GE India Exports Private Limited, Bangalore V. ACIT, Bangalore

ITA 690/BANG/2011

• Counselvise Citation: 69021114 RSA 2011
• Duration Of Justice: 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 28-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIII
• Assessee Lawyers: VIKAS BAHETI
• Keywords: Business income; Question of law
• Section: 143(3); 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.690/BANG/2011 ASSESSMENT YEAR : 2006-07 M/S. G.E. INDIA EXPORTS PRIVATE LTD., [FORMERLY GE POWER CONTROLS INDIA (P) LTD.] 42/1 & 45/14, ELECTRONIC CITY, PHASE II, BANGALORE 561 229. PAN : AABCG 1257B VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(3), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI VIKAS BAHETI, C.A. RESPONDENT BY : SHRI ETWA MUNDA, CIT-III (DR) DATE OF HEARING : 22.05.2012 DATE OF PRONOUNCEMENT : 22.05.2012 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 28.02.2011 OF THE CIT(APPEALS)-I, BANGALORE. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEA L:- ITA NO.690/BANG/11 PAGE 2 OF 7 1. THAT THE ORDER PASSED BY THE COMMISSIONER OF I NCOME-TAX (APPEALS)-I, BANGALORE (HEREINAFTER REFERRED TO AS CIT(A)) UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961 (THE ACT) IS PERVERSE, ERRONEOUS ON FACTS AND BAD IN LAW. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ORDER OF THE LD. ACIT (HEREINAFTER REFERRED TO AS ASSESSING OFFICER OR AO) OF REDUCING THE LEASED LINE EXPENSES OF RS.2,05,27,551 AND FREIGHT EXPENSES OF RS.1,113,205 FROM THE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION U/S 10A AND L0B OF THE ACT. 3.1 WITHOUT PREJUDICE TO ABOVE, EVEN ASSUMING BUT NOT ADMITTING THAT THE ABOVE LEASED LINE CHARGES AND FR EIGHT EXPENSES ARE TO BE REDUCED FROM EXPORT TURNOVER, THE LD. C IT(A) ERRED IN UPHOLDING THE ORDER OF THE AO OF NOT REDUCING THE S AID EXPENSES FROM THE TOTAL TURNOVER OF THE UNDERTAKING WHILE COMPUTING THE DEDUCTION U/S 10A AND L0B OF THE ACT RESPECTIVELY. 3.2 THAT THE LD CIT(A) ERRED IN UPHOLDING THE ORDE R OF THE AO, DENYING THE RATIO LAID DOWN IN THE CONTEXT OF S ECTIONS 8OHHC AND 8OHHE, IN THE VARIOUS JUDICIAL PRONOUNCEM ENTS THAT A REDUCTION FROM EXPORT TURNOVER WARRANTS A CORRESP ONDING REDUCTION FROM THE TOTAL TURNOVER ALSO. 3.3 THAT THE LD CIT(A) ERRED IN UPHOLDING THE ORDE R OF THE AO, DENYING THAT SECTIONS 10A / L0B OF THE ACT AND SECTIONS 8OHHC / 8OHHE OF THE ACT ARE PARA MATERIA SIMILAR A ND HENCE DEFINITION OF TOTAL TURNOVER AS PROVIDED IN SECTION S 80HHC / 8OHHE IS APPLICABLE IN THE CONTEXT OF SECTIONS 10A / L0B OF THE ACT. 3. FROM THE ABOVE GROUNDS IT IS GATHERED THAT THE O NLY GRIEVANCE OF THE ASSESSEE RELATES TO CONFIRMATION OF THE ACTION OF T HE AO BY THE LD. CIT(A) IN REDUCING THE LEASED LINE EXPENSES OF Q 2,05,27,551 AND FREIGHT EXPENSES OF Q 11,13,205 FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S. 10A & 10B OF THE ACT. 4. THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F ELECTRICAL DISTRIBUTION ITA NO.690/BANG/11 PAGE 3 OF 7 AND CONTROL EQUIPMENT, DEVELOPMENT, SALE AND EXPORT OF COMPUTER SOFTWARE, IT ENABLED SERVICES AND SOFTWARE RELATED SERVICES. THE ASSESSEE FILED RETURN OF INCOME ON 29.11.2006 DECLARING A TO TAL INCOME OF Q 9,97,259 WHICH WAS PROCESSED U/S. 143(1) OF THE INCOME-TAX A CT, 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT]. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT U/S. 143(3) OF THE ACT REDUCED THE COMMUNICATION EXPENSES OF Q 2,05,27,551 ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE IN DIA FROM EXPORT TURNOVER FOR THE PURPOSES OF COMPUTING DEDUCTION U/S. 10A. THE AO ALSO REDUCED THE FREIGHT EXPENSES OF Q 11,13,205 ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE INDIA FROM THE EXPORT TURNOVER FOR THE PURP OSES OF COMPUTING DEDUCTION U/S. 10B OF THE ACT. 5. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A ), WHO CONFIRMED THE ACTION OF THE AO BY OBSERVING THAT SECTION 80HHC AN D 80HHE ARE CONTEXTUALLY DIFFERENT FROM SECTION 10A & 10B AND T HEREFORE THE EXPLANATION GIVEN FOR TOTAL TURNOVER COULD NOT BE APPLIED IN THE CONTEXT OF COMPUTATION OF DEDUCTION U/S. 10A & 10B BECAUSE THE SAME WOULD BE AGAINST THE LEGISLATIVE INTENTION OF PAYMENT OF SOME TAX EVEN I N CASE OF A 100% EOU/ STPI UNIT DOING NO DOMESTIC BUSINESS BROUGHT THROUG H AMENDMENT BY FINANCE ACT, 2000 W.E.F. 1.4.2001. 6. NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS BENCH OF THE TRIBU NAL IN ASSESSEES OWN CASE IN ITA NOS. 185 TO 187/BANG/2010 FOR THE ASSES SMENT YEARS 2002-03 TO 2004-05, COPY OF THE SAID ORDER DATED 15.07.2011 WAS FURNISHED. IT ITA NO.690/BANG/11 PAGE 4 OF 7 WAS FURTHER STATED THAT NOW THE HONBLE JURISDICTIO NAL HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY JUDG MENT DATED 02.11.2011 IN ITA NO.153 OF 2011 IN THE CASE OF M/S. SITEL OPE RATING CORPORATION INDIA LTD. 7. 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. 8. 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 THE C ASE OF M/S. SITEL OPERATING CORPORATION INDIA LTD. BY THE HONBLE JUR ISDICTIONAL HIGH COURT VIDE JUDGMENT DATED 02.11.2011 IN ITA NO.153 OF 201 1, WHEREIN BY FOLLOWING ITS EARLIER JUDGMENT 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 O RDER DATED 02.11.2011, WHICH 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 ITA NO.690/BANG/11 PAGE 5 OF 7 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, 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] ITA NO.690/BANG/11 PAGE 6 OF 7 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. 9. 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 JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO CASE OF M/S. SITEL OPERATING CORPORATION INDIA LTD., ITA NO.153 OF 201 1 (SUPRA). WE THEREFORE SET ASIDE THE IMPUGNED ORDER OF THE LD. C IT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF MAY, 2012. SD/- SD/- ( SMT. P. MADHAVI DEVI ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 22 ND MAY , 2012. DS/- ITA NO.690/BANG/11 PAGE 7 OF 7 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.