TMI Blog2022 (2) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... al turnover in same proportion as well. - Decided against revenue. - Tax Case Appeal Nos.24, 26 and 28 of 2022 And CMP.Nos.463 and 485 of 2022 - - - Dated:- 1-2-2022 - Honourable Mr. Justice R. Mahadevan And Honourable Mr. Justice Mohammed Shaffiq For the Appellant : Mr.T.Ravikumar Senior Standing Counsel in all TCAs For the Respondent : Mr.R.Sivaraman in all TCAs COMMON JUDGMENT R.MAHADEVAN, J. These tax case appeals have been filed by the appellant/Revenue, challenging the order dated 13.02.2018 passed by the Income Tax Appellate Tribunal, Madras C Bench, in I.TA.Nos.1071, 828 and 827/Chny/2017, relating to the respective assessment years 2007-08, 2005-06 and 2005-06, by raising the following substantial questions of law:- TCA.No.24 of 2022: (i)Whether the Tribunal was right in holding that by excluding the foreign Travel Expenditure and Telecommunication expenses both from the Export turnover and also from the Total turnover while computing deduction under section 10A of the Income Tax Act which is contrary to Act? (ii)Is not the finding of the Tribunal bad, especially when Explanation 2(iv) to Section 10A defines the word Export Turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act. The contention of the Respondent is that it incurred expenditure in foreign exchange in sending professionals abroad as per the agreements with the foreign constituents. 11) On an analysis of the Respondent s activity taken from its website, Assessing Officer arrived at a conclusion that Respondent has been rendering technical services outside India and, therefore, expenses incurred on such activity are required to be excluded from the export turnover while working out the deduction admissible under Section 10A of the IT Act. The Assessing Officer estimated 60% of the software development charges required to be attributed towards expenses incurred for providing technical services outside India. On appeal, learned CIT (Appeals) again made a detailed analysis of the activity of the Respondent and arrived at a conclusion that the Assessing Officer failed to bring any evidence which can indicate that Respondent was providing technical services outside India and it has incurred expenses towards salary etc. on rendering such services. Inspite that, learned CIT (Appeals), estimated 10% of software development charge as charges incurred for technical services provided outside In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in it has been clearly stated that for the purposes of this Section only , it would be applicable only for the purposes of that Sections and not for the purpose of Section 10A. If denominator includes certain amount of certain type which numerator does not include, the formula would render undesirable results. ... 17) The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT vs. Tata Elxsi Ltd. (2012) 204 Taxman 321/17. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia , held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from export turnover must also be excluded from total turnover , since one of the components of total turnover is export turnover. Any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Supreme Court in Commissioner of Income-tax v. Yokogawa India Ltd., ( cited supra ). In that case, though it was an issue relates to Section 10A of the Act, the Hon'ble Supreme Court has made it clear that, the decision made in the said Judgment pertains to Section 10A would be equally applicable to cases governed by the provision of Section 10B also. This can be gained from para 2 of the said Judgment, which reads thus : 2. The true and correct meaning and effect of the provisions of Section 10A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) is the principal issue arising for determination of the Court. At the outset, it must be made clear that the decision of this Court with regard to the provisions of Section 10A of the Act would equally be applicable to cases governed by the provisions of Section 10B in view of the said later provision being pari materia with Section 10A of the Act [M/s.Comstar Automative Technologies Private Ltd., V. The Deputy Commissioner of Income Tax, Chennai] though governing a different situation. 24. The question which came up for consideration in the said case before the Hon'ble Apex Court has been fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A as already discussed, it has to be understood that the section embodies a clear enunciation of the legislative decision to alter its nature from one providing for exemption to one providing for deductions. 14. The difference between the two expressions 'exemption' and 'deduction', though broadly may appear to be the same i.e. immunity from taxation, the practical effect of it in the light of the specific provisions contained in different parts of the Act would be wholly different. The above implications cannot be more obvious than from the case of Civil Appeals Nos. 8563 and 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. 15. 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 gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Act provide [first proviso to Sections 10-A(1); 10-A(1-A) and 10-A(4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous circular of the department (No. 794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression total income of the assessee in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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