Northern Operating Services Private Limited, Bangalore V. DCIT, Bangalore

ITA 1320/BANG/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9277 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-10-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: UJJWAL TEWARI
• Keywords: Business income; Double taxation relief
• Section: 143(3); 80HHC; 234B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE S HRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER I.T . (T.P) A. NO. 1320 /BANG/20 11 (ASSESSMENT YEAR : 20 07 - 08 ) M/S. NORTHERN OPERATING SERVICES PVT. LTD., 2 ND FLOOR,RMZ ECOSPACE, CAMPUS IC, SARJAPUR ORR, BELLANDUR VILL., VARTHUR HOBLI, BANGALORE - 560 037 . . APPELLANT. VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI UJJWAL TEWARI, C.A. R E SPONDENT BY : MS. NEERA MALHOTRA, CIT (D.R) DATE OF H EARING : 26.10.2016. DATE OF P RONOUNCEMENT : 26.10.20 1 6 . O R D E R PER SHRI VIJAY P AL RAO, J .M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DT.11.10.2016 PASSED UNDER SECTION 143(3) R.W.S. 144C OF TH E INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') IN PURSUANT TO THE DIRECTIONS OF 2 IT (TP) A NO. 1320 /BANG/201 1 THE DISPUTE RESOLUTION PANEL (IN SHORT DRP ) DT.23.9.2011 FOR THE ASSESSMENT YEAR 2007 - 08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 3 IT (TP) A NO. 1320 /BANG/201 1 4 IT (TP) A NO. 1320 /BANG/201 1 5 IT (TP) A NO. 1320 /BANG/201 1 6 IT (TP) A NO. 1320 /BANG/201 1 3. AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS STATED AT BAR THAT THE PARTIES HAVE MUTUALLY AGREED FOR APPLICATION OF MAP PURSUANT TO THE INDO - US DTAA IN RESPECT OF THE ADJUSTMENT MADE IN THE CASE OF THE ASSESSEE UNDER TRANSFER PRIC ING PROVISIONS. THE ASSESSEE HAS ALSO FILED A LETTER DT.14.7.2016 WHERE IN THE ASSESSEE HAS STATED THAT IT HAS ACCEPTED THE TERMS MUTUALLY AGREED BETWEEN THE COMPETENT AUTHORITIES OF INDIA AND US AND ACCORDINGLY ASST. COMMISSIONER OF INCOME TAX HAS PASSED THE ORDER GIVING EFFECT AS PER 7 IT (TP) A NO. 1320 /BANG/201 1 THE TERMS MUTUALLY AGREED IN MAP RESOLUTION. THUS THE ASSESSEE HAS PRAYED THAT IN LIEU OF THE MAP RESOLUTION THE ASSESSEE WITHDRAW THE GROUNDS PERTAINING TO TP MATTER. THE LD. DR HAS NOT DISPUTED THE MAP RESOLUTION IN RESPE CT OF THE TP DISPUTE. IN VIEW OF THE FACTS THAT THE PARTIES HAVE RESOLVED THE DISPUTE UNDER MAP AND CONSEQUENTLY GIVING EFFECT ORDER HAS BEEN PASSED O N 12.7.2016, T HE GROUND NOS.1 TO 7 OF THE ASSESSEE'S APPEAL ARE DISMISSED BEING WITHDRAWN AS A RESULT O F MAP RESOLUTION. 4. THE NEXT GROUND IS REGARDING RED UCTION OF EXPENSES INCURRED IN FOREIGN CURRNENCY FROM EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 4 . 1 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OTHERS 349 ITR 98 (KAR) HAD HELD THAT WHILE COMPUTING THE EXEMPTION U/S 10A, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPE NSES, THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER IN THE DENOMINATOR. THE RELEVANT FINDING OF THE HON BLE JURISDICTIONAL HIGH COURT READS AS FOLLOWS: - 8 IT (TP) A NO. 1320 /BANG/201 1 ..SECTION 10A IS ENACTED AS AN INCENTIVE TO EXPORTERS TO ENABLE THEIR PRODUCTS TO BE COM PETITIVE IN THE GLOBAL MARKET AND CONSEQUENTLY EARN PRECIOUS FOREIGN EXCHANGE FOR THE COUNTRY. THIS ASPECT HAS TO BE BORNE IN MIND. WHILE COMPUTING THE CONSIDERATION RECEIVED FROM SUCH EXPORT TURNOVER, THE EXPENSES INCURRED TOWARDS FREIGHT, TELECOMMUNIC ATION CHARGES, OR INSURANCE ATTRIBUTABLE 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 SERVICES OUTSIDE INDIA SHOULD NOT BE INCLUDED. HOWEVER, THE WORD TOTAL TURNOVER IS NOT DEFINED FOR THE PURPOSE OF THIS 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 TURNOVER IS NOT DEFINED, THERE IS NO CLUE REGARDING WHAT IS TO BE EXCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER. HOWEVER, WHILE INTERPRETING THE PROVISIONS OF SECTION 80HHC, THE COURTS HAVE LAID DOWN VARIOUS PRINCIPLES, WHICH ARE INDEPENDENT OF THE STATUTORY PROVISIONS. THERE SHOULD 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 IS A BENEFICIAL SECTION WHICH INTENDS TO PROVIDE INCENTIVES TO PROMOTE EXPO RTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS, THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL 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 SECTION 80HHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSXCESSEE, 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 INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN OTHER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. TO THE EXTENT O F EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPOR T TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR CANNOT 9 IT (TP) A NO. 1320 /BANG/201 1 BE DIFFERENT. THEREFORE, THOUGH THERE IS NO D EFINITION OF THE TERM TOTAL TURNOVER IN SECTION 10A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR THAT 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 THE MEANING OF THE TOTAL TURNOVER, WH EN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO T HE LEGISLATIVE INTENT AND IMPERMISSIBLE. THUS, THERE IS NO ERROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGEMENTS RENDERED IN THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME . IN THE LIGHT OF THE ABOVE BINDING PRECEDENTS, WE DIRECT THE AO TO EXCLUDE THE ABOVE MENTIONED EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. 5. THE NEXT GROUND IS REGARDI NG NON - GRANT OF CREDIT OF TAX DEDUCTED AT SOURCE (TDS). 6. WE HAVE HEARD THE LEARNED A.R. AS WELL AS LEARNED D.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LEARNED AUTHORISED REPRESENTATIVE HAS POINTED OUT THAT THE ASSESSING OFFICER HAS NOT GRANTED T OTAL CREDIT OF TDS AMOUNTING TO RS.10,41,110. THUS HE HAS 10 IT (TP) A NO. 1320 /BANG/201 1 PLEADED THAT THE ASSESSING OFFICER MAY BE DIRECTED TO GRANT THE FULL CREDIT OF TDS. 7. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THIS IS A MATTER OF VERIFICATION AND THEREFORE WITHOUT VE RIFICATION OF FACT THE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CORRECT CREDIT TO BE ALLOWED TO THE ASSESSEE ON ACCOUNT OF TDS AND THEN ALLOW THE SAME. 8. THE NEXT GROUND IS REGARDING LEVY OF INTEREST UNDER SECTION 234B OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 26TH DAY OF OCT., 201 6 . SD/ - ( INTURI RAMA RAO ) ACCOUNTANT MEMBER SD/ - ( VIJAY PAL RAO ) JUDICIAL MEMBER BANGALORE, DT. 26.10.2016. *REDDY GP 11 IT (TP) A NO. 1320 /BANG/201 1 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE