ACIT, CHENNAI V. Chennai Web Services P Ltd., CHENNAI

ITA 1209/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68651 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 31-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: R KUMAR
• Keywords: Business income
• Section: 143(3); 260A; 10B; 147; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI [BEFORE SHRI. N.S. SAINI, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER] I.T.A. NO.1209/MDS/2013. ASSESSMENT YEAR : 2001-02. THE ACIT, COMPANY CIRCLE I(3) CHENNAI 600 034. VS M/S. CHENNAI WEB SERVICES P. LTD, NO.148, GREAMS ROAD, FIRST FLOOR, CHENNAI 600 006. [PAN NO. AABCC 4223H] (APPELLANT) (RESPONDENT). APPELLANT BY : SHRI. GURU BHASHYAM, JCIT RESPONDENT BY : SHRI. R. KUMAR, ADVOCATE DATE OF HEARING : 13-08-2013 DATE OF PRONOUNCEMENT : 20-08-2013 O R D E R PER S.S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL ARIS ES FROM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IX, CHENNAI DA TED 22.02.2013 PASSED IN ITA NO.231/08-09, FOR ASSESSMENT YEAR 2 001-2002, IN PROCEEDINGS UNDER SECTION 147 R.W.S. 143(3) OF THE INCOME TAX ACT I.T.A.NO.1209/MDS/2013 :- 2 -: 1961 [IN SHORT THE ACT]. 2. THE SUBSTANTIAL GROUNDS RAISED BY THE REVENUE READ AS UNDER:- 2.1. THE LEARNED CIT(A) ERRED IN DIRECTING THE ASS ESSING OFFICE TO RECOMPUTED THE DEDUCTION U/S. 10B BY EXCLUDING THE FOREIGN TRAVEL EXPENSES AND COMMUNICATION CHARGES BOTH FROM THE EX PORT TURNOVER AND FROM THE TOTAL TURNOVER FOR COMPUTATION OF DEDU CTION U/S. 10-B. 2.2. IT IS SUBMITTED THAT THE DECISION OF THE SPECI AL BENCH OF THE JURISDICTIONAL ITAT IN THE CASE OF M/S. SAKSOFT LTD . RELIED UPON BY THE CIT(A) HAS NOT BECOME FINAL AND THE DEPARTMENT HAS PREFERRED APPEAL U/S. 260A. 3. IN THE COURSE OF HEARING, THE REVENUE RELIED ON THE GROUNDS AND PRAYS FOR ACCEPTANCE OF THE APPEAL WHEREAS THE ASSE SSEE STRONGLY SUPPORTS THE ORDER OF THE CIT(A). 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELO PMENT AND IT ENABLE SERVICES. ON 28.11.2001, IT HAD FILED ITS RETURN DECLARING INCOME OF F NIL AFTER CLAIMING DEDUCTION U/S 10B OF THE ACT AT F82,37,367/-. THE SAME WAS SUMMARILY PROCESSED. THEREAFTER THE ASSESSING OFFICER REOPENED THE ASSESSMENT AFTER FOR MING AN OPINION THAT THE ASSESSEES INCOME LIABLE TO BE TAXED HAD E SCAPED ASSESSMENT. PROCEEDING ON THIS REASON, HE ISSUED 148 NOTICE TO THE ASSESSEE. IN RESPONSE THEREOF, THE ASSESSEE REITERATED ITS INCOM E DISCLOSED EARLIER. I.T.A.NO.1209/MDS/2013 :- 3 -: 5. IN THE COURSE OF RE-ASSESSMENT, THE ASSESSING OFFIC ER NOTICED THAT THE ASSESSEE HAD INCURRED FOREIGN CURRENCY EXP ENDITURE IN FOREIGN TRAVEL AT F26,68,293/- AND ALSO F5,93,678/- AS COMM UNICATION CHARGES. IN THE REASSESSMENT FINALIZED ON 02.12.2008, HE PLA CED RELIANCE ON SEC. 10B(8)(III) AND HELD THAT THE SAME HAD TO BE EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUC TION. 6. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL. IT IS TO BE SEEN FROM THE CIT(A)S ORDER THAT HE HAS ACCEPTED ITS CONTENT IONS AND HELD THAT THE AFORESAID EXPENSES HAVE NOT ONLY TO BE EXCLUDED FROM EXPORT TURNOVER, BUT ALSO FROM THE TOTAL TURNOVER. THE RE LEVANT FINDINGS READ AS FOLLOWS:- 7. NEXT ISSUE RELATES TO AOS ACTION OF EXCLUDIN G FOREIGN CURRENCY EXPENSES FOR 26,68,293/- BY WAY OF FOREIGN EXPENSES AND 5,93,678/- BY WAY OF COMMUNICATION CHARGES, WHILE C OMPUTING THE DEDUCTION U/S 10B OF THE ACT. THE APPELLANT CONTEN DED THAT ASSESSING OFFICER ERRED IN NOT EXCLUDING THE SAME F ROM THE TOTAL TURNOVER. IN THIS REGARD, THE APPELLANT SUBMITTED AS UNDER:- ISSUE (II) IS COVERED BY THE FOLLOWING DECISIONS I N FAVOUR OF THE ASSESSEE. I. CIT VS. TATA ELXSI LTD (2012) 247 CTR 334 (KA RN) THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BO TH THE NUMERATOR AND SHE DENOMINATOR OF THE FORMULA, SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SEC. 10A IS A BENEFICIAL SECTION. IT IS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXP ORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATABLE TO EXPORTS . IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUS INESS AND DOMESTIC BUSINESS, THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPOR TIONING THE TOTAL I.T.A.NO.1209/MDS/2013 :- 4 -: PROFITS OF THE BUSINESS ON THE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE CASE OF S. 80HHC, THE EXP ORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSES SEE, WHEREAS IN S. 10A, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TO TAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UND ERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN O THER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. THE EXPORT T URNOVER WOULD BE A COMPONENT, OR PART OF A DENOMINATOR, THE OTHER COMPONENT BEING THE DOMESTIC TURNOVER. IN OTHER WORDS, TO THE EXTENT OF EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IN VIEW OF THE COMMONALITY, THE UNDERSTANDING SHOULD ALSO BE THE SAME. IN OTHER WORDS, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED A T AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TURNOVER IN CLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN S. 10 A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELES S FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS N OT DEFINED BY THE LEGISLATURE AND AN ORDINARY MEANING IS TO BE AT TRIBUTED TO THE SAME, THE SAID ORDINARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHICH IT IS US ED. WHEN THE STATUTE PRESCRIBES A FORMULA AND IN THE SAID FORMUL A, 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 TURNOVER INCLUDE S EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVE R IS INCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPO RT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATIO N WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE . IF THAT WERE THE INTENTION OF THE LEGISLATURE, THEY WOULD HAVE EXPRE SSLY STATED SO. IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHAT THE T OTAL TURNOVER MEANS THEN, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE MEANING ASSIGNED BY THE LEGISLATURE TO THE EXPORT T URNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO, WHILE INTERPRETING T HE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFOR E, THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER S. 10A, WOULD BE AS UNDER : I.T.A.NO.1209/MDS/2013 :- 5 -: PROFITS OF THE BUSINESS OF THE EXPORT TURNOVER UNDERTAKING X (EXPORT TURNOVER + DOMESTIC TURNOVER ) TOTAL TURNOVER THEREFORE, THERE IS NO MERITS IN THESE APPEALS-CIT VS. LAKSHMI MACHINE WORKS (2007)210 CTR (SC) 1: (2007) 290 ITR 667(SC), CIT VS CATAPHARMA (INDIA) (P) LTD. (2007 ) 211 CTR (SC) 83 : (2007) 292 ITR 641(SC) AND CIT VS. GEM PLUS JEWELLERY INDIA LTD.(2 010) 233 CTR (BORN)248: (2010) 42 DTR (BORN) 73: (2011) 330 ITR 175(BORN) RELIED ON ; ITA SAK SOFT LTD. (2009) 121 TTJ (CHENNAI) (SB ) 865: (2009) 20 DTR (CHENNAI) (SB) (TRIB) 514 APPROVED. (PARAS 10& 11) CONCLUSION:- FOR THE PURPOSE OF COMPUTING EXEMPTION UNDER S. 10A , WHEN THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED A T AFTER EXCLUDING COMMUNICATION EXPENSES, THE SAME SHOULD ALSO BE EXC LUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOT AL TURNOVER IN THE DENOMINATOR (HEADNOTES AT PAGES 334/335). II. INCOME TAX OFFICER VS. SAK SOFT LTD. (2009) 31 3 ITR (AT) 353(CHENNAI) SB EXPENSES ON FREIGHT, TELECOMMUNICATION CHARGES, OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THI NGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES INCURRED IN FORE IGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA, WHICH A RE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER AS DEFINED IN EXP LANATION 2(III) BELOW SECTION 10B OF THE INCOME TAX ACT, 1961, SHOU LD ALSO BE EXCLUDED FROM THE FIGURE OF TOTAL TURNOVER WHILE AP PLYING THE FORMULA PRESCRIBED BY SUB-SECTION(4) OF SECTION 10B OF THE ACT. (HEADNOTES AT PAGE 354) 8. IN THE LIGHT OF THE DECISIONS CITED ABOVE, IT IS SUBMITTED THAT THE FOREIGN TRAVEL EXPENSES (26,68,293/-) AND COMMU NICATION CHARGES (5,93,678/-) SHOULD BE EXCLUDED FROM THE TO TAL TURNOVER ALSO WHILE APPLYING THE FORMULA PRESCRIBED U/S. IOB(4) O F THE ACT IN COMPUTING THE DEDUCTION U/S. 10B(1). ACCORDINGLY, THE ENTIRE CLAIM OF DEDUCTION U/S 10B VIZ., 82,37,367/- IS ALLOWABLE . I.T.A.NO.1209/MDS/2013 :- 6 -: 7.1. I HAVE PERUSED THE AOS OBSERVATIONS AND THE SUBMISSIONS OF THE APPELLANT IN THIS REGARD . THE ISSUED INVOLVED IN THIS GROUND IS SQUARELY COVERED BY THE DECISION RENDERED BY THE SP ECIAL BENCH OF HONBLE ITAT, CHENNAI 313 ITR (AT)353 (CHENNAI) SB WHEREIN IT WAS HELD THAT:- EXPENSES ON FREIGHT, TELECOMMUNICATION CHARGES, OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLE3S OR TH INGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES INCURRED IN FORE IGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA, WHICH A RE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER AS DEFINED IN EXP LANATION 2(III) BELOW SECTION 10B OF THE INCOME TAX ACT, 1961, SHOU LD ALSO BE EXCLUDED FROM THE FIGURE OF TOTAL TURNOVER WHILE AP PLYING THE FORMULA PRESCRIBED BY SUB-SECTION (4) OF SECTION 10B OF THE ACT. (HEADNOTES AT PAGE 354). 7.2. IN THE LIGHT OF THE ABOVE DECISION, THE ASSESS ING OFFICER IS DIRECTED TO EXCLUDE THE FOREIGN TRAVEL EXPENSES OF 26,68,293/- AND COMMUNICATION CHARGES 5,93,678/- FROM THE TOTAL TURNOVER ALSO WHILE COMPUTING THE DEDUCTION U/S. 10B OF THE ACT. THEREFORE, THE GROUND RAISED BY THE APPELLANT IN THIS REGARD IS AL LOWED. THEREFORE, THE REVENUE IS IN APPEAL. 7. WE HAVE HEARD THE PARTIES AT LENGTH AND PERUSED THE CASE FILE. IT IS REVEALED FROM THE PLEADING THAT THE REVENUE DOES NOT POINT ANY DISTINGUISHING FEATURE IN THE INSTANT CASE VIS-A-V IS SAK SOFT LTD (SUPRA) RELIED BY THE CIT(A). ITS ONLY CONTENTION IS THAT THE APPEAL CHALLENGING THE SAID DECISION OF THE TRIBUNAL HAS BEEN FILED U/S. 260A OF THE ACT IN HONBLE HIGH COURT. IN OUR VIEW, THI S PLEA RAISED BY THE REVENUE IS NOT A VALID REASON TO ADOPT A DIFFERENT APPROACH IN THE INSTANT CASE. I.T.A.NO.1209/MDS/2013 :- 7 -: 8. CONSEQUENTLY, WE UPHOLD THE ORDER OF THE CIT(A) UND ER CHALLENGE. THEREFORE THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON TUESDAY, THE 20 TH OF AUGUST, 2013, AT CHENNAI. SD/- SD/- (N.S SAINI) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER DATED:20TH AUGUST, 2013. K.V COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR