ITO, Bangalore V. M/s Sunquest Information Systems P. Ltd., Bangalore

ITA 697/BANG/2011

• Counselvise Citation: 69721114 RSA 2011
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 30-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SARAVANAN
• Assessee Lawyers: AMIT KUMAR
• Keywords: Business income
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N.BARATHVAJA SANKAR, VICE-PRESIDENT AND SMT. P.MADHAVI DEVI, JUDICIAL MEMBER ITA NO.697(BANG)/2011 (ASSESSMENT YEAR: 2006-07) INCOME-TAX OFFICER, WARD 12(2), BANGALORE. VS. APPELLANT M/S.SUNQUEST INFORMATION SYSTEMS P.LTD. I FLOOR, EAGLE RIDGE, EGL BUSINESS PARK, OFF INTERMEDIATE RING ROAD BANGALORE-560071 RESPONDENT PAN:AAECS 2754 E APPELLANT BY: SHRI B.SARAVANAN, JCIT RESPONDENT BY : SHRI AMIT KUMAR, C.A. DATE OF HEARING: 07-03-2012 DATE OF PRONOUNCEMENT: 07-03-2012 O R D E R PER N.BARATHVAJA SANKAR, VP: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-III, BANGALORE, DATED 22-2-2011 IN THE CASE OF M/S.SUNQUEST INFORMATION SYSTEMS (INDIA) P.LTD. FOR THE ASSESSMENT YEAR 2006-07. 2. THE ONLY POINT AT ISSUE BROUGHT BEFORE US FOR ADJUDICATION IS WHETHER THE CIT(A) IS ERRED IN LAW IN DIRECTING THE AO TO EXCLUDE DATA UPLINKING CHARGES OF `69,52,623/- FROM ITA 697(BANG)/2011 PAGE 2 OF 5 THE TOTAL TURNOVER ALSO FOR THE PURPOSE OF COMPUTIN G DEDUCTION U/S 10A OF THE INCOME-TAX ACT, 1961 [HEREINAFTER RE FERRED TO AS 'THE ACT'] . 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONS IDERATION DECLARING A TOTAL INCOME OF `41,893/- AFTER CLAIMIN G DEDUCTION U/S10A OF THE ACT. THE AO RECOMPUTED THE DEDUCTION U/S 10A AFTER EXCLUDING DATA UPLINKING CHARGES FROM THE EX PORT TURNOVER AND NOT FROM THE TOTAL TURNOVER OF THE AS SESSEE. AS A RESULT OF SUCH RE-COMPUTATION, THE ASSESSEES CLAIM FOR DEDUCTION U/S 10A AMOUNTING TO `4,90,38,846/- WAS R EDUCED TO `4,79,28,394/-. BEING AGGRIEVED, ASSESSEE PREFERRE D AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE FIRST APP ELLATE AUTHORITY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S.SAK SOFT LTD., AND ALSO THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD., DIRECTED THE AO TO EXCLUDE THE EXPENDITURE INCURRED BY THE A SSESSEE TOWARDS DATA UPLINKING CHARGES OF `69,52,623/- FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER FOR THE PURPOSE OF COMP UTATION OF DEDUCTION U/S 10A OF THE ACT. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. 4. THOUGH IT IS REVENUES APPEAL, LEARNED CHARTERE D ACCOUNTANT APPEARING FOR THE ASSESSEE, SUBMITTED TH AT THE POINT AT ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE A SSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE CIT VS. M/S.TATA ELXSI LTD. & OTHERS (2011-TIOL-684-HC-KAR-II). LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO ADMITT ED THAT ITA 697(BANG)/2011 PAGE 3 OF 5 THE ISSUE IS COVERED BY THE DECISION OF THE JURISDI CTIONAL HIGH COURT. 5. WE HAVE HEARD THE PARTIES AND GONE THROUGH THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS. M/S.TATA ELXSI LTD. & OTHERS (SUPRA) WHEREIN THE HONBLE KARNATAKA HIGH COURT HAD HELD THAT WHILE COMPUTING THE EXEMPTION U/S 10A, IF THE EXPORT TURNOVER IN THE NU MERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER A S A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE RELEVANT FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT RE ADS 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 EXCHANGE FOR THE COUNTRY. THIS ASPECT HAS TO BE BORNE IN MIND. WH ILE COMPUTING THE CONSIDERATION RECEIVED FROM SUCH EXPO RT TURNOVER, THE EXPENSES INCURRED TOWARDS FREIGHT, TELECOMMUNICATION CHARGES, OR INSURANCE ATTRIBUTABL E TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFT WARE OUTSIDE INDIA, OR EXPENSES IF ANY INCURRED IN FOREIGN EXCH ANGE, IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA SHOU LD NOT BE INCLUDED. HOWEVER, THE WORD TOTAL TURNOVER IS NOT DEFINED FOR THE PURPOSE OF THIS 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 TURNOV ER IS NOT DEFINED, THERE IS NO CLUE REGARDING WHAT IS TO BE EXCLUDED ITA 697(BANG)/2011 PAGE 4 OF 5 WHILE ARRIVING AT THE TOTAL TURNOVER. HOWEVER, WHI LE INTERPRETING THE PROVISIONS OF SECTION 80HHC, THE C OURTS HAVE LAID DOWN VARIOUS PRINCIPLES, WHICH ARE INDEPENDENT OF THE STATUTORY PROVISIONS. THERE SHOULD BE UNIFORMITY I N THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINAT OR OF THE FORMULA, SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10A IS A BENEFICIAL SECTIO N WHICH INTENDS TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS, THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINE SS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON T HE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS O F TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROF ITS. IN THE CASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE D ERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSESSEE, WHEREAS IN SECTION 10-A, THE EXPORT PROFIT IS TO BE DERIVED FROM THE T OTAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS O F AN UNDERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOM ESTIC BUSINESS, IN OTHER WORDS, EXPORT TURNOVER AND DOMES TIC TURNOVER. TO THE EXTENT OF EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINAT OR OF THE FORMULA. IF THE EXPORT TURNOVER IN THE NUMERAT OR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SA ME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER A S A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. TH E REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN SECTI ON 10A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT, WHA T IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. WHEN T HE STATUTE ITA 697(BANG)/2011 PAGE 5 OF 5 PRESCRIBED A FORMULA AND IN THE SAID FORMULA, EXPO RT TURNOVER IS DEFINED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO TH E EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER, WH EN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT I S 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, TH ERE IS NO ERROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JU DGMENTS RENDERED IN THE CONTEXT OF SECTION 80HHC IN INTERPR ETING SECTION 10A WHEN THE PRINCIPLE UNDERLYING BOTH THES E PROVISIONS IS ONE AND SAME. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE AP PEAL OF THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH MARCH, 2012. SD/- SD/- (SMT. P.MADHAVI DEVI) JUDICIAL MEMBER (N.BARATHVAJA SANKAR) VICE-PRESIDENT