DCIT, Bangalore V. M/s Technicolor India Pvt. Ltd., Bangalore

ITA 201/BANG/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8212 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 18-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: UMASHANKAR GAUTAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I T ( T P ) A NO. 201/BANG/2016 ASSESSMENT YEAR : 2011 - 12 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(1), BANGALORE. VS. M/S. TECHNICOLOR INDIA PVT. LTD. LEVEL-9, NAVIGATOR ITPL, WHITEFIELD ROAD, BANGALORE 560060. PAN: AAECP 1029R APP EL L ANT RESPONDENT APP ELL ANT BY : SHRI C.H. SUNDAR RAO, CIT(DR - I), ITAT, BANGALORE. R E SPONDENT BY : SHRI UMASHANKAR GAUTAM, ADVOCATE DATE OF HEARING : 03.07 . 201 9 DATE OF PRONOUNCEMENT : 17 . 0 7 . 201 9 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE REVENUE AGAINST THE FINA L ORDER OF ASSESSMENT DATED 31.12.2015 PASSED BY THE DCIT, CIR CLE-7(1)(1), BANGALORE, U/S.144C READ WITH SEC.143(3) OF THE INC OME TAX ACT, 1961 (ACT). 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS WITH REGARD TO COMPUTATION OF EXPORT TURNOVER AND TOTAL TURNOVER WHILE COMPUTATION DEDUCTION U/S.10A OF THE ACT. THE GRIE VANCE OF THE REVENUE IN THIS REGARD IS PROJECTED IN THE FOLLOWING GROUNDS O F APPEAL RAISED BY THE REVENUE:- IT(TP)A NO.201/BANG/2016 PAGE 2 OF 6 1. THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL ARE OPPOSED TO LAW AND FACTS OF THE CASE. 2. 'WHETHER THE DRP WAS CORRECT IN REVERSING THE FI NDING OF THE ASSESSING OFFICER THAT THE EXPENDITURE INCURRED IN FOREIGN CURRENCY, TOWARDS TELECOM AND TRAVELLING EXPENSES, TO BE DEDUCTED FROM EXPORT TURNOVER FOR THE PURPOSE OF CO MPUTATION OF DEDUCTION US.10A OF THE ACT' 3. 'WHETHER THE DRP IS CORRECT IN TAKING INTO CONSI DERATION EXPLANATION 2(IV) OF SECTION 10A OF THE ACT WHICH C LEARLY CONTEMPLATED THAT SUCH EXPENDITURE WAS LIABLE TO BE DEDUCTED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTI NG DEDUCTION U/S.10A OF THE ACT?' 4. 'WHETHER THE DRP IS CORRECT IN LAW IN HOLDING TH AT THE DEDUCTION U/S.10A SHOULD BE COMPUTED IN THE ABOVE M ANNER FOLLOWING THE JUDGMENTS OF JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS. TATA ELXSI WHICH HAS NOT BECOME FINAL SI NCE THE SAME HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND SLPS AR E PENDING BEFORE THE HON'BLE APEX COURT.' 5. FOR THESE AND OTHER GROUNDS THAT MAY BE ARGUED A T THE TIME OF HEARING, IT IS PRAYED THAT THE DIRECTIONS OF DIS PUTE RESOLUTION PANEL IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED. 6. THE APPELLANT CRAVES LEAVES TO ADD, ALTER, AMEND AND /OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 3. THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S .10A OF THE ACT ON THE PROFITS DERIVED FROM EXPORT OF COMPUTER SOFTWAR E U/S.10A OF THE ACT. SEC.10A(4) PROVIDES THE METHODOLOGY OF COMPUTATION OF DEDUCTION U/S.10A OF THE ACT AND IT LAYS DOWN THAT THE PROFITS DERIVE D FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHI CH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPOR TION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR C OMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING. EXPORT TURNOVER HAS BEEN DEFINED UNDER EXPLANATION 2 (IV) TO SEC.10A AS:- IT(TP)A NO.201/BANG/2016 PAGE 3 OF 6 'EXPORT TURNOVER' MEANS THE CONSIDERATION IN RESPEC T OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER S OFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB-SECTION (3) , BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSUR ANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THI NGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRE D IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSID E INDIA. 4. WHILE COMPUTING THE DEDUCTION U/S.10A OF THE ACT , THE AO NOTICED THAT DURING THE RELEVANT ASSESSMENT YEAR, THE ASSES SEE HAD INCURRED TRAVELLING AND CONVEYANCE EXPENSE TO THE EXTENT OF RS.1,12,75139/-, TELECOMMUNICATION EXPENSES TO THE EXTENT OF RS.39,5 4,734 AND A SUM OF RS.51,90,023/- IN ALL A SUM OF RS.2,04,19,896/- IN FOREIGN CURRENCY. THE AO NOTICED THAT THE AFORESAID EXPENDITURE WAS NOT REDU CED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION OF RS.15,48,05,0 79/- UNDER SECTION 10A OF THE ACT. THE AO THEREFORE EXCLUDED THE AFORESAI D SUM FROM THE EXPORT TURNOVER WITHOUT EXCLUDING THEM FROM THE TOTAL TURN OVER. AS A RESULT, THE DEDUCTION CLAIMED U/S.10A OF THE ACT BY THE ASSESSE E WAS ALLOWED AT A LESSER SUM THAN WHAT WAS CLAIMED BY THE ASSESSEE I. E., AT A SUM OF RS.15,26,65,714/-. IT WAS THE PLEA OF THE ASSESS EE IN THE APPEAL AGAINST THE DRAFT ASSESSMENT ORDER BEFORE THE DISPUTE RESOL UTION PANEL (DRP) THAT AT ALL TIMES DURING THE RELEVANT PREVIOUS YEAR, IT WAS ENGAGED IN DEVELOPMENT OF COMPUTER SOFTWARE AND NOT IN RENDERI NG ANY TECHNICAL SERVICES. COMMUNICATION EXPENSES WERE INCURRED NOT FOR EXPORT OF COMPUTER SOFTWARE OUTSIDE INDIA AND THEREFORE THE E XCLUSION FROM EXPORT TURNOVER AS DONE BY THE AO WAS NOT CORRECT. WITHOU T PREJUDICE TO ITS CONTENTION THAT THE AFORESAID SUMS SHOULD NOT BE EX CLUDED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S.10A OF THE A CT, THE ASSESSEE HAS ALSO MADE AN ALTERNATE PRAYER THAT EXPENSES THAT AR E REDUCED FROM THE EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOT AL TURNOVER AND IN THIS REGARD HAS PLACED RELIANCE ON THE DECISION OF THE H ONBLE KARNATAKA HIGH IT(TP)A NO.201/BANG/2016 PAGE 4 OF 6 COURT IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) WHEREIN IT WAS HELD THAT WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT EXPENSES THAT ARE REDUCED FROM THE EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER. THE CIT(A) ALLOWED THE ALTERNATIVE CLAIM OF THE ASSESSEE BY RELYING ON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF TATA ELXSI LTD.(SUPRA). 5. AGGRIEVED BY THE ORDER OF DRP WHICH WAS INCORPOR ATED IN THE ORDER IMPUGNED IN THIS APPEAL, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SECTION 10A OF THE ACT SEEKS TO ALLOW DEDUCTION IN RESPECT OF THE PROFIT DERIVED BY AN ASSESSEE FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE ETC. IN ACCORDANCE WITH CONDITIONS PROVIDED THEREIN. FOR THE PURPOSE OF WORKING OUT THE PROFIT FROM EXPORT, A FORMULA HAS BEEN PROV IDED WHEREBY IF THE BUSINESS IS OF A COMPOSITE NATURE, MEANING THEREBY, IT INCLUDES BOTH EXPORTS AS WELL AS DOMESTIC SALES, THE PROPORTIONAT E PROFIT RELATABLE TO THE EXPORT BUSINESS IS TO BE CALCULATED BY APPORTIONING THE PROFITS OF THE BUSINESS IN THE SAME PROPORTION AS THE EXPORT TURN OVER, AS DEFINED UNDER CLAUSE (IV) OF THE EXPLANATION 2 TO SECTION 10A OF THE ACT, BEARS TO THE TOTAL TURNOVER. EXPORT TURNOVER AS DEFINED IN EXPLANA TION 2 TO SECTION 10A MEANS THE CONSIDERATION IN CONVERTIBLE FOREIGN EXCH ANGE EXCLUDING FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA AND EXPENSES INCURR ED BY AN ASSESSEE IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA. THE TERM TOTAL TURNOVER HAS, HOWEVER, NOT BEEN DEFINED FOR THE PURPOSES OF SECTION 10A OF THE ACT. IN VIEW OF THE AFORESAID DEFINITION, WHAT NEEDS TO BE EXCLUDED FROM THE EXPORT TURNOVER ARE, INTER-ALIA, THE TELECOMMUNICATION CHARGES ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA. IT WAS SUBMITTED THAT IN THE PRESENT CASE, T HE SUMS EXCLUDED BY THE AO WHILE COMPUTING EXPORT TURNOVER WERE NOT OF THE NATURE WHICH ARE IT(TP)A NO.201/BANG/2016 PAGE 5 OF 6 EXCLUDED BY THE DEFINITION OF EXPORT TURNOVER FOR T HE PURPOSE OF SEC.10A OF THE ACT. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. TAKIN G INTO CONSIDERATION THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN), WE ARE OF THE VIEW THAT CHARGES IN QUESTION INCURRE D IN FOREIGN CURRENCY SHOULD BE EXCLUDED BOTH FROM EXPORT TURNOVER AND TO TAL TURNOVER. WE ARE OF THE VIEW THAT AS OF TODAY, LAW DECLARED BY THE HON' BLE HIGH COURT OF KARNATAKA WHICH IS THE JURISDICTIONAL HIGH COURT IS BINDING ON US. MOREOVER, THE ORDER OF THE HONBLE KARNATAKA HIGH C OURT HAS BEEN UPHELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. HCL TECHNOLOGIES LTD. IN CIVIL APPEAL NO.8489-98490 OF 2013 & ORS. DATED 24.04.2018 . IN VIEW OF THE ABOVE, WE FIND NO MERITS IN THIS APPEAL BY T HE REVENUE AND THE SAME IS DISMISSED. 7. IN THE RESULT APPEAL BY THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF JULY, 2019. SD/- SD/- ( JASON P. BOAZ ) ( N.V . VASU DEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 17 TH JULY, 2019. / D ESAI S MURTHY / IT(TP)A NO.201/BANG/2016 PAGE 6 OF 6 COPY TO: 1. THE APP ELLANT 2. THE R ESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUA R D F ILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.