Dy. CIT, Bangalore V. M/s. First India Corporation, Bangalore

ITA 1442/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51277 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 15-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIII
• Assessee Lawyers: SAI KIRAN KAMATH
• Section: 143(3); 10B; 10

Judgement Text

PAGE 1 OF 7 ITA NO.1442/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N K SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, J.M ITA NO.1442/BANG/2010 (ASSESSMENT YEAR 2005-06) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(3), BANGALORE. - APPELLANT VS M/S FIRST INDIA CORPORATION, 5 TH FLOOR, BLOCK A, LAKEVIEW, BAGAMANE TECH. PARK, C V RAMAN NAGAR, BANGALORE-93. - RESPONDENT PA NO.AAACD7204L DATE OF HEARING : 29/09/2011 DATE OF PRONOUNCEMENT : 29/09/2011 APPELLANT BY : SHRI ETWA MUNDA, CIT-III RESPONDENT BY : SHRI SAI KIRAN KAMATH, C.A. ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE REVENUE IS DIRECTED AGAINST ORDER OF LEARNED CIT(A)-LTU, BANGALORE DATED 29/09/ 2010. THE ASST. YEAR CONCERNED IS 2005-06. 2. THE SOLITARY ISSUE THAT IS RAISED IS WHETHER THE CIT(A) IS JUSTIFIED IN DIRECTING THE AO TO REDUCE COMMUNICATI ON CHARGES BEING PAGE 2 OF 7 ITA NO.1442/BANG/2010 2 LEASE LINE CHARGES BOTH FROM THE EXPORT TURNOVER AN D THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE A CT. 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS DOING BUSINESS I N THE SOFTWARE DEVELOPMENT, SUPPORT AND RELATED IT ENABLE D SERVICES. FOR THE CONCERNED ASST. YEAR RETURN OF INCOME WAS FILED ON 30.10.2005 DECLARING A TOTAL INCOME OF RS.60.90.506/-. THE AS SESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 26.12.2008 AS SESSING THE TOTAL INCOME AT RS.5,74,09,841/-. THE AO WHILE COMPLETIN G THE SCRUTINY ASSESSMENT, RECOMPUTED THE DEDUCTION CLAIMED U/S 10 A BY EXCLUDING FROM THE EXPORT TURNOVER ONLY THE LEASE LINE CHARGES AMOUNTING TO RS.1,52,06,914/-. 4. AGGRIEVED BY THE RECOMPUTATION OF DEDUCTION U/S 10A OF THE ACT, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5. IT WAS SUBMITTED THAT THE LEASE LINE CHARGES, B EING COMMUNICATION CHARGES AMOUNTING TO RS.1,52,06,914/- , SHOULD NOT BE REDUCED FROM THE EXPORT TURNOVER. ALTERNATIVELY IT WAS CONTENDED THAT IF IT IS REDUCED FROM THE EXPORT TURNOVER, THE SAME OUGHT TO BE REDUCED ALSO FROM THE TOTAL TURNOVER WHILE COMPUTIN G DEDUCTION U/S 10A OF THE ACT. PAGE 3 OF 7 ITA NO.1442/BANG/2010 3 6. THE CIT(A) ACCEPTED THE ALTERNATIVE SUBMISSION OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE SPECIAL BENCH IN THE CASE OF ITO V M/S SAK SOFT LTD. 313 ITR (AT) 353 AND DIRECT ED THE AO TO EXCLUDE THE EXPENDITURE INCURRED ON LEASE LINE CHAR GES FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. 7. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. 8. THE LEARNED DR RELIED ON THE FINDINGS OF THE AO . 9. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THA T THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE JUDGEME NT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY I NDIA LTD. 330 ITR 175 AND THE ORDER OF THE SPECIAL BENCH IN THE C ASE 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 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 PAGE 4 OF 7 ITA NO.1442/BANG/2010 4 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 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 PAGE 5 OF 7 ITA NO.1442/BANG/2010 5 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 ABSURDIT Y 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 AS SESSEE 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, PAGE 6 OF 7 ITA NO.1442/BANG/2010 6 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. 10.3 IN THE LIGHT OF THE ABOVE REASONING, WE UPHOL D THE ORDER OF THE CIT(A) AND DIRECT THE AO TO EXCLUDE THE ABOV E MENTIONED PAGE 7 OF 7 ITA NO.1442/BANG/2010 7 EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS F ROM 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 THE 29 TH DAY OF SEPTEMBER, 2011 AT BANGALORE. SD/- SD/- (N K SAINI) (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/ BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.