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DATE: March 12, 2018 (Date of pronouncement)
DATE: March 21, 2018 (Date of publication)
AY: 2011-12
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CITATION:
S. 10A/ 10B: The bar in s. 92CA(4) that the assessee is not entitled to s. 10A/ 10B deductions in respect of transfer pricing adjustments applies only where the adjustment is made by the AO/ TPO. If the assessee suo motu makes the adjustment and offers higher income, s. 10A/10B deduction cannot be denied. Also, as such notional income is not "export turnover", the condition in s. 10A/10B that foreign exchange must be brought to India does not apply (Deloitte Consulting (ITAT Mum) not followed as it is contrary to iGate Global (Kar HC))

There is no dispute in the minds of authorities below that it is profits of business. Such profit of business is neither export turnover nor the total turnover of assessee but is artificial income which needs to be taxed in the hands of assessee. Consequently, we hold that the said artificial income cannot be part of export turnover or total turnover though it will be part of profits of business. Simile which follows is that in the absence of it being offered as export turnover or total turnover, then there could not be any condition for getting foreign exchange to India. The assessee has computed the additional income by following the transfer pricing provisions and has offered the same to tax as its business profits. Once it has been so offered to tax, it forms part of profits of business and while computing the deduction under section 10A(4) of the Act, the said profits have to be taken into consideration and the deduction so computed

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DATE: October 30, 2017 (Date of pronouncement)
DATE: November 1, 2017 (Date of publication)
AY: -
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CITATION:
S. 10A/ 10B: Entire law on the concept of "derived from" the undertaking and "purposive interpretation" of statutes explained. The incidental activity of parking surplus funds with banks or advancing of staff loans by assessees covered u/s 10-A or 10-B is an integral part of their export business activity and a business decision taken in view of the commercial expediency. Such incidental income cannot be delinked from the profits and gains derived by the undertaking engaged from the export of specified goods and cannot be taxed separately u/s 56 of the Act

Sections 10-A and 10-B of the Act 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 (EOUs.) situated in Special Economic Zones (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 of the Act 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 Hon’ble Supreme Court has held that the interest income would not be the income “derived from” such Undertakings doing such special business activity

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DATE: December 16, 2016 (Date of pronouncement)
DATE: December 19, 2016 (Date of publication)
AY: -
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CITATION:
S. 10A/ 10B: Though s. 10A/ 10B were amended by FA 2000 w.e.f. 01.04.2001 to change "exemption" to "deduction", the "deduction" contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. The deduction of the profits and gains of the business of an eligible undertaking has to be made independently and before giving effect to the provisions for set off and carry forward contained in s. 70, 72 and 74. The deductions u/s 10A/10B are prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income

If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression “total income of the assessee” in Section 10A as ‘total income of the undertaking’

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DATE: December 5, 2015 (Date of pronouncement)
DATE: November 1, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 10A/10B: After the change in scheme from “exemption” to “deduction” w.e.f. 01.04.2001, brought forward unabsorbed loss & depreciation of other 10B units and non-10B units are not liable for set off against the current year's profit of the 10B unit. The contrary law laid down in Himatasingike Seide 156 Taxman 151 (Kar), as approved by the Supreme Court, deals with the law pre 01.04.2001 when s. 10A/10B provided for an “exemption” and not a “deduction”

We find that the decision of the Karnataka High Court in Himatasingike Seide Ltd. (supra) which was undisturbed by the Apex Court was in respect of Assessment Year 1994-95. Thus it dealt with the provisions of Section 10B of the Act as existing prior to 1 April 2001 which was admittedly different from Section 10B as in force during Assessment Year 2009-10 involved in this appeal. Section 10B of the Act as existing prior to 1 April 2001 provided for an exemption in respect of profits and gains derived from export by 100% Export Oriented Undertakings and now it provides for deduction of profits and gains derived from a 100% Exported Oriented Units

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DATE: August 19, 2016 (Date of pronouncement)
DATE: September 24, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 10B: Export of Legal Services by a law firm to its overseas clients by transfer of customized electronic data constitutes export of "computer software" as per Explanation 2 to s. 10B and is eligible for deduction

The assessee has, by use of the legal database compiled by it over a period of more than 60 years (firm is in practice of law since 1943), earned reasonable amount of valuable foreign exchange for our country, thereby fulfilling the most core intention of the law for introduction of EOU Scheme under EXIM Policy and Section 10B of the Act. The assessee has also fulfilled the specific requirements of Section 10B of the Act, by providing Legal Services using Legal database

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DATE: March 18, 2016 (Date of pronouncement)
DATE: March 28, 2016 (Date of publication)
AY: 2007-08 and 2006-07
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CITATION:
Deduction of section-10B, transferring pricing adjustment on account of ECB from parent company

Revenue has not disputed the submission made by the assessee before the CIT (A) that effective rate of interest paid by it in India was 6.62% on
loans. Interest paid by assessee on loans taken from AE abroad was 5%. This was below the rate of interest assessee was paying on loans taken
within India. When internal CUP with unrelated parties is available, in our opinion, it should be given precedence over external CUP Once such raw
gherkins are put into some process which increases its shelf life to six months or more, there indeed happen some irreversible change. Raw
gherkins are changed from its original state to a state where it remains good for human consumption even after six months. Thus the steps as
undertaken by the assessee which included fermentation and which extended the shelf life of raw gherkins, even if we construe as not ‘manufacture’, as commonly understood, it cannot be denied that it resulted in a product which cannot be equated with raw gherkins. The processes undertaken by the assessee had significant effect on the raw nature, converting it to a material capable of withstanding decay for a considerable period of time. In our opinion, in such a situation, it is difficult to say that what was packed by the assessee after the various process was very same as the raw gherkins which it got from its contract farmers

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DATE: February 11, 2016 (Date of pronouncement)
DATE: February 15, 2016 (Date of publication)
AY: 2008-09
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CITATION:
Argument that transfer pricing adjustment cannot be made if the assessee's income is deductible u/s 10A/ 10B is not acceptable. Contrary view in TCS cannot be followed as it is obiter dicta & contrary to law laid down in Aztech Software 107 ITD 141 (SB)

No exception has been carved out by the statute for non-determination of the ALP of an international transaction of an assessee who is eligible for the benefit of deduction section 10A/10B or any other section of Chapter- VIA of the Act. Section 92(1) clearly provides that any income arising from an international transaction is required to be computed having regard to its arm’s length price. There is no provision exempting the computation of total income arising from an international transaction having regard to its ALP, in the case of an assessee entitled to deduction u/s 10A or 10B or any other relevant provision. Section 92C dealing with computation of ALP clearly provides that the ALP in relation to an international transaction shall be determined by one of the methods given in this provision. This section also does not immune an international transaction from the computation of its ALP when income is otherwise eligible for deduction. On the contrary, we find that sub-section (4) of section 92C plainly stipulates that where an ALP is determined, the AO may compute the total income of the assessee having regard to the ALP so determined. This shows that the total income of an assessee entering into an international transaction, is required to be necessarily computed having regard to its ALP without any exception

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DATE: November 19, 2015 (Date of pronouncement)
DATE: November 29, 2015 (Date of publication)
AY: 2008-09
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CITATION:
S. 10B: Deemed Export Drawback, Customer claims, Freight subsidy & Interest on fixed deposit receipts (under lien for LC & bank guarantee) are all derived from the undertaking & are eligible for deduction

The Court fails to appreciate as to how the ITAT could have held that this transaction did not arise from the business of the export of goods. Even as regards freight subsidy, the Assessee’s contention was that it had received the subsidy in respect of the business carried on and the said subsidy was part of the profit of the business of the undertaking. If the ITAT was prepared to consider the deemed export draw back as eligible for deduction then there was no justification for excluding the freight subsidy

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DATE: October 8, 2015 (Date of pronouncement)
DATE: October 27, 2015 (Date of publication)
AY: 2005-06
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CITATION:
S. 10A/ 10B: After AY 2001-02 when s. 10A/ 10B became “deduction” provisions instead of “exemption” provisions, the deduction has to be computed before adjusting brought forward unabsorbed losses /depreciation

The deduction under s. 10A has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of s.72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VIA Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in ss.80C to 80U. S.80B(5) defines for the purpose of Chapter VI-A “gross total income” to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter

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DATE: September 2, 2015 (Date of pronouncement)
DATE: September 14, 2015 (Date of publication)
AY: 2008-09, 2009-10
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CITATION:
S. 10A/ 10B: If Tribunal upholds Revenue's plea that assessee is not entitled to S. 10B, it must consider the assessee's alternate plea for s. 10A deduction even if such alternate plea has not been raised before the lower authorities

A respondent in an appeal, if he has not filed a cross-appeal, is deemed to be satisfied with the decision. He is, therefore, entitled to support the judgment of the first officer on any ground but he is not entitled to raise a ground which will work adversely to the appellant. In fact such a ground may be a totally new ground, if it is purely one of law, and does not necessitate the recording of any evidence, even though the nature of the objection may be such that it is not only a defence to the appeal itself but goes further and may affect the validity of the entire proceedings. But the entertainment of such a ground would be subject to the restriction that even if it is accepted, it should be given effect to only for the purpose of sustaining the order in appeal and dismissing the appeal and cannot be made use of, to disturb or to set aside, the order in favour of the appellant

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