TaxTMI 
TaxTMI 
2011 (11) TMI 631
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....the existing business. The second issue raised by the Revenue is with regard to the order of the Commissioner of Income-tax (Appeals) in holding that incomes by way of sales-tax refund, liabilities no longer required written back and Profit on sale of assets are eligible incomes for computing deduction under section 10A of the Act for Unit-A. The former issue being the substantive dispute, the same is being taken up at the outset. 4. In order to appreciate the background of the first issue, the following discussion is relevant. The assessee is a company incorporated under the provisions of Companies Act, 1956 on 12.9.1995 and is engaged in the business of software development services. It was registered with the STPI authorities initially on 16.11.1995 and thereafter, approvals were sought for expansion and in this manner, over the years upto the instant assessment year, the following tabulation extracted in para 3.2 of the order of the Commissioner of Income-tax (Appeals) shows the business operations being carried out by the assessee: Sr. No Address Date of STPI approval Unit 1 Symphony 1st floor 20.8.1997 A 2 Symphony 2nd floor 20.8.1997 A ....
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....; vii) that the new Unit has a common source of power as there is a common electricity meter; viii) that Unit B was not carrying out any new business activities and the technical support was obtained from Unit-A also; and, ix) that the intention behind the assessee's claim of treating Unit-B as a separate undertaking was to extend the tax holiday available under section 10A of the Act, which was otherwise expiring in assessment year 2005-06 as the period of ten years in case of Unit-A was nearing completion. 5. For all the above reasons, the Assessing Officer concluded that Unit-B was not independently eligible for the claim of deduction under section 10A of the Act and that it was merely an expansion of the existing business and was a part and parcel of Unit-A itself. 6. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) and submitted point-wise rebuttal to the reasons advanced by the Assessing Officer. The stand of the assessee before the Commissioner of Income-tax (Appeals) was that the reasons advanced by the Assessing Officer were contrary to the facts on record and that on the basis of the evidences/information on record, ....
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....g. In this regard, reference has been made to findings of the Commissioner of Income-tax (Appeals) in para 3.8 of the impugned order, which deal with each of the points raised by the Assessing Officer and in this regard he has also referred to paper Book filed which, inter alia, contains the material and evidences which support such findings of the Commissioner of Income-tax (Appeals). In particular, it has been argued that during the remand proceedings, the premises of unit-B were subject to physical inspection and its distinct physical separateness stood established. It has also been submitted that the plea of the Assessing Officer that Unit-B was merely an expansion of the business of Unit-A has been found to be factually erroneous inasmuch as the business of Call Centre undertaken in Unit-B is peculiar to the said Unit which was not being hitherto carried out in Unit- A. Referring to the plea of the Revenue that merely because the approval issued by STPI for Unit-B contains the word 'expansion of your operations' the same would not be fatal to the plea that Unit-B was an independent Unit. In this connection, it is pointed out that a similar objection in the context of claim for....
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....is no dispute between the parties that the activity being carried out in Unit-B is otherwise eligible for the benefits of section 10A of the Act. Coming back to the order of the Commissioner of Income-tax (Appeals), it is noticed that he has factually concluded that Unit-B is a physically new and separate undertaking. The Commissioner of Income-tax (Appeals) has dealt with the principal objection of the Assessing Officer that Unit-B is operating from the same premises. In fact, in point (a) in para 3.8 of the impugned order, the Commissioner of Income-tax (Appeals) records a finding on the basis of the lease agreements, lay out plan of the premises, photographs of the premises that Unit-B is housed in different premises. In coming to such conclusion, the Commissioner of Income-tax (Appeals) has also been guided by the remand report of the Assessing Officer, which inter alia included the site inspection by the Departmental authorities. Before us, no material has been brought out so as to negate the aforesaid findings of the Commissioner of Income-tax (Appeals). Secondly, the plea that assessee was maintaining a common bond register and therefore, it was inferred that no separate ....
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....emently contended that there is no independent Government approval of the new unit and all that the Government has permitted is enhancement in capacity of the existing unit. As evident from the land allotment letter dated 19th July, 1995 issued by the Gujarat Industrial Development Corp. Ltd. it is clear that the land allotted for the new unit is plot #624/1 and 2, and 625 to 627 whereas the existing plant was in plot 3 602. The production of 12 Hydroxy Stearic Acid is authorized by the letter dt 27th January 1995 which states that the Government has taken note of assessee's wish to manufacture Hydroxy Stearic Acid also by way of forward integration and amended the letter of permission to include 12 Hydroxy Stearic Acid of 12,000 MT in the very next sentence. It is observed that "Govt also approves of your request for the import of additional capital goods worth Rs. 550 lakhs for the project". That clearly demonstrates that the production of Hydroxy Stearic Acid of 12,000 MT was viewed by the Government as an independent project. It was not a case for purchase of addition capital goods for the existing project. The assessee is irrespective of the number of units, is one of artifici....
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.... milestones to point out that Unit-B was set-up to carry out a new activity namely, a Call Centre and various permissions from Governmental authorities were independently obtained for this purpose. In this connection, reference has been made to the following: (i) STPI permission dated 8.10.2003; (ii) Customs Bonding Permission dated 20.10.2003; (iii) Lease agreement between the assessee and Vasum Industries to take on lease premises of Unit-B; and, (iv) Permission from Department of Telecommunication dated 3.11.2003 for setting up an International Call centre, which is treated as Unit-B. 11. Apart therefrom at pages 2 to 6 of the Paper Book are placed the activities being carried out at Unit-A and Unit-B and the said material clearly supports the finding of the Commissioner of Income-tax (Appeals) that the activities being carried out in Unit-B are new and distinct from those of Unit-A. Factually speaking, there is no cogent material or reasoning brought out by the Revenue which would require us to interfere with the ultimate conclusion of the Commissioner of Income-tax (Appeals) contained in para 3.9 of his order, which is reproduced hereinafter:- "3.9: In ....
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.... the Act. The dispute pertains to the inclusion of the following incomes for the purposes of computing deduction under section 10A of the Act: (i) Sales-tax refund Rs. 21,13,822/- (ii) Liabilities no longer required and written back Rs. 12,79,558/- (iii) Profit on sale of assets Rs. 74,104/- The Assessing Officer found that while working out the eligible profits under section 10A, assessee had not excluded the aforesaid incomes, which as per him cannot be said to have been derived from the export activities. The Commissioner of Income-tax (Appeals) has since negated the claim of the Assessing Officer by making the following discussion in para 7.4 of his order: "7.4: The submission has been considered and is found to have merit. It is seen from the assessment order that in excluding income of Rs. 92,33,705/- from the profits derived from export activities, the AO has relied upon the judgment in the case of CIT v Sterling Food Ltd. 237 ITR 579 (SC) wherein, while interpreting the words 'derived from' used in section 80HH, Hon'ble Apex Court has held that there must be, for the application of the words 'derived from', a direct nexus between the profits and g....
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....oming back to section 10A we find that sub-section (1) also employs the expression derived from the export of articles. But it is not the end of the matter. The expression 'profits derived from export of articles or things or computer software' as employed in sub-section (1) or (1A) has been given a specific meaning in sub-section (4). The subsection (4) states that the 'profits derived from export of articles or things or computer software' shall be the amount which bears to the 'profits of the business of the undertaking', the same portion as the export turnover in respect of such articles o things or computer software bears to the total turnover of the business carried on by the undertaking. By providing for considering the 'profits of the business of the undertaking', the position has been made clear that the restricted general meaning given to eligible profits as derived from the export of articles in sub-section (1) has been given a go by in sub-section (4) and the scope of the benefit has been expanded by extending to the al profits of the business carried on by the undertaking. Once the expression 'derived from' having restricted scope has been specifically defined in the s....
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....essing Officer observed that the assessee company had shown a loss of Rs. 1,78,08,674/- in Unit B and had shown profit of Rs. 13,15,75,991/- in Unit A. He further observed that the assessee claimed deduction under section 10A of the Act in respect of the net profit of Rs. 13,15,75,991/- pertaining to Unit A alone and loss of Rs. 1,78,08,674/- of Unit B was carried forward by the assessee. The Assessing Officer was of the view that the profit of Unit A was to be set-off against loss of Unit B as both the units were eligible for deduction under section 10A of the Act. According to the Assessing Officer, income under section 10A was part of total income and income or loss of 10A unit needed to be set off against the loss of other unit as per section 70 of the Act to arrive at the total income. Accordingly, he set-off the loss of Unit B against the profits of Unit A and worked out net profit of Unit A at 11,37,67,317/- and the deduction under section 10A of the Act was accordingly allowed. The assessee took up the matter in appeal before the Commissioner of Income-tax (Appeals). 21. Before the Commissioner of Income-tax (Appeals), the assessee reiterated its stand that while computi....
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....nt case. In the case of Navin Bharat Industries Ltd (supra), the issue related to assessee's claim for setting off of the loss incurred in a SEEPZ Unit against income of other units while working out the total income of the assessee. The Revenue had negated such claim of the assessee on the ground that since total income of the Unit was exempt under section 10A of the Act, therefore, the loss of such exempt Unit would also have to be ignored/excluded for working out total income of the assessee. The Tribunal noted that benefit of section 10A was available to the assessee for 5 years, but it was claimed only for 3 years and for rest of the years, assessee did not claim benefit of section 10A of the Act and the assessee opted to get assessed the income of the Unit under the normal provisions. It also noticed that section 10A of the Act is a code by itself and cannot be compared with section 10 of the Act. Therefore, in this background, the Tribunal upheld the plea of the assessee and held that assessee was entitled to set-off loss incurred by SEEPZ Unit against its other income under the normal computation procedure for the purposes of computing total income. Thus, the stand of the a....
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....al, and where more than one unit qualifies for benefit u/s 10A, the same has to be worked out independently for each such Unit. The ld DR, on the other hand, would submit that the same goes against the grain of the decision by the Special Bench; it, adjudicating the issue of set off of loss (from a non-eligible unit) against the profit from an eligible undertaking, for the purpose of computation of deduction u/s 10A, clearly holds the same as not permissible; the two incomes falling under different Chapters of the Act. That being the premises of its decision, it follows that where the loss is also from an eligible undertaking (source), it would warrant being set off or adjusted prior to the grant of deduction u/s 10A. the Tribunal indicates so in no uncertain terms when it states, at para 27 of its order, of the position being different where the loss - which is to be set off - is from an eligible undertaking, and that its decision (regarding the non-set off of loss of an non-eligible unit) shall have no application in such a case; the relevant part of its order reading as: "27. Having held that....... Of course, if there are more than one undertaking which is eligible for....
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....provided n its resspect under the provision itself, would fail to be considered as only from a non-eligible source. The question here is not of the singular or plural sense in which the word 'undertaking' is used in the section, or is capable of being read, but whether there is any positive relationship between the incomes derived from two eligible sources. The provision is completely silent in the matter, so that the only conclusion is an emphatic no, and the same are to be considered de hors each other. The issue before the Special Bench was the admissibility of the set off of loss of an non-eligible unit against the profit from an eligible one, for the purpose of computation of deduction u/s 10A. It is well settled that a decision is an authority on what it actually decides. It's observations at para 27 of its order, therefore, are to be read in the context of the issue that was before it and, further, limited to that. When it states that its decision would have no application to a case where the loss (to be set off) is from an eligible unit, the same has to be read as just that, i.e. that it has not expressed any opinion in the matter, so that the issue is at large, and cannot ....
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....er' without a corresponding adjustment in 'Total Turnover" while computing deduction under section 10A. Telecommunication charges - Rs. 15,040,083 Expenses incurred in foreign currency - Rs. 16,608,519 Your appellant prays that deduction from 'Total Turnover' be made for any corresponding deduction from 'Export Turnover'. 28. During the course of assessment proceedings, the Assessing Officer adjusted Telecommunication charges and Expenses incurred in foreign currency only from the figure of 'Export Turnover' without a corresponding reduction from the figure of 'Total Turnover'. Before the Commissioner of Income-tax (Appeals), assessee pleaded that the Assessing Officer be directed to reduce 'Telecommunication Charges' and 'Expenses incurred in foreign currency' also from 'Total Turnover' for the purpose of computing deduction under section 10A of the Act. In this context, assessee relied upon following decisions: i) Tata Elxsi Ltd. vide ITA No. 315(Bang)/2006; and, ii) M/s Sak Soft Ltd, vide ITSA Nos 691 & 1953/Mds/2007. After considering the submissions of the assessee, the Commissioner of Incometax (Appeals) affirmed the decision of the Assess....
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....d, therefore, its meaning has to be based on its common understanding. Therefore, the aforesaid amounts need not be reduced from the figure of 'Total turnover' for the purpose of computing deduction u/s 10A of the Act. 31. We have carefully considered the rival stands and find that the issue is liable to be decided in the light of the reasoning propounded by the Hon'ble High Court of Bombay in the case of Gem Plus Jewellery India Ltd. (supra). In the case before the Hon'ble High Court, the issue related to the exclusion of freight and insurance charges from the figure of 'Total turnover' for the purposes of computing deduction under section 10A of the Act. In that case, the Assessing Officer while computing deduction under section 10A of the Act reduced the element of freight and insurance charges from the figure of 'export turnover', but did not make similar adjustment from the figure of 'total turnover'. The Revenue sought to justify this action on the plea that in terms of the definition of the expression 'export turnover' in Explanation 2 (iv) to section 10A the legislature has made a specific exclusion of freight and insurance charges, whereas, no such prescription was avai....