TMI Blog2011 (12) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent : Shri Harsha Prakash, CIT-II ORDER PER GEORGE GEORGE, K, JM: This appeal, instituted by the assessee, is directed against the CIT(A) s order dated 14-3-2011. The relevant assessment year is 2006-07. 2. The assessee has raised 15 grounds of appeals. During the course of hearing, it was admitted by the assessee s counsel that ground Nos.1 to 5 are general in nature and do not require any adjudication and hence the same are dismissed. 3. Ground No.15 is with regard to levy of interest u/s 234B of the Act. Levy of interest u/s 234B is mandatory and consequential and hence this ground is dismissed. 4. Ground Nos.6, 7 and 8 relate to the computation of deduction u/s 10A of the Act. They read as follows: 6) The learned AO has erred in law and inf acts by holding that the telecommunication expenses of ₹ 9,52,553/- is 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 attribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above-said expenditure is to be reduced from the export turnover while computing deduction u/s 10A of the Act. He also did not accept the alternative contention raised by the assessee, namely, when expenditure is reduced from export turnover, the same should also be reduced from the total turnover, while computing deduction u/s 10A of the Act. 8. Aggrieved by the rejection of appeal by the CIT(A), the assessee is in appeal before us. 9. Learned counsel for the assessee submitted that he is not pressing ground No.6 and 8. It was submitted that the alternative ground, namely ground no. 7, may be allowed. It was submitted that the said issue is squarely covered by the judgment of the Hon ble jurisdictional High Court in the case of CIT vs. M/s Tata Elxsi Ltd. v others (2011-TIOL-684-HC-Kar-II), Hon ble Mumbai High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total business income of the assxcessee, whereas in section 10-A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. To the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. 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 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 10A, 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. When the statute prescribed a formula and in the said formula, export turnover is defined, and when the total turnover includes export turnover, the ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the revenue, however, misses the point that the expression total turnover has not been defined at all by Parliament for the purposes of s.10A. However, the expression export turnover has been defined. The definition of export turnover excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, 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 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 these have been specifically excluded from export turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions prescribe an identical formula for computing the export profits. 10.4 In the light of the above reasoning, we reverse the order of the CIT(A) and direct the AO to exclude the above mentioned expenditure, both from the export turnover as well as from the total turnover, while calculating deduction u/s 10A of the Act. 10.5 In the result, the alternative ground namely, ground No.7 is allowed. 11. Ground Nos.9 to 13 relate to the issue of disallowance of a sum of Rs. .2,74,59,496 u/s 40(a)(i) of the Act. Brief facts of the case in relation to the above grounds are as follows: During the concerned assessment year, certain employees of M/s Cerner, US were deputed to work for Cerner, India. It is the case of the assessee that during the period of deputation of such employees, they were under the direct control and supervision of M/s Cerner India. However, for administrative convenience, it was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical personnel of the product development team, he puts in all his technical knowledge, experience and skill to use and would essentially guide and supervise their team members, directly and indirectly. The technical personnel would ensure that their performance comes upto the mark and the objectives of product development and product upgradation are met. This otherwise means, technical knowledge was made available to the assessee company in consideration of which the assessee has made payments of Cerner USA which is in the nature of fees for technical services (FTS). 12. Aggrieved by the disallowance, the assessee carried the matter was in appeal before the first appellate authority. 13. It was contended that payment was towards actual expenses incurred by Cerner US on behalf of assessee and not for any services rendered by Cerner US to the assessee. The assessee relied on the following decisions for the proposition that reimbursement do not constitute income. CIT v Tejaji Farasram Kharawalla Ltd. (67 ITR 95) (SC); CIT v Industrial Engineering Projects Pvt. Ltd. (202 ITR 1014); HNS India VSAT Inc. v DDIT (2995) 95 ITD 157 (Delhi); Sedc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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