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TMI Blog2025 (5) TMI 1417X X X X Extracts X X X X X X X X Extracts X X X X ..... reign currency in relation to on-site software development from the purview of export turnover for the purpose of computation of deduction under Section 10A and 80HHE of the Income Tax Act? (iii)Whether on the facts and in the circumstances of the case, the Tribunal was right in law in not noting the distinction between 'manufacture of computer software' and the provision of 'technical services'? (iv)Whether on the facts and in the circumstances of the case, the Tribunal was right in law in remitting back to the Assessing Officer without giving its finding on the issue relating to the exclusion of the component of unrealized sale proceeds both from export turnover and total turnover? (v)Whether on the facts and in the circumstances of the case, the Tribunal was right in law in setting aside the order of the Assessing Officer without giving its finding on the issue relating to deduction under Section 80HHE towards the balance 10% of the profits not available as deduction under Section 10A? and (vi)Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the dividend income from other mutual funds are not akin to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, as it stood during the period in dispute. The matter was referred to the Transfer Pricing Officer (TPO). The Transfer Pricing Officer (TPO) passed an Order dated 21.02.2006 under Section 92CA of the Act, wherein, it was confirmed that no adjustment is considered necessary for the value of international transactions entered into by the Appellant/Assessee. 10. Thereafter, an Assessment Order dated 29.03.2006 was passed for the Assessment Year 2003-2004 under Section 143(3) read with Section 94CA(4) of the Act. The Assessing Officer noticed that the Appellant/Assessee has incurred an aggregate expenditure of Rs. 90,40,04,020/- in foreign currency towards transfer and other project expenses in respect of its export turnover under Section 10A and Section 80HHE of the Act. 11. In the Assessment Order dated 29.03.2006, passed under Section 143(3) read with Section 94CA(4) of the Act, as it stood then, the Assessing Officer disallowed several claims of Appellant/Assessee for deductions in the taxable income in the revised Returns of Income filed by the Appellant/Assessee on 05.01.2005. 12. In the aforesaid Assessment Order dated 29.03.2006, the benefit of the following expenses inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profits of the business (adopted by the Appellant/Assessee) (A) Rs.13,80,09,678/- Deduction u/s. 80HHE = A x B/C =13,80,09,678 x 41,93,47,770/61,02,15,432 = Rs. 9,48,41,997/- Eligible deduction for the Assessment Year 2003-2004 @ 50% = Rs. 4,74,20,998/- Computation of Deduction u/s. 10A of the Act Consolidated ETO adopted by the Appellant/Assessee Rs. 2,29,01,09,853/- Less: (1) unrealised foreign exchange 2,97,28,983 (2) Expenses incurred in foreign currency 71,40,24,206 Rs. 74,37,53,189/- Export Turnover Rs. 1,54,63,56,664/- Consolidated Total Turnover Rs. 2,65,39,38,843/- Profits of the business Rs. 45,19,79,052/- Deduction under Section 10A Rs. 26,33,52,270/- Eligible deduction for the Assessment Year 2003-2004 @ 90% of Rs. 26,33,52,270/- Rs. 23,70,17,043/- 14. The Assessing Officer thus assessed the revised Returns of Income filed by the Appellant/Assessee on 05.01.2005 in the Assessment Order dated 29.03.2006 as Rs. 32,76,33,084/- as detailed below:- Returned Income (as per revised return of income filed) Rs. 21,39,14,420/- Less: Income from other sources Short Term Capital Gains 2,10,84,347/- 1,85,31,952/- Rs. 3,96,16,300/- Taxable I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Appellate Commissioner directed the Assessing Officer to exclude the expenditure in foreign exchange from the total turnover for the purpose of computing eligible deduction under Section 10A of the Act. 21. Regarding exlusion of expenses incurred in foreign currency, while computing deduction under Section 80HHE of the Act, the Appellate Commissioner modified the order of the Assessing Officer and directed the Assessing Officer to not to exclude certain expenses amounting to Rs. 64,77,794/- from the export and total turnover for the purpose of determination of eligible deduction under Section 80HHE of the Act. 22. Regarding claim under Section 80HHE of the Act with respect to 10% of the profit which was not considered for deduction under Section 10A of the Act, the Appellate Commissioner held the same cannot be claimed separately under Section 10A of the Act. 23. The Appellate Commissioner found that certain expenses incurred by the Appellant/Assessee as in the revised Return of Income are not directly connected with the software development and directed the Assessing Officer not to exclude these expenses amounting to Rs. 2,43,46,287/- from the export turnover by following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 The CIT (Appeals) erred in holding that the dividend received from which refund was a par with the dividend declared by the domestic company and therefore an eligible deduction under Section 80M of the Act in terms of the decision of the Bombay High Court in CIT versus State Bank of India, 262 ITR 662. Remitted back to the Assessing Officer to re-do the exercise. SUBMISSIONS ON BEHALF OF THE APPELLANT/ASSESSEE:- 26. The case of the Appellant/Assessee before this Court is that as far as Substantial Questions of Law Nos.(ii) and (iii) are concerned, the issues are already covered by the Division Bench of this Court in Appellant's/Assessee's own case in T.C.(Appeal) Nos.961 and 962 of 2008 vide order dated 23.10.2018. 27. It is the further case of the Appellant/Assessee that as far as the Substantial Question of law No.(iv) is concerned, it is also covered by the decision of the Division Bench of this Court in T.C.(Appeal) Nos.961 and 962 of 2008 for the Assessment Years 2001-2002 and 2002-2003 in accordance with the decision of the Hon'ble Supreme Court in "Commissioner of Income Tax Vs. HCL Technologies Limited", 2018 404 ITR 719. 28. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an error apparent on the face of the records." 29. As far as Substantial Question of Law No.(vi) is concerned, the learned counsel for the Appellant/Assessee would submit that substantial question of law has been answered by the Divisoin Bench of the Bombay High Court in "Commissioner of Income Tax Vs. State Bank of India", [2003] 129 Taxman 409 (Bombay), wherein, the Bombay High Court held that the income received from Union Trust of India was dividend and therefore the appellant therein namely, State Bank of India was entitled to the benefit of Section 80M of the Act. 30. It is submitted by the learned counsel for the Appellant/Assessee that there is no dispute that the Appellant/Assessee had received dividends from mutual funds of India, whereas, the Assessing Officer disallowed the same in the Assessment Order dated 29.03.2006 passed under Section 143(3) read with Section 94CA(4) of the Act. Hence, it is submitted that the impugned common order of the Tribunal in remanding the case for fresh consideration and denying the benefit of Section 80 of the Act to the Appellant/Assessee is liable to be set aside and that accordingly the Appeallant's/Assessee's appeals deserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in the case of CIT, Central III Vs. HCL Technologies Limited [reported in (2018) 404 ITR 719] wherein it has been held as follows: "18. 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) of Section 10A of the IT Act + domestic sale proceeds. 19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT 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. 20. Even in common parlance, when the object of the formual is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was claimed in the original return filed by the Appellant/Assessee on 28.11.2003 under Section 139(1) of the Act or in the revised Return of Income filed by the Appellant/Assessee under Section 139(5) of the Act on 05.01.2005. 37. Therefore, in this connection, the learned Senior Standing Counsel for the Respondent has placed reliance on the following decisions:- i. Goezte (India) Limited Vs. CIT, (2006) ITR 0323; ii. PCIT Vs. Wipro Limited, [2022] 140 taxmann.com 223 (SC); iii. Wipro Ltd Vs. PCIT, [2022] 142 taxmann.com 562 (SC) and iv. Shriram Investments Vs. CIT, [2024] 167 taxmann.com 139 (SC). v. Nagaraj & Co. Pvt Limited Vs. ACIT, 425 ITR 412 (Mad). vi. CIT Vs. Perio Telecommunications and Electronics Components India Pvt Ltd, 288 Taxmann 399 (SC). vii. CIT Vs. Craft Cottage, 142 Taxmann 88 (All). viii. Aztec Software and Technology Services Ltd Vs. ACI, 229 Taxmann 187 (Kar). ix. Mahesh Investment Vs. ACIT, 357 ITR 42 (Kar). x. Vishvesariah Technoligical University Vs. CIT, 113 CCH 29 (ISCC). xi. Capricon Food Products India Ltd Vs. ACIT, 427 ITR 120 Mds. 38. Hence, the learned Senior Standing Counsel for the Respondent has prayed for dismissal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the development or production of computer software. 45. To claim deduction both under Section 10A and/or Section 80HHE of the Act, an Assessee is also required to furnish in the prescribed form along with the Return of Income filed by the Assessee, the report, as defined in the Explanation below sub-section (2) of Section 288 of the Act certifying that the deduction has been correctly claimed in accordance with the provisions of Section 10A of the Act. 46. The expression "computer software" and "export turnover" have been defined similarly in Explanations to Section 10A and Section 80HHE of the Act. 47. The expression "computer software" in clause (i) in Explanation 2 to Section 10A of the Act and Explanation to Clause 5 of Section 80HHE of the Act are identical. They read as under :- Clause (i) in Explanation 2 to Section 10A of the Act. Explanation to Clause 5 of Section 80HHE of the Act "computer software" "computer software" means:- i) any computer programme recorded on any disc, tape, perforated media or other information storage device; or ii) any customised electronic data or any product or service of similar nature, as may be notified by the board, which is trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee from the other domestic company could be allowed in as much the dividend income incurred by the Assessee is equivalent to the dividend distributed by such domestic company on or before the due date. 51. The Assessing Officer had found that the Appellant/Assessee had approximately incurred a sum of Rs. 90,40,04,020/- [Rs.71,40,24,206/- + Rs. 18,99,79,814/-] as expense in foreign exchange for 2 of its units while claiming deduciton under Section 10A and Section 80HHE of the Act apart from the benefit under Section 80M of the Act for the Assessment Year 2002- 2003. The amount of expenses claimed and allowed by the Appellate Commissioner are as under:- Expenses incurred Under Section 10A of the Act Under Section 80HHE of the Act As per the Appellant/Assessee Rs.71,40,24,206/- Rs.18,99,79,814/- As per the Appellate Commissioner Rs.34,46,11,336/- Rs.5,25,45,466/- 52.There is however no discussion in the Impugned Order or in the Order passed by the Appellate Commissioner whether that the Appellant/Assessee indeed exported "computer software" as defined in Explanation clause (i) to Explanation 2 to Section 10A of the Act and would have incurred a huge sum of Rs. 34, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the consideration from export of "articles" or "things" or "computer softwares" alone were deductible under Section 10A of the Act. Thus, ITAT has correctly declined to interfere with the Order of the Appellate Commissioner. 59. A reading of the above definition of "export turnover" in Section 10A of the Act would show that a sum of Rs. 71,40,24,206/- purportedly incurred out of Rs. 90,40,04,020/- in foreign exchange by the Appellant/Assessee. Therefore, it could not have been included while computing of deduction by the Appellant/Assessee from such "export turnover". 60. It is noted that the Appellate Commissioner was of the view that in view of the decision of the ITAT in the Appellant/Assessee's own case in I.T.A.No.394/MDS/2006 and I.T.A.No.395/MDS/2006 for the Assessment Years 2001-2002 and 2002-2003, the Appellant/Assessee's appeal was liable to be dismissed. This was affirmed by the ITAT in the Impugned Order. 61. However, the decision of the ITAT in I.T.A.No.394/MDS/2006 and I.T.A.No.395/MDS/2006 now stands reversed by the decision of this Court in T.C.A.Nos.961 and 962 of 2008 vide Order dated 23.10.2018. Operative portion of the Order dated 23.10.2018 in T.C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and until there was a material available in the hands of the CIT(A) or the Assessing Officer to come to a conclusion that there is technical services on 'standalone basis' rendered by the assessee, the Assessing Officer and the CIT(A) were not justified in coming to a conclusion that the technical services were rendered by the assessee and the amounts paid need to be excluded. 14. Before the Tribunal, the assessee reiterated the submissions raised before the CIT(A) and produced the technical documents as well as the scope of the work and the contract. However, the Tribunal, in our considered view, did not make an endeavour to examine as to whether the interpretation of CIT(A) was just and proper and whether the relevant clauses in the agreement and the other documents were examined or not, but made a standalone statement that software development and technical services are two faces of one coin. We fail to understand as to whether the above is a statement made out of the personal knowledge of the Tribunal or whether it is a statement of law. If it is the statement of law, it should have been duly supported by reasons and we find none. 15.Admittedly, the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in CIT Vs. HCL Technologies, Mad (2018) 404 ITR 719 and T.C.A.No.961 and 962 of 2008 and its decision in T.C.A. Nos. 961 and 962 of 2008 and dismissed the Respondent/Income Tax Department's appeal with the following observation:- "3. The question of law framed above has been answered by the Hon'ble Supreme Court in the case of CIT, Central III Vs. HCL Technologies Limited [reported in (2018) 404 ITR 719] wherein it has been held as follows: "18. 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) of Section 10A of the IT Act + domestic sale proceeds. 19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT 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. 20. Even in common parlan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law framed for consideration are answered in favour of the assessee and against the Revenue. No costs." 5.2. In the light of the aforesaid judgment, we answer the substantial questiion of law involved in T.C.A.No.161 of 2010 in favour of the assessee and against the Revenue. 6. In fine, TCA.No.160 of 2010 is allowed. TCA.No.161 of 2010 is dismissed. No costs." 68. Substantial Questions of Law No. 1 in T.C.A.No.961 and 962 of 2008 is the Substantial Questions of Law No, 2 in the present appeals and T.C.A.No. 161 of 2010. This Court has answered the issue in favour of the Appellant/Assessee following its views in T.C.A.No.1193 and 1194 of 2008 following the decision of the Hon'ble Supreme Court in CIT Vs. HCL Technologies, Mad (2018) 404 ITR 719. 69. The learned Counsel for the Appellant/Assessee as well as the learned counsel for the Respondent/Income Tax Department also submitted that the above Substantial Questions of Law was covered in favour of the Appellant/Assessee and against the Revenue as per the unreported decision of this Court in T.C.A.Nos.1193 and 1194 of 2008 dated 12.10.2018. 70. Since there is difference between manufacturing of 'computer software' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Act. 77. In the result, these Tax Case Appeals of the Appellant/Assessee are partly allowed by answering the Substantial Questions of Law Nos.(ii), and (iii) partly in favour of the Appellant/Assessee. Rest of the Substantial Questions of Law are against the Appellant/Assessee and the case is remitted back to the Assessing Officer to redo the exercise as was ordered by the ITAT after looking into the computation along with the Return of Income filed by the Appellant/Assessee under Section 139(1) of the Act and after ascertaining whether indeed the Appellant/Assessee had exported "computer software". 78. In view thereof, the Substantial Questions of Law framed in these Tax Case Appeals are answered as follows:- "Question No. (i):- Whether on the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the contention of the appellant concerning the computation of deduction under Section 10A and 80HHE? Answer:- Answered against the Appellant/Assessee Question No. (ii):- Whether on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the exclusion of expenditure incurred in foreign currency in relati ..... 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