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2016 (5) TMI 211 - KARNATAKA HIGH COURT

2016 (5) TMI 211 - KARNATAKA HIGH COURT - [2016] 381 ITR 99 - Deduction u/s 10A - ITAT treating expenses incurred in foreign currency to be taken along with total turnover of the assessee - Held that:- We have noticed that on appeal by the Revenue before the Appellate Tribunal, the Tribunal following the judgment of an identical case, wrongly mentioned as assessee's case as submitted by both the parties, confirmed the order of the Appellate Commissioner treating expenses incurred in foreign curr .....

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d in foreign currency from the export turnover and total turnover at the time of filing the returns and thereafter has shifted to a different stance before the appellate authority, that the said services were integral part of development of computer software. Even in the order of the Appellate Commissioner, we do not see the details of remand reports said to have been submitted by the Assessing Officer and any discussion regarding any material or any agreement copies to establish the factual sit .....

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ivity, keeping in view the settled legal position as per the judgment of this court in Motor Industries Company Limited's case (2015 (7) TMI 876 - KARNATAKA HIGH COURT) and Mphasis Limited's case (2014 (8) TMI 690 - ANDHRA PRADESH HIGH COURT). It is also made clear that what is required to be excluded in the export turnover are only freight, telecommunication charges or insurance attributable to the delivery of computer software outside India or expenses, if any, incurred in foreign exchange in .....

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2008 dated September 19, 2008, whereby the order passed by the Appellate Commissioner is confirmed for the assessment year 2002-03. 2. The facts of the case are : The assessee has been in the business of export of software and has incurred expenses in foreign exchange, claimed the same to be included in total turnover. The assessee has claimed deduction of ₹ 92,59,70,672 under section 10A of the Income-tax Act, 1961 (for short the "Act") and placed reliance on the decisions of th .....

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ly, relief under section 10A of the Act was allowed. Aggrieved, the Revenue preferred appeal before the Tribunal. The Tribunal following the order passed in an identical case, confirmed the order of the Commissioner of Income-tax (Appeals) granting relief to the assessee treating expenses incurred in foreign currency to be taken along with total turnover of the assessee. Being aggrieved by the said judgment of the Tribunal, the Revenue is in appeal before this court. The relevant substantial que .....

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said expenditure from 'export turnover' while filing return of income and also before the Assessing Officer and also when the assessee has not established that expenditure in foreign currency was in connection of the development of computer software which was exported and recorded a perverse finding ?" 4. Heard the learned counsel appearing for the parties. 5. Learned counsel appearing for the appellant/revenue vehemently contended that there is no dispute regarding the legal positi .....

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h the development or production of computer software and the said expenditure cannot be excluded in computing export turnover. It is strongly emphasized by the learned counsel that the activity carried out by the assessee is purely one of export of computer software or not, has to be established either in terms of the actual transaction, which had produced the foreign exchange remittance, or production of an agreement entered into at the relevant point of time with its customers from whom remitt .....

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r any relevant material, has arrived at a conclusion that the activity carried on by the assessee was relating to computer software falling under section 10A of the Act and not the technical services. As such, he seeks for remanding the matter back to the Assessing Officer placing reliance on the judgment of this court in the case of CIT v. Infosys Technologies Limited (I. T. A. No. 2973 c/w 2972, 2974 and 3015 of 2005 disposed of on February 18, 2013). 6. On the other hand, learned counsel appe .....

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uishable from computer software as these works are integral to the overall work of computer software and it cannot be bifurcated as separate components. The learned counsel invited our attention to Explanation 3 to section 10A of the Act to contend that the profits and gains derived from onsite development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. The .....

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ree trade zone, etc. This provision provides for a deduction of such profits and gains derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income. 8. The term "Computer software" has been .....

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uot;export turnover" which is reproduced hereunder : Explanation 2.- . . . "(iv) 'export turnover' means the consideration in respect of export by the undertaking if articles or 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 Ind .....

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akes it clear that the consideration received from export of computer software is not liable to Income-tax however, the said export turnover does not include freight, telecommunication charges or insurance attributable to the delivery of computer software outside India or expenses if any, incurred in foreign exchange in providing the technical services outside India. It is thus clear that there is a distinction between technical services rendered in connection with export of computer software an .....

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initial discussion with regard to the requirements, specifications, etc. Thereafter computer software is manufactured and then it is transmitted from India to a place outside India. The software engineers deputed abroad who among other things have to do testing, installation and monitoring of software supplied to the client. Though the said services are technical in nature it does not fall within clause (ii) of sub-section (1) of section 80HHE of the Act of providing technical services outside I .....

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at the Assessing Officer had no occasion as such to go into the claim of the assessee that the services rendered are relating to the development or production of computer software since the assessee on its own had reduced expenses in foreign currency from export turnover and total turnover. The Assessing Officer proceeded to make the assessment on the ground that the expenses incurred towards maintenance of technical personnel and other expenses incurred in foreign currency were only in connecti .....

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nt records, remand reports etc., arrived at a decision that the pre-execution and post-execution work of computer software project carried on by the assessee is "computer software" as defined under Explanation 2 to section 10A and cannot be characterised as technical services which form part of the export turnover and thus it does not disentitle the assessee from claiming deductions under section 10A of the Act. 12. We have noticed that on appeal by the Revenue before the Appellate Tri .....

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der Explanation 2 to section 10A or involving technical services which has to be excluded from the export turnover as per Explanation 4 to section 10A, more particularly, when the assessee had reduced the said expenditure incurred in foreign currency from the export turnover and total turnover at the time of filing the returns and thereafter has shifted to a different stance before the appellate authority, that the said services were integral part of development of computer software. Even in the .....

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