TaxTMI 
TaxTMI 
TaxTMI 
2020 (10) TMI 564
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.... the case, the Tribunal was right in law in remitting back to the Commissioner of Income Tax (Appeals) on the issue of allowance of expenditure incurred towards telecommunication amounting to Rs. 17,09,510/- under Section 10A of the Income Tax Act, 1961 without considering its inextricable nexus to the export made by the appellant ?" 3. After perusing the impugned order, we find that the second substantial question of law admitted is, in effect, a question of fact and that the Tribunal affirmed the order passed by the Commissioner of Income Tax (Appeals)-3, Chennai-34 [hereinafter called the CIT(A)], who remanded the matter to the Assessing Officer for a fresh consideration. Therefore, the only substantial question of law, which will be taken up for consideration in this appeal is the first substantial question of law. 4. We have heard Mr.R.Sivaraman, learned counsel appearing for the appellant - assessee and Mrs.R.Hemalatha, learned Senior Standing Counsel appearing for the respondent - Revenue. 5. The assessee is a company engaged in the business of software development, which is a unit in a Special Economic Zone (SEZ) in Chennai. For the assessment year under consideration n....
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.... is to be regarded as 'export', the matter can be restored back to the file of the Assessing Officer for a fresh decision. Thus, we find that the Tribunal did not render any specific finding. Rather, there was no finding rendered by the Tribunal. 9. Under normal circumstances, this would have been a good ground to remand the matter to the Tribunal. However, considering the facts that the case relates to the assessment year 2009-10 and that the assessment was completed under Section 143(3) of the Act during November 2011, we proceed to determine the answer to the first substantial of law, which is the only question framed for consideration. 10. More or less, an identical question was considered by the Karnataka High Court in the case of Tata Elxsi Ltd. Vs. ACIT [reported in (2015) 94 CCH 0202] wherein the assessee provided software services to another STP Unit in Bangalore and the services were provided on a principal to principal basis and based on the purchase orders placed by the recipient of those services on the asseessee therein with instructions to bill and deliver to the recipient. The software development work done by the said assessee for the recipient was exported out o....
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.... export through Status Holder. It provides that an EOU/EHTP/STP/BTP unit may export goods manufactured/ software developed by it through other exporter or Status holder recognized under this policy or any other EOU/ EHTP/ STP/SEZ/BTP unit. What follows from this provision is that to be eligible for exemption from payment of income tax, export should earn foreign exchange. It does not mean that the undertaking should personally export goods manufactured/ software developed by it outside the country. It may export out of India by itself or export out of India through any other STP Unit. Once the goods manufactured by the assessee is shown to have been exported out of India either by the assessee or by another STP Unit and foreign exchange is directly attributable to such export, then Section 10A of the Act is attracted and such exporter is entitled to benefit of deduction of such profits and gains derived from such export from payment of income tax. Therefore, the finding of the authorities that the assessee has not directly exported the computer software outside country and because it supplied the software to another STP unit, which though exported and foreign exchange received was ....
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.... of deduction u/s.10A, in respect of the exports made through a third party or another units located in India within STP only, with which reason, we respectfully agree, there is no reason to exclude such 'Deemed Export' being taken into account as 'Export Turnover' for the purpose of S.10B of the Act also. 18. For both these reasons, we cannot accept the aforesaid submissions of the learned counsel for the Revenue and the contention therefore is liable to be rejected and the same is accordingly rejected. 19. Another contention which was raised by the learned counsel for the Revenue before us is that in sub-section (1) of S.10B, the words used "profit and gains as are derived by a 100% Export Oriented Unit Undertaking", he emphasized the words "by the Undertaking" and therefore, submitted that for this reason, the export in question should take place directly from the hands of Undertaking in question itself and not through a third party. He also submitted that like in the case of M/s. Tata Elxsi Ltd. (supra), both the units were located in the same STP area. In the present case, the entity through whom the export has been made by the assessee is not 100% Export....
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....r the period in question, have claimed any double or repetitive benefit u/s.10B of the Act for the same transaction of export. 25. Therefore, we are clearly of the opinion that the issue raised in the present case by the Revenue is squarely covered by the decision of the Division Bench of this Court in M/s. Tata Elxsi's Ltd. case (supra) and we respectfully agree with a view expressed by the earlier Division Bench and therefore, we answer the said substantial question of law framed above against the Revenue and in favour of the assessee and the appeals filed by the Revenue deserves to be dismissed and the same are accordingly dismissed." 13. The learned counsel appearing for the appellant - assessee has also placed reliance on a decision rendered by one of us (TSSJ) while sitting singly in the case of Tulsyan Nec Ltd. Vs. Assistant Commissioner (CT) [reported in (2015) 82 VST 63], to explain the concept of a 'deemed export'. Thus, the submission of the learned counsel is that the Assessing Officer failed to take note of the nature of transaction done by the assessee and failed to examine the copies of invoices raised on M/s.Microsoft Global Services Centre (India) Limited ....
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....c Zones Act (for brevity, the SEZ Act) mentions that a special economic zone shall, on and from the appointed date, be deemed to be a territory outside the customs territory of India for the purpose of undertaking the authorized operations. 16. Rule 30(1) of the Special Economic Rules, 2006 has also been referred to and it has been clarified in the said circular that according to the SEZ Act, supply of goods from DTA to SEZ constitutes export and that as per Section 51 of the SEZ Act, the provisions of the SEZ Act shall have overriding effect over the provisions of any other law in case of any inconsistency as Section 53 of the SEZ Act makes an SEZ a territory outside the customs territory of India. 17. Thus, it is argued by the learned counsel for the appellant - assessee that the first substantial question of law entertained in this appeal has already been decided in the aforementioned decisions and it is no longer res integra. 18. Per contra, Mrs.R.Hemalatha, learned Senior Standing Counsel appearing for the respondent - Revenue submits that the CIT(A), while dismissing the assessee's appeal, had rightly relied upon the decision of the Kerala High Court in the case of CIT, Co....
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....ones Act, 2005, are brought into extend the exemption on profits derived on inter-unit sale made by industries within the Export Processing Zone, the court will be re-writing the legislation which is exactly what the Tribunal has done. In fact, the unit which purchased components from the assessee must be manufacturing final products and being a unit in the Special Economic Zone will be exporting the final product, on which that unit will get exemption on the entire profits which include the value of the components supplied by the assessee. Probably the Legislature did not want duplicity in exemption on export profit. That is why inter-unit sales in the Export Processing Zone are not treated as export within the meaning of section 10A of the Income-tax Act, no matter such transfers are treated as exports for the purpose of Customs and Excise duty exemption. When the exemption is only on actual profits derived on exports made against receipt in convertible foreign exchange, the Tribunal, in our view, has no justification to extend it to profits received on local sales within India against payment received in Indian rupees. For the above reasons, we are unable to sustain the orders o....
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....ny particular activity. 20. The principles laid down by the Constitution Bench, when applied to incentive provisions like those for deduction, would also be that the burden lies on the assessee to prove its applicability to his case; and if there be any ambiguity in the deduction clause, the same is subject to strict interpretation with the result that the benefit of such ambiguity cannot be claimed by the assessee, rather it would be interpreted in favour of the revenue. In view of the Constitution Bench decision in Dilip Kumar & Co. (supra), the generalised observations in Baby Marine Exports (supra) with reference to a few other decisions, that a tax incentive provision must receive liberal interpretation, cannot be considered to be a sound statement of law; rather the applicable principles would be those enunciated in Wood Papers Ltd. (supra), which have been precisely approved by the Constitution Bench. Thus, at and until the stage of finding out eligibility to claim deduction, the ambit and scope of the provision for the purpose of its applicability cannot be expanded or widened and remains subject to strict interpretation but, once eligibility is decided in favour of the ....
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....untry, that it may export out of India by itself or export out of India through any other STP Unit and that once the goods manufactured by the assessee are shown to have been exported out of India either by the assessee or by another STP Unit and foreign exchange is directly attributable to such export, then Section 10A of the Act is attracted and such exporter is entitled to benefit of deduction of such profits and gains derived from such exports from payment of income tax. 25. It is no doubt true that the provisions of Section 27 of the SEZ Act were not considered in both the said decisions. Rather, that contention was not raised by the Revenue in those cases. Thus, we have to consider as to the correctness of the submissions of the Revenue by referring to Section 27 of the SEZ Act, which, at the risk of repetition, is extracted as hereunder: "The provisions of the Income-tax Act, 1961 (Act 43 of 1961), as in force for the time being, shall apply to, or in relation to, the developer or entrepreneur for carrying on the authorized operations in a Special Economic Zone or Unit subject to the modifications specified in the Second Schedule." 26. The emphasis laid by the learned S....
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....nit begins to manufacture or produce such articles or things or provide services, as the case may be, and fifty per cent of such profits and gains for further five assessment years and thereafter; (ii) for the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the Special Economic Zone Re-investment Reserve Account ) to be created and utilized for the purposes of the business of the assessee in the manner laid down in sub-section (2)." 28. From the above, it is seen that in Section 10A of the Act, Sub-Section (7B) was inserted and it says that the provisions of this Section shall not apply to any undertaking, being a Unit referred to in Clause (zc) of Section 2 of the Special Economic Zones Act, 2005, which has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone. Therefore, the expression occurring ....
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.... the assessee is entitled to. The Income Tax Act being silent with regard to the concept of 'deemed export' and since, even under Sections 10A and 10B of the Act, the provisions of the SEZ Act are required to be read, the decision of the Hon'ble Supreme Court in the case of Ramnath & Co., will not be applicable to the facts and circumstances of this case. 35. In the light of the above discussion, we hold that the Tribunal committed an error in not even rendering a finding as to whether the order passed by the CIT(A) was right in law and as to whether the decision in the case of Electronic Controls and Discharge Systems (P) Limited would be applicable to the facts and circumstances of this case. The decision in the case of Electronic Controls and Discharge Systems (P) Limited cannot be applied to the facts of the present case firstly for the reason that the Court, in the said decision, found that the receipt was in Indian currency whereas in the instant case, the receipt was routed through the banking channel by convertible foreign exchange. Secondly, the Court had not decided the effect of the provisions of the SEZ Act 2005, the Rules framed thereunder and the Foreign Trade Policy....