TMI Blog2016 (10) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... ect is concerned, we are of the view that the Tribunal has already taken a view in the earlier order that once a sale of particular item is not considered to be part of export turnover, it cannot be considered as part of total turnover in light of the decision of Tata Elxsi Ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT ) and the decision of the Special Bench in the case of ITO v. Sak Soft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D] in which it has been held that whatever has been excluded from the export turnover had to be excluded from the total turnover also, since total turnover includes export turnover as well. In light of these findings, we uphold the order of the CIT(Appeals) that sale of hardware component would be excluded from the export turnover and for the recomputation of deduction u/s. 10A, the matter is restored to the Assessing Officer in the terms indicated above. - Decided partly in favour of assessee. - ITA No.1430/Bang/2010 - - - Dated:- 12-8-2016 - SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Appellant : Shri Chythanya K.K., Advocate For The Respondent : Dr. G. Manoj Kumar, Addl. CIT(DR) ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act? (2) Whether the telecommunication expenses, insurance charges, personnel expenses, professional expenses, branch office expenses and other expenses incurred in foreign exchange should not be excluded from the export turnover for the purpose of computing deduction under Section 10B of the Income Tax Act, 1961? (3) If the said expenses are to be excluded from the export turnover, then the same should also be excluded from the total turnover for the purpose of computing deduction under Section 10B/10A of the Income Tax Act, 1961? 3. Accordingly arguments were heard on all the issues. With regard to ground No.1, the ld. counsel for the assessee has contended that the assessee company is engaged in the business software product, development of software services and telecom solutions. During the impugned financial year, the assessee company has derived income from hardware sales of ₹ 7,38,17,250 and ₹ 2,14,92,984 attributable to the India and UK operations respectively. This sale of hardware components are inextricably linked to the sale of software. Typically, the sale pertaining to sale of certain software products pertaining to Revenue Maximisation Soluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the meaning of software should not be stretched too far as it was not the intention of the Legislature. 5. The ld. DR has also invited our attention to the Purchase Order and the Sale Invoices with the submission that in the Purchase Order, the hardware was separately mentioned under the head Item description and its cost was also separately mentioned, besides the number of quantities. Similarly, software and hardware was separately sold by raising invoices on different dates. Copy of the Purchase Orders and Invoices are available at page Nos.1 and 5 to 8 of the compilation of the assessee filed on 24.5.2016. Undisputedly the assessee did not manufacture the hardware and the hardware purchased from outside were also directly sold separately to the buyer. Therefore, the sale proceeds of the hardware cannot be included in the export turnover for the purpose of computing deduction u/s. 10A of the Act. 6. Having carefully examined the orders of lower authorities in the light of rival submissions and the judgments referred to by the parties, we find that undisputedly the assessee is not a manufacturer of the hardware. The hardware was purchased from the market and was sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are also different. If the assessee contends that software was sold along with hardware and software cannot be used without the hardware specified in the order, the onus is upon the assessee to establish these facts; whereas from the aforesaid documents the fact appears to be different. 8. We have carefully perused the judgments of the Hon'ble jurisdictional High Court in the case of Wipro Ltd. v. DCIT (supra) in which the issue in dispute was, whether monitors sold along with computers were a part of the computer? In that case, Their Lordships have held that wherever the monitors are sold separately, they are not part of the computer, but wherever they are sold along with the computers, it would be a part of computer as the computer cannot be used without the monitor. The relevant observations of the Hon'ble jurisdictional High Court in this regard are as under:- 106. After the aforesaid information was furnished, the assessing authority proceeded with the assessment order holding that the assessee has furnished incomplete details, only value of monitors which have been sold separately are given and details of monitors sold as a component with the computer has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Hindustan Shipyard Ltd. (supra) , we find that Their Lordships of the Apex Court have examined the word sale for the purpose of Sale of Goods Act and Their Lordships have held that where the bulk of material used in construction belongs to manufacturer who sells the end-product for a price, then it is a strong pointer to a conclusion that the contract is in substance one for the sale of goods and not one for work and labour. However, the test is not decisive. It is not the bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which have to be weighted. If the major component of the endproduct is the material consumed in producing the chattel to be delivered and the skill and labour are employed for converting the main components into the end-products, the skill and labour are only incidentally used and hence the delivery of the end-product by the seller to the buyer would constitute a sale. On the other hand, if the main object of the contract is to avail the skill and labour of the seller though some material or components may be incidentally used during the process of the end-product being brought into existe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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