ITO, Bangalore V. M/s. Sepit Soft Tech Pvt. Ltd., Bangalore

ITA 1322/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51245 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS GOSE
• Assessee Lawyers: C RAMESH
• Section: 143(3); 10B

Judgement Text

PAGE 1 OF 8 ITA NO.1322/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, J.M ITA NO.1322/BANG/2010 (ASSESSMENT YEAR 2006-07) THE INCOME TAX OFFICER, WARD-12(2), BANGALORE. - APPELLANT VS M/S SEPIT SOFT TECH. PVT. LTD., 11/4, QUEENS ROAD, BANGALORE-52. - RESPONDENT PAN AAGCS8237C APPELLANT BY : SMT. SUSAN THOMAS GOSE RESPONDENT BY : SHRI C RAMESH, C.A. ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE REVENUE IS DIRECTED AGAINST ORDER OF LEARNED CIT(A)-III, BANGALORE BOTH 20/8/20 10. THE ASST. YEAR CONCERNED IS 2006-07. 2. THE SOLITARY ISSUE THAT IS RAISED IN THIS APPEAL IS WHETHER THE CIT(A) IS JUSTIFIED IN DIRECTING THE AO TO EXCL UDE TELECOMMUNICATION EXPENSES AMOUNTING TO RS.69,60,48 5/- FROM TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE I T ACT. PAGE 2 OF 8 ITA NO.1322/BANG/2010 2 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF IT RELATED SERVICES. FOR THE CONCERNED ASST. YEAR, RETURN OF INCOME WAS FILED ON 22.11.2006 DECLARING AN INCO ME OF RS.3,13,720/-. THE ASSESSEE HAD CLAIMED DEDUCTION U/S 10A TO THE TUNE OF RS.42,26,022/-. THE ASSESSMENT WAS TAKEN U P FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 22.10.2008. THE AO RECOMPUTED THE DEDUCTION U/S 10A OF THE ACT AFTER REDUCING EXPENSES ON TELECOMMUNICATION CH ARGES ATTRIBUTABLE TO EXPORT OF SOFTWARE AND EXPENSES INC URRED IN FOREIGN CURRENCY FOR RENDERING TECHNICAL SERVICES OUTSIDE IN DIA TO THE EXTENT OF RS.69,60,485/- FROM THE EXPORT TURNOVER. IN DOI NG SO, THE AO PLACED RELIANCE ON THE EXPLANATION 2(IV) TO SECTION 10A OF THE ACT. 4. AGGRIEVED BY THE RE-COMPUTATION OF DEDUCTION U/S 10A OF THE ACT, THE ASSESSEE CARRIED THE MATTER IN APPE AL BEFORE THE FIRST APPELLATE AUTHORITY. 5. IT WAS CONTENDED BEFORE THE FIRST APPELLATE AUT HORITY THAT IF CERTAIN ITEM OF EXPENDITURE IS REDUCED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE DEDUCTED FROM THE TOTAL TURNOVER AS WELL WHILE COMPUTING DEDUCTION U/S 10A OF THE AC T. THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS IN SUPPO RT OF ITS CONTENTION:- PAGE 3 OF 8 ITA NO.1322/BANG/2010 3 M/S SAK SOFT LTD. (313 ITR 353) (SB) (CHENNAI) M/S GOODRICH AEROSPACE SERVICES P. LTD. (2008-TIOL- 477-ITAT-BANG) 6. THE CIT(A), FOLLOWING THE SPECIAL BENCH ORDER O F THE TRIBUNAL IN THE CASE OF SAK SOFT LTD. CITED SUPRA D IRECTED THE AO TO REDUCE THE ABOVE SAID EXPENSES FROM THE TOTAL TURNO VER ALSO WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. THE RELE VANT FINDING AT PARA 9 OF THE CIT(A)S ORDER READS AS FOLLOWS:- 9. I HAVE PERUSED THE ORAL AND WRITTEN SUBMISSIONS FURNISHED BY THE AR OF THE APPELLANT COMPANY. RESPECTFULLY FOLLOWING THE ABOVE MENTIONED DECISIONS AND THE DECISION OF THE JURISDICTIONAL ITAT (SUPRA), THE SPECIAL BENCH DECISION IN THE CASE OF M/S SAK SOFT LTD., I DIRECT THE ASSESSING OFFICER TO EXCLUDE THE EXPENSES INCURRED ON TELECOMMUNICATION AND OTHER EXPENSES IN FOREIGN CURRENCY FOR RENDERING TECHNICAL SERVICES OUTSIDE INDIA TO THE EXTENT OF RS.69,60,485/- FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. FOLLOWING THE RATIONALE OF THE SAID DECISIONS, I DIRECT THE AO TO EXCLUDE THE EXPENSES [WHICH ARE EXCLUDED FROM EXPORT TURNOVER] FROM THE TOTAL TURNOVER ALSO IN COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT, 1961; THEREFORE THE GROUNDS RAISED IN THE GROUNDS OF APPEAL ARE ALLOWED. 7. REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE US. 8. THE LEARNED DR SUPPORTED THE ORDER OF THE ASSES SING OFFICER. PAGE 4 OF 8 ITA NO.1322/BANG/2010 4 9. 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. 330 ITR 175 AND THE ORDER OF THE SPECIAL BENCH IN THE CASE OF ITO V M/S SAK SOFT LTD. 313 ITR 353. 10. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GEMPLUS JEWELLERY INDIA LTD. (SUPRA), IN IDENTICAL C IRCUMSTANCES, 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, I N THE NUMERATOR 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 PAGE 5 OF 8 ITA NO.1322/BANG/2010 5 COMPUTER SOFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGHT, 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 OPE N 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 VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAM E 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 PAGE 6 OF 8 ITA NO.1322/BANG/2010 6 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 HAV E ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITIO N, 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 10.1 IN THE CASE OF SAK SOFT LTD. (SUPRA), THE ASS ESSEE 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. 10.2 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 SECTION 10B, THE FREIGHT, TELECOM CHARGES OR PAGE 7 OF 8 ITA NO.1322/BANG/2010 7 INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES O R 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 FOR MULA FOR COMPUTING THE EXPORT PROFITS. 10.3 IN THE LIGHT OF THE ABOVE REASONING, WE UPHOL D THE ORDERS OF THE CIT(A) AND DIRECT THE AO TO EXCLUDE T HE ABOVE MENTIONED EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED ON TUESDAY, THE 16 TH DAY OF AUGUST, 2011 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER PAGE 8 OF 8 ITA NO.1322/BANG/2010 8 COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/16/8. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.