2017-TIOL-409-SC-IT
CIT Vs PVR LTD: SUPREME COURT OF INDIA (Dated: October 30, 2017)
Income tax - Sections 194I, 201(1A) & 271C
Keywords - delayed payment of TDS - bonafide belief - interest for delay - penalty
The Revenue Department preferred present SLP challenging the judgment, whereby the High Court had held that penalty u/s 271C could not be levied against default of delayed payment of TDS, if the interest u/s 201(1A) for delay had already been paid by Assessee.
Having heard the parties, the Supreme Court condones the delay and issued notice to respective parties directing their appearences for further hearing on the issue of levy of penalty in case of delayed payment of TDS.
Notice issued
2017-TIOL-408-SC-IT
ZUARI MANAGEMENT SERVICES LTD Vs CIT : SUPREME COURT OF INDIA (Dated: October 27, 2017)
Income tax - Section 263
Keywords - attribution of error in assessment - notional tax effect & revisional jurisdiction
The Assessee company preferred present SLP challenging the judgment, whereby the High Court had held that when a notional tax effect was directly attributable to the error in the assessment order, then such order requires revisional interference u/s 263.
Having heard the parties, the Supreme Court held that,
Whether assessment depending upon commencement of business activity of Assessee, cannot be finalized, unless the Assessee furnishes on record income tax return along with the balance sheet for A.Y in question - YES: SC
++ it is contended by Assessee's counsel that a vital aspect is ignored by the High Court, namely, the Assessee herein had filed the return for A.Y 2008-09, for which the assessment was also made, and filing of this return clearly proves that the business had commenced during the A.Y 2008-09. On that basis, he submits that for the assessment year in question, there could not have been a business contrary thereto, namely no such business has been started and the aforesaid aspect has not been taken into consideration. Before considering this statement further, we would like the Assessee to place on record that income tax return along with the balance sheet, etc. for the Assessment Year 2008-09.
Case deferred
2017-TIOL-2293-HC-KAR-IT-LB
CIT Vs HEWLETT PACKARD GLOBAL SOFT LTD : KARNATAKA HIGH COURT (Dated: October 30, 2017)
Income Tax - Sections 10A, 10A (1), 10A (4), 10B, 80A, 80HH, 80-HHC & 80I
Keywords - Incidental income - Bank deposits - Staff loans - Sale of import entitlements - Turnover of export business
The assessee company is an 100% EOU, engaged in the export of software. The present appeal arose from a conflict of opinion between two division benches of this High Court, because of which the issue at hand was referred to the present full bench of this court. The first division bench held that the assessee was entitled to 100% deduction u/s 10A, in respect of the interest income earned by it during the relevant A.Y from Exchange Earner's Foreign Currency Account and the same would be construed as "Business Income of the assessee derived from the Undertaking" within the meaning of Section 10A. The Division Bench held that the profits of the business of Assessee included the Profits and Gains from export of articles as well as all other incidental incomes derived from the business of the assessee and what was exempted u/s 10A/10B was not merely profits and gains from the export of articles but also the income from business of Assessee. The Division Bench held that the assessee – M/s. Motorola India Electronics (P) Limited was a 100% EOU which has exported software and earned the income and a portion of that income is deposited in EEFC Account and yet another portion of the amount was invested within the country by way of Fixed Deposits and yet another portion was invested by way of loans to the sister concerns and on which the assessee derived interest or the consideration received from sale of import entitlements which was permissible in law. Therefore the interest and the consideration received from sale of import entitlements was to be construed as income of the business of the undertakings. The Division Bench held that there was a direct nexus between this income and the income of the business of the assessee, though it did not partake the character of a profit and gains from the sale of articles but it is the income which was derived from the consideration realized from export of articles. The assessee was thus held entitled to 100% deduction for the AY 2001-02 u/s 10A/10B.
However, another Division Bench took a different view, and held that the undertaking could have more sources of income other than the profits and gains as are derived by them from the export of articles or things or computer software and such undertakings contemplated u/s 10A(1) were entitled to seek benefit of deduction only in respect of the profit derived from export of articles or things. It was further held that the expression "Total Turnover of business carried on by Undertaking" would mean only turnover of export business of the undertaking and not any other activity from the undertaking which earns profit, which could be a part of total income of the assessee. Therefore, the Division Bench opined that the assessee company, which invested its surplus funds in Banks and received interest thereon and also interest on the staff loans, such interest earned by the undertaking/assessee had no direct nexus with the business of the undertaking.
On Reference, the HC held that,
Whether turnover from export business, as well as incidental income earned by way of interest on bank deposits & staff loans, are wholly eligible for claiming deduction u/s 10A & 10B of I-T Act - YES: HC
Whether interest income earned incidentally can be de-linked from its profits derived by industrial undertaking engaged in export of Articles, and hence can be taxed separately u/s 56 - NO: HC
++ sections 10-A and 10-B which are special provisions and complete code in themselves and deal with profits and gains derived by the assessee of a special nature and character like 100% Export Oriented Units situated in SEZs, STPI, etc., where the entire profits and gains of the entire Undertaking making 100% exports of articles including software as is the fact in the present case, the assessee is given 100% deduction of profit and gains of such export business and therefore incidental income of such undertaking by way of interest on the temporarily parked funds in Banks or even interest on staff loans would constitute part of profits and gains of such special Undertakings and these cases cannot be compared with deductions under Sections 80-HH or 80-IB in Chapter VI-A, where an assessee dealing with several activities or commodities may inter alia earn profits and gains from the specified activity and therefore in those cases, the Supreme Court has held that the interest income would not be the income "derived from" such Undertakings doing such special business activity;
++ the Scheme of Deductions under Chapter VI-A in Sections 80-HH, 80-HHC, 80-IB, etc from the 'Gross Total Income of the Undertaking', which may arise from different specified activities in these provisions and other incomes may exclude interest income from the ambit of Deductions under these provisions, but exemption u/s 10-A and 10-B encompasses the entire income derived from the business of export of such eligible Undertakings including interest income derived from the temporary parking of funds by such Undertakings in Banks or even Staff loans. The dedicated nature of business or their special geographical locations in STPI or SEZs. etc. makes them a special category of assessees entitled to the incentive in the form of 100% Deduction under Section 10A or 10B of the Act, rather than it being a special character of income entitled to Deduction from Gross Total Income under Chapter VI-A under Section 80HH, etc. The computation of income entitled to exemption under Section 10A or 10B of the Act is done at the prior stage of computation of Income from Profits and Gains of Business as per Sections 28 to 44 under Part-D of Chapter IV before 'Gross Total Income' as defined under Section 80B(5) is computed and after which the consideration of various Deductions under Chapter VI-A in Section 80HH etc. comes into picture. Therefore analogy of Chapter VI Deductions cannot be telescoped or imported in Section 10A or 10B of the Act. The words 'derived by an Undertaking' in Section 10-A or 10-B are different from 'derived from' employed in Section 80-HH etc. Therefore all Profits and Gains of the assessee including the incidental income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10A and 10B of the Act. Such interest income arises in the ordinary course of export business of the Undertaking even though not as a direct result of export but from the Bank Deposits etc., and is therefore eligible for 100% deduction.
++ considering the decisions of the Apex Court in the cases of Bajaj Tempo Ltd., Bombay Vs. Commissioner of Income Tax, Bombay and R.K. Garg v. Union of India the assessee was entitled to 100% exemption or deduction u/s 10A in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as 'Income from other Sources' u/s 56 of the Act. The incidental activity of parking of Surplus Funds with the Banks or advancing of staff loans by such special category of assessees covered under Section 10A or 10B of the Act is integral part of their export business activity and a business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be de-linked from its profits and gains derived by the Undertaking engaged in the export of Articles as envisaged u/s 10-A or 10-B of the Act and cannot be taxed separately u/s 56 of the Act. Therefore, the view expressed by the first Division Bench of this Court in the case of M/s. Motorola India Electronics (P) Ltd., is affimed. Hence the issue answered in favor of the assessee and against the revenue.
Revenue's appeal dismissed
