Metrix Precision Components Pvt. Limited v. The Deputy Commissioner of Income-tax Circle-12(1), Bangalore
[Citation -2020-LL-0923-51]

Citation 2020-LL-0923-51
Appellant Name Metrix Precision Components Pvt. Limited
Respondent Name The Deputy Commissioner of Income-tax Circle-12(1), Bangalore
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 23/09/2020
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags computation of taxable total income • convertible foreign currency • convertible foreign exchange • minimum alternative tax • supporting manufacturer • industrial undertaking • eligible for exemption • benefit of deduction • export oriented unit • claim of deduction • foreign enterprise • computer software • export of goods • free trade zone • deemed export
Bot Summary: The Assessing Officer also held that though the assessee had exported the goods but it did not realize export proceeds in convertible foreign currency as mandated under Section 10B(3) of the Act and the same was realized in convertible foreign currency by a third party. M/s Toyota Tsusho India Pvt. Ltd. It is further submitted that the assessee being 100 export oriented unit is entitled to deduction under Section 10B of the Act in respect of deemed export of goods made by it to a third party. Paragraph 6.10 of the aforesaid policy deals with exchange through others and provides that EOU/EHTP/STP/BTP unit may export goods manufactured / software developed by it through another exporter or any other EOU/EHTP/STP/SEZ unit subject to the conditions mentioned in paragraph 6.19 of Handbook. Paragraph 6.19 of the policy reads as under: 11 6.19 An EOU/EHTP/STP/BTP unit may export goods manufactured /software developed by it through other exporter or any other EOU/EHTP/STP/SEZ/BTP unit subject to condition that: Goods shall be produced in EOU/SHTP/STP/BTP unit concerned. For the purposes of EXIM policy it is treated as deemed export and therefore, Section 10A of the Act was introduced to give effect to EXIM policy, the supplies made from one STP to another STP have to be treated as deemed export, as clause 6.19 specifically provides for export to status holder. Even if the assessee does not directly export the material outside the country and supplies the same through another STP unit, which exports the same and receives the foreign exchange has to be held entitled to benefit of deduction. The aforesaid decision was followed by another division bench in INTERNATIONAL STONES INDIA PVT. LTD. while dealing with a claim of deduction under Section 10B of the Act and it was held that assessee being 100 export oriented unit would be entitled to deduction under 14 Section 10B of the Act in respect of deemed export of goods made by it to the third party.


1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 23RD DAY OF SEPTEMBER 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.384 OF 2014 BETWEEN: M/S. METRIX PRECISION COMPONENTS PVT. LIMITED 46, KSSIDC INDUSTRIAL ESTATE KUMBALGODU, BANGALORE REPRESENTED BY ITS MANAGING DIRECTOR SRI. PRADEEP KASHYAP AGED ABOUT 50 YEARS S/O SRI. GOPINATH M. ... APPELLANT (BY SRI. BALRAM R. RAO AND SRI. KAUSHIK M, ADVS.,) AND: DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-12(1), BANGALORE. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.,) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 11.04.2014 PASSED IN ITA NO.248/BANG/2013 FOR ASSESSMENT YEAR 2009-10, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (II) ALLOW APPEAL AND SET ASIDE ORDER OF INCOME TAX APPELLATE TRIBUNAL DATED 11-04-2014 2 BEARING ITA NO.248/BANG/2013 FOR ASSESSMENT YEAR 2009-10. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by assessee. subject matter of appeal pertains to Assessment year 2009-10. appeal was admitted by bench of this Court vide order dated 20.03.2015 on following substantial question of law: (i) Whether Tribunal is correct in sustaining order of Respondent in denying benefit of deduction u/s 10B of Act in computation of taxable total income on wrong interpretation of as well as on misreading of said provisions especially sub-section (3)? (ii) Whether Tribunal is correct in sustaining order of Respondent in denying benefit of deduction u/s 10B 3 of Act in computation of taxable total income on misconstruction of facts of case thereby establishing perversity in impugned order? (iii) Whether Appellate Tribunal is correct in confirming disallowance of deduction u/s 10B of Act overlooking principles laid down by Supreme Court in decision reported in 223 ITR 271 and principles laid down by Co-ordinate Bench rendered in case of M/s Granite Mart P Ltd.,?. 2. Facts leading to filing of appeal briefly stated are that assessee is company engaged in business, manufacture and exports of automotive components. assessee filed return of income for Assessment Year 2009-10 declaring total income of Rs.4,25,531/- and amount of Rs.1,57,69,992/- was shown as income under Minimum Alternative Tax (MAT) regime. return of income was selected for scrutiny and Assessing Officer on 30.10.2011 passed 4 order determining taxable total income of Rs.1,77,09,421/- upon assessee. Assessing Officer also held that though assessee had exported goods but it did not realize export proceeds in convertible foreign currency as mandated under Section 10B(3) of Act and same was realized in convertible foreign currency by third party. Assessing Officer therefore, disallowed claim of deduction of assessee under Section 10B of Act. 3. assessee thereupon filed appeal before Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) by order dated 20.09.2012 inter alia held that assessee has not satisfied conditions required for claiming deduction under Section 10B of Act, since, export proceeds were not received in convertible foreign exchange by assessee and dismissed appeal preferred by assessee. assessee thereupon filed appeal before Income Tax Appellate Tribunal 5 (hereinafter referred to as 'the Tribunal' for short). Tribunal by order dated 11.04.2014 inter alia held that assessee was only supporting manufacturer and deduction under Section 10B of Act is not available to supporting manufacturer. Accordingly, appeal preferred by assessee was dismissed. In aforesaid factual background, this appeal has been filed. 4. Learned counsel for assessee submitted that Tribunal failed to appreciate fact that claim of assessee for deduction under Section 10B of Act in computation of total taxable income for Assessment Year 2009-10 was legally sustainable especially in view of disclaimer certificate issued by recipient viz., M/s Toyota Tsusho India Pvt. Ltd. It is further submitted that assessee being 100% export oriented unit is entitled to deduction under Section 10B of Act in respect of deemed export of goods made by it to third party. It is also submitted that in order to eligible for exemption under Section 10B of Act, it is 6 not necessary that undertaking should personally export goods, manufacture /software developed by it outside country and it may export same through any other STP unit. In support of aforesaid submissions, reliance has been placed on decisions of Supreme Court in DEPUTY COMMISSIONER OF INCOME TAX VS. METAL CLOSURES PRIVATE LIMITED , 102 TAXMAN.COM 72, TATA ELXSI LIMITED VS. ACIT, BANGALORE , ITA NO.411/2008, CIT VS. INTL. STONES INDIA (P.) LTD , (2018) 94 TAXMANN.COM 287 KARNTAKA and decision of this court in M/S GRANITE MART LIMITED , ITA NO.28/2011 DATED 19.03.2020. 5. On other hand, learned counsel for revenue submitted that manufacturing unit as well as exporting unit should be eligible units in order to claim deduction under Section 10B of Act. It is further submitted that decision of this court in case 7 of Tata Elxsi supra has no application to fact situation of case as issue with regard to eligibility of both units was not in dispute. It is also submitted that merely having contract with foreign enterprise and merely earning foreign exchange does not ipso facto make assessee eligible for deduction under Section 10B of Act. It is also submitted that incentive provision like Section 10B of Act has to be interpreted strictly and burden of proving its applicability is on assessee and in case, there is any ambiguity in provision, benefit has to be extended in favour of revenue. In support of aforesaid submission, reliance has been placed on decision of Supreme Court in RAMNATH & CO. VS. COMMISSIONER OF INCOME-TAX , (2020) 116 TAXMANN.COM 885 (SC). 6. We have considered submissions made by learned counsel for parties and have perused 8 record. Before proceeding further, it is apposite to take note of relevant extract of Section 10B(1) to (3) of Act, which read as under: '10B. (1) Subject to provisions of this section, any profits and gains derived by assessee from hundred per cent export- oriented undertaking (hereafter in this section referred to as undertaking) to which this section applies shall not be included in total Income of assessee. (2) This section applies to any undertaking which fulfils all following conditions, namely: (i) it manufactures or produces any article or thing; (ii) it is not formed by splitting up, or reconstruction, of business already in existence: Provided that this condition shall not apply in respect of any undertaking which is formed as result of re-establishment, reconstruction or revival by assessee of 9 business of any such industrial undertaking as is referred to in section 33B. in circumstances and within period specified in that section: (iii) it is not formed by transfer to new business of machinery or plant previously used for any purpose. Explanation provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for purposes of clause (iii) of this sub-section as they apply for purposes of clause (ii) of that sub- section. (3) This section applies to undertaking, if sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by assessee in convertible foreign exchange, within period of six months from end of Previous year or, within such further period as competent 10 authority may allow in this behalf. 7. Section 10A and 10B of Act are pari materia provisions. However, difference is with regard to nature of unit. Section 10A deals with Free Trade Zone (FTZ) unit whereas, Section 10B deals with 100% export oriented unit. Section 10A of Act covers newly established undertaking in Free Trade Zones whereas, Section 10B deals with newly established 100% export oriented undertakings. Section 10A of Act was introduced to give effect to EXIM policy of Central Government. Paragraph 6.10 of aforesaid policy deals with exchange through others and provides that EOU/EHTP/STP/BTP unit may export goods manufactured / software developed by it through another exporter or any other EOU/EHTP/STP/SEZ unit subject to conditions mentioned in paragraph 6.19 of Handbook. Paragraph 6.19 of policy reads as under: 11 6.19 EOU/EHTP/STP/BTP unit may export goods manufactured /software developed by it through other exporter or any other EOU/EHTP/STP/SEZ/BTP unit subject to condition that: (a) Goods shall be produced in EOU/SHTP/STP/BTP unit concerned. (b) Level of NFE or any other conditions relating to imports and exports as prescribed shall continue to be discharged by EOU/EHTP/STP unit concerned. (c) Export orders so procured shall be executed within parameters of EOU/EHTP/STP/BTP schemes and goods shall be directly transferred from unit to port of shipment. (d) Fulfillment of NFE by EOU/EHTP/STP/BTP units in regard to such exports shall be reckoned on basis of price at which goods are supplied by EOUs to other Exporter or other EOU/EHTP/STP/STP/SEZ unit. (e) All export entitlements, including 12 recognition as status Holder would accrue to exporter in whose name foreign exchange earnings are realized. However, such export shall be counted towards fulfillment of obligation under EOU/EHTP/STP/BTP scheme only. 8. While dealing with scope and ambit of Section 10A of Act, bench of this court in Tata Elxsi Ltd., supra held that when supply is made from DTA to STP, it does not satisfy requirements of export as defined under Customs Act. However, for purposes of EXIM policy it is treated as deemed export and therefore, Section 10A of Act was introduced to give effect to EXIM policy, supplies made from one STP to another STP have to be treated as deemed export, as clause 6.19 specifically provides for export to status holder. Thus, in order to be eligible for exemption from Income Tax, exports should earn foreign exchange and it does not matter whether undertaking should personally export goods manufactured / software 13 developed by it outside country. It may export out of India by itself or through any other STP unit. It has further been held that once it is shown that goods manufactured by assessee have been exported out of India either by assessee or by another STP unit and foreign exchange is directly attributable to such export, then provisions of Section 10A of Act is attracted and such exported is entitled to benefit of deduction of profits and gains derived from such export from payment of tax. Even if assessee does not directly export material outside country and supplies same through another STP unit, which exports same and receives foreign exchange has to be held entitled to benefit of deduction. aforesaid decision was followed by another division bench in INTERNATIONAL STONES INDIA PVT. LTD. while dealing with claim of deduction under Section 10B of Act and it was held that assessee being 100% export oriented unit would be entitled to deduction under 14 Section 10B of Act in respect of deemed export of goods made by it to third party. 9. In instant case, admittedly, assessee is manufacturing unit and is 100% export oriented unit as has been found by Tribunal in para 3 of order. assessee has manufactured precision components and has exported same through Toyota Tsusho P. Ltd., which had received export proceeds in convertible foreign currency. Therefore, assessee was entitled to benefit of deduction under Section 10B of Act. In view of preceding analysis, substantial questions of law framed by this court are answered in favour of assessee and against revenue. orders passed by Assessing Officer, Commissioner of Income Tax (Appeals) and order of Tribunal insoafar it deprives assessee of benefit under Section 10B of Act are hereby quashed and 15 assessee is entitled to benefit of deduction under Section 10B of Act. In result, appeal is allowed. Sd/- JUDGE Sd/- JUDGE ss Metrix Precision Components Pvt. Limited v. Deputy Commissioner of Income-tax Circle-12(1), Bangalore
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