DCIT, Bangalore V. M/s. Intel Technology India Ltd., Bangalore

ITA 1360/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51241 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 02-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIII
• Assessee Lawyers: VIKASH DHARIWAL
• Section: 143(3); 80HHC; 10B

Judgement Text

PAGE 1 OF 14 ITA NOS.1359 & 1360/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 NOS.1359 & 1360/BANG/2010 (ASSESSMENT YEARS 2004-05 & 2005-06) THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, BANGALORE. - APPELLANT VS M/S INTEL TECHNOLOGY INDIA LTD., 23-56 P, OUTER RING ROAD, DEVARABEESANAHALLI, VARTHUR HOBLI, BELLANDUR POST, BANGALORE-560103. - RESPONDENT PAN : AAACI5394 DATE OF HEARING : 17.8.2011 DATE OF PRONOUNCEMENT : 17.8.2011 APPELLANT BY : SHRI ETWA MUNDA,CIT-III RESPONDENT BY : SHRI VIKASH DHARIWAL, C.A. ORD ER PER BENCH : THESE TWO APPEALS PREFERRED BY THE DEPARTMENT ARE DIRECTED AGAINST SEPARATE ORDERS OF THE CIT(A) LTU, BANGALORE BOTH DATED 28/9/2010. THE RELEVANT ASST. YEARS ARE 2004- 05 AND 2005- 06. 2. SINCE COMMON ISSUES ARE RAISED IN THESE APPEALS AND THEY PERTAIN TO THE SAME ASSESSEE, THESE APPEALS ARE HEA RD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. PAGE 2 OF 14 ITA NOS.1359 & 1360/BANG/2010 2 3. IN THESE APPEALS, IDENTICAL FIVE GROUNDS ARE RA ISED. HOWEVER, THE SOLITARY ISSUE THAT IS RAISED IS WHETHE R THE CIT(A) IS JUSTIFIED IN DIRECTING THE AO TO RECOMPUTE DEDUCTIO N U/S 10A OF THE ACT AFTER EXCLUDING EXPENDITURE INCURRED ON UP-LINK ING CHARGES OUT OF TELECOMMUNICATION EXPENSES FROM BOTH EXPORT TURNOVE R AND THE TOTAL TURNOVER. 4. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE B USINESS OF DEVELOPMENT OF SOFTWARE FOR THE GLOBAL RESEARCH AND DEVELOPMENT NEEDS OF THE INTEL GROUP AS WELL AS PROVIDING SALES SUPPORT AND WARRANTY SUPPORT SERVICES. FOR THE ASST. YEAR 2004-0 5, RETURN OF INCOME WAS FILED ON 1.11.2004 DECLARING A LOSS OF R S.3,48,802/- AFTER CLAIMING A DEDUCTION OF RS.20,05,95,651/- U/S 10A O F THE ACT. 4.1 FOR THE ASST. YEAR 2005-06, THE ASSESSEE COMPAN Y FILED ITS RETURN OF INCOME ON 31.10.2005 DECLARING NIL IN COME AFTER SET OFF OF BROUGHT FORWARD LOSSES. THE ASSESSEE HAD ALSO C LAIMED DEDUCTION U/S 10A OF THE ACT. FOR BOTH THE ASST. YEARS MENTION ED ABOVE, THE ENTIRE INCOME OF THE COMPANY WAS FROM THE STPI REGIS TERED UNDERTAKINGS. THE ASSESSMENTS FOR THE ABOVE TWO AS ST. YEARS WERE TAKEN UP FOR SCRUTINY BY ISSUANCE OF NOTICE U/S 143(2 ) OF THE ACT AND ASSESSMENT WAS COMPLETED FOR THE ASST. YEAR 2004-05 ON 28.12.2006 AND FOR THE ASST. YEAR 2005-06 ON 18.12.2008. IN TH E ASSESSMENTS COMPLETED, THE AO BY REFERRING TO CLAUSE (IV) OF EXP LANATION 2 TO SECTION 10A OF THE ACT, REDUCED TELECOMMUNICATION PAGE 3 OF 14 ITA NOS.1359 & 1360/BANG/2010 3 EXPENSES/LEASELINES CHARGES FROM THE EXPORT TURNOVE R. THE AO, HOWEVER, DID NOT REDUCE SUCH CHARGES FROM THE TOTAL TURNOVER. 5. AGGRIEVED BY THE ASSESSMENT ORDERS, THE ASSESSEE COMPANY PREFERRED APPEALS BEFORE THE FIRST APPELLATE AUTHORITY. 6. THE CIT(A) VIDE SEPARATE ORDERS FOR ASST. YEARS 2004-05 AND 2005-06 BOTH DATED 28.9.2010, DIRECTED THE AO T O REDUCE THE COMMUNICATION EXPENSES FROM BOTH THE EXPORT TURNOVE R AS WELL AS TOTAL TURNOVER IN COMPUTING DEDUCTION U/S 10A OF TH E ACT. 7. AGGRIEVED BY THE ABOVE SAID DIRECTION OF THE CIT (A), THE DEPARTMENT IS IN APPEALS BEFORE US. 8. THE LEARNED DR SUPPORTED THE ORDERS OF ASSESSME NT FOR THE ABOVE SAID TWO ASST. YEARS. 9. THE LEARNED AR, ON THE OTHER HAND, HAD FILED WR ITTEN SUBMISSIONS, WHICH ARE IDENTICAL FOR BOTH THE ASST. YEARS. THE WRITTEN SUBMISSION OF THE ASSESSEE IS REPRODUCED BE LOW:- 1. AT THE OUTSET, WE WISH TO SUBMIT THAT THE ISSUE IN THIS APPEAL IS COVERED IN FAVOUR OF THE COMPANY BY THE DECISION OF THE JURISDICTIONAL BANGALORE TRIBUNAL I N THE CASE OF SOFTWARE & SILICON SYSTEMS INDIA PRIVATE LIM ITED (NOW AMALGAMATED WITH THE RESPONDENT) (APPEAL NO.695/BANG/2009) WHEREIN IT HAS BEEN HELD THAT THE CORRESPONDING EFFECT OF REDUCTION OF TELECOMMUNICAT ION EXPENSES FROM EXPORT TURNOVER BE GIVEN BY REDUCING I T FROM THE TOTAL TURNOVER AS WELL, IN COMPUTING THE DEDUCTION U/S 10A OF THE ACT. THE COPY OF THE SAID PAGE 4 OF 14 ITA NOS.1359 & 1360/BANG/2010 4 ORDER PASSED BY THE TRIBUNAL IS ENCLOSED HEREWITH AS ANNEXURE 1. RELIANCE IS ALSO PLACED ON THE DECISION OF HONBLE BANGALORE TRIBUNAL IN THE RESPONDENTS OWN CASE (AP PEAL NO.427 & 428/BANG/2009), WHEREIN IT WAS HELD THAT T HE CORRESPONDING EFFECT OF THE REDUCTION OF THE EXPENS ES INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER BE GIVEN BY REDUCING IT FROM THE TOTAL TURNOVER AS WELL , FOR UNIFORMITY BETWEEN THE TWO COMPONENTS WHILE COMPUTIN G THE DEDUCTION U/S 10A OF THE ACT. THE COPY OF THE O RDER IS ENCLOSED HEREWITH AS ANNEXURE 2. 2. FURTHER WE WISH TO SUBMIT AS UNDER - 2.1 AS PER SECTION 10A(4) OF THE ACT, FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 10A, THE PRO FITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUT ER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PRO FITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPOR TION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLE S OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TUR NOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING - EXPORT TURNOVER * PROFITS OF THE UNDERTAKING TOTAL TURNOVER THE COMPANY CONTENDS THAT PARITY SHOULD BE MAINTAINED WITH REGARD TO ITEMS OF INCLUSIONS AND EXCLUSIONS B ETWEEN NUMERATOR AND DENOMINATOR I.E. EXPORT TURNOVER AND TOTAL TURNOVER, IN THE FORMULA PRESCRIBED U/S 10A OF THE ACT. THE TERM TOTAL TURNOVER HAS NOT BEEN DEFINED IN SEC TION 10A OF THE ACT. HOWEVER, FOR THE PURPOSE OF DETERMINING THE DEDUCTION U/S 10A IN THE RATIO OF E XPORT TURNOVER TO TOTAL TURNOVER, BOTH THE SAID EXPRESSIO NS SHOULD BE READ ON THE SAME FOOTING AS THE TOTAL TUR NOVER REPRESENTS THE SUM OF EXPORT TURNOVER + DOMESTIC TURNOVER (NON-EXPORT). PAGE 5 OF 14 ITA NOS.1359 & 1360/BANG/2010 5 2.2 THE PURPOSE OF APPLYING THE RATIO IS TO ALLOCATE THE PROFITS OF THE BUSINESS BETWEEN EXPORT AND DOMESTIC TURNOVER. THEREFORE, IF A FACTOR IS NOT I NCLUDED IN THE NUMERATOR OF THE RATIO, THE SAID FACTOR CANN OT BE INCLUDED IN THE DENOMINATOR ALSO. INCLUSION OF A PARTICULAR FACTOR IN THE DENOMINATOR, I.E. TOTAL TU RNOVER ONLY (WHERE THE SAID FACTOR IS NOT INCLUDED IN THE NUMERATOR) WOULD GIVE RISE TO A DISTORTED ALLOCATIO N IN FAVOUR OF THE DENOMINATOR. THIS IS NEITHER THE INT ENT NOR THE PURPOSE OF THE LAW. AS THE DEDUCTION U/S 10A IS GRANTED ON THE PROPORTI ON WHICH THE EXPORT TURNOVER BEARS TO TOTAL TURNOVER O F THE UNDERTAKING, CORRESPONDING EFFECT OF REDUCTION OF VARIOUS COMPONENTS FROM EXPORT TURNOVER WOULD HAVE TO BE GIVEN TO THE TOTAL TURNOVER TO ACHIEVE UNIFORMIT Y BETWEEN THE EXPORT TURNOVER AND TOTAL TURNOVER. 2.3 WE WISH TO DRAW THE ATTENTION OF THE HONBLE MEMBER TO THE DEFINITION OF THE TERM TOTAL TURNOVER AS PROVIDED IN THE EXPLANATION TO SECTION 80HHE OF THE ACT (WHICH PROVIDED A DEDUCTION IN RESPECT O F EXPORT OF COMPUTER SOFTWARE). AS PER THE EXPLANATION TO SECTION 80HHE, TOTAL TURN OVER SHALL NOT INCLUDE ANY FREIGHT, TELECOMMUNICATION C HARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE COM PUTER SOFTWARE OUTSIDE INDIA; AND EXPENSES, IF ANY, INCURR ED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICE S OUTSIDE INDIA. 2.4 WE ALSO WISH TO DRAW THE ATTENTION OF THE HONBLE MEMBERS TO THE PROVISIONS OF SECTION 80HHC OF THE ACT, WHEREIN THE TERM TOTAL TURNOVER HAS BEEN DEFINED TO EXCLUDE FREIGHT OR INSURANCE ATTRIBUTABL E TO THE TRANSPORT OF THE GOODS OR MERCHANDISE OUTSIDE I NDIA. PAGE 6 OF 14 ITA NOS.1359 & 1360/BANG/2010 6 THE SAID DEFINITION WAS NOT REPRESENT ORIGINALLY IN THE SAID SECTION BUT WAS BROUGHT INTO THE SECTION BY THE FINANCE ACT (NO.2), 1991. THE MEMORANDUM EXPLAININ G THE PROVISIONS OF THE FINANCE NO.2) BILL, 1991 STAT ED THAT WHEREAS THE DEFINITION OF THE TERM EXPORT TURNOVE R EXCLUDES FREIGHT AND INSURANCE ATTRIBUTABLE TO TRAN SPORT, NO SUCH EXCLUSION HAS BEEN SPECIFIED IN RESPECT OF THE TERM TOTAL TURNOVER. AS A RESULT, IN C.I.F. TRAN SACTIONS, WHILE THE EXPORT TURNOVER IS TAKEN AT F.O.B. VALUE, THE TOTAL TURNOVER INCLUDES THE SALE PROCEEDS OF EXPORT S AT C.I.F. VALUE. WITH A VIEW TO REMOVING THIS ANOMALY, IT IS PROPOSED TO CLARIFY THAT TOTAL TURNOVER WILL ALSO NOT INCLUDE SUCH FREIGHT OR INSURANCE. THE HONBLE MEMBERS WOULD THEREFORE NOTE THAT THE LEGISLATURE ITSELF HAS ADMITTED THAT WHERE A SPECIF IC DEFINITION OF TOTAL TURNOVER IS NOT PROVIDED IN THE SECTION (FOR EXCLUDING THE SAID EXPENSES) AND A DEFINITION OF EXPORT TURNOVER EXISTS (WITH SUCH EXCLUSIONS), IT I S AN ANOMALY. THE HONBLE MEMBERS WOULD APPRECIATE THAT THE LAW IS TO BE INTERPRETED IN A MANNER THAT IT DOES N OT GIVE RISE TO ANOMALOUS RESULT. 2.5 FURTHER, WE WISH TO PLACE RELIANCE ON VARIOUS RECENT JUDICIAL PRONOUNCEMENTS ON THIS MATTER: 2.5.1 IN THE CASE OF CIT V GEM PLUS JEWELLERY INDIA LTD. (2010) 330 ITR 175 (BOM HC), THE HONBLE BOMBAY HIGH COURT ON THE ISSUE OF ADJUSTMENT OF FREI GHT AND INSURANCE EXPENSES FROM THE TOTAL TURNOVER WHIL E COMPUTING DEDUCTION U/S 10A OF THE ACT HAS LAID DOW N THE PRINCIPLE THAT SINCE THE EXPORT TURNOVER FORMS PART OF THE TOTAL TURNOVER, IF AN ITEM IS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE REDUCED FR OM THE TOTAL TURNOVER TO MAINTAIN PARITY BETWEEN NUMERA TOR AND DENOMINATOR. PAGE 7 OF 14 ITA NOS.1359 & 1360/BANG/2010 7 2.5.2 FURTHER, IN THE CASE OF INCOME-TAX OFFICER V M/S SAK SOFT LTD. (2009) 313 ITR 353 (CHENNAI SPE CIAL BENCH), THE ASSESSEE 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 EXCHANGE IN PROVIDING THE TECHNICAL SERVICE S OUTSIDE INDIA, FROM THE EXPORT TURNOVER WITHOUT CORRESPONDING REDUCTION FROM TOTAL TURNOVER, THEREB Y REDUCING THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 1 0B OF THE ACT. IN LIGHT OF THE ABOVE FACTS, THE SPECIAL BENCH 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 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. 2.5.3 AGAIN, IN THE CASE OF JAIPURIA SILK MILLS (P ) LTD. V ACIT (ITA NO.1112/BANG/2009, THE HONBLE BANGALORE TRIBUNAL HAD PLACED RELIANCE ON THE DECIS ION OF CHENNAI SPECIAL BENCH IN THE CASE OF SAK SOFT LTD. (SUPRA) AND HAD CONCLUDED THAT THE FREIGHT AND INSU RANCE EXPENSES ARE TO BE REDUCED BOTH FROM THE EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION U/S 10A OF THE ACT. PAGE 8 OF 14 ITA NOS.1359 & 1360/BANG/2010 8 2.5.4 WE ALSO RELY ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS WHEREIN SIMILAR VIEW HAS BEEN ADOPTE D:- DEPUTY COMMISSIONER OF INCOME-TAX V M/S SUBEX LTD. [2011 TIOL 118 (BANG ITAT)] M/S CEPHA IMAGING (P) LTD. V INCOME TAX OFFICER [2001 TIOL 140 (BANG ITAT)] ATOS ORIGIN INDIA PRIVATE LIMITED V ASSESSING OFFICER [2011 TIOL 178 (BANG ITAT)] TATA ELXSI LIMITED [2007) 115 TTJ 423 (BANG ITAT)] M/S I GATE GLOBAL SOLUTIONS LIMITED V ACIT [(2007) 112 TTJ 1002 (BANG ITAT)] ITO V D E BLOCK INDIA SOFTWARE (P) LTD. [ITA NOS.983 & 984/HYD/2006] DCIT V BINARY SEMANTICS LTD. [(2007) 109 TTJ 556 (DEL.)] ADITI TECHNOLOGIES PRIVATE LIMITED V ITO (ITA NO.425 AND 426/BANG/2009) INCOME-TAX OFFICER V MOTOROLA INDIA (P) LTD. (ITA NO.645/BANG/2008) DCIT V DAIMLER CHRYSLER RESEARCH & TRAINING INDIA (P) LTD. (ITA NO.1179/BANG/2008) 2.6 IN THE INSTANT CASE, THE ENTIRE TURNOVER OF STP UNITS CONSISTS OF EXPORT OF COMPUTER SOFTWARE O NLY. THEREFORE, THE ENTIRE PROFITS OF THE COMPANY ARE SUBJECT OF DEDUCTION U/S 10A OF THE ACT. IF EXPORT TURNOVER AND TOTAL TURNOVER ARE TAKEN UP ON DIFFERE NT BASIS (BY NOT EXCLUDING THE TELECOMMUNICATION EXPENS ES FROM THE TOTAL TURNOVER) THEN A PORTION OF THE PROF ITS OF STP UNITS WOULD BECOME PROFITS ARISING FROM DOMESTI C TURNOVER, WHICH THE COMPANY DOES NOT FACTUALLY HAVE. THE HONBLE MEMBERS WOULD APPRECIATE THAT IT IS NOT THE INTENTION OR PURPOSE OF LAW TO BRING THE TAX PROFIT S ARISING FROM 100% EXPORT OF COMPUTER SOFTWARE BY APPLYING UNEQUAL BASIS IN EXPORT TURNOVER AND TOTAL TURNOVER. IT IS HUMBLY SUBMITTED THAT WHERE THE ENT IRE PAGE 9 OF 14 ITA NOS.1359 & 1360/BANG/2010 9 TURNOVER OF THE STP UNITS CONSISTS OF EXPORT, THE ALLOCATION, EFFECTIVELY, IS NOT REQUIRED. IN ABSENC E OF A DOMESTIC TURNOVER, NO PROFIT CAN BE ALLOCATED TO SU CH NON-EXISTENT DOMESTIC TURNOVER. 2.7 THEREFORE, WE REQUEST THE HONBLE MEMBERS TO GIVE THE CORRESPONDING EFFECT OF REDUCTION OF TELECOMMUNICATION EXPENSES FROM THE EXPORT TURNOVER BY REDUCING IT FROM THE TOTAL TURNOVER AS WELL, FOR UNIFORMITY BETWEEN THE TWO COMPONENTS WHILE COMPUTIN G THE DEDUCTION U/S 10A OF THE ACT. 2.8 FURTHER, THE APPELLANT HAS RELIED ON THE RULING OF THE HONBLE CHENNAI TRIBUNAL IN THE CASE OF CALIFORNIA SOFTWARE CO. LTD. V ACIT [(2008) (118 TT J 842)]. IN THE SAID DECISION, THE HONBLE CHENNAI T RIBUNAL RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V K RAVINDRANATHAN NAIR (295 ITR 22 8) AND HELD THAT WHAT IS DEDUCTED FROM EXPORT TURNOVER , THE NUMERATOR IN THE FORMULA NEED NOT NECESSARILY BE DEDUCTED FROM THE TOTAL TURNOVER, THE DENOMINATOR I N FORMULA. IN THIS REGARD, WE WISH TO SUBMIT THAT THE ABOVE MENTIONED DECISION OF THE CHENNAI TRIBUNAL HAS BEEN OVERRULED BY THE SPECIAL BENCH OF THE CHENNAI TRIBUN AL IN THE CASE OF SAK SOFT LTD. (SUPRA). THE RELEVANT EX TRACT FROM THE DECISION OF SAK SOFT IS MENTIONED HEREIN BELOW:- WE HAVE GONE THROUGH THE ORDER ESPECIALLY PARAGRAPHS 22.3 AND 23. IN PARA 22.3 THE TRIBUNAL HAS OBSERVED THAT THE EFFECT OF THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF RAVINDRANATHAN NAIR (SUPRA) IS THAT WHAT IS DEDUCTED FROM THE EXPORT TURNOVER (THE NUMERATOR IN THE FORMULA) NEED NOT PAGE 10 OF 14 ITA NOS.1359 & 1360/BANG/2010 10 NECESSARILY BE DEDUCTED FROM THE TOTAL TURNOVER (THE DENOMINATOR IN THE FORMULA). IT APPEARS TO US, WITH RESPECT, THAT THIS MAY NOT BE AN ACCURATE DESCRIPTION OF THE CONTROVERSY BEFORE THE SUPREME COURT BECAUSE IN NAIRS CASE (SUPRA) THE SUPREME COURT WAS CONCERNED WITH THE PROFITS OF THE BUSINESS AND THE TOTAL TURNOVER AND THE ARGUMENT OF THE ASSESSEE WAS THAT THE PROCESSING CHARGES, WHICH WAS INCLUDIBLE IN THE PROFITS OF THE BUSINESS, SHOULD BE EXCLUDED FROM THE TOTAL TURNOVER. THE RELATIONSHIP BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR IN THE FORMULA IN SECTION 80HHC WAS NOT THE SUBJECT MATTER OF DECISION BY THE SUPREME COURT. ACCORDINGLY, IT IS HUMBLY SUBMITTED THAT THE RATIO LA ID DOWN BY THE CHENNAI TRIBUNAL IN THE CASE OF CALIFORN IA SOFTWARE (SUPRA) CANNOT BE APPLIED IN THE PRESENT C ASE. 3. IN VIEW OF THE ABOVE, THE RESPONDENT HUMBLY PRAYS THAT THE ORDER OF CIT(A) DIRECTING THE AO TO EXCLUDE THE DATA-LINK CHARGES OF RS.5,44,13,663 FRO M BOTH EXPORT TURNOVER AND TOTAL TURNOVER BE UPHELD A ND THE APPEAL FILED BY THE APPELLANT BE QUASHED. 10. WE HAVE HEARD BOTH THE PARTIES 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 PAGE 11 OF 14 ITA NOS.1359 & 1360/BANG/2010 11 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 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 PAGE 12 OF 14 ITA NOS.1359 & 1360/BANG/2010 12 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 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 PAGE 13 OF 14 ITA NOS.1359 & 1360/BANG/2010 13 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 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. PAGE 14 OF 14 ITA NOS.1359 & 1360/BANG/2010 14 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 APPEALS FILED BY THE REVENUE ARE DISMISSED. THE ORDER PRONOUNCED ON WEDNESDAY, THE 17 TH DAY OF AUGUST, 2011 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT 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/ BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.