DCIT, Bangalore V. M/s Robert Bosch Engineering and Business Solutions Ltd., Bangalore

ITA 588/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57489 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 19-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMBASTHA CITI
• Keywords: Business income
• Section: 143(3); 80HHC; 10B; 10

Judgement Text

PAGE 1 OF 8 ITA NO.5 88/BANG/2011 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BEFORE SHRI N K SAINI, ACCOUNANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.588/BANG/2011 (ASST. YEAR 2007-08) THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, BANGALORE. VS M/S ROBERT BOSCH ENGINEERING AND BUSINESS SOLUTIONS LTD., NO.123, INDUSTRIAL LAYOUT, KORAMANGALA, HOSUR ROAD, BANGALORE-95. PA NO.AAACR7108R (APPELLANT) (RESPONDENT) DATE OF HEARING 16.02.2012 DATE OF PRONOUNCEMENT 16.02.2012 APPELLANT BY : SHRI AMBASTHA, CIT-I RESPONDENT BY : NONE O R D E R PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), LTU, BANGALORE DATED 22.03 .2011. THE RELEVANT ASSESSMENT YEAR IS 2007-08. 2. THE SOLITARY ISSUE THAT ARISES FOR CONSIDERATION IS WHETHER THE CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFI CER TO EXCLUDE TELECOMMUNICATION CHARGES AND EXPENSES IN FOREIGN C URRENCY FROM BOTH THE EXPORT TURNOVER AND THE TOTAL TURNOVER IN COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. PAGE 2 OF 8 ITA NO.5 88/BANG/2011 2 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE B USINESS OF DEVELOPMENT OF SOFTWARE, DEALING IN AUTOMOTIVE COMP ONENTS, ETC. FOR THE CONCERNED ASSESSMENT YEAR, RETURN OF INCOME WAS FILE D ON 29/10/2007 DECLARING INCOME OF RS.3,94,54,689/-. THE SCRUTINY ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED VIDE ORDER DATED 22/12 /2010 DETERMINING THE TOTAL INCOME AT RS.24,57,22,377/-. IN THE SCRUTINY ASSESSMENT, DEDUCTION UNDER SECTION 10A OF THE ACT WAS REDUCED TO RS.81,6 2,37,207/- FROM RS.102,24,99,897/- CLAIMED BY THE ASSESSEE. THE ASS ESSING OFFICER RE- COMPUTED THE DEDUCTION UNDER SECTION 10A BY EXCLUDIN G THE FOLLOWING ITEMS FROM THE EXPORT TURNOVER, NAMELY, > TELECOMMUNICATION CHARGES RS.7,76,45,192/- > EXPENDITURE INCURRED IN FOREIGN EXCHANGE RS.92,43 ,87,701/- THE ASSESSING OFFICER HOWEVER DID NOT REDUCE THE AB OVE SAID EXPENSES FROM THE TOTAL TURNOVER (DENOMINATOR) WHILE COMPUTING TH E DEDUCTION UNDER SECTION 10A OF THE ACT. 4. AGGRIEVED BY THE RE-COMPUTATION OF DEDUCTION UND ER SECTION 10A OF THE ACT, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5. IT WAS CONTENDED BEFORE THE FIRST APPELLATE AUT HORITY THAT THE ABOVE SAID EXPENSES SHOULD NOT BE REDUCED FROM THE EXPORT TURNOVER. ALTERNATIVELY, IT WAS ARGUED THAT IF THE EXPENSES AR E REDUCED FROM THE EXPORT TURNOVER, THE AMOUNT SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. IN SUPPORT OF PAGE 3 OF 8 ITA NO.5 88/BANG/2011 3 ASSESSEES ALTERNATIVE CONTENTION, THE ASSESSEE REL IED ON THE FOLLOWING ORDERS OF THE TRIBUNAL :- TATA ELXSI LTD. V ACIT 115 TTJ 423; ADITI TECHNOLOGIES PVT. LTD. V ITO (ITA NO.425 & 42 6/BANG/2009); ITO V MOTOROLA INDIA (P) LTD. (ITA NO.645/BANG/2008 ) & DCIT V DAIMLER CHRYSLER RESEARCH & TRAINING INDIA ( P) LTD. (ITA NO.1179/BANG/2008) THE ASSESSEES COUNSEL ALSO RELIED ON THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO V M/S SAK SOFT LTD. REP ORTED IN 313 ITR (AT) 353. 6. THE CIT(A) FOLLOWING THE DICTUM LAID DOWN BY THE HONBLE SPECIAL BENCH (SUPRA) DECIDED THE ALTERNATIVE CONTE NTION IN FAVOUR OF THE ASSESSEE. 7. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. 8. NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. 9. THE LEARNED DR SUPPORTED THE ORDER OF THE ASSES SING OFFICER. 10. WE HAVE HEARD THE LEARNED DR AND PERUSED THE M ATERIALS ON RECORD. THE HONBLE KARNATAKA HIGH COURT IN THE CA SE OF CIT V M/S TATA ELXSI LTD. & OTHERS (2011-TIOL-684-HC-KAR-II) HAD H ELD THAT WHILE COMPUTING THE EXEMPTION U/S 10A, IF THE EXPORT TURN OVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER (DENOMINATOR). THE RELEVANT FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT READS AS FOLLOWS: - PAGE 4 OF 8 ITA NO.5 88/BANG/2011 4 ..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; ..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 ASSXCESSEE, WHEREAS IN SECTION 10-A, THE EXPORT PRO FIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERT AKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING, IT MAY PAGE 5 OF 8 ITA NO.5 88/BANG/2011 5 INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN O THER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. TO T HE EXTENT OF EXPORT TURNOVER, THERE WOULD BE A COMMONA LITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IF THE EXPORT TURNOVER IN THE NUMERATOR I S 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 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 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. 10.1 THE HONBLE MUMBAI HIGH COURT IN THE CASE OF G EM PLUS JEWELLERY INDIA LTD. (330 ITR 175), IN IDENTICAL CIRCUMSTANCE S, HELD THAT SINCE THE EXPORT TURNOVER FORMS PART OF THE TOTAL TURNOVER, I F AN ITEM IS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE R EDUCED FROM THE TOTAL PAGE 6 OF 8 ITA NO.5 88/BANG/2011 6 TURNOVER TO MAINTAIN PARITY BETWEEN NUMERATOR AND DE NOMINATOR WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. THE RELE VANT FINDING OF THE HONBLE MUMBAI HIGH COURT READS AS FOLLOWS:- 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 CONS TITUENT ELEMENT OF THE DENOMINATOR IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. THE EXPO RT TURNOVER, IN THE NUMERATOR MUST HAVE THE SAME MEANI NG AS THE EXPORT TURNOVER WHICH IS CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION EXPORT TUR NOVER IN EXPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERT AKING OF ARTICLES, THINGS OR COMPUTER SOFTWARE RECEIVED I N OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FO REIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGH T, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES, THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGI SLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURA NCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BE HALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHA RGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER, A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE, HOWEVER, MISSES THE POINT THAT THE EXPRESSION TOTAL TURNOVER HAS NOT BEEN D EFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF S.10A. HOW EVER, THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGHT AN D INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FRE IGHT AND INSURANCE, THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE PAGE 7 OF 8 ITA NO.5 88/BANG/2011 7 TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS OPEN TO PARLIAMENT TO MAKE A PROVISION WHICH HAS BEEN ENUNCIATED EARLIER MUST PR EVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OT HER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE C ONTENTION OF THE REVENUE WERE TO BE ACCEPTED, THE SAME EXPRES SION VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNO TATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSIO N OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH THESE HAVE BEEN SPECIFICALLY EXCLU DED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUME RATOR WOULD BE BROUGHT IN AS PART OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMIN ATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISIO N WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVE R, A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NO T HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTA L TURNOVER. FREIGHT AND INSURANCE CHARGES DO NOT HAV E ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION, THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURN OVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRI PTION TO THE CONTRARY CIT V SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) 163 CTR (BOM) 596: (2000) 245 ITR 769 (BOM) APPLIED; CIT V LAKSHMI MACHINE W ORKS (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) AND CIT V CATAPHARMA (IN DIA) (P) LTD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON 10.2. IN THE CASE OF SAK SOFT LTD. REPORTED IN 313 ITR 353, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXPORTING C OMPUTER SOFTWARE AND CLAIMED DEDUCTION U/S 10B OF THE ACT. IN COMPLETIN G THE ASSESSMENT U/S 143(3) OF THE ACT, THE AO REDUCED THE EXPENDITURE I NCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSID E INDIA, FROM THE EXPORT TURNOVER WITHOUT CORRESPONDING REDUCTION FROM TOTAL TURNOVER, THEREBY REDUCING THE DEDUCTION CLAIMED BY THE ASSESSMENT U/S 10B OF THE ACT. PAGE 8 OF 8 ITA NO.5 88/BANG/2011 8 10.3. IN LIGHT OF THE ABOVE FACTS, THE SPECIAL BEN CH HELD AS UNDER:- FOR THE ABOVE REASONS, WE HOLD THAT FOR THE PURPOS E OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTIO N 10B, THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTA BLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN F OREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSID E INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AN D FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. THE APPEAL S FILED BY THE DEPARTMENT ARE THUS DISMISSED. 10.4 IN THE LIGHT OF THE ABOVE JUDGEMENTS OF THE H ONBLE HIGH COURTS & THE ORDER OF THE SPECIAL BENCH (SUPRA), WE HOLD THAT THE CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO EXC LUDE THE ABOVE MENTIONED EXPENDITURE BOTH FROM THE EXPORT TURNOVER AS WELL A S FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION UNDER SECTION 10A OF THE ACT. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DAY OF FEBRUARY, 2012 SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.