ITO, New Delhi V. Ms Technotree Convergence Ltd., Gurgaon

ITA 2581/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86532 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 12-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SIDHU
• Assessee Lawyers: SAUBHAGYA AGARWAL
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : H : NEW DELHI BEFORE SH. R.S. SYAL , AM & SH . A.T. VARKEY , JM ITA NO. 2581 /DEL /20 13 ASSESSMENT YEAR: 2009 - 10 INCOME TAX OFFICER, VS. M/S TECHNOTREE CONVERGENCE WARD 16(2), NEW DELHI LTD., 16 TH FLOOR DLF BUILDING NO. 5, TOWER - A, DLF CYBER CITY, PHASE - III, GURGAON - 122002 ( PAN: AAACL7345L ) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. P.K. SIDHU, CIT, DR RESPONDEN T BY: SH. SAUBHAGYA AGARWAL, ADV. O RDER PER SHRI R.S. SYAL, A M : 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED CIT(A) ON 10.12.2012 IN RELATION TO THE ASSESSMENT YEAR 2009 - 10. 2. THE ONLY GRIEVANCE RAISED IN THIS APPEAL IS AGAINST THE DIRECTION OF THE LEARNED CIT(A) TO EXCLUDE THE EXPENSES INCURRED IN FOREIGN CURRENCY OUTSIDE INDIA FROM TOTAL TURNOVER OF THE ASSESSEE FOR THE PURPOSES OF CALCULATING DEDUCTION UNDER SECTION 10A OF THE INCOME - TAX ACT, 1961 (HEREINAFTER ALSO CALLED AS THE ACT ) . PAGE 2 OF 8 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF DEVELOPING SOFTWARE PRODUCTS AND MAKING EXPORT SALES AS WELL AS DOME STIC SALES. IT ALSO RENDERS SOFTWARE SERVICES TO ITS CLIENTS. DEDUCTION UNDER SECTION 10A OF THE ACT WAS CLAIMED AT RS. 27.89 CRORE ON THE EXPORT TURNOVER OF RS. 100.48 CRORE. THE ASSESSING OFFICER, WHILE FINALIZING THE ASSESSMENT UNDER S ECTION 143(3) OF T HE ACT, REDUCED, INTER ALIA, EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE AMOUNT OF EXPORT TURNOVER AND RE - WORKED OUT THE BENEFIT OF DEDUCTION UNDER S ECTION 10A OF THE ACT AFRESH AT RS. 17.28 CRORE. T HE LEARNED CIT(A) UPHELD THE VIEW TAKEN BY THE ASSE SSING OFFICER IN EXCLUDING THE AMOUNT OF EXPENSES INCURRED OUTSIDE INDIA FROM THE AMOUNT OF EXPORT TURNOVER . HOWEVER, RELYING ON CIT VS. GENPACT INDIA (2011) 203 TAXMAN 632 (DEL.) ; CIT VS. M/S GEM PLUS JE WELLERY INDIA LTD. (2011) 330 ITR 175 (BOM.) ; AND CIT VS. TATA ELXSI LTD. (2012) 349 ITR 98 (KAR.) , THE LEARNED CIT(A) CAME TO HOLD THAT SUCH AMOUNT OF EXPENSES SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER . THE REVENUE IS AGGRIEVED AGAINST THE DIRECTION OF THE LEARNED CIT(A) FOR REDUCING THE AMOUNT O F QUALIFYING EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE AMOUNT OF TOTAL TURNOVER AS WELL. PAGE 3 OF 8 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. SECTION 10A OF THE ACT IS A SPECIAL PROVISION I N RESPECT OF NEWLY ESTABLISHED U NDERTAKINGS IN FREE TRADE ZONE. SUB - SECTION ( 1 ) OF THIS S ECTION PROVIDES THAT SUBJECT TO THE PROVISIONS OF THE S ECTION, A DEDUCTION OF SUCH PROFIT AND GAINS AS ARE DERIVED BY AN U NDERTAKING FROM THE EXPORT OF ARTICLES ETC., SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE U NDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS ETC. SUB - SECTION ( 4 ) PROVIDES THAT THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS ETC. SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE U NDERTAKING THE SAME PROPORTION AS THE EXPORT TURNOVER IS IN RESPECT OF SUCH ARTICLES OR THIN GS ETC. BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE U NDERTAKING. THUS, IT IS APPARENT ON A CONJOINT READING OF S UB - SECTIONS ( 1 ) AND ( 4 ) OF S ECTION 10A OF THE ACT THAT THE PROFITS OF THE BUSINESS OF THE U NDERTAKING ARE ELIGIBLE FOR THE BENEFIT OF DEDUCTION UNDER S ECTION 10A OF THE ACT IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER . 5. THE TERM EXPORT TURNOVER HAS BEEN DEFINED IN EXPLANATION 2(IV) AT THE END OF THE S ECTION , AS UNDER : - EXPLANATION 2(IV) FOR THE PURPOSES OF THIS SECTION, - PAGE 4 OF 8 (IV) EXPORT TURNOVER MEANS THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE I N ACCORDANCE W ITH SUB - SECTION (3 ), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELI VERY 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. (EMPHASIS SUPPLIED BY US) 6. A BARE PERUSAL OF THE EXPRESSION EXPORT TURNOVER AS USED IN S ECTION 10A OF THE ACT MANIFESTS THAT IT SHALL MEAN THE CONSIDERATION IN RESPECT OF EXPORT OF THE ELIGIBLE ARTICLES BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS ETC. INCURRED OU TSIDE INDIA . ON A CIRCUMSPECTION OF CONNOTATION OF THE EXPRESSION EXPO RT TURNOVER , IT BECOMES EVIDENT THAT THE SPECIFIED EXPENSES INCURRED OUTSIDE INDIA ARE LIABLE TO BE EX CLUDED FROM THE AMOUNT OF EXPORT TURNOVER , SO AS TO DETERMINE THE AMOUNT OF EXP ORT TURNOVER FOR THE PURPOSES OF COMPUTING THE AMOUNT OF DEDUCTION U/S 10A OF THE ACT. TO THIS EXTENT, WE HOLD THAT THE LEARNED CIT(A) WAS JUSTIFIED IN UPHOLDING THE ASSESSING OFFICER S OPINION IN EXCLUDING THESE EXPENSES FROM THE AMOUNT OF EXPORT TURNO VER . 7. THE N EXT QUESTION WHICH IS RELEVANT FOR THE PURPOSE AND WHICH FORMS THE BEDROCK OF THE REVENUE S APPEAL IS WHETHER SUCH EXPENSES PAGE 5 OF 8 INCURRED OUTSIDE INDIA REDUCED FOR DETERMINING THE AMOUNT OF EXPORT TURNOVER SHOULD ALSO BE EXCLUDED F O R DETERMINING THE AMOUNT OF TOTAL TURNOVER . UNLIKE THE DEFINITION OF EXPORT TURNOVER GIVEN IN EXPLANATION 2(IV) OF S ECTION 10A OF THE ACT, WE FIND THAT THE LEGISLATURE HAS NOT PROVIDED ANY DEFINITION OF THE EXPRESSION TOTAL TURNOVER . IN COMMON PARLANCE, THE AMOUNT OF TOTAL TURNOVER IS EQUAL TO THE AMOUNT OF EXPORT TURNOVER AND DOMESTIC TURNOVER . ONCE IT IS HELD THAT THE AMOUNT OF SUCH EXPENSES INCURRED BY THE ASSESSEE OUTSIDE INDIA ARE LIABLE TO BE REDUCED FOR ASCERTAINING THE AMOUNT OF EXPORT TURNOVER , THE NATURAL COROLLARY WHICH , ERGO, FOLLOWS IS THAT THE FINALLY DETERMINED AMOUNT OF EXPORT TURNOVER SHOULD BE INCLUDED IN THE TOTAL TURNOVER , MEANING THEREBY THAT SUCH EXPENSES SHOULD ALSO BE REDUCED FROM THE AMBIT OF TO TAL TURNOVER . IF WE ACCEPT THE REVENUE S STAND IN EXCLUDING SUCH EXPENSES ONLY FROM EXPORT TURNOVER AND NOT FROM TOTAL T URNOVER , THE DENOMINATOR IN THE FORMULA ( P ROFITS OF THE BUSINESS * EXPORT TUR N OVER / TOTAL TURNOVER) FOR CALCULATION DEDUCTION UNDER S ECTION 10A OF THE ACT WOULD THEN EMBRACE A DIFFERENT FIGURE OF EXPORT TURNOVER FROM THE ONE INCLUDED IN THE TOTAL TURNOVER . SINCE THE AMOUNT OF TOTAL TURNOVER IS A SUM TOTAL OF BOTH THE EXPORT AND DOMESTIC TURNOVER, IT CANNOT BE ACCEPTED THAT THE SCOPE OF THE EXPRESSION PAGE 6 OF 8 EXPORT TURNOVER SHOULD BE DIFFERENT IN THE NUMERATOR FROM THAT IN THE DENOMINATOR IMPLIEDLY INCLUDED IN THE EXPRESSION TOTAL TURNOVER . 8. THE HON BLE J URISDICTIONAL HIGH COURT IN THE CASE OF GENPAC T INDIA (SUPRA) , HAS HELD THAT T HE QUALIFYING EXPENSES INCURRED OUTSIDE INDIA SHOULD BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER . SIMILAR VIEW HAS BEEN EXPR ESSED BY THE HON BLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA) . THE HON BLE KARNATAKA HIGH COURT IN TATA ELXSI LTD., (SUPRA) HA S ALSO LAID DOWN THE SAME PROPOSITION FOR EXCLUDING THE AMOUNT OF SUCH EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER . 9. THE LEARNED DR RELIED ON THE JUDGMENT S OF THE HON BLE SUPREME COURT IN CIT VS. K . RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC) AND CIT VS. PUNJAB STAINLESS STEEL INDUSTRIES, (2014) 364 ITR 144 (SC) TO BRING HOME HER POINT THAT THE AMOUNT OF SUCH EXPENSES INCURRED OUTSIDE INDIA SHOULD BE EXCLUDED ONLY FROM THE AMOUNT OF EXPORT TURNOVER WITHOUT SIMULTANEOUSLY DEDUCTING FROM THE AMOUNT OF TOTAL TURNOVER . 10. WE ARE UNABLE TO ACCEPT THE CONTENTION PUT FORTH BY THE LEARNED DR BECAUSE BOTH THESE JUDGMENTS DO NOT SUPPORT HER VIEW POINT. I N THE CASE OF K . RAVINDRANATHAN NAIR (SUPRA) , THE HON BLE SUPREME COURT HAS PAGE 7 OF 8 HELD THAT 90% OF PROCESSING CHARGES , BEING AN INDEPENDENT INCOME, SHOULD BE REDUCED FOR DETERMINING THE BUSINESS PROFITS AND THE SAME SHOULD BE INCLUDED IN THE TOTAL TURNOVER IN THE FORMULA GIVEN IN S ECTION 80HHC(3) OF THE ACT . IT CAN BEEN SEEN FROM THE FACTS AND THE DECISION OF THAT CASE THAT THE CONTROVERSY INVOLVED THEREIN WAS QUITE DIFFERENT INASMUCH AS THE QUESTION THERE WAS THE TREATMENT TO BE GIVEN OF AN ITEM OF INCOME , IN THE NAME OF PROCESSING CHARGES , EARNED IN INDIA . ON THE CONTRARY, WE ARE INSTANTLY CONCERNED WITH THE AMOUNT OF EXPENS ES INCURRED OUTSIDE INDIA . 11. THE OTHER JUDGMENT OF THE HON BLE SUPRME COURT IN THE CASE OF PUNJAB STAINLESS STEEL INDUSTRIES (SUPRA) SIMPLY LAYS DOWN THAT THE AMOUNT OF SALE OF SCRAP IS NOT INCLUD I BLE IN THE TOTAL TURNOVER . HERE AGAIN, WE FIND THAT THIS JUDGMENT DOES NOT IN ANY MANNER ADVANCE THE CASE OF THE REVENUE . WHEREAS, I T DEALS WITH THE TREATMENT OF AN ITEM OF DOMESTIC INCOME IN THE CONTEXT OF DEDUCTION UNDER SECTION 80HHC OF THE ACT, WE ARE CONCERNED WITH THE TREATMENT OF SPECIFIC EXPENSES INCURRED AND THAT , TOO , OUTSIDE INDIA. 12. THUS, IT IS VIVID THAT BOTH THE ABOVE REFERRED JUDGMENTS ARE IN ALTOGETHER DIFFERENT CONTEXTS. THESE DEAL WITH THE TREATMENT TO BE GIVEN TO INCOME EARNED FROM THE DOMESTIC MARKET IN THE CONTEXT OF SECTION 80HHC . PAGE 8 OF 8 ON THE OTHER, WE ARE DEALING WITH THE SPECIFIC EXPENSES INCURRED OUTSIDE INDIA IN THE CONTEXT OF SECTION 10A . AS AGAINST THESE JUDGMENTS FROM THE HON BLE SUMMIT COURT, WE FIND THAT THE ABOVE DISCUSSED THREE JUDGMENTS INCLUDING THAT OF THE HON BLE J URISDICTIONAL HIGH COURT IN GENPACT INDIA (SUPRA) ARE SQUARELY ON THE POINT AND IN THE CONTEXT OF THE SAME SECTION . N O DIRECT CONTRARY JUDGMENT OF ANY OTHER HON BLE HIGH COURT HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED DR. AS SUCH, WE COUNTENANCE THE V IEW TAKEN BY THE LEARNED CIT(A) IN DIRECTING THE EXCLUSION OF SUCH EXPENSES INCURRED OUTSIDE INDIA FROM THE AMBIT OF TOTAL TURNOVER AS WELL . 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 16 TH JANUARY, 2015. SD/ - SD/ - ( A.T. VARKEY ) ( R.S. SYAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE D: 16 TH JANUARY, 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI