2010 (7) TMI 837 - AT - Income Tax

Summary

Issues Involved:
1. Allowance of exemption to the assessee's entire income from income tax.
2. Exclusion of unrealized export proceeds from "export turnover" but not "total turnover".
3. Exclusion of certain expenses in the computation of "export turnover" without corresponding reduction from "total turnover".
4. Deduction of loyalty bonus recovered from employees.
5. Disallowance of certain employee-related expenses.

Summary:

1. Allowance of Exemption to Assessee's Entire Income:
The principal issue in all appeals was the allowance of exemption to the assessee's entire income from income tax by the CIT(A). The assessee claimed exemption based on its registration as a 100% export-oriented unit (EOU) under the Software Technology Parks (STP) Scheme, asserting entitlement to a tax holiday. The Revenue contended that exemption could only be allowed u/s 10A of the Income-tax Act, 1961, and not under the STP Scheme. The Tribunal found the assessee's claim untenable, stating that the Foreign Trade (Development and Regulation) Act, 1992, does not override the provisions of the Income-tax Act, 1961. The Tribunal emphasized that only the Legislature has the power to levy taxes and carve out exemptions, and thus, the assessee's claim for exemption independent of the Act was rejected.

2. Exclusion of Unrealized Export Proceeds:
For the assessment year 2002-03, the issue was the exclusion of unrealized export proceeds from "export turnover" but not from "total turnover" in calculating relief u/s 10A. The CIT(A) allowed the assessee's claim, but the Tribunal disagreed, stating that the deduction u/s 10A(1) is only for profits derived from exports received in convertible foreign exchange within the specified period. The Tribunal held that the proportionate benefit should be allowed based on the ratio of export turnover to total turnover, including the unrealized export proceeds.

3. Exclusion of Certain Expenses:
For the assessment year 2004-05, the issue was the exclusion of travel expenses, telecommunication charges, and professional consultancy charges from "export turnover" without a corresponding reduction from "total turnover". The CIT(A) allowed the assessee's claim for a like reduction from "total turnover". The Tribunal upheld this decision, stating that the principle of apportionment requires that only comparables be subject to allocation, thus supporting the assessee's claim.

4. Deduction of Loyalty Bonus:
For the assessment year 2003-04, the issue was the deduction of loyalty bonus recovered from employees. The CIT(A) allowed the assessee's claim based on the exemption of its entire income. However, the Tribunal, having rejected the principal exemption claim, remitted the issue back to the CIT(A) for proper adjudication on merits in accordance with the law.

5. Disallowance of Employee-Related Expenses:
For the assessment year 2004-05, the issue was the disallowance of employee's club membership fees, gifts and contributions for employee marriages, and payments to Mahindra Holiday Resorts. The CIT(A) allowed relief for the first two expenses but confirmed the disallowance for the third due to lack of details. The Tribunal found the CIT(A)'s order contradictory and remitted the matter back to the CIT(A) for a decision on merits, including verification of claims.

Conclusion:
In the result, all the Revenue appeals were partly allowed for statistical purposes.