Commissioner of Income-tax, Chennai v. Sankhya Technologies Pvt. Ltd
[Citation -2020-LL-0820-6]

Citation 2020-LL-0820-6
Appellant Name Commissioner of Income-tax, Chennai
Respondent Name Sankhya Technologies Pvt. Ltd.
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 20/08/2020
Assessment Year 2003-04
Judgment View Judgment
Keyword Tags set off of business loss • interest income earned • commercial expediency • computation of income
Bot Summary: Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the assessee company is eligible for setoff of business loss uls 10A against the other income like interest income etc. 70(1), set off of loss for one source against income from another source under the same head of income is allowed. In the light of the Circular above, referred to and the decision of this Court, we hold that the assesseeis entitled to set off of the lossesas against the income of the eligible unit, so long as the loss was not liable to be excludedin the category even under lOB of the Income Tax Act. 70 of the Act, we are of the opinion that the assessee company is eligible for set off of business loss against other income including interest under the same head. And the Assessing Officer is directed to allow set off of the other income with business loss determined u/s lOA of the Act. The Scheme of Deductions under Chapter VIA 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 under Section 10-A and 10-B of the Act 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. Makes them a special category of assessees entitled to the incentive in the form of 100 Deduction under Section 10-A or 10-B of the Act, rather than it being a special character of income entitled to Deduction from Gross Total Income under Chapter VIA under Section 80-HH, etc. 37.On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100 exemption or deduction under Section 10-A of the Act 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 under Section 56 of the Act.


Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) IN HIGH COURT OF JUDICATURE AT MADRAS DATED : 20.08.2020 CORAM : HONOURABLE DR.JUSTICE VINEET KOTHARI AND HONOURABLE MR.JUSTICE ABDUL QUDDHOSE T.C.A.No.872 of 2017 Commissioner of Income Tax, Chennai Appellant -Vs- M/s.Sankhya Technologies Pvt Ltd. NO.13/2 III Floor, Jayalakshmipuram, 1st street, Nungambakkam,Chennai 34 Respondent Prayer : Tax Case Appeal filed under Section 260-A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal, Madras 'C Bench dated 23.9.2016 in I.T,A.No.589/Mds/2015. For Appellant : Mr.J.Narayanaswamy, Sr.Standing Counsel JUDGMENT (Judgment of Court was delivered by DR.VINEET KOTHARI, J.) Court was held by Video Conference as per Resolution of Full Court dated 3rd July 2020, by Judges at their respective residences and counsel, and staff of Court appearing from their respective residences. http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) 2. This Appeal has been filed by Revenue against order of learned Tribunal dated 23.09.2016 for Assessment Year 2003- 04, by which learned Tribunal decided against Revenue that Assessee was entitled to include interest on bank deposits for purpose of claiming deduction / exemption under Section 10A of Act. 3. substantial question of law raised in present appeal is given hereunder. Whether on facts and in circumstances of case Tribunal was right in holding that assessee company is eligible for setoff of business loss uls 10A against other income like interest income etc., by applying provision of section 70, when assessee itself had returned business loss u/s. 10A? 4. relevant findings of learned Tribunal are quoted below for ready reference. http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) 7.We have heard rival submissions, perused materialon record and judicial decisions. crux of issue being denial of set off of income from other sources against business loss u/s lOA unit. Assessing Officer in re-assessment proceedings has , segregated business loss separately and allowed exemption u/s lOA and made addition of interest < 23,60,578/- under income from other sources. CIT(A) upheld action of Assessing Officer relying on judgment of Karn taka High Court in Yokogawa India. Ltd.(supra) and came to conclusion that there should be nexus between income earned in respectof industrial unde'rtaking. 8.The ld. DR explained that it is in nature of exempted businessloss. As against above, Id. AR submitted that under provisions of sec. 70(1), set off of loss for one source against income from another source under same head of income is allowed. By applying this provision assessee- company has f adjusted and set off other income including interest income with business loss u/s lOA of Act and filed return of income. Further there was amendment to this provision where deduction u/s lOA has to be treated as deduction from total income, therefore, assesseeby applying provision has claimed set http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) off against businessloss. decisionsrelied by Id. AR are in support of his arguments wherein held that loss of lOB unit is available for set off u/s 70. So, same principle applies to provisions of lOA. We find that similar issue was considered by jurisdictional High Court in case of CIT vs M/s LasonIndia Pvt. Ltd in Tax case (Appeal) NO.1529 of 2007 dated 29.10.2013 wherein it was held as under: "6. In light of circular issued by Government of India, Central Board of Direct Taxes, we do not find contention of Revenueremains any longer res integra for this court to consider same. In this decision rendered in T.C(A) Nos. 72 & 73 of 2009, dated 22.10.2013, Commissioner of Income tax vs Mis Pentasoft Technologies Ltd this Court has also considered effect of circular as well as decision of Bombay High Court in case of Commissionerof Income-tax vs Galaxy Surfactants Ltd, reported in 343 ITR 108 and Hindustan Unilever Ltd vs Deputy Commissioner of Income-tax reported in [2010] 325 ITR 102[Bom] as regards set off of loss suffered by assesseein ineligible unit as against profit of eligible unit in favour of http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) assessee. In light of Circular above, referred to and decision of this Court, we hold that assesseeis entitled to set off of lossesas against income of eligible unit, so long as loss was not liable to be excludedin category even under lOB of Income Tax Act." 9. Therefore, considering apparent facts, material on record and judicial decisions and provisions of sec. 70 of Act, we are of opinion that assessee company is eligible for set off of business loss against other income including interest under same head. And Assessing Officer is directed to allow set off of other income with business loss determined u/s lOA of Act. 10.In result, appeal of assessee is allowed. Order pronounced on Friday, 23'd September, 2016, at Chennai. 5. It has been brought to notice of this Court that there is judgment of Full Bench of Karnataka High Court, to which one of us (Dr.Vineet Kothari, J.) was party, in which Full Bench has held that interest on bank deposits is also eligible to be included in http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) profits of 100% Export Oriented Units for purpose of claiming deduction under Section 10A / 10B of Income Tax Act. relevant portion of judgment of Full Bench of Karnataka High Court is quoted below. 35. Scheme of Deductions under Chapter VIA in Sections 80-HH, 80-HHC, 80-IB, etc from Gross Total Income of Undertaking , which may arise from different specified activities in these provisions and other incomes may exclude interest income from ambit of Deductions under these provisions, but exemption under Section 10-A and 10-B of Act encompasses entire income derived from business of export of such eligible Undertakings including interest income derived from temporary parking of funds by such Undertakings in Banks or even Staff loans. dedicated nature of business or their special geographical locations in STPI or SEZs. etc. makes them special category of assessees entitled to incentive in form of 100% Deduction under Section 10-A or 10-B of Act, rather than it being special character of income entitled to Deduction from Gross Total Income under Chapter VIA under Section 80-HH, etc. computation of income entitled to exemption under Section 10-A or 10-B of Act is done at prior stage of computation of Income from Profits and Gains of Business as per Sections 28 to 44 under http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) Part-D of Chapter IV before Gross Total Income as defined under Section 80-B(5) is computed and after which 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 10-A or 10-B of Act. words derived by 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 Undertaking including incidental income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10-A and 10-B of Act. Such interest income arises in ordinary course of export business of Undertaking even though not as direct result of export but from Bank Deposits etc., and is therefore eligible for 100% deduction. 36. We have to take purposive interpretation of Scheme of Act for exemption under Section 10-A/10-B of Act and for object of granting such incentive to special class of assessees selected by Parliament, play-in-the-joints is allowed to Legislature and liberal interpretation of exemption provisions to make purposive interpretation, was also propounded by Hon ble Supreme Court in following cases:- I] In Bajaj Tempo Ltd., Bombay Vs. Commissioner of Income Tax, http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) Bombay, [(1992) 3 SCC 78], Hon ble Supreme Court held that:- 5. ..Since provision intended for promoting economic growth has to be interpreted liberally, restriction on it, too, has to be construed so as to advance objective of section and not to frustrate it. But that turned out to be the, unintended, consequence of construing clause literally, as was done by High Court for which it cannot be blamed, as provision is susceptible of such construction if purpose behind its enactment, objective it sought to achieve and mischief it intended to control is lost sight of. One way of reading it is that clause excludes any undertaking formed by transfer to it of any building, plant or machinery used previously in any other business. No objection could have been taken to such reading but when result of reading in such plain and simple manner is analysed then it appears that literal construction would not be proper. II] In R.K. Garg v. Union of India, [(1981) 4 SCC 675] = [1982. SCC (Tax) 30 p.690], Hon ble Apex Court has held as under:- 8. Another rule of http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less person than Holmes, J., that legislature should be allowed some play in joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to nature of problems required to be dealt with, greater play in joints has to be allowed to legislature. court should feel more inclined to give judicial deference to legislative judgment in field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud [351 US 457 : 1 L Ed 2d 1485 (1957)] where Frankfurter, J., said in his inimitable style: In utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. legislature after all has http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) affirmative responsibility. courts have only power to destroy, not to reconstruct. When these are added to complexity of economic regulation, uncertainty, liability to error, bewildering conflict of experts, and number of times judges have been overruled by events self-limitation can be seen to be path to judicial wisdom and institutional prestige and stability. Court must always remember that legislation is directed to practical problems, that economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry ; that exact wisdom and nice adaption of remedy are not always possible and that judgment is largely prophecy based on meagre and uninterpreted experience . Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. 37.On above legal position discussed by us, we are of opinion that Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of Act in respect of interest income earned by it on deposits made by it with Banks in ordinary course of its business and also interest earned by it from staff loans and such interest income would not be taxable as Income from other Sources under Section 56 of Act. incidental activity of parking of Surplus Funds with Banks or advancing of staff loans by such special category of assessees covered under Section 10-A or 10-B of Act is integral part of their export business activity and business decision taken in view of commercial expediency and interest income earned incidentally cannot be de-linked from its profits and gains derived by Undertaking engaged in export of Articles as envisaged under Section 10-A or Section 10-B of Act and cannot be taxed separately under Section 56 of Act. 38. We therefore affirm and agree with view expressed by first Division Bench of this Court in case of M/s. Motorola India Electronics (P) Ltd.(supra) and we do not agree with view taken by subsequent Division Bench on 10/04/2014 in http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) present case. 39. Both questions thus framed above are answered in favour of Respondent Assessee and against Revenue in terms indicated above and matter is sent back to Division Bench for deciding this Appeal in accordance with aforesaid opinion. 6. Having heard learned counsel for Appellant Revenue, we are of considered opinion that controversy involved in present appeal filed by Revenue is squarely covered by decision of Full Bench of Karnataka High Court cited supra, to which we respectfully agree and substantial question of law raised in this appeal is answered in favour of Assessee and against Revenue. 7. In view of aforesaid, appeal is dismissed and answering question of law in favour of respondent Assessee and against appellant Revenue. No costs. (V.K., J.) (A.Q.,J.) 20.08.2020 KST http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) 1.Income Tax Appellate Tribunal, Madras 'C' Bench. 2. M/s.Sankhya Technologies Pvt Ltd. NO.13/2 III Floor, Jayalakshmipuram, 1st Street, Nungambakkam,Chennai 34 http://www.judis.nic.in Judgment dated 20.08.2020 in TCA 872/2017 (CIT -Vs- Sankhya Technologies Pvt Ltd) DR.VINEET KOTHARI, J. AND ABDUL QUDDHOSE, J. T.C.A.No.872 of 2017 20.08.2020 http://www.judis.nic.in Commissioner of Income-tax, Chennai v. Sankhya Technologies Pvt. Ltd
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