TMI Blog2011 (8) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... .V. Seshachala for the Appellant. G. Sarangan and Smt. Vani H. for the Respondent. JUDGMENT 1. In all these appeals, as the question involved is one and the same, which is purely a question of law, they are taken up together and disposed of by this common judgment. 2. For the purpose of clarity, the facts in I.T.A. No. 450/2008 are adopted in order to appreciate the question of law raised in all these appeals. 3. The assessee Company is engaged in the business of specialized after sales services, marketing and distribution of customized high technology computer systems and storage devices, computer consultancy and solutions and software promotion. During the year ended 31st March 2003, the main source of revenue for the assessee has been from trading division, and STP unit engaged in Call Centre operations. The assessee incurred a sum of Rs. 10,44,31,606 in foreign exchange towards communication expenses. The assessee claimed exemption under Section 10-A of the Income Tax Act, 1961 (hereinafter referred to as "the Act" for short) for the profits and gains derived from STP unit. In support of such claim, it has filed Form 56F and Annexure A thereto. In this Annexure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al turnover and directed the Assessing Officer to re-compute the relief under Section 10-A of the Act excluding the said communication charges from export turnover as well as from total turnover. Aggrieved by the said order of the Tribunal, the revenue is in appeal. 5. The learned counsel for the Revenue, assailing the impugned order of the Tribunal, contended that the legislature took pains to define the word 'export turnover' in Section 10-A and consciously did not define 'total turnover', whereas in the case of Section 80 HHC, the legislature defined both the export turnover and total turnover. Therefore, the intention of the legislature is clear. In the light of the same, the interpretation placed by the Apex Court, while working out the formula as stipulated in Section 80HHC has no application while working the formula prescribed under Section 10-A. If the aforesaid argument is to be accepted, there will be no difference between the export turnover and the total turnover and then the said formula looses significance and certainly the legislature did not enact the aforesaid formula without any purpose. He further contended, in the absence of a specific definition of 'total tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deals with incomes, which do not form part of total income. Section 10-A is a Special provision in respect of newly established Undertakings in free trade zone, etc. The said provision is enacted as an incentive to exporters to enable their products to be competitive in the global market and, consequently, earn precious foreign exchange for the country. Therefore, while interpreting these provisions, this aspect has to be borne in mind. Section 10-A(1) provides for a deduction of 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 and the same is excluded from the total income of the assessee. Sub-section (4) is the provision which provides for the manner in which the said profits and gains have to be arrived at. It reads as under: "For the purposes of sub-sections (1) and (1A), the profits derived from 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 busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be excluded while arriving at the total turnover. However, while interpreting the aforesaid provisions of Section 80HHC, the Courts have laid down various principles, which are independent of the statutory provisions. The question is, whether those independent principles can be adopted while defining 'total turnover' in the absence of a definition in Section 10-A. The Apex Court, in the case of Lakshmi Machine Works (supra) held at para. 15 as under: "15. It is important to note that tax under the Act is upon income, profits and gains. It is not a tax on gross receipts. Under Section 2(24) of the Act the word "income" includes profits and gains. The charge is not on gross receipts but on profits and gains. The charge is not on gross receipts but on profits and gains properly so-called. Gross receipts or sale proceeds, however, include profits. According to "The Law and Practice of Income Tax" by Kanga and Palkhivala, the word "profits" in section 28 should be understood in normal and proper sense. However, subject to special requirements of the income-tax, profits have got to be assessed provided they are real profits. Such profits have to be got to be ascertained on ordinary pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability. As stated, above, even commission and interest formed a part of the profit and loss account, however, they were not eligible for deduction under section 80HHC. They were not eligible even without the clarification introduced by the Legislature by various amendments because they did not involve any element of turnover. Further, in all other provisions of the income-tax, profits and gains were required to be computed with reference to the books of account of the assessee. However, as can be seen from the Income-tax Rules and from the above Form No. 10CCAC in the case of deduction under section 80HHC a report of the auditor certifying deduction based on export turnover was sufficient. This is because the very basis for computing section 80HHC deduction was "business profits" as computed under section 28, a portion of which had to be apportioned in terms of the above ratio of export turnover to total turnover. Section 80HHC(3) was a beneficial section. It was intended to provide incentives to promote exports. The incentive was to exempt profits relatable to exports. In the case of combined business of an assessee having export business and domestic business the Legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government Therefore, if they are made relatable to exports, the formula under section 80HHC would become unworkable. The view which we have taken is in the light of amendments made to section 80HHC from time-to-time." The said judgment has been re-affirmed by the Apex Court, in the ease of CIT v. Catapharma (India) (P.) Ltd. [2007] 292 ITR 641/162 Taxman 455. 10. The Bombay High Court had an occasion to consider the meaning of the word 'total turnover' in the context of Section 10-A, in the case of CIT v. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175 [2010] 194 Taxman 192 (Bom.). Interpreting sub-Section (4) of Section 10-A, it is held as under: "Under sub-section (4) the proportion between the export turnover in respect of the articles or things, or, as the case may be, computer software exported, to the total turnover of the business carried over by the under-taking is applied to the profits of the business of the undertaking in computing the profits of the business of the undertaking in computing the profits derived from export. In other words, the profits of the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance, the expression "export turnover" cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a provision to the contrary. However, no such provision having been made, the principle which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation would lead to an absurdity. If the contention of the Revenue were to be accepted, the same expression viz. "export turnover" would have a different connotation in the application of the same formula. The submission of the Revenue would lead to a situation where freight and insurance, though it has been specifically excluded from "export turnover" for the purposes of the numerator would be brought in as part of the "export turnover" when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided." The special bench of the Tribunal, in the case of ITO v. Sak Soft Ltd. [2009] 313 ITR (AT) 353/30 SOT 55 (Chennai) also had an occasion to consider the mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be different. Therefore, though there is no definition of the term 'total turnover' in Section 10-A, there is nothing in the said Section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when ..... X X X X Extracts X X X X X X X X Extracts X X X X
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