TMI Blog2019 (4) TMI 1168X X X X Extracts X X X X X X X X Extracts X X X X ..... the case on hand, the compensation/damages received by the assessee on termination of export contract would be in the course of his export business and is to be treated as income derived from out of the business, which qualifies for deduction under section 10A of the Act. Deduction of amount from the export turnover which relates to software supplied to another STP unit - HELD THAT:- The Tribunal while answering the said question held that it is a deemed export, as the export is done through STP unit and foreign exchange is earned. This court in Tata Elxsi Ltd. v. Asst. CIT [2015 (10) TMI 634 - KARNATAKA HIGH COURT] it is clear that if an assessee wants to claim the benefit of section 10A, firstly he must export articles or things or computer software. Secondly, the export may be done directly by him or through other exporter after fulfilling the conditions mentioned therein. Thirdly, such an export should yield foreign exchange which should be brought into the country. If all these three conditions are fulfilled, then the object of enacting section 10A is fulfilled, and the assessee would be entitled to the benefit of exemption from payment of Income-tax on the profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to another STP unit. The Tribunal on consideration of the appeals held that the amount received by the assessee under the contract and particularly, on termination of the export/service contract has a direct nexus with the business activity of the assessee and further held that such compensation is income derived from the business and would be part of profits of business. With regard to exclusion of expenses incurred in foreign exchange from the export turnover as well as from the total turnover relying upon the decision of this court in CIT v. Tata Elxsi Ltd. [2012] 349 ITR 98 (Karn), the Tribunal held that no interference is called for on the order of the appellate authority. In so far as setting off of brought forward losses relying upon the decision of this court in the case of CIT v. Yokogawa India Ltd. [2017] 391 ITR 274 (SC) held in favour of the assessee. In so far as disallowance of deduction under section 10A in respect of deemed export on account of sale to another STP unit, the Tribunal, relying upon the decision of Tata Elxsi Ltd. (supra), held in favour of the assessee. Aggrieved by the order of the Tribunal, the Revenue has preferred these appeals urging the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion of expenses incurred in foreign currency, both from the export turnover and total turnover for the purpose of computation of deduction under section 10A of the Act. The Tribunal, while dealing with the said aspect, relied upon the decision of Tata Elxsi Ltd. (supra) and held the issue in favour of the assessee confirming the order of the appellate authority. The learned counsel for the respondent-assessee further relying upon the decision in CIT v. HCL Technologies Ltd. [2018] 404 ITR 719 (SC), would submit that the question raised by the Revenue is answered by the hon'ble Supreme Court. The hon'ble Supreme Court in the said decision has taken note of the decision of this court in Tata Elxsi Ltd. (supra) and held that what is excluded from the export turnover must also be excluded from total turnover, since one of the components of total turnover is export turnover. In the decision of HCL Technologies Ltd. (supra) at paragraphs 10, 15 and 17 to 21 it is held as follows (page 727 of 404 ITR) : The question arises here that when the particular term has not been defined in any particular section, is it allowed to import the meaning of such term from the other provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; must also be excluded from 'total turnover', since one of the components of 'total turnover' is export turnover. Any other interpretation would run counter to the legislative intent and would be impermissible. Accordingly, the formula for computation of the deduction under section 10A of the Act would be as follows : Export profit = Total profit of the business x Export turnover as defined in Explanation 2(iv) to section 10A of the Income-tax Act. Export turnover as defined in Explanation 2(iv) to section 10A of the Income-tax Act + Domestic sale proceeds In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under section 10A of the Income-tax Act are allowed only in export turnover but not from the total turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the respondent which could have never been the intention of the Legislature. Even in common parlance, when the object of the formula is to arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8564 of 2013 and civil appeal arising out of SLP(C) No. 18157 of 2015, which have been filed by loss making eligible units and/or by non-eligible assessees seeking the benefit of adjustment of losses against profits made by eligible units. Sub-section (4) of section 10A which provides for pro rata exemption, necessarily involving deduction of the profits arising out of domestic sales, is one instance of deduction provided by the amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into the computation under the head 'Profits and gains from business' in Chapter IV and denied the benefit of deduction. The provisions of sub-section (6) of section 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation, etc., commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under section 10A in Chapter VI of the Act can be understood by acknowledging that any such reference or mention would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee that the amount received, particularly on termination of export/service contract has nexus with the business activities of the assessee. In fact, he submits that the assessee had entered into an agreement of export, which was terminated by the other party, for no fault of the assessee. Hence, the said compensation amount is to be treated as income derived from out of export business. Section 10A(1) and 10A(4) of the Income-tax Act, 1961, which are relevant reads as follows : 10A. Special provision in respect of newly established undertakings in free trade zone, etc.-(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an under taking from the export of articles of 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 under taking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee . . . (4) For the purposes of sub-sections (1) and (1A), the profits derived from export of articles or things or computer softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the commercial expediency and the interest income earned incidentally cannot be delinked from its pro fits and gains derived by the undertaking engaged in the export of articles as envisaged under section 10A or section 10B of the Act and cannot be taxed separately under section 56 of the Act. 11. Thus, this court has held that the interest income derived by the assessee would be eligible for deduction under section 10A of the Act. Likewise, in the case on hand, the compensation/damages received by the assessee on termination of export contract would be in the course of his export business and is to be treated as income derived from out of the business, which qualifies for deduction under section 10A of the Act. 12. The last question suggested by the Revenue is with regard to deduction of amount from the export turnover which relates to software supplied to another STP unit. The Tribunal while answering the said question held that it is a deemed export, as the export is done through STP unit and foreign exchange is earned. This court in Tata Elxsi Ltd. v. Asst. CIT ITA No. 411 of 2008, has held at paragraphs 13 to 18 and 20 as follows : 13. Sub-section (3) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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