DCIT, Bangalore V. M/s Teleradiology Solution Private Limited, Bangalore

ITA 377/BANG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0661 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-01-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 14-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law

Judgement Text

ITA.377 & 378/BANG/2012 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI. GEORGE GEORGE K. JUDICIAL MEMBER I.T.A NOS.377 & 378/BANG/2012 (ASSESSMENT YEAR : 2004-05 & 2006-07) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 12(4), BANGALORE .. APPELLANT V. M/S. TELERADIOLOGY SOLUTIONS P. LTD., 7G1, VISHWESHWARAIAH INDUSTRIAL AREA, TPL ROAD, OPP. GRAPHITE INDIA, BANGALORE 560 048 .. RESPONDE NT APPELLANT BY : SHRI. ETWA MUNDA, COMMISSIONER OF IN COME-TAX-III RESPONDENT BY : SHRI. NONE O R D E R PER N. BARATHVAJA SANKAR, VICE PRESIDENT : THESE TWO APPEALS ARE FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2004-05 AND 2006-07, IN THE CASE OF THE ASSES SEE, M/S. TELERADIOLOGY SOLUTIONS P. LTD., BANGALORE, AGAINST THE RESPECTIVE APPELLATE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, BANGALORE, DATED.07.12.2011. 02. THE ONLY ISSUE BROUGHT BEFORE US FOR ADJUDICATI ON IN THESE TWO APPEALS ARE WHETHER THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT TELECOMMUNICATION EXPENSES AND INSU RANCE EXPENSES ITA.377 & 378/BANG/2012 PAGE - 2 ARE TO BE EXCLUDED FROM TOTAL TURNOVER AS WELL WHER EAS SUCH EXCLUSION IS PERMITTED TO ARRIVE AT THE EXPORT TURNOVER ONLY AS PER THE DEFINITIONS GIVEN IN SEC.10A OF THE ACT AND TOTAL TURNOVER HAS NOT BEEN DEFINED IN THE SECTION. 03. AT THE TIME OF HEARING, NONE APPEARED ON BEHALF OF THE RESPONDENT. HOWEVER, SINCE THE ISSUE IS NOW COVERE D BY THE DECISION OF THE KARNATAKA HIGH COURT IN FAVOUR OF THE ASSESS EE, WE DISPOSE OF THESE APPEALS EX-PARTE QUA THE RESPONDENT. THE LEA RNED COMMISSIONER OF INCOME-TAX (APPEALS) WHILE DISPOSING OF THE FIRS T APPEALS HAS FOLLOWED THE DECISION OF THE KARNATAKA HIGH COURT I N THE CASE OF TATA ELXI IN ITA NO.70/2009 C/W ITA NO.818/2009, HAS OBS ERVED AS UNDER : 'THE BOMBAY HIGH COURT HAD AN OCCASION TO CONSIDER THE MEANING OF THE WORD TOTAL TURNOVER IN THE CONTEXT OF SECTION 10-A, IN THE CASE OF COMMISSIONER OF INCOME TAX VS. GEM PLUS JEWELLERY I NDIA LTD. [2011 330 ITR P.175 (BORN)]. INTERPRETING SUB-SECTION(4) OF SECTION 10-A, IT IS HELD AS UNDER: UNDER SUB-SECTION(4) THE PROPORTION BETWEEN THE EX PORT TURNOVER IN RESPECT OF THE ARTICLES OR THINGS, OR A S THE CASE MAY BE, COMPUTER SOFTWARE EXPORTED, TO THE TOTAL TU RNOVER OF THE BUSINESS CARRIED OVER BY THE UNDERTAKING IS APP LIED TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN C OMPUTING THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN C OMPUTING THE PROFITS DERIVED FROM EXPORT. IN OTHER WORDS THE PROFITS OF THE BUSINESS OF THE UNDERTAKING ARE MULTIPLIED BY T HE EXPORT TURNOVER IN RESPECT OF THE ARTICLES, THINGS OR, AS THE CASE MAY BE, COMPUTER SOFTWARE AND DIVIDED BY THE TOTAL TURN OVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THE FOR MULA ITA.377 & 378/BANG/2012 PAGE - 3 WHICH IS PRESCRIBED BY SUB-SECTION (4) OF SECTION 1 0A IS AS FOLLOWS: PROFITS OF THE BUSINESS OF THE UNDERTAKING EXPORT TURNOVER IN RESPECT OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPO RT 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 CONSTITUEN T ELEMENT OF THE DENOMINATOR INASMUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. THE EXPORT TURNOVER, IN THE NUMERATOR MUST HAVE THE SAME MEANING AS THE EXPORT TURNOVER WHICH IS A CONSTITUE NT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. T HE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRES SION EXPORT TURNOVER IN EXPLANATION 2 TO SECTION 10A B Y WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES, T HINGS 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 CHARG ES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTIC LES THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING T HE EXPORT TURNOVER THE LEGISLATURE HAS MADE A SPECIFIED EXCLU SION OF FREIGHT AND INSURANCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE IS THAT WHILE F REIGHT AND INSURANCE CHARGES ARE LIABLE TO HE EXCLUDED IN COMP UTING EXPORT TURNOVER A SIMILAR EXCLUSION HAS NOT BEEN PR OVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REV ENUE, HOWEVER, MISSES THE POINT THAT THE EXPRESSION TOTA L TURNOVER HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF SECTION 10A. HOWEVER, THE EXPRESS/ON E XPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPO RT TURNOVER EXCLUDES FREIGHT AND INSURANCE. SINCE EXP ORT ITA.377 & 378/BANG/2012 PAGE - 4 TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE I S A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE, THE EX PRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING W HEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBT EDLY, IT WAS OPEN TO PARLIAMENT TO MAKE A PROVISION TO THE C ONTRARY. HOWEVER, NO SUCH PROVISION HAVING BEEN MADE, THE PR INCIPLE WHICH HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTE RPRETATION WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF TH E REVENUE WERE TO HE ACCEPTED, THE SAME EXPRESSION VIZ. EXPO RT TURNOVER WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH IT HAS 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 I N THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISION WH ICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. THE SPECIAL BENCH OF THE TRIBUNAL, IN THE CASE OF I NCOME TAX OFFICER VS. SAK SOFT LTD [(2009) 313 1TR (AT) 353 ( CHENNAI) (SB)] ALSO HAD AN OCCASION TO CONSIDER THE MEANING OF THE WORD TOTAL TURNOVER. AFTER REFERRING TO THE VARIOUS JU DGMENTS OF THE HIGH COURT AS WELL AS THE SUPREME COURT HELD AS UND ER : 53. FOR THE ABOVE REASONS, WE HOLD THAT FOR THE PU RPOSE OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTI ON 10-B, THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTA BLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PRO4DING THE TECHNICAL SERVICES OUTSIDE INDIA AR E TO BE EXCLUDED, BOTH FROM HE EXPERT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINAT OR RESPECTIVELY IN THE FORMULA.' THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 10- A WOULD BE AS UNDER: PROFITS OF THE BUSINESS X EXPORT TURNOVER TOTAL TURNOVER ITA.377 & 378/BANG/2012 PAGE - 5 FROM THE AFORESAID JUDGMENTS, WHAT EMERGES IS THAT, THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA, SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10-A I S A BENEFICIAL SECTION. IT IS INTENDED TO PROVIDE INCEN TIVES TO PROMOTE EXPORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATAB LE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVIN G EXPORT BUSINESS AND DOMESTIC BUSINESS, THE LEGISLATURE INT ENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSI NESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON T HE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE CASE OF SECTION 8OHHC, THE EXPORT PROFIT IS TO BE DERIVED F ROM THE TOTAL BUSINESS INCOME OF THE ASSESSEE, WHEREAS IN SECTION 10-A, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSIN ESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UND ERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN OTHER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. THE E XPORT TURNOVER WOULD BE A COMPONENT OR PART OF A DENOMINA TOR, THE OTHER COMPONENT BEING THE DOMESTIC TURNOVER. IN OTH ER WORDS, TO THE EXTENT OF EXPORT TURNOVER, THERE WOULD BE A COM MONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FO RMULA. IN VIEW OF THE COMMONALITY, THE UNDERSTANDING SHOULD A LSO BE THE SAME. IN OTHER WORDS, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TUR NOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN SECTION 10-A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT, WHAT I S EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NE VERTHELESS FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICU LAR WORD IS NOT DEFINED BY THE LEGISLATURE AND AN ORDINARY MEAN ING IS TO BE ATTRIBUTED TO THE SAME, THE SAID ORDINARY MEANING T O BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHICH IT IS USED. WHEN THE STATUTE PRESCRIBES A FOR MULA AND IN THE SAID FORMULA, EXPORT TURNOVER IS DEFINED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE VERY SAME M EANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER, WH EN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLU DED IN ITA.377 & 378/BANG/2012 PAGE - 6 COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARR IVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TURNOVER IS A COMPO NENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. IF THAT WERE THE INTENTION OF THE LEGISLATURE, THEY WOULD HAVE EXPRESSLY STATED S C. IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHAT THE TOTAL TURNO VER MEANS, THEN, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNO VER, THE MEANING ASSIGNED BY THE LEGISLATURE TO THE EXPORT T URNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO, WHILE INTERPRETIN G THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFORE THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECT ION 10-A, WOULD BE AS UNDER : PROFITS OF THE BUSINESS EXPORT TURN OVER OF THE UNDERTAKING X ________________ __________ (EXPORT TU RN OVER + DOMESTIC TURN OVER) TOTAL TURN OVER 11. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY E RROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENTS RENDERED IN THE CONTEXT OF SECTION 8OHHC IN INTERPRETING SECTION 10-A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAM E. THEREFORE, WE DO NOT SEE ANY MERIT IN THESE APPEALS. THE SUBSTANT IAL QUESTION OF LAW FRAMED IS ANSWERED IN AND AGAINST THE REVENUE.' 04. AS SUCH, WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WHO HAS RIGHTL Y FOLLOWED THE DECISION OF THE JURISDICTIONAL HIGH COURT. IN THIS VIEW OF THE MATTER, WE DISMISS THE REVENUE'S APPEALS. 05. IN THE RESULT, THE REVENUE'S APPEALS ARE DISMISSED. ORDER PRONOUNCED AT THE END OF THE HEARING ON 16.01 .2013. SD/- SD/- (GEORGE GEORGE K) (N. B ARATHVAJA SANKAR) JUDICIAL MEMBER VICE PRESIDENT MCN* ITA.377 & 378/BANG/2012 PAGE - 7 ITA.377 & 378/BANG/2012 PAGE - 8