DCIT (LTU), Bangalore V. M/s. Sun Microsystems India Pvt, Ltd, Bangalore

ITA 1229/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51242 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 11-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G V GOPALA RAO CITI
• Assessee Lawyers: GAURAV BAJORIA
• Section: 143(3); 10B

Judgement Text

PAGE 1 OF 7 ITA NO.1229/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K, J.M. AND SHRI A MOHAN ALANKAMONY, A.M ITA NO.1229/BANG/2010 (ASSESSMENT YEAR 2004-05) THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, BANGALORE. - APPELLANT VS M/S SUN MICROSYSTEMS INDIA PVT. LTD., 6 TH FLOOR, DIVYASHREE CHAMBERS, LANGFORD ROAD, BANGALORE-25. - RESPONDENT (PAN NO.AAECS7710C) APPELLANT BY : SHRI G V GOPALA RAO, CIT-I RESPONDENT BY : SHRI GAURAV BAJORIA, C.A. ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE DEPARTMENT IS DIREC TED AGAINST THE ORDER OF LEARNED CIT(A)-IV, BANGALORE D ATED 27.8.2010. THE ASST. YEAR CONCERNED IS 2004-05. 2. THE SOLITARY ISSUE THAT IS RAISED IN THIS APPEAL IS WHETHER THE CIT(A) IS JUSTIFIED IN DIRECTING THE AO TO RE-C OMPUTE DEDUCTION U/S 10A OF THE ACT AFTER REDUCING THE INSURANCE, TRAVEL ING EXPENSES AND TELEPHONE CHARGES INCURRED IN FOREIGN CURRENCY FROM BOTH THE EXPORT TURNOVER AND THE TOTAL TURNOVER. PAGE 2 OF 7 ITA NO.1229/BANG/2010 2 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. FOR THE CONCERNED ASST . YEAR, RETURN OF INCOME WAS FILED ON 1.11.2004. THE ASSES SEE HAD CLAIMED DEDUCTION U/S 10A OF THE ACT AMOUNTING TO RS.9,55,9 3,267/-. THE AO WAS OF THE VIEW THAT IN THE LIGHT OF EXPLANATION 2( IV) TO SECTION 10A OF THE ACT, THE EXPORT TURNOVER IS TO BE REDUCED BY INS URANCE, TRAVELING AND TELEPHONE EXPENSES WHILE DETERMINING DEDUCTION U/S 10A OF THE ACT. THE ASSESSEE CONTENDED THAT THE ABOVE SAID EXPENSES ARE NOT TO BE REDUCED FROM THE EXPORT TURNOVER. ALTERNATIVELY IT WAS SUBMITTED THAT IF THE ABOVE SAID EXPENDITURES ARE TO BE REDUCED FR OM THE EXPORT TURNOVER, THE SAME SHOULD BE REDUCED ALSO FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. THE ABOVE CONTENTION OF THE ASSESSEE WAS REJECTED AND THE AO RE-COMPUTED THE DE DUCTION U/S 10A OF THE ACT. IN THE LIGHT OF THE RE-COMPUTATION, T HE AO REDUCED DEDUCTION BY A SUM OF RS.2,20,57,860/-. 4. AGGRIEVED BY THE ORDER OF ASSESSMENT, THE ASSESS EE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUT HORITY. THE CONTENTIONS RAISED BEFORE THE AO WAS REITERATED BEF ORE THE FIRST APPELLATE AUTHORITY. 5. THE CIT(A), FOLLOWING THE ORDER OF THE CHENNAI SPECIAL BENCH IN THE CASE OF SAK SOFT LTD. ACCEPTED THE AL TERNATIVE SUBMISSION OF THE ASSESSEE AND DIRECTED THE AO TO REDUCE THE A BOVE SAID EXPENSES FROM THE TOTAL TURNOVER ALSO WHILE COMPUTING DEDUCT ION U/S 10A OF THE ACT. PAGE 3 OF 7 ITA NO.1229/BANG/2010 3 6. REVENUE, BEING AGGRIEVED, IS IN APPEALS BEFORE US. 7. THE LEARNED DR SUPPORTED THE ORDERS OF THE ASSE SSING OFFICER. 8. THE LEARNED AR SUBMITTED THAT THE ISSUE IN QUES TION IS SQUARELY COVERED BY THE JUDGEMENT OF THE HONBLE MUMB AI HIGH COURT IN THE CASE OF CIT V GEM PLUS JEWELLERY INDIA LTD. 3 30 ITR 175 AND THE ORDER OF THE SPECIAL BENCH IN THE CASE OF ITO V M/S SAK SOFT LTD. 313 ITR 353. 9. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA), IN IDENTICAL CIRCUMSTANCES, HELD THAT SINCE THE EXPORT TURNOVER FORMS PART OF THE TO TAL TURNOVER, IF AN ITEM IS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER TO MAINTAIN PARITY B ETWEEN NUMERATOR AND DENOMINATOR WHILE CALCULATING DEDUCTI ON U/S 10A OF THE ACT. THE RELEVANT FINDING OF THE HONBLE MUMBAI HI GH COURT READS AS FOLLOWS:- HELD : THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPORT 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 CONSTITUENT ELEMENT OF THE DENOMINATOR IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. THE EXPORT TURNOVER, IN THE NUMERATOR PAGE 4 OF 7 ITA NO.1229/BANG/2010 4 MUST HAVE THE SAME MEANING 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 TURNOVER IN EXPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES, THINGS OR COMPUTER SOFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN 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 LEGISLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER, A SIMILAR 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 DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF S.10A. HOWEVER, THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FREIGHT 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 PREVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF THE REVENUE WERE TO BE ACCEPTED, THE SAME EXPRESSION PAGE 5 OF 7 ITA NO.1229/BANG/2010 5 VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH THESE HAVE BEEN SPECIFICALLY EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PART OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVER, A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTAL TURNOVER. FREIGHT AND INSURANCE CHARGES DO NOT HAVE ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION, THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRIPTION 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 (INDIA) (P) LTD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON 9.1 IN THE CASE OF SAK SOFT LTD. (SUPRA), THE ASSE SSEE WAS ENGAGED IN THE BUSINESS OF EXPORTING COMPUTER SOFTW ARE AND CLAIMED DEDUCTION U/S 10B OF THE ACT. IN COMPLETING THE AS SESSMENT U/S 143(3) OF THE ACT, THE AO REDUCED THE EXPENDITURE I NCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICE S OUTSIDE INDIA, FROM THE EXPORT TURNOVER WITHOUT CORRESPONDING REDU CTION FROM TOTAL TURNOVER, THEREBY REDUCING THE DEDUCTION CLAIMED BY T HE ASSESSMENT U/S 10B OF THE ACT. PAGE 6 OF 7 ITA NO.1229/BANG/2010 6 9.2 IN LIGHT OF THE ABOVE FACTS, THE SPECIAL BENCH HELD AS UNDER:- FOR THE ABOVE REASONS, WE HOLD THAT FOR THE PURPOSE OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTION 10B, THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. THE APPEALS FILED BY THE DEPARTMENT ARE THUS DISMISSED. ALTHOUGH THE ORDER OF SPECIAL BENCH IS IN THE CONTE XT OF SECTION 10B OF THE ACT, THE RATIO LAID DOWN IN THE ABOVE DECISI ON APPLIES TO SECTION 10A OF THE ACT AS WELL, AS THE PROVISIONS OF SECTIO NS 10A AND 10B ARE IDENTICAL ON ALL MATERIAL ASPECTS. MORE PARTICULAR LY, BOTH THE SECTIONS DEFINE ONLY EXPORT TURNOVER BUT NOT TOTAL TURNOVER A ND SUB-SECTION (4) OF BOTH THE SECTIONS PRESCRIBE AN IDENTICAL FORMULA FOR COMPUTING THE EXPORT PROFITS. 9.3 IN THE LIGHT OF THE ABOVE REASONING, WE UPHOLD THE ORDER OF THE CIT(A) AND DIRECT THE AO TO EXCLUDE THE ABOV E MENTIONED EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS F ROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. PAGE 7 OF 7 ITA NO.1229/BANG/2010 7 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED ON FRIDAY, THE 12 TH DAY OF AUGUST, 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/11/8. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.