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ITA 1074/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60773 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 14-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: S RANGANATH
• Keywords: Business income; Depreciation; Question of law; Unabsorbed depreciation
• Section: 143(3); 80HHC; 10B; 10

Judgement Text

PAGE 1 OF 13 ITA NO.1074BANG/ 2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.1074/BANG/2011 (ASSESSMENT YEAR 2006-07) M/S CROSSDOMAIN SOLUTIONS PVT. LTD., CENEX, 94, 2 ND MAIN, INDUSTRIAL SUBURD, 2 ND STAGE, YESHWANTHPUR, BANGALORE-22. PA NO.AACCC1271G VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(2), BANGALORE (APPELLANT) (RESPONDENT) DATE OF HEARING : 27.06.2012 DATE OF PRONOUNCEMENT : 29.06.2012 APPELLANT BY : SHRI S RANGANATH, C.A. RESPONDENT BY : SMT. SUSAN THOMAS JOSE, JCI T ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I, BANGALORE, DATED 12.9.2011. THE RELEVANT ASSESSMENT YEAR IS 2006-07. 2. THE GROUNDS RAISED READ AS FOLLOWS:- I) THE ORDER OF THE LEARNED APPELLATE AUTHORITY I S BAD IN LAW. II) THE LEARNED APPELLATE AUTHORITY ERRED IN CONFIRM ING THE ACTION OF THE LEARNED ASSESSING AUTHORITY IN CONTEND ING THAT THE COMMUNICATION CHARGES REDUCED FROM THE EXP ORT TURNOVER NEED NOT BE REDUCED FROM THE TOTAL TURNOVE R. PAGE 2 OF 13 ITA NO.1074BANG/ 2011 2 THE LEARNED APPELLATE AUTHORITY ERRED IN NOT CONSID ERING THE JUDGEMENT OF THE KARNATAKA HIGH COURT ON THIS I SSUE WHERE THE HONBLE HIGH COURT HAS HELD THE ISSUE IN FAVOUR OF THE APPELLANTS CONTENTION OF THE COMMUNICATION CHARGES ALSO TO BE REDUCED FROM THE TOTAL TURNOVER. III) THE LEARNED APPELLATE AUTHORITY IN CONFIRMING THE AC TION OF THE LEARNED ASSESSING AUTHORITY OF SETTING OFF OF THE INCOME OF THE STPI UNIT AGAINST THE BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION OF THE NON-STPI UNITS. THE LEARNED APPELLATE AUTHORITY ERRED IN NOT CONSIDE RING THE JUDGEMENT OF THE KARNATAKA HIGH COURT ON THIS I SSUE WHERE THE HONBLE HIGH COURT HAS HELD THE ISSUE IN FAVOUR OF THE APPELLANTS CONTENTION OF THE BROUGHT FORWAR D LOSSES OR UNABSORBED DEPRECIATION PERTAINING TO A N ON- STPI UNIT COULD NOT BE SET OFF AGAINST THE PROFITS AND GAINS OF THE STPI UNIT FOR THE PURPOSES OF QUANTIFYI NG AND CLAIMING THE DEDUCTION UNDER SECTION 10A. 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE B USINESS OF IT ENABLED SERVICES, NAMELY, BPO. RETURN OF INCOME WAS FILED FOR THE CONCERNED ASSESSMENT YEAR ON 28.11.2006 DECLARING A TOTAL INCO ME OF RS.7,765/-. THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY BY ISSUANCE OF N OTICE UNDER SECTION 143(2) OF THE ACT AND THE SCRUTINY ASSESSMENT WAS CO MPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 5/12/2008. THE ASSESSING OFFICER RE-COMPUTED THE DEDUCTION UNDER SECTION 10A OF THE ACT BY REDUCING FROM THE EXPORT TURNOVER, A SUM OF RS. 34,45,246/-,BEING COMMUNICATION EXPENSES. FURTHER, THE ASSESSING OFFICER ALSO HELD THAT BROUG HT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION ON STPI UNIT IS TO BE S ET OFF AGAINST THE INCOME OF STP UNDERTAKING. PAGE 3 OF 13 ITA NO.1074BANG/ 2011 3 4. AGGRIEVED BY THE ASSESSMENT COMPLETED, THE ASSES SEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUT HORITY. 5. BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS CON TENDED THAT THE ASSESSING OFFICER HAS ERRED IN REDUCING COMMUNICATI ON CHARGES FROM THE EXPORT TURNOVER. IT WAS SUBMITTED THAT NO PORTION OF THE COMMUNICATION EXPENSES WERE INCLUDED IN THE EXPORT TURNOVER BY THE ASSESSEE WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. ALTERNATIVELY IT WAS ARGUED THAT HAVING REDUCED THE COMMUNICATION EXPENS ES FROM THE EXPORT TURNOVER, NECESSARILY THE ASSESSING OFFICER OUGHT TO HAVE REDUCED THE SAME ALSO FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCT ION UNDER SECTION 10A OF THE ACT. FOR THE ALTERNATIVE SUBMISSION, THE ASSES SEE RELIED ON THE JUDGEMENT OF THE HONBLE MUMBAI HIGH COURT IN THE C ASE OF CIT V GEM PLUS JEWELLERY INDIA LTD. (330 ITR 175) AND THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO V SAK SOFT LTD. (31 3 ITR 353) (CHENNAI). 5.1 WITH REGARD TO THE ISSUE OF SET OFF OF BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION OF NON STPI UNIT AGAINST TH E INCOME OF THE STP UNDERTAKING, IT WAS SUBMITTED THAT THE QUESTION IS SQUARELY COVERED BY THE ORDER OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S SUBEX LIMITED (ITA NOS.94 & 95/BANG/2008 DATED 23 RD OCTOBER, 2008). 6. THE CIT(A), HOWEVER, DISMISSED THE APPEAL OF TH E ASSESSEE. 7. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFOR E US. 8. THE LEARNED AR SUBMITTED THAT THE TWO ISSUES, N AMELY, (I) WHETHER THE COMMUNICATION EXPENSES REDUCED FROM THE EXPORT TURNOVER ARE TO BE REDUCED ALSO FROM THE PAGE 4 OF 13 ITA NO.1074BANG/ 2011 4 TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECT ION 10A OF THE ACT; (II) WHETHER THE BROUGHT FORWARD LOSS AND UNABSORBE D DEPRECIATION OF NON-STPI UNITS IS TO BE SET OFF AGA INST THE PROFITS OF STPI UNITS BEFORE GRANTING DEDUCTION UNDER SECTION 10A OF THE ACT; ARE SQUARELY COVERED BY THE JUDGEMENTS OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OTHERS ( 2011-TIOL-684-HC-KAR- II) AND CIT V M/S AXA BUSINESS SERVICES PVT. LTD. & OTHERS (2011-TIOL- 711-HC-KAR.II). 9. THE LEARNED DR, THOUGH SUPPORTED THE ORDERS OF THE INCOME- TAX AUTHORITIES, WAS UNABLE TO CONTROVERT THE SUBMI SSIONS MADE BY THE LEARNED AR. 10. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSE D THE MATERIAL ON RECORD. IN GROUND NO. 2 MENTIONED ABOVE, THE ASSE SSEE CONTENDS THAT THE CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE COMMUNI CATION CHARGES REDUCED FROM THE EXPORT TURNOVER NEED NOT BE REDUCED FROM T HE TOTAL TURNOVER, WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. THIS ISSUE IS SQUARELY COVERED BY THE JUDGEMENTS OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OTHERS (2011-TI OL-684-HC-KAR-II), HONBLE MUMBAI HIGH COURT IN THE CASE OF CIT V GEM PLUS JEWELLERY INDIA LTD. (330 ITR 175) AND THE ORDER OF THE SPECIAL BEN CH OF THE TRIBUNAL IN THE CASE OF ITO V SAK SOFT LTD. (313 ITR 353) (CHENNAI) . PAGE 5 OF 13 ITA NO.1074BANG/ 2011 5 10.1 THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OTHERS (SUPRA) HAD HELD THAT WHIL E COMPUTING THE EXEMPTION U/S 10A, IF THE EXPORT TURNOVER IN THE NU MERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOUL D ALSO BE EXCLUDED FROM THE TOTAL TURNOVER IN THE DENOMINATOR. THE RELEVANT FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT READS AS FOLLOWS:- ..SECTION 10A IS ENACTED AS AN INCENTIVE TO EXP ORTERS TO ENABLE THEIR PRODUCTS TO BE COMPETITIVE IN THE G LOBAL MARKET AND CONSEQUENTLY EARN PRECIOUS FOREIGN EXCHAN GE FOR THE COUNTRY. THIS ASPECT HAS TO BE BORNE IN MIN D. WHILE COMPUTING THE CONSIDERATION RECEIVED FROM SUC H EXPORT TURNOVER, THE EXPENSES INCURRED TOWARDS FREI GHT, TELECOMMUNICATION CHARGES, OR INSURANCE ATTRIBUTABL E TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA, OR EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE, IN PROVIDING THE TECHNICAL SERVIC ES OUTSIDE INDIA SHOULD NOT BE INCLUDED. HOWEVER, THE WORD TOTAL TURNOVER IS NOT DEFINED FOR THE PURPOSE OF TH IS SECTION. IT IS BECAUSE OF THIS OMISSION TO DEFINE TOTAL TURNOVER, THE WORD TOTAL TURNOVER FALLS FOR INTERPRETATION BY THIS COURT; ..IN SECTION 10A, NOT ONLY THE WORD TOTAL TURNOVE R IS NOT DEFINED, THERE IS NO CLUE REGARDING WHAT IS TO BE EXCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER. HOW EVER, WHILE INTERPRETING THE PROVISIONS OF SECTION 80HHC, THE COURTS HAVE LAID DOWN VARIOUS PRINCIPLES, WHICH ARE INDEPENDENT OF THE STATUTORY PROVISIONS. THERE SHOU LD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA, SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10A I S A BENEFICIAL SECTION WHICH INTENDS TO PROVIDE INCENTI VES TO PROMOTE EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUSINESS AND DOMESTIC BUSIN ESS, PAGE 6 OF 13 ITA NO.1074BANG/ 2011 6 THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCER TAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNO VERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER W AS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE CASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSES SEE, WHEREAS IN SECTION 10-A, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING, IT MAY IN CLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN OTHER WOR DS, EXPORT TURNOVER AND DOMESTIC TURNOVER. TO THE EXTE NT OF EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEE N THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIV ED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD A LSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. TH E REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TUR NOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERA TOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE , THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TU RNOVER IN SECTION 10A, THERE IS NOTHING IN THE SAID SECTIO N TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR T HAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. WHEN THE STATUTE PRESCRIBED A FORMULA AND IN THE SAID FORMULA, EXPORT TURNOVER IS DEFINED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING TH E MEANING OF THE TOTAL TURNOVER, WHEN THE TOTAL TURNO VER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARR IVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. THUS, THERE IS NO ERROR COMMITTED B Y THE TRIBUNAL IN FOLLOWING THE JUDGEMENTS RENDERED IN TH E PAGE 7 OF 13 ITA NO.1074BANG/ 2011 7 CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10 A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME. 10.2 THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA), IN IDENTICAL CIRCUMSTA NCES, HELD THAT SINCE THE EXPORT TURNOVER FORMS PART OF THE TOTAL TURNOVER, I F AN ITEM IS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE R EDUCED FROM THE TOTAL TURNOVER TO MAINTAIN PARITY BETWEEN NUMERATOR AND DE NOMINATOR WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. THE RELE VANT FINDING OF THE HONBLE MUMBAI HIGH COURT READS AS FOLLOWS:- THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPO RT AND THE TURNOVER FROM LOCAL SALES. THE EXPORT TURNOVER CONSTITUTES THE NUMERATOR IN THE FORMULA PRESCRIBED BY SUB-SECTION (4). EXPORT TURNOVER ALSO FORMS A CONS TITUENT ELEMENT OF THE DENOMINATOR IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. THE EXPO RT TURNOVER, IN THE NUMERATOR MUST HAVE THE SAME MEANI NG AS THE EXPORT TURNOVER WHICH IS CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION EXPORT TUR NOVER IN EXPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERT AKING OF ARTICLES, THINGS OR COMPUTER SOFTWARE RECEIVED I N OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FO REIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGH T, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES, THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGI SLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURA NCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BE HALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHA RGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER, A SIMILAR PAGE 8 OF 13 ITA NO.1074BANG/ 2011 8 EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE, HOWEVER, MISSES THE POINT THAT THE EXPRESSION TOTAL TURNOVER HAS NOT BEEN D EFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF S.10A. HOW EVER, THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGHT AN D INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FRE IGHT AND INSURANCE, THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS OPEN TO PARLIAMENT TO MAKE A PROVISION WHICH HAS BEEN ENUNCIATED EARLIER MUST PR EVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OT HER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE C ONTENTION OF THE REVENUE WERE TO BE ACCEPTED, THE SAME EXPRES SION VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNO TATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSIO N OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH THESE HAVE BEEN SPECIFICALLY EXCLU DED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUME RATOR WOULD BE BROUGHT IN AS PART OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMIN ATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISIO N WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVE R, A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NO T HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTA L TURNOVER. FREIGHT AND INSURANCE CHARGES DO NOT HAV E ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION, THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURN OVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRI PTION TO THE CONTRARY CIT V SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) 163 CTR (BOM) 596: (2000) 245 ITR 769 (BOM) APPLIED; CIT V LAKSHMI MACHINE WORKS (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) AND CIT V CATAPHARMA (IN DIA) (P) LTD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON PAGE 9 OF 13 ITA NO.1074BANG/ 2011 9 10.3 IN THE CASE OF SAK SOFT LTD. (SUPRA), THE ASS ESSEE WAS ENGAGED IN THE BUSINESS OF EXPORTING COMPUTER SOFTWARE AND CLAIMED DEDUCTION U/S 10B OF THE ACT. IN COMPLETING THE ASSESSMENT U/S 1 43(3) OF THE ACT, THE AO REDUCED THE EXPENDITURE INCURRED IN FOREIGN EXCH ANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA, FROM THE EXPORT T URNOVER WITHOUT CORRESPONDING REDUCTION FROM TOTAL TURNOVER, THEREB Y REDUCING THE DEDUCTION CLAIMED BY THE ASSESSMENT U/S 10B OF THE A CT. 10.4 IN LIGHT OF THE ABOVE FACTS, THE SPECIAL BENC H HELD AS UNDER:- FOR THE ABOVE REASONS, WE HOLD THAT FOR THE PURPOS E OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTIO N 10B, THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTA BLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN F OREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSID E INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AN D FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. THE APPEAL S FILED BY THE DEPARTMENT ARE THUS DISMISSED. 10.5 IN THE LIGHT OF THE ABOVE JUDICIAL PRONOUNCEM ENTS, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE COMMUNICATION EXPE NSES BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10B OF THE ACT. THEREFORE, GROUND NO .2 RAISED BY THE ASSESSEE IS ALLOWED. 11. THE 3 RD GROUND RAISED BY THE ASSESSEE IS REGARDING THE ISSU E OF SET OFF OF INCOME OF STPI UNIT AGAINST BROUGHT FORW ARD LOSS AND UNABSORBED DEPRECIATION OF THE NON SPTI UNIT. THIS ISSUE IS S QUARELY COVERED BY THE PAGE 10 OF 13 ITA NO.1074BANG/ 2011 10 JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V M/S AXA BUSINESS SERVICES PVT. LTD. & OTHERS (2011-TIOL -711-HC-KAR.II). THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V M/S AXA BUSINESS SERVICES PVT. LTD. (SUPRA) CATEGORICALLY HELD THAT D EDUCTION U/S 10A IS ALLOWABLE WITHOUT SETTING OFF OF THE BROUGHT FORWAR D LOSS AND UNABSORBED DEPRECIATION OF OTHER UNITS. THE RELEVANT FINDING S OF THE HONBLE HIGH COURT AT PARAS 19, 29 TO 31 READS AS FOLLOWS:- 19. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVI NG AT THE GROSS TOTAL INCOME OF THE ASSESSEE. THE INCOM E OF 10A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NO T AFTER COMPUTING THE GROSS TOTAL INCOME. THE TOTAL INCOME USED IN THE PROVISIONS OF SECTION 10A IN THIS CONTE XT MEANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN SECTION 2(45). HENCE, T HE INCOME ELIGIBLE FOR EXEMPTION U/S 10A WOULD NOT ENT ER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCTED AT SOURCE LEVEL. 29. AFTER MAKING ALL SUCH COMPUTATION THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARR Y FORWARD OF LOSS AS PROVIDED U/S 72 OF THE ACT. TH AT IS THE BENEFIT WHICH IS GIVEN TO THE ASSESSEE UNDER TH E ACT IRRESPECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CARRYING ON. THE SAID BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS U/S 10B OF THE ACT. THE EXPRESSION DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY A N UNDERTAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE, HAS TO BE UNDERSTOOD IN THE CONTEXT WITH WHICH THE SAID PROVISION IS INSERTED IN CHAPTER III OF THE ACT. SUB-SECTION (4) OF SECTION 10A CLARIFIES THIS POSITION. IT PROVIDES THAT THE PROFITS DERIVED FRO M EXPORT OF ARTICLES OR THINGS FROM COMPUTER SOFTWARE PAGE 11 OF 13 ITA NO.1074BANG/ 2011 11 SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF T HE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THIN GS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF TH E BUSINESS CARRIED ON BY THE UNDERTAKING. THEREFORE, IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE TH AN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10A IT I S THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FROM THE BUSINESS OF THE UNDERTAK ING ALONE THAT HAS TO BE TAKEN INTO CONSIDERATION AND S UCH PROFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY AFTER THE DEDUCTION OF THE SAI D PROFITS AND GAINS, THE INCOME OF THE ASSESSEE HAS T O BE COMPUTED. 30. THE PROVISIONS OF THIS SUB-SECTION WILL APPLY E VEN IN THE CASE WHERE AN ASSESSEE HAS OPTED OUT OF SECTION 10A BY EXERCISING HIS OPTION UNDER SUB-SECTION (8). AS DISCUSSED, IT IS PERMISSIBLE FOR AN ASSESSEE TO OPT IN AND OPT OUT OF SECTION 10A. IN THE YEAR WHEN THE ASSESS EE HAS OPTED OUT, THE NORMAL PROVISIONS OF THE ACT WOU LD APPLY. THE PROFITS DERIVED BY HIM FROM THE STP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE SUBJECT TO VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CHAPTER VI-A. IF IN SUCH A YEAR, THE ASSESSEE H AS SUFFERED LOSSES, SUCH LOSSES WOULD BE SUBJECT TO IN TER SOURCE AND INTER HEAD SET OFF. THE BALANCE IF ANY THEREAFTER CAN BE CARRIED FORWARD, FOR BEING SET OF F AGAINST PROFITS OF THE SUBSEQUENT ASSESSMENT YEARS I N THE NORMAL COURSE. UNABSORBED DEPRECIATION ALSO ME RITS A SIMILAR TREATMENT. 31. AS THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED A T SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL IN COME, THE LOSS OF NON 10-A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10-A UNIT U/S 72. THE LOSS INCURRED BY TH E ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS OR PROFESSION HAS TO BE SET OFF AGAINST THE PROFITS AN D GAINS PAGE 12 OF 13 ITA NO.1074BANG/ 2011 12 IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY SU CH ASSESSEE. THEREFORE AS THE PROFITS AND GAINS UNDER SECTION 10-A IS NOT BE INCLUDED IN THE INCOME OF TH E ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LO SS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AG AINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY, AS PER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION U /S 32(2) IS TO BE SET OFF. AS DEDUCTION U/S 10A HAS T O BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WO ULD NOT ARISE. IN THAT VIEW OF THE MATTER, THE APPROAC H OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO THE AFORESAID STATUTORY PROVISIONS AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUST IFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRAN TING THE BENEFIT OF SECTION 10A TO BE ASSESSEE. HENCE, THE MAIN SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAV OUR OF THE ASSESSEES AND AGAINST THE REVENUE. 11.1 THE FACTS BEING IDENTICAL, RESPECTFULLY FOLLO WING THE DICTUM LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT, WE DI RECT THE AO TO CALCULATE DEDUCTION U/S 10A OF THE ACT WITHOUT SETTING OFF OF THE CARRIED FORWARD BUSINESS LOSS AND DEPRECIATION. IT IS ORDERED ACCO RDINGLY. THEREFORE, GROUND NO. 3 RAISED IS ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED ON THE 29 TH DAY OF JUNE, 2012 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER PAGE 13 OF 13 ITA NO.1074BANG/ 2011 13 COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BA NGALORE.