TMI Blog2011 (11) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 - SHRI BADAR DURREZ AHMED AND MS. VEENA BIRBAL, JJ. Appearances by: Shri Sanjeev Sabharwal for the Appellant. Shri S. Ganesh, Shri Vibhu Bakhru, Pawan Sharma and Shri Vinayak Srivastava for the Respondent. JUDGMENT Badar Durrez Ahmed, J - These appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the said Act) have been preferred by the Revenue in respect of the Income Tax Appellate Tribunal's orders dated 13.10.2009 and 04.03.2011 in ITA Nos 2170/DEL/2009 and 5556/DEL/2010, respectively. Both these appeals have been admitted and the common question arising in these appeals is as under:- "Whether ITAT erred in directing that assessing officer to exclude communication expenses out of Total Turnover for computing eligible deduction under Section 10A of the Income Tax Act, 1961?" 2. ITA No.1519/2010 as well as ITA No.1076/2011, are both in respect of the assessment year 2004-05. ITA No.1519/2010 arises out of the order passed by the Commissioner of Income Tax in exercise of his powers under Section 263 of the said Act. The assessing officer in the original assessment had not included the communication expenses in the figure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Revenue, that Section 10A which provides for a deduction of profits and gains which are derived by an undertaking from the export of articles or things or computer software as specified therein has to be computed in terms of Section 10A(4). The said sub-section (4) specifically stipulates that profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. He further submitted that while Explanation 2(iv) defines 'export turnover', there is no definition of total turnover. According to Mr Sabharwal, the definition of 'export turnover' indicates that it does not include, inter alia, telecommunication charges. This expression is defined to mean the consideration in respect of export of articles, things or computer software received in, or brought into India by the assessee in convertible foreign exchange but so as not to include, inter alia, freight, telecommunication charges or insurance attributable to the del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Gem Plus Jewellery India Ltd.'s case (supra) has been followed by the Karnataka High Court in CIT v. Tata Elxsi Ltd., [IT Appeal No.70 of 2009 dated 30-08-2011]. 11. It was Mr Ganesh's contention that export turnover as defined in Section 10A specifically excludes telecommunication charges. He further submitted that export turnover was a component of total turnover. Consequently, when telecommunication charges have been specifically excluded from export turnover, it being a component of total turnover, it stands to reason that telecommunication charges have also to be excluded from total turnover. 12. He has also submitted that when something is excluded from the numerator, then logically it ought to be excluded from the denominator also, particularly, in the type of fraction one is considering in Section 10A or Section 80 HHC. 13. It would be necessary to set out the relevant portion of Section 10A as under:- "10A. Special provision in respect of newly established undertaking 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India. ** ** ** 14. Having considered the arguments advanced by the counsel for the parties, we are in complete agreement with the decision of the Bombay High Court in the case of Gem Plus Jewellery India Ltd. (supra). In order to avoid prolixity, we set out the relevant portion of the decision of the Bombay High Court in Gem Plus Jewellery India Ltd.'s case(supra).and endorse the same. The relevant portion of the said decision is as under:- "(6) The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator inasmuch as the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided." (underlining added) 15. The Karnataka High Court has also followed the view taken by the Bombay High Court in Gem Plus Jewellery India Ltd.'s case (supra). The relevant extract from the Karnataka High Court's decision is as under:- "From the aforesaid judgments, what emerges is that, there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10-A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of Section 80 HHC, the export profit is to be derived from the total business of the undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X
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