forwarddepreciation and unabsorbed depreciation fromearlier years. 29.This method of computing the income inthe present case made by the Revenue istotally against the said law as has beendeclared by te Hon'ble Apex Court in theaforesaid decision in Commissioner of Income- tax v. Yokogawa India Ltd., (cited supra).30.Therefore we have no hesitation tohold that, the decision of the ITAT, which isimpugned herein, would not stand in the legalscrutiny, in view of the law having beendeclared by the Hon'ble Apex Court.Therefore, we are of the view that, theSubstantial Question of Law raised in thisAppeal is covered by the said decision,therefore, it can be answered accordingly.” 6.Mr.J.Narayanasamy, 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. Followingthe decisions 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.” Following the above decision, these tax caseappeals are dismissed. No costs. Consequently,connected miscellaneous petitions are closed.” 5.The Revenue is not able to point out any distinguishingfeatures as to why we should not apply the aforementioneddecision and answer the substantial questions of law in theinstant case against the Revenue. Therefore, by following theaforementioned decision, these appeals are dismissed and thesubstantial questions of law are answered against the Revenue.No costs. True Copy abr 1. The Income Tax Appellate Tribunal 'B' Bench, Chennai. https://hcservices.ecourts.gov.in/hcservices/ 2. The Income Tax Appellate Tribunal 'C' Bench, Chennai.3. The Commissioner of Income Tax (Appeals)-IX, Chennai-600 034 4. The Commissioner of Income Tax (Appeals)-I, Chennai-600 034 5. The Assistant Commissioner of Income Tax Company circle-I(3) Chennai-600 034 Company circle-I(3) Chennai-600 034 +2ccs to M/S.T.Ravikumar, Advocate, SR.No39508,39509 PA(CO)PM(06/09/2021) T.C.A.Nos.229 of 2015 &444 of 2016