The Karnataka High Court in a recent decision permitted the Tax Exemptions availed by an Assessee on Surplus Funds parked in Fixed Deposits ( FDs ) of banks as per the stipulations of Section 10AA of the Income Tax Act, 1961.
The exemptions were sought to be utilized by the Assessee company, Allstate India Private Limited, an Export Oriented Unit operating in a Special Economic Zone (SEZ). Allstate India Private Limited is primarily engaged in the business of providing software development services including testing, infrastructure support and related services while also offering information technology-enabled services to entities within the Allstate Group of Companies.
Get a Copy of Income Tax Act, Click here
The instant Income Tax Appeal was filed by the Income Tax Department against an Order of the Income Tax Appellate Tribunal, Bangalore based on the Income Tax Returns filed by the Assessee for the Financial Year 2017-18. The Assessee being party to an Advance Pricing Agreement with the Government submitted their modified Returns on 19.02.2020 declaring a total income of Rs.23,19,09,830/-.
Thereafter, the Assessee was issued a show cause notice by the Department seeking an explanation as to why an amount of Rs.5,85,16,568/- earned from interest accrued on FDs parked with Banks are eligible to be exempt under Section 10AA of the Act.
The Karnataka High Court referred to the decision of its Full Bench in the case of CIT Vs. Hewlett Packard Soft Limited (2017)where it was held that the Respondent, Hewlett Packard Soft Limited had averted its tax liabilities by seeking to avail deductions under Section 10A of the Income Tax Act, 1961.
The Karnataka High Court recognized that Hewlett Packard is an Export Oriented Unit situated in a SEZ and makes 100% exports of articles including software. These elements permitted Hewlett Packard to avail 100% exemption on the entire profits and gains acquired by it as per the provisions of Section 10A.
Get a Copy of Income Tax Act, Click here
The High Court further clarified that Interest accrued on funds parked temporarily in Banks by the aforementioned Export Oriented Units would constitute part of profits and gains of the Company and cannot be compared with deductions under Section 80-HH or 80-IB of the Income Tax Act, 1961.
The Division Bench of the Karnataka High Court comprising Justice S.G. Pandit and Justice C.M. Poonacha, conforming to its own binding precedent, affirmed the Ratio in Hewlett Packard that Section 10A and Section 10AA of the Income Tax Act, 1961 are to be construed in similar manner for the purpose of computing income.
In light of the above observations, the present Appeal by the Revenue was dismissed by the High Court, ruling in favour of the Assessee – Allstate India Private Limited.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
