Exband(India)Pvt.Ltd., Hyderabad V. ACIT, Hyderabad

ITA 30/HYD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6301 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-12-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 05-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VASUNDHARA SINHA
• Assessee Lawyers: K C DEVADAS
• Keywords: Depreciation; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Advance ruling
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.30/HYD/2007 ASSESSMENT 2003-04 M/S EXABAND (INDIA) PVT. LTD.. HYDERABAD ( PAN AAA CE 9465 C) VS ACIT CIRCLE 2(2), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI K.C. DEVADAS RESPONDENT BY: SMT. VASUNDHARA SINHA, DR O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRE CTED AGAINST THE ORDER PASSED BY THE CIT(A) III, HYDERABAD DATED 17.10.20 06 AND PERTAINS TO ASSESSMENT YEARS 2003-04 2. THE FACTS RELATING TO FIRST GROUNDS ARE THAT T HE ASSESSEE HAS GOT SANCTIONED SUBSIDY OF RS.16,34,259 FROM GOVT. OF AN DHRA PRADESH VIDE GO DATED 13.5.2002 AND 50% OF THIS AMOUNT WAS RECEIVED AS FIRST INSTALLMENT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. T HE ASSESSING OFFICER HAS DEDUCTED THE CAPITAL INVESTMENT SUBSIDY FROM TH E BLOCK OF FIXED ASSETS AND GRANTED DEPRECIATION ON THE BALANCE AMOUNT BY A PPLYING EXPLANATION 10 OF SEC.43 AND ITS PROVISO AS PER WHICH ACTUAL CO ST OF THE ASSETS TO BE REDUCED PROPORTIONATELY BY THE AMOUNT OF SUBSIDY RE CEIPTS. ACCORDINGLY, ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 2 2 THE ASSESSING OFFICER HAS DEDUCTED THE ENTIRE AMOUN T OF SUBSIDY FROM THE ACTUAL COST OF FIXED ASSETS. 3. THE MAIN CONTENTION OF THE ASSESSEES COUNSEL IS THAT IMPUGNED AMOUNT OF SUBSIDY IS DIRECTLY OR INDIRECTL Y NOT RELATING TO THE COST MADE TOWARDS ACQUISITION OF BLOCK OF FIXED ASS ETS. THIS SUBSIDY WAS RECEIVED AFTER LONG TIME OF INVESTMENT MADE ON FIXE D ASSETS AND THE SAME HAS BEEN INVESTED TO ESTABLISH INDUSTRIES IN BACKWA RD AREAS AND HE SUBMITTED THAT THIS SUBSIDY IS NOT FOR THE SPECIFIC PURPOSE OF MEETING ANY PORTION OF COST OF ASSETS THOUGH QUANTIFIED AS A PE RCENTAGE OF SUCH COST AND THE SAME IS THEREFORE NOT DEDUCTIBLE FROM ACTU AL COST FOR THE PURPOSE OF DEPRECIATION. ACCORDING TO THE LEARNED COUNSEL, THE PROVISIONS OF EXPLANATION 10 TO SEC. 43(1) IS NOT APPLICABLE AND HE RELIED ON THE JUDGEMENT IN THE CASE OF HONBLE SUPREME COURT IN T HE CASE OF CIT VS. PJ CHEMICALS (210 ITR 830) AND JUDGEMENT OF HIMACHAL P RADESH HIGH COURT IN THE CASE OF CIT VS. HIMACHAL ENGINEERING COMPAN Y (P) LTD. (301 ITR 116) (HIMACHAL HC) FOR THE SAME PROPOSITION. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT THE SUBSIDY HAS TO BE REDUCED FROM THE ACTUAL COST OF F IXED ASSETS. SHE SUBMITTED THAT THE ASSESSING OFFICER HAS TO EXAMINE WHETHER THE ACTUAL COST HAS BEEN FULLY LAID DOWN BY THE ASSESSEE OR HA S BEEN MET BY SOMEONE ELSE IN WHOLE OR IN PART. IF SUPPOSE THE COST OF T HE FIXED ASSETS MET BY SOMEONE ELSE THAN THE ASSESSEE, THAT PART OF THE CO ST SHALL BE REDUCED FROM ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 3 3 THE ACTUAL COST OF FIXED ASSETS WHILE GRANTING DEPR ECIATION. SHE RELIED ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE C ASE OF SAHARANPUR ELECTRICITY SUPPLY CO. LTD. VS. CIT (194 ITR 294) ( SC). 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE, THE ASSESSEE HA S RECEIVED 50% OF THE SUBSIDY IN THE ASSESSMENT YEARS UNDER CONSIDERATION AND THE BALANCE 50% OF THE SUBSIDY HAS BEEN RECEIVED BY THE ASSESSEE IN THE SUBSEQUENT ASSESSMENT YEARS. THE SUBSIDY IS DIRECTLY BASED ON THE COST INCURRED BY THE ASSESSEE ON THE FIXED ASSETS. THERE IS NO DISP UTE ON THIS ISSUE. SINCE IT WAS GRANTED AS REIMBURSEMENT TO MEET A PART OF T HE COST OF FIXED ASSETS AS PROVIDED IN THE PROVISIONS OF SEC.43 EXPLANATION 10 THAT PORTION OF SUBSIDY HAS TO BE REDUCED FROM THE COST OF FIXED AS SETS WHILE GRANTING DEPRECIATION. HOWEVER, IN THE PRESENT CASE, THE AS SESSEE HAS ACTUALLY RECEIVED 50% OF SUBSIDY ONLY IN THE ASSESSMENT YEA R UNDER CONSIDERATION, HENCE, IN ALL FAIRNESS, WE DIRECT THE ASSESSING OF FICER TO REDUCE ONLY THE SUBSIDY TO THAT EXTENT OF ACTUAL RECEIPT BY THE ASS ESSEE IN THE ASSESSMENT YEARS UNDER CONSIDERATION. IN OUR OPINION THE JUDG EMENT RELIED BY THE ASSESSEES COUNSEL CANNOT BE APPLIED TO THE FACT OF THE PRESENT CASE SINCE SUBSIDY IS GRANTED AS REIMBURSEMENT TO MEET A PART OF COST OF CAPITAL INVESTMENT. ACCORDINGLY, THIS GROUND TAKEN BY THE A SSESSEE IS PARTLY ALLOWED . ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 4 4 6. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF EXPENDITURE INCURRED FOR PURCHASE OF SOFTWARE MODULES ON THE RE ASON THAT THERE WAS NO TDS AS REQUIRED U/S 195 OF THE INCOME TAX ACT, 196 1. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTE D THAT: I) AMOUNT PAID FOR PURCHASE OF SOFTWARE OF COMPANI ES SITUATED OUTSIDE INDIA WERE NOT IN THE NATURE OF ROYALTY OR FEES FOR TECHNICAL SERVICES AS THEY WERE PAYMENTS MADE FOR A CQUIRING SOFTWARE ENGINEERING MODULES. THEREFORE, PROVISION S OF SECTION 40(A) (IA) OF THE ACT WERE NOT APPLICABLE TO THIS C ASE. II) ALL THE COMPANIES INVOLVED ARE NON RESIDENT COMP ANIES WHICH HAVE NO PERMANENT ESTABLISHMENT IN INDIA, AND, THEREFORE , THEIR INCOME WAS NOT TAXABLE IN INDIA U/S 9. HENCE THE P ROVISIONS OF SECTION 40(A) (IA) ARE NOT APPLICABLE. III) AS PER THE CBDT CIRCULAR NO.786 DATED 7.2.2002, WHERE NON RESIDENT COMMISSION AGENT OPERATES OUTSIDE INDIA, N O PART OF HIS COMMISSION ARISES IN INDIA AND SUCH PAYMENT ALSO NO T TAXABLE IN INDIA. THOUGH THIS CLARIFICATION HAS BEEN GIVEN FO R SALES COMMISSION, IT IS EQUALLY APPLICABLE TO THE PAYMENT MADE TO A NON RESIDENT. 7. ACCORDING TO THE LEARNED AUTHORIZED REPRESENTA TIVE FOR THE ASSESSEE, THE PAYMENTS WERE NOT IN THE NATURE OF PA YMENTS FOR ROYALTY OR FEES FOR TECHNICAL SERVICES WHICH COULD BE SUBJECTE D TO TDS U/S 195 OF THE ACT READ WITH SEC. 9. HE DREW OUR ATTENTION TO SE CTION 9. HE SUBMITTED THAT THE ENTIRE EXPENDITURE IS INCURRED TOWARDS OUT RIGHT PURCHASE OF ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 5 5 SOFTWARE MODULES AND THE ASSESSEE HAS ACQUIRED ONLY RIGHT TO USE THE SOFTWARE. AS SUCH PROVISIONS OF SECTION 40(A)(I) ( A) ARE NOT APPLICABLE. HE RELIED ON THE FOLLOWING JUDGEMENTS: ITO VS. PRASAD PRODUCTIONS LTD. (125 ITD 263) (CHEN NAI) SB MOTOROLA INC. VS. DCIT (95 ITD 269) (DELHI SB) ITO VS. INTEL TECH INDIA (P) LTD. (32 SOT 227) CIT VS. PROMOD KUMAR GUPTA (320 ITR 409) (DELHI HC) CIT VS. RAJASTHAN RAJYA VIDYUT PRASARAN NIGAM LTD. & OTHERS (272 ITR 401) (RAJASTHAN HC) TRANSMISSION CORPORATION OF AP LTD. & OTHERS VS. C IT (239 ITR 587) (SC) CIT VS. BHARTI CELLULAR LTD. (319 ITR 139) (DELHI HC) SONATA SOFTWARE LTD. VS. ITO (6 SOT 700) (BANG.) HE FURTHER SUBMITTED THAT THE COMPANY TO WHOM THE P AYMENTS ARE MADE HAVE NO PERMANENT ESTABLISHMENT IN INDIA. IN THE AB SENCE OF THIS, PROVISIONS OF SECTION 195 ARE NOT APPLICABLE. 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL RE PRESENTATIVE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN DESIGNING AND DEVELOPING OF SPECIALIZED SOFTWARE FOR PROVIDING MULTIMEDIA SERVI CES OVER BROAD BAND NETWORKS, AND ITS CUSTOMERS IN USA ARE IN THE BUSI NESS OF CREATING VISUAL NET WORKS. THE ASSESSEE PROVIDES VARIETIES OF SERV ICES TO THE CUSTOMERS THROUGH THE USE OF PC AND INTERACTIVE TV APPLICATIO NS VIA INTERNET. SOME SERVICES ARE ALSO PROVIDED BY THE ASSESSEE OVER TEL EPHONE PSTN LINE, AND ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 6 6 THE ASSESSEE WAS DEVELOPING SOFTWARE PLAT FORMS FOR ITS CUSTOMERS WHICH ARE DESIGNED UNDER CLOSE SUPERVISION TO CUSTOMERS REQUIREMENTS. FOR THE PURPOSE OF ITS BUSINESS THE ASSESSEE ACQUIRED VARIO US SOFTWARE MODULES ETC. FROM COMPANIES IN SINGAPORE AND USA AND THESE MODULES WERE UPLOADED THROUGH INTERNET BY THE ASSESSEE AND INTEG RATED WITH ITS OWN SOFTWARE FOR UTILIZATION IN PROVIDING SERVICES TO I TS USA CUSTOMERS. IN MOST OF THE CASES, THE PAYMENTS HAVE BEEN MADE FOR OPERATING THE PRODUCT THROUGH INTERNET ON A NET WORK OPERATING CENTRE (NO C). ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE SOFTWARE M ODULES PURCHASED BY THE ASSESSEE DURING THE YEAR WERE IN THE NATURE OF SOFTWARE LICENSES WHICH WERE DEVELOPED FURTHER FOR PROVIDING SERVICES TO TH E CUSTOMERS, AND THEREFORE, THE PAYMENTS ARE ACTUALLY IN THE NATURE OF ROYALTY PAYMENT WHICH WOULD BE COVERED U/S 9(1)(VI) OF THE IT ACT. THE PAYMENTS ARE IN THE NATURE OF ROYALTY IN CASE OF PAYMENT TO M/S E LANCE BIG, SINGAPORE. THE MAJOR PAYMENT MADE TO M/S E-LANCE BIZ SINGAPORE WER E MADE DURING THE YEAR. REGARDING THE PAYMENTS MADE TO IC SOLUTIONS, SINGAPORE ARE FOR HSBC DEVELOPMENT FEES, AND THE SAME ARE IN THE NATU RE OF FEES FOR TECHNICAL SERVICES. OTHER PAYMENTS ARE BASICALLY I N THE NATURE OF PAYMENTS FOR VARIOUS TECHNICAL SERVICES LIKE PRODUC T TESTING, NET WORK MANAGEMENT, DEVELOPMENT OF DRIVERS AND SOFTWARE ENG INEERING. THUS, THESE PAYMENTS WOULD COME WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES COVERED BY SECTION 9(1)(VII) OF THE IT AC T. WHEN THE PAYMENTS ARE MADE TO NON RESIDENT AS ROYALTY OR FEES FOR TECHNIC AL SERVICES, THE ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 7 7 REQUIREMENT OF HAVING A PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION, AS MENTIONED IN SECTION 9(1)(I) OF THE IT ACT IS NO T APPLICABLE. HENCE THESE PAYMENTS WOULD COME WITHIN THE AMBIT OF TDS PROVISI ONS CONTAINED IN SECTION 195 OF THE IT ACT AND, THEREFORE, THE NON D EDUCTION OF TAX ON THESE PAYMENTS WOULD RESULT INTO DISALLOWANCE OF THE RELE VANT EXPENDITURE U/S 40(A) (IA) OF THE ACT. 9. SHE PLACED RELIANCE ON THE FOLLOWING JUDGEMENT : 1. BEFORE AUTHORITY FOR ADVANCE RULINGS VS. HEAD ST ART BUSINESS SOLUTIONS PRIVATE LIMITED (285 ITR 530) 2. RANGA RAO LOTTERY AGENCIES VS. CIT (287 ITR 540) (MAD.) 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE PAYMENTS MADE BY THE ASSESSEE. BY GOING THROUGH THE INVOICES PRODUCED B Y THE ASSESSEE, HESE PAYMENTS FALL WITHIN THE PURVIEW OF SEC.9(1)(VI) & 9(1) (VII). THERE IS NO NECESSITY OF HAVING ANY PERMANENT ESTABLISHMENT IN INDIA, IN VIEW OF EXPLANATION 9 WAS INSERTED TO SEC.9 BY THE FINANCE ACT 2010 WITH RETROSPECTIVE EFFECT I.E. 1.6.1976 WHICH READS AS F OLLOWS: EXPLANATION: : FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A N ON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUS E (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB SECTION (1) AND S HALL BE INCLUDED IN THE TOTAL INCOME OF THE NON RESIDENT, WHETHER OR NOT :- I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR II) THE NON RESIDENT HAS RENDERED SERVICES IN INDIA. ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 8 8 THROUGH A COMPACT DISC ACCOMPANIES BY A SOFTWARE LI CENCE JEY WHICH WAS DELIVERED ELECTRONICALLY THROUGH E-MAIL O VER THE INTERNET. THE SOFTWARE LICENCE KEY ALWAYS BORE THE NAME OF THE CLIENT TO WHOM THE SOFTWARE WAS TO BE DELIVERED. T HE APPLICANT APPLIED TO THE AUTHORITY FOR A RULING ON THE QUESTI ON WHETHER THE APPLICANT WAS BOUND TO WITHHOLD TAXES WHILE MAKING PAYMENT FOR THE SOFTWARE PURCHASED FROM THE NON RESIDENT CO MPANY. ON THE FACTS STATED THE AUTHORITY RULED: I) THAT THE QUESTION WHETHER THERE WAS NO ROYALTY INCO ME OR WHETHER THE NON RESIDENT COMPANY HAD NO PERMANENT ESTABLISHMENT IN INDIA WERE BEYOND THE SCOPE OF CONSIDERATION OF THE APPLICATION. II) THAT THE ONLY POINT TO BE CONSIDERED WAS WHETHER PA YMENT OF THE SUM TO THE NON RESIDENT COMPANY WAS CHARGEABLE TO TAX UNDER THE ACT. THE SUM MIGHT OR MIGHT NOT BE INCOM E OR THERE MIGHT BE INCOME HIDDEN OR OTHERWISE EMBEDDED THEREIN. U/S 195(1) THERE EXISTED A LEGAL OBLIGATI ON ON THE PAT OF THE APPLICANT (INDIA COMPANY) TO WITHHOLD TA XES WHILE MAKING PAYMENT FOR THE SOFTWARE PURCHASED FROM THE NON RESIDENT COMPANY. IN OUR OPINION, THE ASSESSEE IS LIABLE TO DEDUCT TD S U/S 195 OF THE IT ACT SINCE THE MODULUS ACQUIRED BY THE ASSESSEE WERE IN THE NATURE OF SOFTWARE LICENCES WHICH ARE FURTHER DEVELOPED FOR PROVIDING SERVICES TO THE CUSTOMERS, THEY ARE IN THE NATURE OF ROYALTY PAYMEN T FALLS UNDER THE PURVIEW OF SEC. 9(1) (VI) AND OTHER PAYMENTS MADE T O M/S IC SOLUTIONS FALLS UNDER THE PURVIEW OF U/S 9(1)(VII) WHICH IS IN THE NATURE OF TECHNICAL SERVICES AND AS ARGUED BY THE LEARNED DR. ACCORDI NGLY WE ARE OF THE OPINION THAT THE ASSESSING OFFICER IS JUSTIFIED IN INVOKING THE PROVISIONS OF SEC. 40 (A) (I) FOR DISALLOWING THE EXPENDITURE. WE HAVE ALSO GONE THROUGH THE VARIOUS JUDGEMENTS CITED BY THE ASSESSEES COUN SEL WHICH ARE DELIVERED ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 9 9 ON DIFFERENT CONTEXTS. IN THE PRESENT CASE, THE PA YMENTS WERE IN THE NATURE OF ROYAL OR FEES FOR TECHNICAL SERVICES AND THERE IS AN OBLIGATION ON THE ASSESSEE TO DEDUCT TDS AS PER PROVISIONS U/S 19 5(1) OF THE IT ACT. SINCE THERE IS FAILURE ON THE PART OF THE ASSESSEE, THE ASSESSEE IS COVERED BY THE PROVISIONS OF SECTION 40 (A) (I) AND THIS GR OUND TAKEN BY THE ASSESSEE IS DISMISSED. 12. THE NEXT GROUND IS WITH REGARD TO ASSESSING T HE INTEREST INCOME ON FIXED DEPOSITS UNDER THE HEAD INCOME FROM OTHER SOURCES. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. THIS ISSUE IS SQUARELY COVERE D BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 31 .7.2007 IN ITA NO.1102/HYD/2004 FOR THE ASSESSMENT YEAR 2001-02 WH EREIN THE TRIBUNAL FOLLOWED THE JUDGEMENT IN THE CASE OF TUTICORIN ALK ALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (227 ITR 172) AND THE JUD GEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT (262 ITR 278) (SC). RESPECTFULLY FOLLOWING THE ABOVE ORDER O F THIS TRIBUNAL, WE DISMISS THE GROUND TAKEN BY THE ASSESSEE ON THIS IS SUE. 15. THE NEXT GROUND IS WITH REGARD TO DELETION OF COMMUNICATION EXPENDITURE AND TECHNICAL CONSULTANCY CHARGES FROM THE EXPORT TURNOVER, AND RESTRICTED DEDUCTION U/S 10A DESPITE THE TURNOV ER OF THE COMPANY IS TOTALLY FROM EXPORT AND HAS IGNORED THE PROVISIONS OF SEC.10(4) OF THE IT ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 10 10 ACT. THIS ISSUE WAS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE VIDE THE ORDER OF THIS TRIBUNAL CITED SUPRA WHEREIN THE TRIB UNAL HELD AS FOLLOWS: 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WHILE CO MPUTING THE ELIGIBLE PROFIT FOR THE PURPOSE OF DEDUCTION U/S 10 A, TECHNICAL CONSULTANCY FEE, COMMUNICATION EXPENSES AND SELLING COMMISSION HAVE TO BE EXCLUDED FROM THE EXPORT TURNOVER. ONCE IT IS EXCLUDED FROM THE EXPORT TURNOVER, IT SHOULD ALSO BE EXCLUDE D FROM THE TOTAL TURNOVER. IN OTHER WORDS, THE EXCLUSION SHOULD BE BOTH FROM THE DENOMINATOR AND THE NUMERATOR. IF THE TECHNICAL CO NSULTANCY FEE, COMMUNICATION EXPENSES AND SELLING COMMISSION ARE N OT EXCLUDED FROM THE TOTAL TURNOVER, IT WILL INFLATE THE TOTAL TURNOVER ARTIFICIALLY AND REDUCE THE BENEFIT WHICH THE ASSESSEE IS ENTITL ED FOR. THE MADRAS HIGH COURT WHILE CONSIDERING IDENTICAL PROVISION OF LAW U/S 80HHC, IN THE CASE OF CIT VS. MADRAS MOTOR LTD. (2002) 257 IT R 60, HELD THAT THE ELIMINATION SHOULD BE FROM BOTH THE DENOMINATOR AND THE NUMERATOR. A SIMILAR VIEW WAS TAKEN BY THE CALCUTT A HIGH COURT IN THE CASE OF CIT VS. CHLORIDE INDIA LTD. (2002) 256 ITR 625. THIS TRIBUNAL, AFTER FOLLOWING THE JUDGEMENT OF THE CALC UTTA HIGH COURT, HAS HELD THAT THE EXCLUSION SHOULD BE BOTH FROM THE EXPORT TURNOVER AND THE TOTAL TURNOVER. IN VIEW OF THE ABOVE, WE D IRECT THE ASSESSING OFFICER TO EXCLUDE THE TECHNICAL CONSULTANCY FEE, C OM MUNICATION EXPENSES AND SELLING COMMISSION FROM THE TOTAL TURN OVER ALSO WHILE COMPUTING THE ELIGIBLE PROFIT. 16. RESPECTFULLY, FOLLOWING THE ABOVE RATIO LAID DOWN, WE ALLOW THE GROUND TAKEN BY THE ASSESSEE. 17. THE ASSESSEE RAISED AN ADDITIONAL GROUND WITH REGARD TO TREATMENT OF HARDWARE EXPORTS AT RS.67.83 LAKHS TO BE TREATED AS PART OF EXPORT TURNOVER FOR THE PURPOSE COMPUTATION OF DEDU CTION U/S 10A OF THE ACT, 1961. SINCE THE CIT(A) HAS HELD IN ITS ORDER AT PARA 7 THAT THE PROFIT OF EXPORT OF HARDWARE AMOUNTING TO RS.3,72,335/- FORMS PART OF THE ELIGIBLE PROFITS, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE TURNOVER AT RS.67.83 LAKHS GIVING YIELD TO THE AFORESAID PROFITS ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 11 11 FORMS PART OF EXPORT TURN OVER FOR THE PURPOSES OF DEDUCTION U/S 10A OF THE ACT. CONSEQUENTLY, THE TURNOVER HAS TO BE TREATED AS EXPORT TURNOVER. HE RELIED ON THE JUDGEMENT IN THE CASE OF CIT VS. BOMBAY BURMAH TRADING CORPORATION (242 ITR 298) (SC) AND THE ORDER OF THIS TRIBUNAL IN THE CASE OF SM ENERGY TEKNIK VS. DCIT (10 SOT 679) (MUM). 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE MATERIALS AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS TR EATED THE PROFIT FROM EXPORT OF HARDWARE EXPORT AMOUNTING TO RS.3,72,335 /- AS NOT PROFIT FROM EXPORT OF SOFTWARE. ON APPEAL, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO TREAT THE PROFIT FROM EXPORT OF HARDWARE AS PART O F EXPORT PROFIT ENTITLED FOR DEDUCTION U/S 10A. IN OUR OPINION, THE CIT(A) HAS ERRED IN GIVING SUCH DIRECTION WITHOUT GIVING ANY DIRECTION HOW THE TURN OVER OF EXPORT OF HARDWARE TO BE TREATED. HENCE THE ENTIRE ISSUE REQ UIRES TO BE RE- CONSIDERED AT THE END OF CIT(A) AND ACCORDINGLY, WE SET ASIDE THE ENTIRE ISSUE TO THE FILE OF CIT(A) FOR FRESH CONSIDERATION TO SEE WHETHER THE PROFITS FROM EXPORT OF HARDWARE FORMS PART OF EXPORT PROFIT AND HARDWARE EXPORTS FORMS PART OF EXPORT TURNOVER FOR THE PURPOSE OF DE DUCTION U/S10A. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 30. 9.2010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 30 TH SEPTEMBER 2019 ITA NO.30 OF 2007 M/S EXBAND INDIA (P) LTD.), HYDERABAD 12 12 COPY FORWARDED TO: 1. M/S EXBAND INDIA (P) LTD., C/O VENKATADRI (P) L TD., CAS, 1408, BABUKHAN ESTATES, BASHEERBAGH, HYDERABAD 2. ACIT, CIRCLE 2(2), HYDERABAD 3. CIT(A)-III, HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP