Court ruling: Share premium not part of 'Capital Employed'. Section 35D deductions can be disturbed. Telecommunication expenses included in export turnover.

The court held that share premium cannot be considered as part of 'Capital Employed' for deduction under Section 35D of the IT Act. The cost of acquisition of companies cannot be treated as an asset for deduction under the same section. Section 35D deductions can be disturbed in subsequent years. Telecommunication expenses should not be excluded from export turnover for computing deduction under Section 10AA. The court ruled against the assessee on issues 1 to 3 and in favor of the assessee on issue 4, resulting in the dismissal of the appeal.

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Issues:
1. Whether share premium collected on the issue of Share Capital can be considered as part of 'Capital Employed' for deduction under Section 35D of the IT ActRs.
2. Whether the cost of acquisition of companies can be treated as an asset for deduction under Section 35D of the IT ActRs.
3. Whether the deduction under Section 35D can be disturbed in subsequent yearsRs.
4. Whether telecommunication expenses should be excluded from export turnover in computing deduction under Section 10AARs.

Analysis:

Issue 1:
The Court referred to the judgment of the Hon'ble Apex Court in Berger Paints India Ltd. v. Commissioner of Income-tax, Delhi-V, [(2017) 79 taxmann.com 450 (SC)], stating that the share premium collected on the issue of Share Capital cannot be considered as part of 'Capital Employed' for the purpose of claiming deduction under Section 35D of the IT Act. The substantial question of law No.1 was answered against the assessee and in favor of the Revenue.

Issue 2:
Regarding the cost of acquisition of companies, the Court relied on the decision in the assessee's own case in ITA No.378/2015. The Court cited the case of Commissioner of Income-tax v. Ashok Leyland Ltd., [(2012) 349 ITR 663], emphasizing that expenditure related to the acquisition of companies cannot be treated as an asset for deduction under Section 35D of the IT Act. The substantial question of law No.2 was answered against the assessee and in favor of the Revenue.

Issue 3:
The Court noted that Section 35D had been disturbed in subsequent years in accordance with the law. Therefore, the question of whether the deduction under Section 35D can be disturbed in subsequent years was answered in favor of the Revenue and against the assessee.

Issue 4:
In addressing whether telecommunication expenses should be excluded from export turnover for computing deduction under Section 10AA, the Court referred to the ruling in the case of M/s. Mindtree Ltd. v. The Asst. Commissioner of Income Tax [ITA No.89/2013, D.D. 25.08.2020]. The Court held that telecommunication charges attributable to the delivery of computer software outside India should not be excluded from the export turnover. The substantial question of law No.4 was answered in favor of the assessee and against the Revenue.

In conclusion, substantial questions of law 1 to 3 were answered against the assessee and in favor of the Revenue, while substantial question of law 4 was answered in favor of the assessee and against the Revenue. Consequently, the appeal was dismissed based on the above analysis and findings.

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