Case Law Details
Brief of the case:
ITAT held in ITO Vs M/s.Last Peak Data Pvt. Ltd that if the assesse was an existing recognized Software Technology Park (STP) then it would be considered at par at of Special Economic Zone(SEZ) and exemptions available to SEZ would also be available to STP also because the purpose of incorporating the SEZ act of the inflow of foreign exchange was also fulfilled by STP. So for calculating the book profits u/s 115JB, the profits of STP was to be deducted because as per sec 115JB(6) profits related to the SEZ was not to be considered for calculation of book profits u/s 115JB so in the same way profits earned by the STP was also not to be considered.
Moreover to claim deduction for SEZ, physical presence of the unit in the special economic zone area was not mandatory because as per the definition of SEZ an existing unit before the commencement of SEZ act was also eligible but that particular existing unit must fulfill the purpose for which SEZ was enacted, So as STP was fulfilling the purpose as said above of net foreign exchange So all the special economic benefits which were available to SEZ should also be available to STP also.
Further the expenses incurred for the converting reserves of the company into the capital was a revenue expense not capital expense.
Further Interest on call money was to be taxed under head PGBP because the same was generated only of the business transactions.
Facts of the case:
Assessee had computed the book profits u/s 115JB after deducting the profits earned u/s 10AA and accordingly paid tax on it but AO was of the view that as per sec 115JB only the profits u/s 10B, 11 and 12 were to be excluded not of sec 10AA.
AO considered the expenses incurred for converting reserves into the Capital of company because he was of the view that as it builds up the capital base of the company so should be considered as capital expenditure.
AO considered the interest on call money under head income from other sources.
Contention of the assesse:
Assessee was of the view that as it was claiming exemption u/s 10AA because it was a recognized Software Technology Park So, for calculating book profits u/s 115JB profits earned by the assesse as a STP u/s 10AA should also be deducted because sec 115JB excludes the profits of the unit who was in Special economic Zone. It did not mean that if the unit was outside the special economic zone then benefit of sec 10AA would not be available. The main purpose of introducing sec 10B was to make the economy strong with the inflow of foreign exchange so was the purpose assesse was fulfilling. So whatever special economic benefits were available to the units in the special economic zone so the same should be available to the unit who was also fulfilling the purpose of sec 10B.
So as profit u/s 10B was to be deducted for calculating book profits u/s 115JB, profit u/s 10AA should also be deducted.
Further conversion of reserves into the capital of the company would not increase the capital base of the company so the same should be treated as a revenue expense.
Interest on call money should be taxed under head PGBP as it was generated through business transactions.
Contention of the revenue:
Revenue was of the view that as the unit of the assesse was not situated in the special economic zone so the profits of the assesse was not eligible for deduction u/s 115JB because only the profits of that units were deducted from the book profits which were situated in the special economic zone area not outside that because as per sec 115JB the profit of the units situated in the SEZ should be deducted while calculating book profits.
Held by ITAT:
ITAT held that The Assessee set up a “Unit” in the Software Technology Park (STP) for rendering IT Enabled Services in the software Technology park set up by the Ministry of Commerce, Government of India, pursuant to its Information and Technology Policy for setting up and rendering ITES to the foreign country-customers in variousfields for securing Net Foreign Exchange earnings for India This was aimed at building-up the foreign exchange reserves as quickly as possible, to strengthen India’s balance of payment situation. For this purpose, Government of India placed the Export Processing Zone, STP’s and Special Economic Zones (SEZ’s) at par .In particular, the STP’s were placed on level footing with the EPZ’s and SEZ’s as regards control and development, by placing them under the direction of Department of Commissioners and for this purpose the Director of STP’s were equated with Development Commissioners and the EPZ’s were declared as SEZ’s.
So as all the purpose was fulfilled by the STP also which was decided that should be fulfilled while opening SEZ’s so SEZ’s should be at par with STP. So profits of STP should also be deducted for calculating book profits u/s 115JB
Further ITAT was of the view that conversion of reserves into capital was just like issue of bonus shares as there was no inflow of funds so as expenses incurred for issuing bonus shares considered as revenue expense so in the same way the expenses incurred for converting reserves into capital was also revenue expense.
Further, Interest on money call was income to be taxed under head PGBP because the same had been generated because of business transactions. It was for saving the business from the foreign exchange fluctuations. So appeal of the revenue was dismissed.
