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2008 (2) TMI 486 - AT - Income TaxComputation of deduction u/s 10A - Exclude the Gain from foreign exchange fluctuation and Interest on fixed deposits - Computation of export turnover - Exclude expenses incurred outside India on the employees for providing technical services outside India - Setting off of b/f losses from the current year business income before allowing the deduction u/s 10A - Development of computer software considered as export of technical services ? Exclude the Gain from foreign exchange fluctuation for the computation of deduction u/s 10A - HELD THAT:- Following the decision in case of Renaissance Jewellery (P) Ltd. vs. ITO [2005 (5) TMI 246 - ITAT BOMBAY-G]. We are of the view that the gain from the fluctuation of foreign exchange is directly related with the export activities and should be considered as income derived from export activities. It is pertinent that such gain due to fluctuation of foreign exchange arises only due to the export and not due to other activities of the assessee. If the assessee has not exported any article then the question of any gain or loss due to foreign exchange does not arise. Therefore, we decide this issue in favour of the assessee and set aside the order of the CIT(A). Accordingly, gain on foreign exchange would be included in the total turnover while computing the deduction under s. 10A of the Act. Interest on fixed deposits for the computation of deduction u/s 10A - In view of the decision In the case of CIT vs. Menon Impex (P) Ltd. [2002 (9) TMI 75 - MADRAS HIGH COURT]. We are also of the opinion that the interest on deposits cannot be regarded as income derived from industrial undertaking. There is no direct nexus between the interest on deposits and the industrial undertaking. Therefore, we decide this issue against the assessee and the order of the CIT(A) in this regard is upheld. Exclusion of expenses incurred towards salaries, travelling and other perquisites of the employees in connection with providing technical services outside India for the purpose of section 10A - To understand the meaning of computer software and profits and gains deriving from development of computer software, one has to read the s. 10A along with sub-s. (4), Expln. 2(i) and (iv) and Expln. 3 to sub-s. (8) of s. 10A of the Act simultaneously and harmoniously. Explanation 2(i) provides the meaning of computer software and it is clear that any computer programme recorded on any disc, tape, perforated media or other information storage device or any customized electronic data or any product or service of similar nature, as may be notified which is transmitted or exported from India to any place outside India by any means. The exclusion of charges or expenses incurred in foreign exchange in providing technical services outside India by cl. (iv) of Expln. 2 is only those expenses which are incurred for rendering and providing technical services outside India to the other party and not the expenses incurred for technical services utilized for development of computer software on site. Therefore, cl. (iv) of Expln. 2 is not derogatory or contradictory to the Expln. 3 and these two provisions deal with separate subjects. We are of the opinion that the technical services provided outside India by the assessee are only for the development of computer software which is also a part of the requirement of the assessee in development of software as part of the requirements and specifications of the clients and therefore, the said activity of the assessee comes under the definition of on site development of computer software including services for development of software outside India as provided in Expln. 3 to sub-s. (8) of s. 10A of the Act. Therefore, we hold that the expenses incurred on salaries, travelling and other perquisites shall be included in the export turnover of the assessee. We do not agree with the contention of the assessee that in case of exclusion of these expenses from the export turnover, the same should be excluded from the total turnover while deciding the deduction under s. 10A as held by the Hon'ble apex Court in the case of CIT vs. K. Ravindranathan Nair [2007 (11) TMI 10 - SUPREME COURT]. It is clear that independent income does not form part of the profits and gains and also shall not form part of export turnover but the same shall be included in the total turnover while computing the deduction. As a result, the issue is decided in favour of the assessee and the order of the CIT(A) is set aside in this regard. Setting off of b/f losses from the current year business income before claiming deduction u/s 10A - We are of the view that the CIT(A) was not justified in holding that the total income of the assessee for any relevant assessment year is required to be computed after taking into consideration the carried forward losses incurred after 1st April, 2001 and after setting off the loss if there is any positive income is left the same is exempted under s. 10A. We accordingly set aside the impugned order of the CIT(A) and allow the deduction under s. 10A without setting off the brought forward losses. This issue is thus decided in favour of the assessee and against the Revenue. In the result the appeal is partly allowed.
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