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2015 (3) TMI 1220 - ITAT BANGALORE

2015 (3) TMI 1220 - ITAT BANGALORE - TMI - Deduction under Section 10A computation - exclusion of telecommunication expenses, insurance charges, personnel expenses, professional expenses, branch office expenses and other expenses incurred in foreign exchange from export turnover for the purpose of computing from export turnover for the purpose of computing deduction - Held that:- Respectfully following the decision of the Hon'ble High Court of Karnataka in the assessee's own case for Assessment .....

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be excluded from export turnover. On the other hand, if the expenditure incurred on telecommunication charges and insurance charges were not recovered and not included in the export turnover, the Assessing Officer shall not reduce the same from the export turnover. Further, from the submissions made before the Assessing Officer it is submitted that insurance charges were paid to protect the assessee against the risk of bankruptcy of the overseas customers and it was not incurred for the purpose .....

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the assessee for Assessment Years 2006-07, 2007-08 and 2008-09 are fixed for hearing on account of one of the issues being remanded to the Tribunal for reconsideration. 2. The Hon'ble High Court of Karnataka vide its judgement dt.16.9.2014 in ITA Nos.69 of 2013 (A.Y. 2006-07), 400 of 2013 (A.Y. 2007-08), 403 of 2013 (A.Y. 2008-09) and others had remanded one of the grounds of appeal raised by the assessee for fresh consideration. The ground remanded is as follows :- Whether the telecommunic .....

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urred in foreign currency from the export turnover while computing deduction under Section 10A of the Income Tax Act, 1961 (herein after referred to as 'the Act'). The learned Authorised Representative submitted that the assessee had made an alternate claim before the Tribunal that if such expenditure was to be excluded from the export turnover, then the same should also be excluded from the total turnover as held by the Hon'ble High Court of Karnataka in the case of CIT V Tata Elxsi .....

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2008 for Assessment Year 2001-02 and ITA No.142 of 2008 for Assessment Year 2002-03) and vide order dt.20.10.2014 (ITA No.1131 of 2008 for Assessment Years 2003-04 and 2004-05). In the above decisions, the Hon'ble Karnataka High Court followed its own order in the case of CIT V Motor Industries Co. Ltd. in ITA No.776/2007 dt.13.6.2014 and held that the expenses incurred in foreign currency should not be reduced from export turnover while computing the deduction under Section 10A of the Act. .....

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be reduced from export turnover while computing the deduction under Section 10A of the Act. 4. The learned Departmental Representative filed written submissions and was heard in the matter. The learned Departmental Representative contended that the decision of the Hon'ble High Court of Karnataka in the assessee's own case (supra) has not been accepted by the Department and on SLP had been filed before the Hon'ble Apex Court. In the written submissions filed it was contended that the .....

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the assessee had contended before the Assessing Officer that it is engaged in the business of development and export of computer software and in this context, the assessee incurred foreign currency expenses for software development, promotion and marketing. It was also submitted that expenses were incurred for sending its employees outside India for executing software development services and also to secure and promote the said business. The Assessing Officer does not dispute the above factual p .....

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e development and consultancy falls within the meaning of technical service and consequently the same has to be reduced from export turnover. 5.2 The learned CIT(A) has given an identical finding for all these years concluding that the assessee is engaged in development and export of computer software but nevertheless no developer of software who exports this product and subsequently incurs expenses on travel or maintenance of a branch office abroad can justifiably claim that for this purpose it .....

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T(A) that the Assessing Officer was correct in reducing the expenses incurred in foreign currency from export turnover in computing the deduction under Section 10A of the Act. 5.3 From the orders of assessment and the orders of the learned CIT(A) it is clear that the assessee who is engaged in the business of development of software has deputed it s personal abroad for providing software development services and incurred various expenses in foreign currency for the purpose of development of soft .....

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ble to be deducted out of export turnover. The said provision has no application in the case of export out of India of computer software or its transmission from India to a place outside India by any means. The law makes a distinction between technical services rendered in connection with export of computer software and export of technical services for the purpose of development or production of computer software outside India. If the technical services rendered by the assessee s Engineers is in .....

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ot be excluded in computing the export turnover as it forms part of the export turnover. In the instant case as is clear from the order of the Assessing Authority, he proceeds on the assumption that the assessee is a company engaged in rendering technical services outside India in connection with production of said software. Therefore the expenditure incurred in foreign exchange in providing such technical services outside India of ₹ 62.7 lakhs was excluded in computing the export turnover .....

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re 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 subsection (1) of 80HHE of the Act, of providing technical services outside India in connection with the development or production of computer software. It falls under sub-clause (i) of sub section (1) section 80HHE of the Act. Therefore, the said expenditure cannot be exclude .....

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Industries Co. Ltd. (supra) case was followed by the Hon'ble High Court of Karnataka in the assessee's own case for Assessment Years 2001-02 to 2004-05 vide orders dt.16.9.2014 and 20.10.2014 (cited supra) and it was held therein that expenses incurred in foreign currency should not be reduced from export turnover for the purposes of computing deduction under Section 10A of the Act. The co-ordinate bench of this Tribunal in the case of Softech India Pvt. Ltd. V ITO in IT(TP)A No.222/Ban .....

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of computation of deduction under Section 10A of the Act. Consequently, Ground No.3.1 of the assessee's appeal for Assessment Years 2006-07 and 2007-08 and Ground No.1.1 of the assessee's appeal for Assessment Year 2008-09 are allowed. 6.1 In respect of telecommunication charges, it is the assessee's contention that the same has not been recovered from the customers, and not been included in the export turnover and therefore there is no scope for reduction of the said expenditure fr .....

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