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2016 (10) TMI 255 - ITAT BANGALORE

2016 (10) TMI 255 - ITAT BANGALORE - TM - Telecommunication expenses, insurance charges, personnel expenses, professional expenses, branch office expenses and other expenses incurred in foreign exchange - exclusion from the export turnover for the purpose of computing deduction under Section 10B - Held that:- In the instant case, the order for software and hardware are placed separately, though in the same order, for different costs. The sale invoice of software and hardware was also raised sepa .....

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esitation in holding that sale of hardware cannot be a part of export turnover. - So far as the other aspect 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 .....

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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 Per Sunil Kumar Yadav, Judicial Member This appeal preferred by the assessee on different grounds against the order of CIT(Appeals)-III, Bangalore dated 20.10.2010 was disposed of by the Tribunal vide its order dated 13 .....

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stions of law raised before the Hon'ble High Court of Karnataka are as under:- a. 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? b. If the said expenses are to be excluded from the export turnover, then the same should also be excluded .....

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ground was raised before the Tribunal, but the Tribunal did not adjudicate this ground and has considered the alternative contentions of the assessee that if it is excluded from the export turnover, it will also be excluded from the total turnover, following the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Tata Elxsi Ltd. & Ors. Therefore, the Tribunal is required to adjudicate the following three issues:- (1) Whether the CIT(Appeals) is justified in upholding .....

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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, t .....

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n. Based on customers requests, as a part of the overall sale of software products, the assessee company procures the required hardware and onward sells them after integrating the software into them as a part of sale of software. The hardware is in the nature of servers that have been procured, as only with these servers, the software products sold by the assessee company operate, and hence it is a composite contract and the assessee was required to supply the said software along with the hardwa .....

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(i) Hindustan Shipyard Ltd. v. State of Andhra Pradesh, 119 STC 533 (ii) Wipro Ltd. v. CIT, [2015] 62 taxmann.com 26 (Karnataka) (iii) Galatea Ltd. v. DCIT (IT), [2016] 67 taxmann.com 190 (Mumbai-Trib.) (iv) Tata Elxsi Ltd. v, ACIT, ITA No.398, 1074 & 1410/Bang/2012, order dated 20.03.2015. (v) Sultan Brothers (P) Ltd. v. CIT (1964) 51 ITR 353 (SC) (vi) Goodricke Group Ltd. v. CIT, 2011-TIOL-262-HC-KOL-IT (vii) CIT v. Gem Plus Jewellery India Ltd. [2010] 194 Taxman 192 (Bom) 4. The ld. DR, .....

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d media or other information storage device, or any customized electronic data or any product or service of similar nature, as may be notified by the Board. Hardware does not fall within the definition of computer software . Therefore, 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 separa .....

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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 sold to its buyer. The ld. counsel for the assessee has put an emphasis during the .....

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he required hardware and sold it after integrating the software into them as part of software. But from a careful perusal of the Purchase Order appearing at page 1 of the assessee s compilation, we find that the assessee was not required to sell one composite software. Even in the Purchase Order, the software and the hardware were mentioned separately along with their respective cost. Similarly, software and hardware were sold separately through different invoices appearing at pages 5 to 8 of th .....

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rent dates. It is also evident that the buyer had placed separate order for the software and hardware. The software known as Ranger Fraud Management System includes fraud detection, subscriber pre-check, pre-paid and credit management modules and its cost was specified at USD 272,000. A separate order was placed for the hardware for USD 132,500. The details of hardware has also been mentioned separately in the order. Further, it is also noticed from the payment terms that different schedule of p .....

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acts; 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 b .....

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refore, he took the average value on the basis of the furnished filed in Annexure and did not extend the benefit of Section 80IB in respect of the monitors which were sold as a part of the computer. In the aforesaid tabular column, it is shown that the assessee has sold 25,681 monitors, i.e., they are purchased and sold as monitors and the value of the same is given and the assessee has not claimed benefit under Section 80IB in respect of the said amount. He has also given the particulars of the .....

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in sub-section (2) of Section 80IB and he is eligible for the said exemption. The monitors which he has purchased from outside is used as a spare part in the manufacture of computer and it is sold to the customers as such. In other words, those monitors which are used in the computers are not the traded commodities. Therefore, it is a part of the computer and the total consideration of the computer includes the value of this monitor. The profit derived from the said computer includes the sale of .....

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erefore, the finding recorded by the authorities that the assessee is not entitled to the benefit of deduction under Section 80IB in respect of the monitors which form part of the computer is hereby set aside. Both the substantial questions are answered in favour of the assessee and against the revenue. 9. From a perusal of the judgment of the Hon ble Supreme Court in the case of Hindustan Shipyard Ltd. (supra), we find that Their Lordships of the Apex Court have examined the word sale for the p .....

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. 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 incidental .....

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property in the things produced as a whole, notwithstanding that a part or even the whole of materials used by him had been his property. In the case of contract for sale, the thing produced as a whole has individual existence as the sole property of the party who produced it sometime before delivery and the property therein passes only under the contract relating thereto to the other party for a price. 11. We have also carefully examined the other judgments referred to by the assessee, but the .....

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