Appeal details
Counselvise Citation
[2013] 120 COUNSELVISE.COM (IT) 1676 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 7 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-03-2013
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
D
Next Hearing Date
17-09-2012
Assessment Year
2003-2004
Appeal Filed On
28-07-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.: 5557/MUM/2011 ASSESSMENT YEAR: 2003-04 DATAMATICS TECHNOLOGIES LTD. (NOW KNOWN AS DATAMATICS GLOBAL SERVICES LTD.) UNIT NO.117, SDF IV, SEEPZ, ANDHERI (E), MUMBAI 400 096 [PAN: AAACD 4471 B] VS. DY, COMMISSIONER OF INCOME-TAX, CIRCLE 8 (1) (APPELLANT) (RESPONDENT) APPELLANT BY : MR. J.P. BAIRAGRA RESPONDENT BY : MRS. RUPINDER BRAR DATE OF HEARING : 11.12.2012 DATE OF PRONOUNCEMENT : 08.03.2013 ORDER PER SANJAY ARORA, A.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-16, MUMBAI (CIT(A) FOR SHORT ) DATED 17.06.2011 FOR THE ASSESSMENT YEAR (A.Y.) 2003-04. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN ALLOWING THE DEDUCTION UNDER SECTION 80- HHE OF RS.8,02,842/- AS AGAINST DEDUCTION CLAIMED A ND ALLOWABLE AT RS.55,99,722/-. ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 2 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN HOLDING THAT WHILE GRANTING DEDUCTION U/S. 80-HHE, THE TURNOVER OF ALL THE UNITS OF THE APPELLANT COMPANY SHOULD BE CONSIDERED INSTEAD OF THE TURNOVER OF ONLY THE ELIGIBLE UNIT. 3.1 THE FACTS, BRIEFLY STATED, ARE THAT THE ASSESSEE, A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956, CLAIMED A DEDUCTION OF RS.55,9 9,722/- UNDER SECTION 80-HHE OF THE ACT PER ITS RETURN OF INCOME FOR THE RELEVANT Y EAR. IN ASSESSMENT, COMPLETED U/S. 143(3), THE ASSESSING OFFICER (AO) RESTRICTED THE A SSESSEES SAID CLAIM TO RS.8,02,842/- BY TAKING INTO ACCOUNT THE TURNOVER OF ALL THE UNIT S OF THE APPELLANT-COMPANY INSTEAD OF THE TURNOVER OF ONLY ITS ELIGIBLE UNIT, I.E., U/S. 80-HHE, AS CLAIMED BY THE ASSESSEE. THIS SPELLS OUT OR OUTLINES THE CONTROVERSY ATTENDING TH IS APPEAL, EVEN AS PROJECTED PER THE GROUNDS ASSUMED. 3.2 IN APPEAL, THE FIRST APPELLATE AUTHORITY, VIDE HIS ORDER DATED 08.12.2006, DISMISSED THE ASSESSEES APPEAL ON THE ISSUE OF DISALLOWANCE OF DEDUCTION U/S. 80HHE AGAINST WHICH THE APPELLANT PREFERRED AN APPEAL BEFORE THE TRIBUN AL. THE TRIBUNAL, VIDE ITS ORDER DATED 16.03.2009, SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AFTER AFFORDING DUE OPPORTUNITY TO THE ASSES SEE. THE AO, IN FRESH ASSESSMENT, AGAIN DISALLOWED THE ASSESSEES CLAIM BY TAKING INTO ACCO UNT THE TURNOVER OF ALL THE UNITS OF THE APPELLANT-COMPANY INSTEAD OF THE TURNOVER OF ONLY T HE ELIGIBLE UNIT, AS BEING CLAIMED BY THE ASSESSEE. IN APPEAL IN THE SECOND ROUND, THE LD . CIT (A) UPHELD THE ORDER OF THE AO. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 4.1 BEFORE US, THE LD.AR RELIED ON THE DECISIONS IN THE CASE OF MIKE AGENCIES (IN ITA NO.4205/MUM/1995); DATAMATICS LTD. V. ACIT , 15 SOT 588 (MUMBAI); CIT V. RATHORE BROS , 254 ITR 656 (MAD); WIPRO LTD. V. DCIT , 96 TTJ (BANGALORE) 211; AND ITO V. SAK SOFT LTD , 121 TTJ (CHENNAI) (SB) 865, CONTENDING THAT THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80-HHE WOULD BE THE TO TAL TURNOVER OF THE ELIGIBLE UNIT AND NOT THE TOTAL TURNOVER OF ALL THE UNITS. ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 3 4.2 THE LD. CIT-DR, ON THE OTHER HAND, WOULD SUB MIT THAT IF THE CONTENTIONS OF THE ASSESSEE WERE TO BE ACCEPTED, THE WHOLE PREMISE OR BASIS OF THE ALLOCATION OF PROFITS, FOR ARRIVING AT THE ELIGIBLE PROFIT U/S. 80-HHE, AS PRE SCRIBED PER SUB-SECTION (3) THEREOF, WOULD STAND TO BE DEFEATED INASMUCH AS ONLY THE TUR NOVER OF THE ASSESSEES EXPORT UNIT, I.E., THE EXPORT TURNOVER, WOULD BE ITS TOTAL TURNO VER, RENDERING THE APPORTIONMENT AS OF NO CONSEQUENCE. SHE WOULD FURTHER RELY ON THE DECISIO NS IN THE CASE OF CIT V. PARRY AGRO INDUSTRIES LTD ., 257 ITR 41(KER); INTERNATIONAL RESEARCH PARK LABORATORIES LTD. V. AS ST. CIT , 50 ITD 37(DEL)(SB); AND ASHCO INDUSTRIES LTD. V. JCIT (IN ITA NO.2447/MUM/2000 DATED 14.01.2003), CONTENDING THAT THE AO AND THE L D. CIT (A) WERE CORRECT IN HOLDING THE VIEW THAT THE TOTAL TURNOVER FOR THE PURPOSES OF CLAIMING/ALLOWING DEDUCTION UNDER SECTION 80-HHE SHALL BE THE TOTAL TURNOVER OF ALL THE UNITS AND NOT THE TOTAL TURNOVER OF ELIGIBLE UNIT. AS REGARDS THE DIFFERENCE IN THE SE CTIONS; THE DECISIONS BEING RELIED UPON BY THE REVENUE BEING RENDERED PRIMARILY U/S. 80HHC, IT MAY BE APPRECIATED THAT, FIRSTLY, THE DECISION BY THE SPECIAL BENCH RELIED UPON BY THE AS SESSEE IS IN RESPECT OF S. 10-B AND, TWO, THE TWO SECTIONS, I.E., SECTIONS 80-HHC AND 80-HHE, ARE PARA MATERIA , PRESCRIBING THE SAME COMPUTATIONAL FORMULA, I.E., THE RATIO OF THE EXPORT TURNOVER TO THE TOTAL TURNOVER, TOWARD APPROPRIATING THE PROFITS ATTRIBUTABLE TO TH E ELIGIBLE EXPORT BUSINESS. 4.3 IN REJOINDER, IT WAS SUBMITTED BY THE LD. AR THAT THE METHOD BEING ADOPTED BY THE REVENUE IS PREJUDICIAL TO THE INTEREST OF THE ASSES SEE INASMUCH AS WHILE IT IS ONLY THE PROFIT OF THE ASSESSEES SEEPZ UNIT THAT IS BEING C ONSIDERED FOR APPORTIONMENT, THE SAME IS BEING DONE WITH REFERENCE TO THE TOTAL TURNOVER, I.E., BY INCLUDING THE TURNOVER OF THE ASSESSEES OTHER BUSINESS UNITS AS WELL. SURELY, HE CONTINUED, IF THE TOTAL TURNOVER OF THE ASSESSEE BUSINESS/ES IS TO BE CONSIDERED; THERE BEI NG ADMITTEDLY NO RESTRICTION IN ITS RESPECT IN THE DEFINITION OF TOTAL TURNOVER UNDER THE PROVISION, THE TOTAL PROFIT OF ITS ENTIRE BUSINESS/ES WOULD STAND TO BE APPORTIONED, AND NOT THAT OF THE ELIGIBLE UNIT ALONE, AS DONE. ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 4 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MAT ERIALS ON RECORD, AS WELL AS THE CASE LAW CITED. 5.1 THE LIMITED, AND THE ONLY, ISSUE TO BE DECIDE D BY US IS WHETHER THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S. 80-HHE WOULD BE T HE TOTAL TURNOVER OF THE ELIGIBLE UNIT OR THE TOTAL TURNOVER OF ALL THE UNITS. THE TERM IS NOT DEFINED UNDER THE PROVISION, EXCEPT NEGATIVELY, I.E., SPECIFYING THE ITEMS OF INCOME WH ICH COULD NOT BE CONSIDERED AS FORMING PART THEREOF. FURTHER, WHILE THE ASSESSEE RELIES ON THE DECISIONS BY THE TRIBUNAL RENDERED IN THE CONTEXT OF, AMONG OTHERS, S. 80-HHE, THE REVENU ES CASE IS THAT THE EXPRESSION TOTAL TURNOVER COULD NOT POSSIBLY BE ASSIGNED DIFFERENT MEANINGS IN THE CONTEXT OF DIFFERENT SECTIONS, PARTICULARLY CONSIDERING THAT THEY ARE PARA MATERIA , AND DEFINED IDENTICALLY. THE SAID EXPRESSION HAS BEEN UNDERSTOOD IN THE CONTEXT OF S. 80-HHC IN AN INCLUSIVE MANNER, I.E., TO INCLUDE THE ENTIRE TURNOVER OF THE ASSESSE E, I.E., OVER ALL ITS DIFFERENT UNITS, AND WHICH HAS FOUND ACCEPTANCE BY THE HIGHER COURTS OF LAW. THE DEDUCTION UNDER SECTION 80- HHE IS, AGAIN, NOT UNIT SPECIFIC, SO THAT THERE IS NO OCCASION TO LIMIT THE TOTAL TURNOVER TO ONLY THAT OF THE ELIGIBLE UNIT, BUT HAS TO BE CONSI DERED QUA AN ASSESSEE, AS IN THE CASE OF S. 80-HHC, WITH THERE BEING NOTHING IN THE LANGUAGE OF THE SECTION TO SUGGEST OTHERWISE. AS SUCH, THE QUESTION OF RESTRICTING THE TOTAL TURNOV ER TO THAT OF THE ELIGIBLE UNIT OR BUSINESS DOES NOT ARISE. A PROVISION, EVEN IF BENEFICIAL, IS TO BE READ ONLY IN TERMS OF ITS LANGUAGE, WHICH IS CLEAR AND UNAMBIGUOUS. IF THE INTENTION OF THE LEGISLATURE IS NOT TO BE FOUND IN THE STATUTE, ITS EDICT, IT IS TO BE FOUND NOWHERE E LSE. THIS IS MORE SO AS NOT SO READING MAY LEAD TO THE PROVISION OF S. 80-HHE(3) BEING AS REND ERED AS OF NO CONSEQUENCE IN MOST CASES, AND WHICH CANNOT BE. THIS, TO OUR MIND, SUMS UP THE REVENUES CASE. THE ASSESSEE, IN THE ALTERNATIVE, ALSO I MPRESSES OF THE MANIFESTLY UNJUST RESULTS THAT STAND TO ARISE, WHERE, EVEN CONSIDERING THE TOTAL T URNOVER OF THE ASSESSEE AS THE AGGREGATE TURNOVER FOR ALL ITS UNITS, THE PROFITS TO BE APPOR TIONED ARE NOT CONSIDERED, SIMILARLY, ON A GLOBAL BASIS, BUT ONLY OF THE ELIGIBLE UNIT, VIOLAT ING THE RULE OF COMPARING LIKE WITH THE LIKE. ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 5 5.2 WE MAY BEGIN OUR DISCUSSION ON THE PROVISI ON BY REPRODUCING IT IN ITS RELEVANT PART, AS UNDER: 80HHE . DEDUCTION IN RESPECT OF PROFITS FROM EXPORT OF COMP UTER SOFTWARE, ETC. (1) WHERE AN ASSESSEE, BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA, IS ENGAGED IN THE BUSINESS OF, (I) EXPORT OUT OF INDIA OF COMPUTER SOFTWARE OR ITS TRANSMISSION FROM INDIA TO A PLACE OUTSIDE INDIA BY ANY MEANS; (II) PROVIDING TECHNICAL SERVICES OUTSIDE INDIA IN CONNECTION WITH THE DEVELOPMENT OR PRODUCTION OF COMPUTER SOFTWARE, THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUC TION TO THE EXTENT OF THE PROFITS, REFERRED TO IN SUB-SECTION (1B)] DERIVED BY THE ASSESSEE FROM SUCH BUSINESS : (2).. (3) FOR THE PURPOSES OF SUB-SECTION (1), PROFITS DE RIVED FROM THE BUSINESS REFERRED TO IN THAT SUB- SECTION SHALL BE THE AMOUNT WHICH BEARS TO THE PROF ITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. EXPLANATION (C) 'EXPORT TURNOVER' MEANS THE CONSIDERATION IN RE SPECT OF COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB- SECTION (2), BUT DOES NOT INCLUDE FREIGHT, TELECOMM UNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSID E INDIA; (D) 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS RE DUCED BY (1) NINETY PER CENT OF ANY RECEIPTS BY WAY OF BROKE RAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN S UCH PROFITS; AND (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA; (E) 'TOTAL TURNOVER' SHALL NOT INCLUDE (I) ANY SUM REFERRED TO IN CLAUSES (IIIA), (IIIB) A ND (IIIC) OF SECTION 28; ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 6 (II) ANY FREIGHT, TELECOMMUNICATION CHARGES OR INSU RANCE ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA; AND (III) EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANG E IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA. OUR FIRST OBSERVATION IN THE MATTER IS T HAT THE DEDUCTION U/S. 80-HHE, IN CONTRAST TO THAT UNDER SECTIONS 10-A, 10-B, 80-IA, 80-IB, 80-IA , 80-HH, ETC. IS NOT UNIT-SPECIFIC, SO THAT THE ASSESSEE CONTENDING OF THE TOTAL TURNOVER AS BEING CONFINED TO THAT OF ITS SEEPZ UNIT ONLY CAN NOT BE ACCEPTED. THE SECTION NOWHERE SPEAKS OF THE DEDUCTION AS BEING QUA A UNIT OR UNDERTAKING, AS IN THE CASE OF SOME OF TH E OTHER SECTIONS REFERRED TO, BUT, AS WOULD BE APPARENT FROM A READING OF SECTION 80-HHE( 1), IS WITH REFERENCE TO THE BUSINESS OF EXPORT (OUT OF INDIA) OF COMPUTER SOFTWARE, INCL UDING BY WAY OF TRANSMISSION AS WELL AS TOWARD PROVIDING TECHNICAL SERVICES OUTSIDE INDIA I N CONNECTION WITH THE DEVELOPMENT OR PRODUCTION OF COMPUTER SOFTWARE. AS SUCH, THE SECTI ON SEEKS TO RESTRICT THE DEDUCTION AS DERIVED FROM SUCH BUSINESS. AN ASSESSEE MAY UNDERTA KE THIS BUSINESS FROM MORE THAN ONE UNIT, SO THAT THE PROFITS OF ALL SUCH UNITS WOULD B E ENTITLED TO DEDUCTION U/S.80-HHE, WHICH IS, THUS, BUSINESS SPECIFIC. IT IS ALSO APPARENT FROM THE PROVISION THAT THE PR OFITS OF THE BUSINESS, WHICH ARE TO BE APPORTIONED, ARE NOT THAT OF SUCH BUSINESS ALONE . THIS IS PERHAPS FOR THE REASON, EVEN AS ARGUED BY THE LD. DR BEFORE US, THAT IT WOULD RENDE R THE APPORTIONMENT, IN A LARGE MEASURE, AS SEEMINGLY WITHOUT PURPOSE. THIS IS AS T HE BUSINESS UNDER REFERENCE HAVING BEEN ITSELF DEFINED AS THAT OF COMPUTER SOFTWARE (I NCLUDING THE PROVISION OF TECHNICAL SERVICES IN RELATION TO ITS PRODUCTION WHERE CARRIE D OUT OUTSIDE INDIA), THE ONLY OTHER ELEMENT OF TOTAL TURNOVER, I.E., BESIDES EXPORT TUR NOVER, WOULD BE THE CONSIDERATION FOR EXPORT WHICH FOR SOME REASON COULD NOT BE BROUGHT I NTO INDIA WITHIN THE PRESCRIBED TIME. THAT IS, THE TOTAL TURNOVER WOULD BE THE EXPORT TUR NOVER PLUS ANY PART THEREOF THAT IS NOT SO REGARDED ON TECHNICAL GROUNDS. NOW, IF IT IS THE PR OFITS OF ALL THE BUSINESSES OF THE ASSESSEE THAT HAVE TO BE CONSIDERED, WHICH IS EVEN OTHERWISE IMPLICIT IN THE STIPULATION OF THE PROFIT AS COMPUTED UNDER THE HEAD OF BUSINESS I NCOME, WITHOUT DOUBT, IT IS THE TURNOVER OF ALL SUCH BUSINESSES, SPREAD OVER ANY NU MBER OF UNITS, WHETHER UNDERTAKING ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 7 EXPORT OR DOMESTIC BUSINESS, INCLUDING OTHER THAN I N RELATION TO PRODUCTION OF AND/OR TRADING IN COMPUTER SOFTWARE, THAT WOULD HAVE TO BE NECESSARILY CONSIDERED, EVEN AS THE ASSESSEE ARGUES BEFORE US IN THE ALTERNATIVE. THE S AID CLAIM, I.E., THAT THE PROFITS OF ALL ITS UNITS OR BUSINESSES BE TAKEN INTO ACCOUNT FOR THE P URPOSE OF APPORTIONMENT OF PROFITS U/S. 80HHE(3), IF THEIR TURNOVER IS TO BE INCLUDED WHILE RECKONING THE TOTAL TURNOVER, CANNOT BE FAULTED. IN FACT, THIS IS SELF-EVIDENT, AS OTHER WISE THE APPORTIONMENT WOULD BE PATENTLY MISTAKEN AND BEREFT OF ANY MEANING AND RATIONALE. H OWEVER, WE SHALL, BEFORE WE PROCEED TO DECIDE THE APPEAL ON THE BASIS OF THE ASSESSEES ALTERNATE CLAIM, HAVE TO ISSUE A FINDING OF THE TOTAL TURNOVER AS CONSTITUTING THE TURNOVER OF ALL SUCH UNITS AND BUSINESSES. THE ISSUE AS TO WHAT, THEREFORE, MUST BE REGARDED AS IN CLUDIBLE OR FORMING PART OF THE TOTAL TURNOVER SHALL THEREFORE HAVE TO BE DECIDED AND AD JUDICATED UPON, I.E., THE ISSUE AS ENUMERATED. THE TWO ISSUES ARE, IN FACT, CLEARLY IN TER-RELATED. 5.3 IN THIS CONTEXT, WE MAY FIRSTLY REFER TO TH E DECISION BY THE TRIBUNAL IN THE CASE OF TESSITURA MONTI INDIA (P.) LTD. (IN ITA NO.7127/MUM/2010 DATED 11.01.2013), WHERE , IN THE CONTEXT OF SECTION 10B, ITS STANDS HELD, WHILE INTERPRETING A SIMILAR APPORTIONMENT FORMULA IN SECTION 10B(4), THAT THE PURPOSE OF SUCH APPORTIONMENT IS TOWARD LIMITING THE QUALIFYING PROFITS TO THAT DERIVED FROM EXPORT. WHAT WOULD BE THESE QUALIFYING PROFITS ? THE DEDUCTION, SURE ENOUGH, IS NOT UNIT SPECIFIC, B UT IT IS DEFINITELY BUSINESS SPECIFIC . SHOULD NOT, THEREFORE, ONLY THE PROFITS OF THIS BUS INESS BE CONSIDERED, I.E., OF THE SAME GENERIC BUSINESS, THE EXPORTS FROM WHICH ARE LIABLE FOR DEDUCTION UNDER THE PROVISION, AND TO DETERMINE WHICH, I.E., THE PROFITS AS DERIVED FR OM THE EXPORT ACTIVITY, THE SAID APPORTIONMENT FORMULA IS BEING APPLIED. THAT THE EX PORT TURNOVER IS ONLY OF THE COMPUTER SOFTWARE FURTHER LENDS CREDENCE TO THIS PROPOSITION . IN FACT, IT IS THIS THAT HAS PREVAILED WITH THE TRIBUNAL IN THE DECISIONS RELIED UPON BY T HE ASSESSEE, AS RECENTLY IN THE CASE OF KERNEX MICRO SYSTEMS (INDIA) LTD . V. DY. CIT (IN ITA NOS. 882-885/HYD./2006 DATED 30/3/2012), RENDERED, RELYING ON THE DECISIONS BY I T IN THE CASE OF PATNI COMPUTER SYSTEMS LTD. VS. DY. CIT , 60 DTR 113 (PUNE) AND INFOSYS TECHNOLOGIES LTD V. DY. CIT ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 8 (2011) 45 SOT 157 (BANG.) . AS SUCH, IT IS ONLY THE BUSINESS OF COMPUTER SOFT WARE THAT IS TO BE TAKEN INTO ACCOUNT, SO THAT IT IS THE ENTIRE TURNOVER OF THIS BUSINESS, WHETHER DOMESTIC OR EXPORT, WHICH WOULD STAND TO BE INCLUDE D IN THE TOTAL TURNOVER. IN SUM, IT IS ONLY THE PROFITS OF THE SAID COMPUTER SOFTWARE BUSI NESS, AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, WHIC H REPRESENT THE QUALIFYING PROFITS AFORE- REFERRED, FOR THE PURPOSES OF EXPLANATION (D) TO THE SECTION AND, CORRESPONDINGLY, IT IS THE EXPORT AND THE TOTAL TURNOVER OF THIS BUSINESS ONLY THAT WOULD STAND TO BE CONSIDERED FOR APPORTIONMENT U/S. 80-HHE(3). 5.4 CONTINUING FURTHER, WE ARE AWARE THAT THE DE FINITION OF THE TERM PROFITS OF THE BUSINESS IS IDENTICAL TO THAT PROVIDED BY EXPLANATION (BAA) TO SECTION 80-HHC, WHEREIN THE SAID EXPRESSION HAS THOUGH BEEN UNIFORMLY UNDER STOOD AND WELL ACCEPTED TO MEAN THE PROFITS (OF ALL BUSINESSES) AS COMPUTED UNDER CHAPT ER IV-D OF THE ACT. AS SUCH, THERE OUGHT NOT TO BE, IT MAY WELL BE ARGUED, AND NOT WIT HOUT FORCE, ANY WARRANT FOR ACCORDING A DIFFERENT INTERPRETATION TO THE SAID TERM IN THE PARA MATERIA PROVISION OF S. 80-HHE. THIS IN FACT IS THE REVENUES CASE BEFORE US, PRESSED WI TH REFERENCE TO CERTAIN DECISIONS. IN THIS REGARD, TWO OBSERVATIONS WOULD BE PERTINENT, AND WH ICH HAVE LED US TO THE INTERPRETATION OF THE SAID TERM AS STATED HEREINABOVE. SECTION 80- HHC IS A GENERAL PROVISION ACCORDING A DEDUCTION QUA EXPORT OUT OF INDIA, WHICH COULD BE OF ANY GOODS O R MERCHANDISE EXCEPT THE COUNTRYS MINERAL RESOURCES, BEING SPECIFICALLY EXCLUDED FOR THE APPLICATION OF THE SECTION. AS SUCH, IT IS THE ASSESSEES PROFITS OF T HE ALL ITS BUSINESS, WHETHER DOMESTIC OR EXPORT, AND ACROSS ALL SUCH GOODS AND MERCHANDISE, WHICH WOULD STAND TO BE TAKEN INTO ACCOUNT OR COGNIZANCE FOR THE PURPOSE. SECTION 80-H HE, ON THE OTHER HAND, IS MUCH LIMITED IN ITS SCOPE, BEING CONFINED ONLY TO THE EX PORT OF COMPUTER SOFTWARE. SPEAKING CONTEXTUALLY, THEREFORE, WOULD IT NOT ONLY BE FAIR TO SUGGEST THE EXCLUSION OF TURNOVER OF SUCH EXCLUDED ITEMS, I.E., OF MINERAL OILS AND ORES , ASSUMING THE TURNOVER OF SUCH ITEMS BY THE ASSESSEE, IN COMPUTING THE TOTAL TURNOVER OR THE ADJUSTED TOTAL TURNOVER U/S. 80- HHC AS WELL ? AS SUCH, DRAWING A CORRECT PARALLEL, SO AS TO PROV IDE A MEANINGFUL AND ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 9 WORKABLE UNDERSTANDING TO THE PROVISION, LEADS US T O THE CONCEPT OR NOTION OF THE ELIGIBLE BUSINESS, I.E., THE COMPUTER SOFTWARE BUSINESS. NOT SO READ, IT MAY BE APPRECIATED, COULD LEAD TO ABSURD RESULTS . CONSIDER A CASE WHERE THE ASSESSEE IS ALSO IN TRA DING BUSINESS (DOMESTIC OR EVEN EXPORT) WITH A HUGE TURNOVER, ALB EIT A MARGINAL PROFIT OF (SAY) 1%, AS AGAINST A VERY HEALTHY PROFIT OF (SAY) 50% IN THE C OMPUTER SOFTWARE BUSINESS. CONSIDERING THE TWO TOGETHER, AS A LITERAL INTERPRETATION WOULD SUGGEST, SHALL CONSIDERABLY DILUTE THE BENEFIT SOUGHT TO BE PROVIDED TO THE COMPUTER SOFTW ARE ACTIVITY (WHERE IN RELATION TO EXPORT OUTSIDE INDIA). IT MAY ALSO BE NOTED THAT TH IS WOULD ALSO BE CONTRARY TO THE PRINCIPLE ADVOCATED IN THE CASE OF TESSITURA MONTI INDIA (P.) LTD. (SUPRA) THAT THE TURNOVER APPORTIONMENT FORMULA IS ONLY TOWARD FURTHER RESTRI CTING THE QUALIFYING PROFITS TO DETERMINE THAT DERIVED FROM EXPORTS. IT WOULD ALSO BE IN CLEAR CONFLICT WITH THE INTENT OF THE PROVISION IN PROVIDING BENEFIT ONLY TO THE SPEC IFIED ACTIVITY, I.E., EXPORT OF COMPUTER SOFTWARE, WHICH WOULD BE ENSURED BY RESTRICTING THE PROFITS TO THE ELIGIBLE BUSINESS, OTHER CONDITIONS, AS FOR EXAMPLE A POSITIVE GROSS TOTAL I NCOME, BEING SATISFIED. SIMILARLY, CONSIDER A CASE OF A LOSS IN THE SOFTWARE BUSINESS, WITH A HUGE PROFIT IN THE ASSESSEES SOME OTHER BUSINESS. WHILE THE SAID LOSS WOULD STAN D TO BE SET OFF AGAINST THE OTHER BUSINESS INCOME U/S.70, THE ASSESSEE MAY YET CONTEN D TO BE ELIGIBLE FOR DEDUCTION U/S.80- HHE ON THE BASIS OF THE FORMULA LAID DOWN U/S.80-HH E(3) IN VIEW OF THE NET POSITIVE TOTAL INCOME ASSESSABLE U/C. IV-D. IT IS ONLY WITH A VIEW TO CHECK SUCH ANOMALIES THAT MAY ARISE IN THE WIDE VARIETY OF BUSINESS SITUATION S, THAT HAS LED TO THE EVOLUTION OF THE CONCEPT OF THE ELIGIBLE BUSINESS, I.E., MANUFACTU RE OR TRADING IN COMPUTER SOFTWARE. IT MAY BE NOTED THAT WHILE SECTION 80- HHC HAS AN ELABORATE MECHANISM, IN SECTION 80-HHC(3), WITH REGARD TO INCOMPARABLE AND/ OR INCOMPATIBLE PROFIT RATIOS, CLASSIFYING THEM UNDER THE BROAD HEADS OF TRADING A ND MANUFACTURING ACTIVITY, NO SUCH DISTINCTION IS PROVIDED FOR U/S.80-HHE. WE HAVE ALS O NOTED THAT SECTION 80-HHC IS APPLICABLE TO, WITH A SINGLE EXCEPTION OF MINERAL O ILS & ORES, TO ALL BUSINESSES. SEC. 80- HHC IS, WITHOUT DOUBT, A SECTION PROVIDED TO ENCOUR AGE EXPORTS, SO THAT IT IS THE EXPORT OF ALL THE BUSINESSES AND, CORRESPONDINGLY, THE TURNOV ER OF ALL THE BUSINESSES, WHICH WOULD ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 10 HAVE TO BE TAKEN INTO ACCOUNT TO DETERMINE THE PROF IT RELATABLE TO EXPORTS. IN FACT, IT IS SUCH LIKE CONSIDERATIONS, AND THE ENSUING ANOMALY IN THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE GIVEN CASE, THAT HAS LED THE HON'BLE HIGH COURT S TO HOLD THAT IT IS ONLY THE RELEVANT TURNOVER, I.E., OF THE RELEVANT BUSINESS, WHOSE PRO FITS ARE UNRELATED TO THE ASSESSEES OTHER UNDERTAKING/S, WHICH IS TO BE CONSIDERED FOR THE PU RPOSE OF DEDUCTION EVEN IN THE CONTEXT OF SECTION 80-HHC, SO THAT IT IS ONLY THE PROFITS A ND TURNOVER OF THIS BUSINESS THAT IS TO BE CONSIDERED. IT WOULD ALSO BE PERTINENT TO MENTION T HAT IT IS ONLY TO NEUTRALIZE (TO WHATEVER EXTENT) SUCH ANOMALIES THAT STAND TO ARISE IN THE W IDE VARIETY OF BUSINESS SITUATIONS, I.E., AS ARISING FROM THE GENERALIZED PRESCRIPTION OF THE RATIO OF EXPORT TURNOVER TO THE TOTAL TURNOVER, THAT PRECEDED THE EXTANT SECTION 80-HHC(3 ), I.E., AS IT STOOD PRIOR TO ITS SUBSTITUTION (BY FINANCE ACT, 1990 W.E.F 01/4/1991, AND BY FINANCE (NO.2) ACT, 1991, W.E.F. 01.04.1992), THAT LED THE LEGISLATURE TO EFF ECT WHOLESALE CHANGES IN THE SAID SUB- SECTION (3) THEREOF. THE SAID CHANGES MUST BE CONSI DERED AS A LEGISLATIVE RESPONSE TO THE SAID PROBLEM/S, WHICH THUS STAND TAKEN NOTE OF AND CONSIDERED. T HIS WOULD ALSO MEET THE REVENUES RELIANCE ON THE DECISION BY THE HONBLE K ERALA HIGH COURT IN THE CASE OF PARRY AGRO INDUSTRIES LTD . (SUPRA), WHICH CLARIFIES THAT IT IS NOT POSSIBLE T O INTERPRET THE TERM TOTAL TURNOVER SO AS TO EXCLUDE THE TURNOVER OF S OME OR ANY OF THE ASSESSEES BUSINESSES, AS THAT WOULD AMOUNT TO REWRITING THE LEGISLATION, WHICH THE COURTS, NOT TO SPEAK OF THE TRIBUNALS, ARE INCOMPETENT TO DO. IN FACT, EVEN GRA NTING THAT THE HONBLE COURTS OF LAW COULD DO SO, IT IS HIGHLY SUSPECT IF THE TRIBUNALS COULD READ DOWN THE LAW. HOWEVER, IT NEEDS TO BE APPRECIATED THAT THE DECISION BY THE HO NBLE HIGH COURT IN THE CASE OF PARRY AGRO INDUSTRIES LTD . (SUPRA) IS FOR AY 1989-90, I.E., BEFORE THE AMENDM ENT AFORE-STATED TO SEC. 80HHC(3), SO THAT THE LEGISLATURE HAD DULY RES PONDED TO ADDRESS THE GENUINE CONCERNS OF THE TRADE AS WELL AS THE ANOMALIES THAT STOOD TO ARISE, GIVEN THE SIMPLE APPORTIONMENT FORMULA (THE APPLICATION OF THE RATIO OF EXPORT TURNOVER TO THE TOTAL TURNOVER) PROVIDED FOR PRIOR TO THE AMENDMENT/S. TH AT BEING THE CASE, IT WAS THUS NO LONGER OPEN FOR THE ASSESSEES TO CONTEND OF ANY SUB SISTING CONTROVERSY OR ANOMALY IN THIS REGARD; THE PROVISION HAVING BEEN SUITABLY AMENDED BY THE LEGISLATURE KEEPING IN VIEW ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 11 PRECISELY THIS GRIEVANCE. IN OTHER WORDS, THE PROVI SION, BEING OTHERWISE UNAMBIGUOUSLY WORDED, COULD NO LONGER BE ASSAILED FOR BEING ARBIT RARY OR GROTESQUE IN ITS APPLICATION POST ITS AMENDMENT/S AFORESAID. NOT ONLY THESE BACK GROUND FACTS AND DEVELOPMENTS, LEADING TO THE RELEVANT AMENDMENTS TO SEC. 80HHC(3) , A COGNATE PROVISION TO SEC. 80HHE(3), ENABLE US TO APPRECIATE AND READ THE DECI SION BY THE HONBLE KERALA HIGH COURT IN ITS PROPER PERSPECTIVE, BASED AS IT IS ON UNASSAILABLE TENETS OF LAW WITH REGARD TO INTERPRETATION OF STATUTES, THESE CANNOT BE LOST SI GHT OF WHILE INTERPRETING THE LATTER PROVISION, WHICH THOUGH DEALING WITH A SIMILAR SET OF FACTS, REMAINS UNAMENDED. THIS WOULD ALSO, IN OUR VIEW, TAKE CARE OF THE CHARGE OF HAVING READ DOWN A PROVISION OF LAW, INCLUDING WITH REGARD TO THE TRIBUNALS COMPETENCE TO DO SO. CONCLUSION 6. A REVIEW OF THE PROVISION SHOWS THAT IT IS ONLY THE PROFITS OF THE ELIGIBLE BUSINESS, TO THE EXTENT THEY ARE FROM OR ATTRIBUTABLE TO EXPORT OUT OF INDIA, WHICH ARE SUBJECT TO DEDUCTION UNDER THE SECTION. NO DOUBT, THEREFORE, B OTH GLOBAL PROFITS AND GLOBAL TURNOVER COULD BE CONSIDERED FOR APPLYING THE PROPORTIONATE TURNOVER FORMULA IN DETERMINING THE RELEVANT PROFIT, AS INDEED THE LANGUAGE OF THE PROV ISION SUGGESTS. HOWEVER, SUCH A COURSE IS FRAUGHT WITH SERIOUS ABERRATIONS, LEADING TO DED UCTION BEING ALLOWED ON NON-ELIGIBLE PROFITS ON ONE HAND, AND BEING DENIED ON THE ELIGIB LE PROFIT, ON THE OTHER. THIS IS IN VIEW OF NON SEGREGATION OF THE PROFITS ON THE BASIS OF A CTIVITY, OR EVEN BROADLY, I.E., ON THE BASIS OF TRADING AND MANUFACTURING SECTORS, WHICH WE FIND TO HAVE BEEN THE LEGISLATIVE RESPONSE IN RESPECT OF THE PARA MATERIA PROVISION OF S. 80-HHC BY FINANCE ACT, 1990 AND FI NANCE (NO.2) ACT, 1991, WHICH ALSO BORE A SIMILAR COMPUTA TION FORMULA BASED ON THE RATIO OF THE RELEVANT TURNOVER, INTRODUCING SOME SEGREGATION IN THE COMPUTATION MECHANISM OF S. 80- HHC(3) AND, CORRESPONDINGLY, CONCEPTS SUCH AS ADJU STED PROFITS AND ADJUSTED TOTAL TURNOVER. THE PROVISION OF S. 80-HHE(3), HOWEVER, HAS REMAINED UNCHANGED, SO THAT THE STRUCTURAL INFIRMITY OBTAINS. IT IS THIS RATIONALIZ ATION THAT HAS GUIDED THE TRIBUNAL IN INTERPRETING THE PROVISION IN A MANNER CONSISTENT W ITH THE INTENT OF ACCORDING THE BENEFIT ITA NO. : 5557/MUM/2011 (A.Y. 2003-04) DATAMATICS GLOBAL SERVICES LTD. V. DY. CIT. 12 THERE-UNDER ONLY TO THE PROFITS FROM THE SPECIFIED, QUALIFYING ACTIVITY. ACCORDINGLY, IT IS ONLY THE PROFITS OF THE ASSESSEES COMPUTER SOFTWAR E BUSINESS, CHRISTENED AS THE ELIGIBLE BUSINESS, THAT WOULD STAND TO BE APPORTIONED U/S.8 0-HHE(3). AS A NATURAL COROLLARY, IT IS ONLY THE TOTAL TURNOVER OF SUCH ELIGIBLE BUSINESS T HAT WOULD STAND TO BE TAKEN IN THE DENOMINATOR FIGURE, WITH THE EXPORT TURNOVER HAVING BEEN ALREADY DEFINED TO BE THE QUALIFYING EXPORT TURNOVER OF SUCH BUSINESS ONLY. T HE ASSESSEES MANNER OF COMPUTATION OF DEDUCTION U/S. 80-HHE, THUS, MERITS APPROVAL. WE MAY BEFORE PARTING WITH THE ORDER, ALSO CLARIFY THAT IN ARRIVING AT THE SAID DECISION, WE HAVE DULY PERUSED AND CONSIDERED ALL THE DECISIONS CITED BY BOTH THE PARTIES, EVEN AS A SPECIFIC REFERENCE TO SOME OF THEM MAY NOT HAVE FOUND PLACE IN OUR DISCUSSION, FINDING IT AS BEING COVERED BY THE RATIO OF OTHER DECISIONS, OR AS BEING NOT DIRECTLY ON THE POINT. N O INFERENCE AS TO OUR HAVING NOT CONSIDERED THOSE DECISIONS, THUS, MAY BE DRAWN. WE DECIDE ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEES APPEAL IS A LLOWED. SD/- - SD/- (D. MANMOHAN) (SANJAY ARORA) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATE: 08.03.2013 COPY FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. CONCERNED 4. THE CIT (A) 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI RASIKA/ROSHANI*
