ITO, Bangalore V. M/s Symbian Software India Pvt. Ltd., Bangalore

ITA 704/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57564 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 01-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BALARAM R RAO
• Section: 143(3); 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE B EFORE SHRI N.K SAINI, ACCOUNTANT MEMBER AND SMT. P MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 704/BANG/2011 ASSESSMENT YEAR : 2006-07 THE INCOME TAX OFFICER, CIRCLE 12(2), BANGALORE. VS. M/S SYMBIAN SOFTWARE (I) PVT. LTD., SJR IPARK, 6 TH FLOOR, MOBIUS BLOCK, EPIP AREA, WHITEFIELD, BANGALORE 560 066. PAN: AAICS 7826 B. APPELLANT RESPONDENT APPELLANT BY : SHRI SARAVANAN, JCIT RESPONDENT BY : SHRI BALARAM R RAO, ADVOCATE DATE OF HEARING : 29.03.2012 DATE OF PRONOUNCEMENT : 29.03.2012 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE O RDER DATED 22.02.2011 OF THE CIT(APPEALS)-III, BANGALORE. 2. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL READS AS UNDER: 2. THE CIT(A) ERRED IN LAW IN DIRECTING THE AO TO EXCLUDE THE DATA UPLINKING CHARGES OF RS.2,67,66,421/- FROM TOT AL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE I .T ACT, 1961. ITA NO.704/BANG/2011 PAGE 2 OF 5 3. THE FACTS OF THE CASE RELATING TO THE ISSUE UNDE R CONSIDERATION IN BRIEF ARE THAT THE ASSESSEE FILED ITS RETURN OF INC OME ON 25.10.2006 DECLARING TOTAL INCOME OF RS.1,50,607/- AFTER CLAIM ING DEDUCTION U/S 10A OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO A S THE ACT IN SHORT]. THE CASE WAS SUBSEQUENTLY SELECTED FOR SCRUTINY AND THE AO FRAMED THE ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT ON 25.1 2.2009, WHEREIN THE DEDUCTION ALLOWABLE U/S 10A OF THE ACT WAS RECOMPUT ED AFTER REDUCING DATA UPLINKING CHARGES ONLY FROM THE EXPORT TURNOVER OF THE ASSESSEE AND NOT FROM THE TOTAL TURNOVER. AS A RESULT OF SUCH RECOM PUTATION, DEDUCTION U/S 10A OF THE ACT AMOUNTING TO RS.1,74,90,602/- CLAIME D BY THE ASSESSEE WAS REDUCED TO RS.1,52,89,903/- THE DIFFERENCE OF RS.22,00,699/- WAS TREATED AS INCOME FROM BUSINESS. 4. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED C IT(A), WHO DIRECTED THE AO TO REDUCE THE EXPENSES IN QUESTION FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER. THE RELEVANT FINDINGS HAS BEEN GIVEN BY THE LEARNED CIT(A) IN PARA 5.7 AND 5.8 OF THE IMPUGNED ORDER, WHICH READ AS UNDER:- 5.7. I HAVE PERUSED THE ORAL AND WRITTEN SUBMISSI ONS FURNISHED BY THE APPELLANTS ARS. I FIND THAT THE TRIBUNAL I N THE DECISIONS RELIED ON BY THE APPELLANT AND REFERRED TO AT PRECEDING PA RAGRAPHS OF THIS ORDER HAS HELD, IN PRINCIPLE, THAT EXPENSES REDUCED FROM THE DECLARED EXPORT TURNOVER AS PER THE RELEVANT PROVISIONS ARE ALSO TO BE REDUCED FROM THE TOTAL TURNOVER FOR THE PURPOSES OF COMPUTI NG THE DEDUCTION U/S 10A OF THE INCOME-TAX ACT, 1961. I FIND THAT T HE FACTS AND CIRCUMSTANCES OF THE CASE AT HAND IS SIMILAR TO THO SE OF THE DECISIONS RELIED ON BY THE APPELLANT. I ALSO FIND THE FACTS PRESENTED BY THE APPELLANT ARE SIMILAR TO THE DECISION BY HONBLE HI GH COURT OF BOMBAY IN THE CASE OF M/S GEMPLUS JEWELLERY INDIA L TD., (233 CTR (BOM) 248). THE HONBLE HIGH COURT HELD THAT : THE SUBMISSION OF THE REVENUE WOULD LEAD TO A S ITUATION WHERE FREIGHT AND INSURANCE, THOUGHT IT HAS BEEN SP ECIFICALLY EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSES O F THE NUMERATOR WOULD BE BROUGHT IN AS PAST OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN T HE FORMULA. A ITA NO.704/BANG/2011 PAGE 3 OF 5 CONSTRUCTION OF A STATUTORY PROVISION WHICH WOULD L ED TO AN ABSURDITY MUST BE AVOIDED. IN THAT CONTEXT, THE DIVISION BENCH OBSERVED THA T THE MEANING OF EXPORT TURNOVER IN CLAUSE (B) OF THE EXPLANATION TO SEC. 80HHC SHOWED THAT EXPORT TURNOVER DID NOT INCLUDE EXCISE DUTY AND SALES TAX. THE DIVISION BENCH OBSERVED THAT THE EXPORT T URNOVER IS THE NUMERATOR IN THE FORMULA WHEREAS THE TOTAL TURNOVER IS THE DENOMINATOR. .MOREOVER, A RECEIPT SUCH AS FREIGHT AND INSURANC E WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED I N THE TOTAL TURNOVER. IN LAKSHMI MACHINE WORKS (SUPRA) THE SUPR EME COURT HELD THAT EXCISE DUTY AND SALES TAX DID NOT POSSESS ANY ELEMENT OF TURNOVER SINCE THEY ARE MERELY RECOVERABLE BY THE A SSESSEE ON BEHALF OF THE GOVERNMENT. ..FREIGHT AND INSURANCE DO NOT HAVE AN ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION, THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRIPTION TO THE CONTRARY. THE FIRST QUESTION O F LAW WOULD THEREFORE HAVE TO BE ANSWERED AGAINST THE REVENUE AND IN FAVO UR OF THE ASSESSEE. 5.8 RESPECTFULLY FOLLOWING THE ABOVE MENTIONED DEC ISIONS AND THE DECISION OF THE JURISDICTIONAL ITAT (SUPRA), THE SP ECIAL BENCH DECISION IN THE CASE OF M/S SAK SOFT LTD., AND THE HIGH COURT OF BOMBAY IN THE GEM PLUS JEWELLERY INDIA LTD., I DIRE CT THE ASSESSING OFFICER TO EXCLUDE THE EXPENDITURE INCURRED BY THE APPELLANT TOWARDS DATA LINKING CHARGES OF RS.2,67,66,421/- FROM BOTH THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE A CT. 5. NOW THE DEPARTMENT IS IN APPEAL. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIALS AVAILABLE ON R ECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS BEEN DE CIDED IN FAVOUR OF THE ASSESSEE BY ITAT BANGALOE B BENCH IN THE CASE OF S.L.K SOFTWARE SERVICES PVT. LTD., VS. DCIT, IN ITA NO.700/BANG/20 11 ORDER DATED 1.3.2012. IN THE SAID ORDER, THE DECISION OF SPECIA L BENCH OF ITAT CHENNAI IN THE CASE OF ITO V. SAK SOFT LTD. 313 ITR (AT) 353 (CHENNAI)(SB) HAS BEEN FOLLOWED. IN THE SAID DECISION IT HAS BEEN HE LD AS UNDER : ITA NO.704/BANG/2011 PAGE 4 OF 5 TO SAY THAT IN THE ABSENCE OF ANY DEFINITION OF TO TAL TURNOVER FOR THE PURPOSE OF SECTION 10B, THERE IS NO AUTHORITY TO EXCLUDE ANYTHING FROM THE EXPRESSION AS UNDERSTOOD IN GENERAL PARLANCE WOULD BE WRONG, AS THERE HAS TO BE AN ELEM ENT OF TURNOVER IN THE RECEIPT IF IT HAS TO BE INCLUDED IN THE TOTA L TURNOVER. THAT ELEMENT IS MISSING IN THE CASE OF FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE GOODS OUTSIDE INDIA AND EXPENSES INCURRED IN FOREIGN EXCHANGE IN CONNECTION WITH THE PROVIDING OF TECHNICAL SERVICES OUTSIDE INDIA. THES E RECEIPTS CAN ONLY BE RECEIVED BY THE ASSESSEE AS REIMBURSEMENT O F SUCH EXPENSES INCURRED BY HIM. MERE REIMBURSEMENT OF EXP ENSES CANNOT HAVE AN ELEMENT OF TURNOVER. IT IS ONLY IN R ECOGNITION OF THIS POSITION THAT IN THE DEFINITION OF EXPORT TURNOVER IN SECTION 10B, THE AFORESAID TWO ITEMS HAVE BEEN DIRECTED TO BE EXCLUD ED. SECONDLY, THE DEFINITION OF EXPORT TURNOVER CONTEMPLATES THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN CONVERTIBLE FOREIGN EX CHANGE SHOULD REPRESENT CONSIDERATION IN RESPECT OF THE EXPORT. ANY REIMBURSEMENT OF THE TWO ITEMS OF EXPENSES MENTIONE D IN THE DEFINITION CAN UNDER NO CIRCUMSTANCES BE CONSIDERED TO REPRESENT CONSIDERATION FOR THE EXPORT OF THE COMPUTER SOFT WARE OR ARTICLES OR THINGS. THUS, THE EXPRESSION TOTAL TURNOVER WHICH IS NOT DEFINED IN SECTION 10B SHOULD ALSO BE INTERPRETED IN THE SAME MANNER. THUS, THE TWO ITEMS OF EXPENSES REFERRED TO IN THE DEFINI TION OF EXPORT TURNOVER CANNOT FORM PART OF THE TOTAL TURNOVER SI NCE THE RECEIPTS BY WAY OF RECOVERY OF SUCH EXPENSES CANNOT BE SAID TO REPRESENT CONSIDERATION FOR THE GOODS EXPORTED SINCE TOTAL TURNOVER IS NOTHING BUT THE AGGREGATE OF THE DOMESTIC TURNOVER AND THE EXPORT TURNOVER. IN THE FORMULA PRESCRIBED BY SECTION 10B( 4) THE FIGURE OF EXPORT TURNOVER HAS TO BE THE SAME BOTH IN THE NUME RATOR AND IN THE DENOMINATOR OF THE FORMULA. IT FOLLOWS THAT THE TOT AL TURNOVER CANNOT INCLUDE THE TWO ITEMS OF EXPENSES RECOVERED BY THE ASSESSEE AND REFERRED TO IN THE DEFINITION OF EXPORT TURNOVER. 7. THE AFORESAID DECISION HAD BEEN CONSIDERED AND A FFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD. & ORS. 2011- TIOL-684-HC-KAR-II WHEREIN IT HAS BEEN HELD THAT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 10A OF THE ACT, IF AN Y EXPENDITURE IS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME HAS TO BE EXCLUD ED FROM THE TOTAL TURNOVER ALSO. A SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. 2010-TIOL-456- HC-MUM-IT . ITA NO.704/BANG/2011 PAGE 5 OF 5 8. WE, THEREFORE, BY CONSIDERING THE TOTALITY OF TH E FACTS AS DISCUSSED HEREINABOVE, ARE OF THE VIEW THAT THE LD. CIT(APPEA LS) WAS FULLY JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE AND DIRECTING TH E AO TO EXCLUDE THE EXPENSES BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE CALCULATING THE DEDUCTION U/S. 10A OF THE ACT. WE THEREFORE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON TH IS ISSUE. 9. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS D ISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 29TH DAY OF MARCH, 2012. SD/- SD/- ( P MADHAVI DEVI ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 29TH MARCH , 2012. VMS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.