TMI Blog2011 (11) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the AO to exclude telecommunication expenses of ₹ 49,40,250/-, travel and onsite expenses amounting to ₹ 15,79,925/- which are incurred for delivery of software from total turnover also for purposes of computation of deduction u/s 10A of the I T Act, 1961. 4. Briefly stated the facts in relation to revenue's appeals are as follows:- For the asst. year 2004-05, the assessee had filed the return of income on 29.10.2004 declaring an income of ₹ 2,89,077/-. The assessee had claimed deduction u/s 10A of the Act amounting to ₹ 4,83,37,786/-. During the course of assessment proceedings, the AO noticed that the assessee had incurred telecommunication charges of ₹ 46,22,836/-. The AO held that the above said expenses of ₹ 46,22,836/- were expenses attributable to the delivery of computer software outside India and therefore, in accordance with clause (iv) of Explanation 2 appearing below sub-section 8 of section 10A of the Act, the AO reduced the said expenses from export turnover in computing deduction u/s 10A of the Act. While reducing the above said expenses from the export turnover, the AO did not reduce the same from the total turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v Gem Plus Jewellery India Ltd. 330 ITR 175 and the order of the Special Bench in the case of ITO v M/s Sak Soft Ltd. 313 ITR 353. 4.8. 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. and 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 expenses incurred towards 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 . 4.9 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, the same should also be reduced from the total turnover to maintain parity between numerator and denominator while calculating deduction u/s 10A of the Act. The relevant findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission 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) relied on 4.10. In the case of Sak Soft Ltd. (supra), the assessee was engaged in the business of exporting computer software and claimed deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant relied on the ratio of decision of the Special Bench, Chennai ITAT in the case of Scientific Atlanta India Technology (P) Ltd. v ACIT - 129 TTJ 273. 5) The CIT(A) erred in law and in fact that the telecommunication expenses attributable to the delivery of computer software outside India should be reduced from export turnover while computing the eligible deduction u/s 10A of the Act. 6) The CIT(A) ought to have appreciated that these expenses which do not form part of the export turnover cannot be excluded therefrom. 7) The appellant relied on the ratio of the decision of the Special Bench, Chennai ITAT in the case of Zylog Systems Limited v ITO - (2011 ITR 7 (Trib) 348 (Chennai) (SB). 5.1 Briefly stated the facts in relation to ground nos.2 to 4 are as follows:- For the asst. year 2004-05, the assessee company had claimed deduction u/s 10A on the profits of the business of the previous year. The assessee had carried forward loss from earlier years amounting to ₹ 1,81,064/- and unabsorbed depreciation amounting to ₹ 91,50,706/-. The AO, while completing assessment, recomputed the deduction u/s 10A after setting off of carried forward loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Therefore, it is clear that though the assessee may be having more than one undertaking for the purpose of section 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income of the assessee. It is only after the deduction of the said profits and gains, the income of the assessee has to be computed. 30. The provisions of this sub-section will apply even in the case where an assessee has opted out of section 10A by exercising his option under sub-section (8). As discussed, it is permissible for an assessee to opt in and opt out of section 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the STP undertaking would suffer tax in the normal course subject to various provisions of the Act including t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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