TMI Blog2007 (11) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee in the course of proceedings before the learned CIT(A) estimated such expenditure for transmission of data at 50 per cent of the expenditure on link charges. The learned CIT(A) discussed the software development with a number of representatives of various companies. Facts as mentioned by the learned CIT(A) in his order have not been controverted by the ld AR. Therefore, we decline to interfere with the finding of the learned CIT(A) in estimating that 80 per cent of uplinking charges are to be reduced from the export turnover. Such finding is upheld for both the assessment years. Uplinking charges reduced from the export turnover - Following the decision in the case of Tata Elxsi Ltd. v. Asstt. CIT [ 2007 (10) TMI 630 - ITAT BANGLORE] and CIT v. Infosys Technologies Ltd.[ 2007 (10) TMI 627 - ITAT BANGALORE] held that the components entering into export turnover and the total turnover should be the same. Thus, This ground of appeal is common for both the assessment years and, therefore, the decisions mentioned will be applicable for both the assessment years. Determining profits of the business for the purposes of section 10A/10B - Loss of one STP unit - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export turnover in arriving at the amount of deduction eligible under section 10A. 3. The learned CIT(A) during the course of appellate proceedings referred to the definition of export turnover as given in clause ( iv ) of Explanation 2 below section 10A(8). From the consideration received, freight, telecommunication charges or insurance attributable to delivery of software have to be reduced. The learned CIT(A) noticed that no expenditure was reduced from the export turnover. Hence, it was indicated to the learned Authorised Representative that income has to be enhanced. Expenditure on delivery of software has not been reduced from the export turnover. Before the learned CIT(A), the assessee made the following submissions in respect of the above issue : Link lines are obtained using a WAN (wide area network). The WAN provides video, data and voice connectivity services across a large geographical area from iGate locations in India. A wide area network (WAN) or leased line link includes communication lines and equipment upto and including the router at a particular end user site, excluding local area networks (LANs). Our links are connected between offices as well as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for initial discussions, not much of the dedicated facilities utilized for inward transmission of data. Once the development work starts, the software developer has to continuously send data outwards. In many instances, development of software is done in separate modules. It is sometimes done by different individuals or entities. All the modules need not be developed from India. Software development also includes modification of software already developed. The dedicated line is used for all such operations. The learned CIT(A), therefore, held that estimate of 50 per cent of data link charges as made by the assessee, as attributable to delivery of software is on the lower side. The learned CIT(A) estimated it at 80 per cent of the uplinking charges. 5. On the above referred issue, we have heard both the parties. The details of expenses incurred towards link charges are available with the assessee company. It would not have been difficult for the assessee company to have asked the services provider to give the details of expenses incurred in transmitting information from India. The assessee could have obtained the details of expenses of outward transmission of data. When a speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;total turnover' in the denominator. Though there is no definition of the term 'total turnover in section 10A, there is also nothing in the said section to mandate that what is excluded from the numerator (export turnover) would nevertheless form part of the denominator. One would have to apply consistent standards in understanding and applying a term, particularly when, such term, viz., export turnover has an independent function and at the same time a part of a larger term viz., total turnover. Thus, if some expenses; for any reason are excluded in arriving at the 'export turnover' the same should be reduced from 'total turnover' also. Even otherwise, in the context of section 80HHC whereunder a similar formula is applicable, it has been held that the components entering into export turnover and the total turnover should be the same. In other words, one should compare apples with apples and not apples with oranges. 9. Reliance was also placed on the number of judgments of the High Courts, vide which, it has been held that excise duty and sales-tax should not be included in the total turnover, as the same are not includible in the export turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orbed depreciation is to be set of against the profit eligible for deduction against section 10B. The calculation of exemption cannot be at whims and fancies of the assessee for exemption of tax. The learned CIT(A) also referred to the decision of this Bench in the case of Sun Micro Systems and mentioned that the Tribunal has clearly held that section 70 and 71 are to be applied in arriving at eligible profit for the purposes of section 10A. The learned CIT(A), therefore, held that provisions of section 70 and 71 are applicable for determining profits of the business for the purposes of section 10A/10B. 13. During the course of proceedings before us, the learned Authorised Representative referred to the decision of this Bench in the case of Webspectrum Software (P.) Ltd. The ground of appeal raised by the revenue in this appeal appearing in ITA No. 387/Bang/2006 was as under: The learned CIT (A) erred in directing the Assessing Officer to allow the deduction under section 10A without setting off of brought forward and current year losses of non section 10A unit and also in directing the Assessing Officer to allow to carry forward of losses of the non section 10A unit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 10A of the Income-tax Act. Profits and gains of the software services divisions will be exempt under section 10A without setting off the loss of other division or the setting off of carry forward losses of other division. 16. On the other hand, the learned Departmental Representative supported the order of the learned CIT(A). 17. We have heard both the parties. Before proceeding further, it will be relevant to reproduce section 10A(1). Section 10A. Special provision in respect of newly established undertakings in free trade zone, etc. (1) Subject to the provisions of this section a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a scheduled industry carried on in one or more factories by any person or authority including Government. CIT v. Textile Machinery Corpn. Ltd. (1971) 11 ITJ 105 at pp. 112, 113 (Cal.) 75 CWN 186 (Cal.): AIR 1971 Cal. 1, see also Union of India v. Sakseria Cotton Mills Ltd. [1973] 75 Bom. L.R. 100 at p. 105. 19. Industrial undertaking has been defined in section 33B of the Income-tax Act for that section. As per this definition, industrial undertaking' means an undertaking, which is mainly engaged in the business of generation or distribution of electricity or another form of power or in the construction of ships or in the manufacture or processing of goods or in mining. Hence, the meaning of 'industrial undertaking' is not restricted to one unit. The undertaking is to be considered as consisting of a number of units provided all the units are engaged in any of the activities mentioned in Explanation to section 33B. Industrial undertaking has also been defined in Explanation to section 10(15). 20. Before us, it has not been clarified that Pune unit is an independent unit and is in no way related with the activities carried out at Bangalore or Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned as under : [2006] 201 CTR (St) 147 : [2006] 281 ITR (St) 196 Under sub-section (4), it has been provided that on the basis of arm's length price so determined, the Assessing Officer may compute the total income of an assessee. The first proviso to sub-section (4) provides that where the total income of the assessee as computed by Assessing Officer is higher than the income declared by the assessee, no deduction under section 10A or section 10B or under Chapter VI-A will be allowed in respect of the amount of income, by which the total income of the assessee is enhanced after computation of income under sub-section. 23. From the Memo Explaining the Provisions of Finance Bill, 2006 as well as from the literal meaning of the word 'enhanced', it is clear that if income increased, as a result of computation of arm's length price, then such increase is not to be considered for deduction under section 10A. In the instant case, the assessee himself has computed the arm's length prices and has disclosed the income on the basis of arm's length prices. It is not a case, where there is an enhancement of income due to determination of arm's lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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