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TMI Blog2011 (12) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... attributable to the delivery of computer software outside India, and should be reduced from export turnover while computing the eligible deduction under section 10A of the Act. 7) The learned AO has erred in law and in facts by not considering the alternative plea of the appellant that if the telecommunication expenses are attributable to the delivery of computer software outside India are reduced from 'export turnover', an equal amount should also be reduced from 'total turnover', in computing the eligible deduction under section 10A of the Act. 8) The learned AO has erred in law and in facts in restricting the deduction available under section 10A of the Act, to Rs. 40,709,139, as against the deduction claimed by the appellant, amounting to Rs. 40,890,550. 5. Brief facts in relation to the above grounds are as follows: The assessee is a company. It is engaged in the business of software development and testing services in health care solutions. For the concerned assessment year, return of income was filed on 2-11-2006 declaring nil income after claiming deduction of Rs. .4,08,90,550/-. Scrutiny assessment was taken up by issuance of notice u/s 143(2) of the Act and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (330 ITR 175) and the order of the Special Bench of ITAT in the case of ITO vs. M/s Sak Soft Ltd. (313 ITR (AT) 353). It was contended that the decision relied on by the first appellate authority namely M/s Jaipuria Silk Mills (P) Ltd., (supra) was reversed by the Tribunal in ITA No.1112/09 vide order dated 12-4-2010. The learned DR relied on the orders of the Income-tax authorities. 10. We have heard the rival submission and perused the material on record. The Hon'ble Karnataka High Court in the case of CIT v M/s Tata Elxsi Ltd. & Others had held that while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The relevant finding of the Hon'ble jurisdictional High Court reads as follows:- ".........Section 10A 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. This aspect has to be borne in mind. While computing the consideration received from such export turnover, the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. When the statute prescribed 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 the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. Thus, there is no error committed by the Tribunal in following the judgements rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same". 10.1. The Hon'ble Mumbai High Court in the case of Gem Plus Jewellery India Ltd. (supra), in identical circumstances, held that since the export turnover forms part of the total turnover, if an item is excluded from the export turnover, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 these have 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. Moreover, a receipt such as freight and insurance which does not have any element of profit cannot be included in the total turnover. Freight and insurance charges do not have any element of turnover. For this reason in addition, these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary - CIT v Sudarshan Chemicals Industries Ltd. (2000) 163 CTR (Bom) 596: (2000) 245 ITR 769 (Bom) applied; CIT v Lakshmi Machine Works (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) and CIT v Catapharma (India) (P) Ltd. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that the employees were to be paid in US by M/s Cerner, US. It was submitted that the employees deputed were reporting to M/s Cerner India and worked for Cerner, India. Certain expenses including salary incurred by M/s Cerner US in respect of such employees were charged to M/s Cerner India which M/s Cerner India reimbursed the same to M/s Cerner US. The details of expenses incurred by M/s Cerner US on behalf of M/s Cerner India are as follows: Sl. No. Nature of expenses Amount (INR) 1. Corporate card payments 7,795,838 2. Medical insurance expenses 268,386 3. Fees paid to consultants for preparing tax returns of expatriates. 1,356,467 4. Payment made towards relocation expenses. 481,864 5. Payment made towards salaries. 17,511,362 6. Voice communication expenses and travel expenses. 45,580 TOTAL 27,459,496 The AO, however, disallowed the above said expenses u/s 40(a)(i) on the following grounds: (1) In the instant case, it is the liability of Cerner USA to pay the remuneration and other benefits to its employees and it has no right to seek any reimbursement of such sum paid from any other person. In the instant Case, Cerner USA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal Taxation) v Krupp Udhe GmbH (2010-TIOL-214-HC-MUM-IT). It is also submitted before the first appellate authority that reimbursement of expenses have been made on cost only basis and no profits have been made on such reimbursement and therefore there would not be any income chargeable to tax in India in the hands of Cerner Corporation, US. It was further submitted that to the extent the reimbursement of expenses relate to salary costs, it has already discharged taxes u/s 192 of the Act and hence would not be required to further discharge tax u/s 195 of the Act. 14. The first appellate authority rejected the contentions of the assessee and upheld the action of the AO in making disallowance u/s 40(a)(1) of the Act. 15. The assessee, being aggrieved, is in appeal before us. Learned counsel for the assessee submitted that the issue is squarely covered by the order of the Tribunal in the case of IDS Software Solutions (India) Pvt. Ltd.(122 TTJ 410) which had in turn followed the judgment of the Hon'ble High Court of Uttarakhand in the case of Sedco Forex International Inc (214 CTR 192). Learned Departmental Representative also fairly submitted that the issue is squarely covered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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