M/s Mind Tree Ltd., Bangalore V. DCIT, Bangalore

ITA 428/BANG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0664 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-01-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 27-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: CHYTHANYA K K
• Keywords: Business income
• Section: 80HHC; 10B; 10

Judgement Text

PAGE 1 OF 8 ITA NOS.428 & 546/BAN G/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.428/BANG/2012 (ASST. YEAR 2008-09) M/S MIND TREE LTD., (FORMERLY MIND TREE CONSULTING PRIVATE LTD.), GLOBAL VILLAGE, RVCE POST, MYLASANDRA, MYSORE ROAD, BANGALORE. PA NO.AABCM 8839 K VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-12(1), BANGALORE. (APPELLANT) (RESPONDENT) ITA NO.546/BANG/2012 (ASST. YEAR 2008-09) THE ASST. COMMISSIONER OF INCOME TAX, LTU, BANGALORE VS M/S MIND TREE LTD., (FORMERLY MIND TREE CONSULTING PRIVATE LTD.), GLOBAL VILLAGE, RVCE POST, MYLASANDRA, MYSORE ROAD, BANGALORE. PA NO.AABCM 8839 K . (APPELLANT) (RESPONDENT) DATE OF HEARING : 03.01.2013 DATE OF PRONOUNCEMENT : 11.01.2013 APPELLANT BY : SHRI CHYTHANYA K K., ADVOCATE RESPONDENT BY : SHRI FARHAT HUSSAIN QURESHI, CIT -II PAGE 2 OF 8 ITA NOS.428 & 546/BAN G/2012 2 OR DER PER BENCH : ITA NO.428/12 AT THE INSTANCE OF THE ASSESSEE AND ITA NO.546/12 PREFERRED BY THE DEPARTMENT ARE DIRECTED A GAINST THE CIT(A)- IIIS ORDER DATED 3/2/2012. THE RELEVANT ASSESSMEN T YEAR IS 2008-09. 2. REVENUES APPEAL (ITA NO.546/12) . THE REVENUE HAS RAISED 6 GROUNDS OF APPEAL IN IT S MEMORANDUM OF APPEAL. ALL THE GROUNDS RELATE TO A SOLITARY ISS UE, NAMELY, WHETHER THE CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFI CER TO REDUCE FROM THE TOTAL TURNOVER WHAT HAS BEEN REDUCED FROM THE EXPOR T TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10B/10AA OF THE A CT. 2.1 BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY ENGAGED IN SOFTWARE DEVE LOPMENT AND ALLIED SERVICES. FOR THE CONCERNED ASSESSMENT YEAR, RETURN OF INCOME WAS FILED ON 26/9/2008 DECLARING A TOTAL INCOME OF RS.17,71,91,200/-. THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY BY ISSUANCE OF NOTICE UNDER SECTION 143(2) OF THE ACT AND THE SCRUTINY ASSESSMENT WAS PA SSED VIDE ORDER DATED 30.12.2010. THE ASSESSING OFFICER MADE THE FOLLO WING ADJUSTMENTS WHILE MAKING THE SCRUTINY ASSESSMENT:- (A) EXCLUSION OF EXPENSES INCURRED IN FOREIGN CURRENCY TOWARDS FOREIGN BRANCH OFFICE AND FOREIGN TRAVEL OF RS.1,66,72,10,889/- AND RS.31,45,47,915/- RESPECTIV ELY FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTA TION OF DEDUCTION UNDER SECTION 10B & 10AA. PAGE 3 OF 8 ITA NOS.428 & 546/BAN G/2012 3 (B) EXCLUSION OF TELECOMMUNICATION EXPENSES INCURRED OF RS.3,70,62,460/- FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 1 0B AND 10AA. (C) NON EXCLUSION OF THE ABOVE SUMS FROM THE TOTAL TURN OVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10B & 10AA. 2.2 AGGRIEVED BY THE AFORESAID ASSESSMENT ORDER, TH E ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). 2.3 BEFORE THE CIT(A), IT WAS CONTENDED THAT THE A SSESSING OFFICER IS NOT JUSTIFIED IN EXCLUDING THE ABOVE MEN TIONED EXPENSES FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SEC TION 10B/10AA OF THE ACT. ALTERNATIVELY, IT WAS PLEADED THAT IF THE EXP ENSES ARE REDUCED FROM THE EXPORT TURNOVER NECESSARILY THE SAME HAS TO BE R EDUCED ALSO FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECT ION 10B/10AA OF THE ACT. 2.4 THE CIT(A) REJECTED THE CONTENTION OF THE ASSE SSEE THAT THE EXPENSES ARE NOT TO BE REDUCED FROM THE EXPORT TURN OVER WHILE COMPUTING DEDUCTION UNDER SECTION 10B/10AA OF THE ACT. HOWEV ER, THE CIT(A) ACCEPTED THE ALTERNATIVE SUBMISSION OF THE ASSESSEE BY FOLLOWING VARIOUS ORDERS OF THE TRIBUNAL AND THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT AND ANOTHER V TATA EXLSI I NDIA LTD. REPORTED IN 349 ITR 98 (KAR.). PAGE 4 OF 8 ITA NOS.428 & 546/BAN G/2012 4 2.5 THE REVENUE BEING AGGRIEVED BY THE CIT(A)S ORD ER ACCEPTING THE ALTERNATIVE SUBMISSION OF THE ASSESSEE, IS IN A PPEAL BEFORE US, WHEREAS THE ASSESSEE BEING AGGRIEVED BY THE CIT(A)S ORDER I N REJECTING THE ASSESSEES PLEA THAT THE EXPENSES OUGHT NOT TO BE R EDUCED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10 B/10AA OF THE ACT, IS IN APPEAL BEFORE US IN ITA NO.428/BANG/2012. 2.6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIALS ON RECORD. THE ISSUE WHEN EXPENSES ARE REDUCED FRO M THE EXPORT TURNOVER, THE SAME IS ALSO TO BE REDUCED FROM THE TOTAL TURNO VER HAS BEEN SETTLED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT AND ANOTHER V TATA EXLSI INDIA LTD. REPORTED IN 349 ITR 98 (KAR.). TH E RELEVANT FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT READS AS FOLLOWS: - ..SECTION 10A IS ENACTED AS AN INCENTIVE TO EXP ORTERS TO ENABLE THEIR PRODUCTS TO BE COMPETITIVE IN THE G LOBAL MARKET AND CONSEQUENTLY EARN PRECIOUS FOREIGN EXCHAN GE FOR THE COUNTRY. THIS ASPECT HAS TO BE BORNE IN MIN D. WHILE COMPUTING THE CONSIDERATION RECEIVED FROM SUC H EXPORT TURNOVER, THE EXPENSES INCURRED TOWARDS FREI GHT, TELECOMMUNICATION CHARGES, OR INSURANCE ATTRIBUTABL E TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA, OR EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE, IN PROVIDING THE TECHNICAL SERVIC ES OUTSIDE INDIA SHOULD NOT BE INCLUDED. HOWEVER, THE WORD TOTAL TURNOVER IS NOT DEFINED FOR THE PURPOSE OF TH IS SECTION. IT IS BECAUSE OF THIS OMISSION TO DEFINE TOTAL TURNOVER, THE WORD TOTAL TURNOVER FALLS FOR INTERPRETATION BY THIS COURT; PAGE 5 OF 8 ITA NOS.428 & 546/BAN G/2012 5 ..IN SECTION 10A, NOT ONLY THE WORD TOTAL TURNOVE R IS NOT DEFINED, THERE IS NO CLUE REGARDING WHAT IS TO BE EXCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER. HOW EVER, WHILE INTERPRETING THE PROVISIONS OF SECTION 80HHC, THE COURTS HAVE LAID DOWN VARIOUS PRINCIPLES, WHICH ARE INDEPENDENT OF THE STATUTORY PROVISIONS. THERE SHOU LD 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 10A I S A BENEFICIAL SECTION WHICH INTENDS TO PROVIDE INCENTI VES TO PROMOTE EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUSINESS AND DOMESTIC BUSIN ESS, THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCER TAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNO VERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER W AS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE CASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSES SEE, WHEREAS IN SECTION 10-A, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING, IT MAY IN CLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN OTHER WOR DS, EXPORT TURNOVER AND DOMESTIC TURNOVER. TO THE EXTE NT OF EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEE N THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIV ED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD A LSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. TH E REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TUR NOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERA TOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE , THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TU RNOVER IN SECTION 10A, THERE IS NOTHING IN THE SAID SECTIO N TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR T HAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. WHEN THE STATUTE PRESCRIBED A FORMULA AND PAGE 6 OF 8 ITA NOS.428 & 546/BAN G/2012 6 IN THE SAID FORMULA, EXPORT TURNOVER IS DEFINED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING TH E MEANING OF THE TOTAL TURNOVER, WHEN THE TOTAL TURNO VER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARR IVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. THUS, THERE IS NO ERROR COMMITTED B Y THE TRIBUNAL IN FOLLOWING THE JUDGEMENTS RENDERED IN TH E CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10 A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME. 2.7 FOLLOWING THE DICTUM LAID DOWN BY THE HONBLE J URISDICTIONAL HIGH COURT IN THE CASE CITED SUPRA, WE HOLD THAT TH E CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO REDUCE FROM THE TOTAL TURNOVER THE EXPENSES THAT ARE REDUCED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10B/10AA OF THE ACT. 3. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ITA NO.428/BANG/2012 (ASSESSEES APPEAL) 4. THE ASSESSEE HAS FILED THE FOLLOWING CONCISE GR OUNDS :- (1) THE LEARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDIN G OF THE ACTION OF THE LEARNED DCIT IN REDUCING CERTAIN EXPE NSES (EXPENDITURE INCURRED IN FOREIGN CURRENCY AND COMMUNICATION EXPENSES) FROM EXPORT TURNOVER FOR TH E PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 1 0B OF THE IT ACT. PAGE 7 OF 8 ITA NOS.428 & 546/BAN G/2012 7 (2) THE LEARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDIN G OF THE ACTION OF THE LEARNED DCIT IN REDUCING CERTAIN EXPE NSES (EXPENDITURE INCURRED IN FOREIGN CURRENCY AND COMMUNICATION EXPENSES) FROM EXPORT TURNOVER FOR TH E PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 1 0AA OF THE IT ACT. (3) THE LEARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDIN G THE ACTION OF THE LEARNED DCIT IN REDUCING THE TELECOMMUNICATION CHARGES FROM THE EXPORT TURNOVER WHERE SUCH EXPENDITURE IS INCURRED IN RESPECT OF A STANDARD FACILITY AND THE SAME CANNOT BE WHOLLY ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE OUTSI DE INDIA. 4.1 IN THE ABOVE GROUNDS, THE ASSESSEE HAS REITERA TED THE CONTENTION MADE BEFORE THE INCOME TAX AUTHORITIES T HAT THE ABOVE EXPENSES OUGHT NOT TO BE REDUCED FROM THE EXPORT TU RNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10B/10AA OF THE ACT. 4.2 AFTER HEARING THE RIVAL CONTENTION, WE ARE OF THE VIEW THAT SINCE THE ALTERNATIVE PLEA OF THE ASSESSEE HAS BEEN ACCEPTED BY THE CIT(A) FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE CITED SUPRA, IT IS NOT NECESSARY TO GO INTO THE GROU NDS RAISED BY THE ASSESSEE AT THIS STAGE. HOWEVER, WE WOULD LIKE TO MAKE IT C LEAR THAT IT IS OPEN TO THE ASSESSEE TO AGITATE ON THE MERITS OF THE ABOVE GROU NDS BEFORE THE APPROPRIATE AUTHORITY AS AND WHEN THE NEED SO ARISE . 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PAGE 8 OF 8 ITA NOS.428 & 546/BAN G/2012 8 ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DAY OF JANUARY, 2013. SD/- SD/- (JASON P BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.