Whether On The Facts And In The Circumstances Of The Case And In Law, The Tribunal Is Right In Allowing In Setting Aside Re-Computation Of Section 10A Made By A v. Tata Elxsi Ltd? Case And In Law, The Tribunal Is Right In Allowing In Setting Aside Re-Computation Of Section 10A Made By Assessing Authority By Following The J

Digitally signedby S P SUDHALocation: HIGHCOURT OFKARNATAKA IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 22 DAY OF NOVEMBER, 2022 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE T.G.SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 348 OF 2018A/WINCOME TAX APPEAL NO. 349 OF 2018 IN ITA No.348 OF 2018 BETWEEN : 1. THE PR COMMISSIONER OF INCOME-TAX, CIT(A) 5 FLOOR, BMTC BUIDLING 80 FEET ROAD, KORMANAGALA BENGALURU-560 095. OF INCOME-TAX, CIT(A) 5 FLOOR, BMTC BUIDLING 80 FEET ROAD, KORMANAGALA BENGALURU-560 095. 2. THE ADDL. COMMISSIONER OF INCOME-TAX, RANGE-11 PRESENT ADDRESS ACIT, CIRCLE-3(1)(1), 2 FLOOR BMTC BUIDLING, 80 FEET ROAD KORMANAGALA OF INCOME-TAX, RANGE-11 PRESENT ADDRESS ACIT, CIRCLE-3(1)(1), 2 FLOOR BMTC BUIDLING, 80 FEET ROAD KORMANAGALA BENGALURU-560 095. …APPELLANTS (BY SHRI. K.V. ARAVIND, STANDING COUNSEL) AND : M/S INFOSYS LTD ELECTRONIC CITY HOSUR ROAD BENGALURU-560 005. PAN: AAACI 4798L. …RESPONDENT (BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE) . . . . THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:10/11/2017 PASSED IN IT(TP)A NO.102/BANG/2013, FOR THE ASSESSMENT YEAR 2005-2006 (VIDE ANNEXURE-D), PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ETC. IN ITA No.349 OF 2018 BETWEEN : 1. THE PR COMMISSIONER OF INCOME-TAX, CIT(A) 5 FLOOR, BMTC BUIDLING 80 FEET ROAD, KORMANAGALA BENGALURU-560 095. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(4) PRESENT ADDRESS ACIT, CIRCLE-3(1)(1), 2 FLOOR BMTC BUILDING, 80 FEET ROAD KORMANAGALA BENGALURU-560 095. …APPELLANTS (BY SHRI. K.V. ARAVIND, STANDING COUNSEL) AND : M/S INFOSYS LTD ELECTRONIC CITY HOSUR ROAD BENGALURU-560 005. PAN: AAACI 4798L. …RESPONDENT (BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE) . . . . THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:10/11/2017 PASSED IN IT(TP)A NO.233/BANG/2013, FOR THE ASSESSMENT YEAR 2005-2006 (VIDE ANNEXURE-D), PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ETC. THESE INCOME TAX APPEALs, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT These two appeals by the Revenue arise out of IT(TP)A No.102/Bang/2013 and IT(TP)A No.233/Bang/2013, both dated 10.11.2017. 2. At the outset, Shri. K.V. Aravind, learned Senior Standing Counsel for the Revenue submitted that though five questions out of six raised by the Revenue have been admitted, this Court may consider all six questions in ITA No.348/2018, which will cover all the questions of law raised in ITA No.349/2018. They read as follows: 1. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in allowing claim of assessee that income derived from rental income from Infosys BPO Ltd and BSNL Chennai Ltd as profits derived under Section 10A of the Income Tax Act, 1961? and in law, the Tribunal is right in allowing claim of assessee that income derived from rental income from Infosys BPO Ltd and BSNL Chennai Ltd as profits derived under Section 10A of the Income Tax Act, 1961? 2. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in allowing claim for foreign tax credit under Section 90 of the Act in respect of income exempt under Section 10A of the Act by following the decision of this Hon'ble Court in case of Wipro Ltd? case and in law, the Tribunal is right in allowing claim for foreign tax credit under Section 90 of the Act in respect of income exempt under Section 10A of the Act by following the decision of this Hon'ble Court in case of Wipro Ltd? 2. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in allowing claim for foreign tax credit under Section 90 of the Act in respect of income exempt under Section 10A of the Act by following the decision of this Hon'ble Court in case of Wipro Ltd? case and in law, the Tribunal is right in allowing claim for foreign tax credit under Section 90 of the Act in respect of income exempt under Section 10A of the Act by following the decision of this Hon'ble Court in case of Wipro Ltd? 3. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in law in allowing claim of credit for state taxes paid outside India by following the decision of this Hon'ble Court in case of Wipro Ltd? case and in law, the Tribunal is right in law in allowing claim of credit for state taxes paid outside India by following the decision of this Hon'ble Court in case of Wipro Ltd? 4. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in allowing in setting aside re-computation of Section 10A made by Assessing Authority by following the judgment of this Hon'ble Court in case of CIT Vs. Tata Elxsi Ltd? case and in law, the Tribunal is right in allowing in setting aside re-computation of Section 10A made by Assessing Authority by following the judgment of this Hon'ble Court in case of CIT Vs. Tata Elxsi Ltd? 5. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in directing the Assessing Authority to allow proportionate deduction under Section 10A of the Act on account of disallowance of Rs.25,20,566/- made under Section 14A of the Act? case and in law, the Tribunal is right in directing the Assessing Authority to allow proportionate deduction under Section 10A of the Act on account of disallowance of Rs.25,20,566/- made under Section 14A of the Act? 6. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in law in setting case and in law, the Tribunal is right in law in setting aside non allowance of double taxation relief on account of variation in deduction under Section 10A of the Act consequent to increase in income as confirmed/sustained by appellate orders? 3. Shri. Suryanarayana, learned Senior Advocate for the assessee submitted that questions No.2, 3 and 6 are covered by the decision in Wipro Ltd. Vs. Deputy Commissioner of Income-tax, Central Circle 1(3), Bangalore[1]. Question No.4 is covered by thedecision in Commissioner of Income-tax, Central-IIIVs. HCL Technologies Ltd.[2]Question No.5 is covered by the decision in Commissioner of Income-tax Vs. M/s. M. Pact Technology Services Pvt. Ltd.[3]ITA No.228/2013 decided on 11.07.2018. Thus, the only question which remains for consideration is question No.1. 1 [2015] 62 taxmann.com 26 (Karnataka) 2 [2018] 93 taxmann.com 33 (SC) 3 ITA No.228/2013 decided on July 11, 018 4. Shri. Aravind does not dispute the submission of Shri. Suryanarayana. Thus, the following question remains for consideration in these two appeals: 1. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in allowing claim fo assessee that income derived from rental income from Infosys BPO Ltd and BSNL Chennai Ltd as profits derived under Section 10A of the Income Tax Act, 1961? and in law, the Tribunal is right in allowing claim fo assessee that income derived from rental income from Infosys BPO Ltd and BSNL Chennai Ltd as profits derived under Section 10A of the Income Tax Act, 1961? 1 [2015] 62 taxmann.com 26 (Karnataka) 2 [2018] 93 taxmann.com 33 (SC) 3 ITA No.228/2013 decided on July 11, 018 4. Shri. Aravind does not dispute the submission of Shri. Suryanarayana. Thus, the following question remains for consideration in these two appeals: 1. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in allowing claim fo assessee that income derived from rental income from Infosys BPO Ltd and BSNL Chennai Ltd as profits derived under Section 10A of the Income Tax Act, 1961? and in law, the Tribunal is right in allowing claim fo assessee that income derived from rental income from Infosys BPO Ltd and BSNL Chennai Ltd as profits derived under Section 10A of the Income Tax Act, 1961? 5. Undisputed facts of the case are, assessee had taken on lease certain area in STPI[4] at Bangalore. It could not use the entire area for its operation. Therefore, a portion of it was leased to Infosys BPO Ltd., and BSNL, Chennai, on sub-lease. Assessee was receiving rent from the said Companies. It claimed deduction under Section 10A of the Income Tax Act. The Assessing Authority disallowed the rental income received from the said two Companies on the ground that the lease amounts received from the said Companies cannot be considered as income derived from export of any software. The CIT(A) held that 4Software Technology Parks of India the rental income received by the assessee is eligible for inclusion in the profit as they are intimately connected with the business of the undertakings. The Revenue challenged the said finding of CIT(A) before the ITAT in IT(TP)A No.233/Bang/2013. Assessee also challenged CIT(A)'s order on different point in IT(TP)A No.102/Bang//2013. Both appeals have been disposed of by the common impugned order. 6. Shri. Aravind submitted that admittedly, assessee is receiving rent, which is not a part of its business. In order to claim deduction under Section 10A of the IT Act, the gains must be derived from the export of articles or things. The money received as rent does not fall within the definition of 'turnover' and does not become eligible for deduction under Section 10A of the IT Act. In support of his contention, he placed reliance on Commissioner of Income-tax-VII, New Delhi Vs. Punjab Stainless Steel Industries[5]and Commissioner of Income-tax Vs. Sasken Communication Technologies Ltd.[6] 7. Shri. Suryanarayana, opposing the appeal, relied upon the full Bench decision of this Court in Commissioner of Income-tax Vs. Hewlett Packard Global Soft Ltd.[7], andsubmitted that once a unit is situated in an STPI, it becomes eligible under Section 10A of the IT Act. In the case of Hewlett Packard, full Bench of this Court has held that the interest amount received by the assessee therein towards the money parked in the Bank and the loans advanced to the staff eligible for deduction under Section 10A of the IT Act. 8. Placing reliance on HCL Technologies Ltd., Shri. Suryanarayana submitted that the 'export profit' has to be computed as per the formula extracted in para 18 of 5 [2014] 46 taxmann.com 68 (SC) 6 [2014] 50 taxmann.com 134 (Karnataka) 7 [2017] 87 taxmann.com 182 (Karnataka) (FB) the said judgment. In substance, Shri. Suryanarayana's contention is that once the unit is situated in the geographical location of an STPI, it is entitled for deduction under Section 10A of the IT Act and the 'export profit' must be computed as per the formula. 9. We have carefully considered rival contentions and perused the records. 10. Undisputed facts of the case are, assessee is situated in the STPI and is a 100% EOU. A portion of the premises which was taken on lease has been given on sub-lease to the two units and the assessee has received certain sum of money as rental income. 5 [2014] 46 taxmann.com 68 (SC) 6 [2014] 50 taxmann.com 134 (Karnataka) 7 [2017] 87 taxmann.com 182 (Karnataka) (FB) the said judgment. In substance, Shri. Suryanarayana's contention is that once the unit is situated in the geographical location of an STPI, it is entitled for deduction under Section 10A of the IT Act and the 'export profit' must be computed as per the formula. 9. We have carefully considered rival contentions and perused the records. 10. Undisputed facts of the case are, assessee is situated in the STPI and is a 100% EOU. A portion of the premises which was taken on lease has been given on sub-lease to the two units and the assessee has received certain sum of money as rental income. 11. In the case of Hewlett Packard, the full Bench of this Court has held that the interest earned on the deposit and interest income of the staff loans are also eligible for deduction under Section 10A of the IT Act. Admittedly, the income earned as interest on the staff loans is not in any way connected with the business of Hewlett Packard, which was under consideration before the full Bench. 12. In HCL Technologies, the Apex Court has held that the computation of deduction under Section 10A of the IT Act has to be made as follows: " 18. Accordingly, the formula for computation of the deduction under Section 10A of the Act would be as follows: Export turnover as defined in Explanation 2(IV) of section 10A of IT Act *Export Profit = total profit ______________________________ of the business Export turnover as defined in Explanation 2(IV) of Section 10A of the IT Act + domestic sale proceeds " 13. In the case on hand, the assessee was receiving the amount as rental income and in Hewlett Packard, the amount was received as interest on deposits and the staff loans. Therefore, in our considered view, the conditions such as location of unit in an STPI having been complied with, the benefit of Section 10A of the IT Act must be available to the assessee in this case also. 14. In view of the above, these appeals must fail and they are accordingly dismissed. 15. The question of law is answered in favour of the assessee and against the Revenue. No costs. Sd/- JUDGE Sd/- JUDGE SPS List No.: 1 Sl No.: 12