ACIT, Bangalore V. M/s Sitel Operating Corporation India Ltd., Bangalore

ITA 501/BANG/2011

• Counselvise Citation: 50121114 RSA 2011
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 29-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARAHAT HUSSAIN QURESHI CITII
• Assessee Lawyers: SAKSHI RASTOGI EMPLOYEE OF
• Keywords: Business income; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.501/BANG/2011 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(3), BANGALORE. VS. M/S. SITEL OPERATING CORPORATION INDIA LTD., NO.18, BANASWADI MAIN ROAD, PULAKESHINAGAR P.O., BANGALORE 560 065. PAN: AACCC 0408M APPELLANT RESPONDENT APPELLANT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II (DR) RESPONDENT BY : MS. SAKSHI RASTOGI, EMPLOYEE OF ASSESSEE DATE OF HEARING : 14.05.2012 DATE OF PRONOUNCEMENT : 14.05.2012 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS APPEAL BY THE DEPARTMENT IS AGAINST THE ORDER DATED 31.12.2010 OF THE CIT(APPEALS)-III, BANGALORE. 2. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL READS AS UNDER:- 2. THE CIT(APPEALS) ERRED IN DIRECTING THE AO TO EXCLUDE THE TELECOMMUNICATION EXPENSES AMOUNTING TO RS.5,39,32, 317/- AND ITA NO.501/BANG/2011 PAGE 2 OF 5 FOREIGN CURRENCY EXPENSES AMOUNTING TO RS.2,72,51,9 84/- FROM TOTAL TURNOVER FOR THE PURPOSES OF DEDUCTION U/S. 1 0A OF THE IT ACT, 1961. 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE WAS ENGAGED IN THE BUSINESS OF IT ENABLED SERVICES/CALL CENTRE/BAC K OFFICE OPERATIONS AND FILED RETURN OF INCOME ON 28.11.2006 DECLARING AN I NCOME OF Q 33,36,690 WHICH WAS PROCESSED U/S. 143(1) OF THE INCOME-TAX A CT, 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT] ON 28.09.2007. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD INC URRED TELECOMMUNICATION EXPENSES AMOUNTING TO Q 5,39,32,370 AND FOREIGN CURRENCY EXPENSES AMOUNTING TO 2,72,51,984 TOTALLIN G TO Q 8,11,84,301. THE AO WAS OF THE VIEW THAT THE AFORESAID EXPENSES COULD NOT BE TREATED AS EXPENSES IN FOREIGN CURRENCY FOR PROVIDING TECHN ICAL SERVICES OUTSIDE INDIA, THEREFORE HE REDUCED THE SAID EXPENSES FROM THE EXPORT TURNOVER WHILE WORKING OUT THE DEDUCTION U/S. 10A OF THE ACT . 4. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A ) WHO DIRECTED THE AO TO EXCLUDE THE AFORESAID EXPENSES FROM EXPORT TU RNOVER AS WELL AS FROM TOTAL TURNOVER. NOW THE DEPARTMENT IS IN APPEAL. 5. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COU RT DATED 02.11.2011 IN ASSESSEES OWN CASE IN ITA NO.153 OF 2011, COPY OF THE SAID JUDGMENT WAS FURNISHED. ITA NO.501/BANG/2011 PAGE 3 OF 5 6. THE LD. DR ALTHOUGH SUPPORTED THE ORDER OF THE A O, BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUN SEL FOR THE ASSESSEE. 7. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES AND THE MATERIAL ON RECORD, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSES SEES OWN CASE BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE JUDGMENT DAT ED 02.11.2011 IN ITA NO.153 OF 2011, WHEREIN BY FOLLOWING ITS EARLIER JU DGMENT DATED 30.08.2011 IN THE CASE OF CIT V. M/S. TATA ELXSI LTD. IN ITA NO.70/2009 & ORS., THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 2 & 3 OF THE AFORESAID REFERRED TO ORDER DATED 02.11.2011 IN ASSESSEES OWN CASE, WHIC H READ AS UNDER:- 2. THE SAID QUESTION WAS ANSWERED BY THIS COURT I N THE CASE OF THE COMMISSIONER OF INCOME-TAX AND ANOTHER VS. M/S. TATA ELXSI LTD., IN ITA NOS.70/2009 AND OTHER CONNECTED MATTERS, DISPOSED OFF ON 30.08.2011 BY HOLDING AS UNDER:- 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 IS A BENE FICIAL SECTION. IT IS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXP ORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATABLE TO EXPORTS . IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUS INESS AND DOMESTIC BUSINESS, THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPOR TIONING 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 8OHHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSESSEE, WHEREAS IN SECTION 10-A, TH E EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN OTHER WOR DS, EXPORT TURNOVER AND DOMESTIC TURNOVER. THE EXPORT TURNOVER WOULD BE A COMPONENT OR PART OF A DENOMINATOR, THE OTHER COMPO NENT BEING THE DOMESTIC TURNOVER. IN OTHER WORDS, TO THE EXTEN T OF EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IN VIEW OF THE COMMONALITY, ITA NO.501/BANG/2011 PAGE 4 OF 5 THE UNDERSTANDING SHOULD ALSO BE THE SAME. IN OTHER WORDS, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED A T AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOT AL TURNOVER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TURN OVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNO VER IN THE NUMERATOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TU RNOVER IN SECTION 10-A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. TH OUGH WHEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISLATURE A ND AN ORDINARY MEANING IS TO BE ATTRIBUTED TO THE SAME, THE SAID O RDINARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMIT Y WITH THE CONTEXT IN WHICH IT IS USED. WHEN THE STATUTE PRESC RIBES A FORMULA AND IN THE SAID FORMULA, EXPORT TURNOVER IS DEFIN ED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLA TURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTA L TURNOVER, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. I F WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUD ED WHILE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TUR NOVER IS A COMPONENT 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 E XPRESSLY STATED SO. IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHA T THE TOTAL TURNOVER MEANS, THEN, WHEN THE TOTAL TURNOVER INCLU DES EXPORT TURNOVER, THE MEANING ASSIGNED BY THE LEGISLATURE T O THE EXPORT TURNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO, WH ILE INTERPRETING THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFORE THE FORMULA FOR COMPUTATION OF THE DEDUCT ION UNDER SECTION 10-A, WOULD BE AS UNDER: PROFITS OF THE BUSINESS X EXPORT TURNOVER OF THE UNDERTAKING [EXPORT TURNOVER + DOMESTIC TURNOVER] TOTAL TURNOVER 3. IN VIEW OF THE AFORESAID LEGAL POSITION, WE DO N OT SEE ANY MERIT IN THIS APPEAL. ACCORDINGLY, THE APPEAL IS D ISMISSED. THE SUBSTANTIAL QUESTION OF LAW FRAMED IN THIS APPEAL I S ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 8. FROM THE ABOVE, IT IS CLEAR THAT THE ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT DATED 02.11. 2011 OF THE HONBLE ITA NO.501/BANG/2011 PAGE 5 OF 5 JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO ASSESSEES OWN CASE. WE THEREFORE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 9. IN THE RESULT, THE APPEAL BY THE DEPARTMENT IS D ISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF MAY, 2012. SD/- SD/- ( SMT. P. MADHAVI DEVI ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 14 TH MAY , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.