The Hon’ble Mr. Justice Ravi v. Hosmani

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 1 DAY OF OCTOBER, 2021 PRESENT THE HON’BLE MRS.JUSTICE S.SUJATHA AND THE HON’BLE MR. JUSTICE RAVI V. HOSMANI I.T.A.No.826/2017 BETWEEN : 1. PR. COMMISSIONER OF INCOME TAX-VI, CENTRAL REVENUE BUILDINGS, QUEENS ROAD, BANGALORE-560 001. CENTRAL REVENUE BUILDINGS, QUEENS ROAD, BANGALORE-560 001. 2. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(2) BENGALURU. INCOME TAX, CIRCLE 6(1)(2) BENGALURU. ...APPELLANTS (BY SRI JEEVAN J. NEERALGI, ADV. A/W SRI T.N.C.SRIDHAR, ADV. FOR SRI E.I.SANMATHI, ADV.) AND : M/s SUBEX LTD., RMZ ECOWORLD, DEVARABISANAHALLI, OUTER RING ROAD, BANGALORE-560 037. PAN: AABCS 9255R. …RESPONDENT (BY SRI CHYTHANYA K.K., ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 12.04.2017 PASSED IN ITA NO.634/BANG/2016, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT & SET ASIDE THE APPELLATE ORDERS DATED 12.04.2017 THE ITAT, 'B' BENCH, BENGALURU IN ITA NO.634/BANG/2016 FOR ASSESSMENT YEAR 2011-2012. THIS APPEAL HAVING BEEN HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING: J U D G M E N T This appeal is filed by the Revenue under Section 260A of the Income Tax Act, 1961 [‘Act’ for short] challenging the order of the Income Tax Appellate Tribunal, “B” Bench, Bangalore ['Tribunal' for short] dated 12.04.2017 passed in IT A No.634/Bang/2016 relating to the assessment year 2011-12. 2. The appeal was admitted to consider the following substantial questions of law: “1. Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside the disallowance made under Section 35-D of the Act by the assessing authority by following its earlier order which has been challenged before this Hon’ble High Court in ITA No.684/2015 and also in ITA No,385 of 2015 even when the assessing authority has rightly made the addition by holding that the assessee-company had acquired the subsidiary companies and for the purpose of acquisition, had borrowed the funds by issue of GDRs and FDDBs and as the condition stipulated in Section 35-D were not satisfied? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside the computation made by the assessing authority in respect of Section 10-AA by holding that if the expenditure on travel is excluded from both export turnover and total turnover, the effect remains the same, without appreciating the fact that the statute allows exclusion of such expenditure expressly only from the export turnover by way of specific definition as envisaged in the Act and there is no specific provision in Section 10A warranting exclusion of the above expenses from the total turnover also?” Re. substantial question of law No.1: 3. This substantial question of law is covered by ITA No.684/2015. This Court in ITA No.684/2015 has held that, - 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside the computation made by the assessing authority in respect of Section 10-AA by holding that if the expenditure on travel is excluded from both export turnover and total turnover, the effect remains the same, without appreciating the fact that the statute allows exclusion of such expenditure expressly only from the export turnover by way of specific definition as envisaged in the Act and there is no specific provision in Section 10A warranting exclusion of the above expenses from the total turnover also?” Re. substantial question of law No.1: 3. This substantial question of law is covered by ITA No.684/2015. This Court in ITA No.684/2015 has held that, - “Thus, in the light of these judgments and in terms of the Companies Act, 1956, debenture includes debenture shares and the bonds being interest bearing instruments which represent a loan, FCCB bonds are instruments issued to investors for raising funds which is repayable after certain period which is nothing but a debt instrument. This view is supported by the judgment of the High Court of Madras in case of Commissioner of Income-tax-III Chennai V/s. PVP Ventures Ltd., [(2012) 211 Taxman 554 (Mad.)]which has attained finality in view of the dismissal of the SLP [C] C.C.2512/2014. filed by the Revenue against the said judgment. For the aforesaid reasons, the finding of the Tribunal that the increase or decrease in liability on account of fluctuation in foreign exchange as on the date of the balance sheet would increase or decrease the liability of the assessee and therefore, the gain or loss would be on capital account and not taxable cannot be faulted with. Hence, the challenge made by the Revenue on this issue is answered against the Revenue and in favour of the assessee.” In view of the aforesaid, this substantial question of law is answered in favour of the assessee and against the Revenue. Re. substantial question of law No.2: 4. This issue is squarely covered by the decision of the Hon’ble Apex Court in Commissioner of Income-Tax V/s.HCL Technologies Ltd., [(2018) 404 ITR 719 (SC)] wherein, the Hon’ble Apex Courthas held thus: “17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from ‘export turnover’ must also be excluded from ‘total turnover’, since one of the components of ‘total turnover’ is export turnover. Any other interpretation would run counter to the legislative intent and would be impermissible.” In view of the said ruling, we answer this substantial question of law in favour of the assessee and against the Revenue. Substantial question of law Nos.1 and 2 are answered in favour of the assessee and against the Revenue. In the result, appeal stands dismissed. Sd/- JUDGE Sd/- JUDGE NC.