C.I.T., CENTRAL-III, N.DELHI vs. HCL TECHNOLOGIES LTD

C.A. No.-008489-008490 - 2013Supreme Court2018 INSC 39824 April 2018Bench: HON'BLE MR. JUSTICE R.K. AGRAWAL HON'BLE MRS. JUSTICE R. BANUMATHIAuthor: HON'BLE MR. JUSTICE R.K. AGRAWAL21 pages
For Petitioner: ANIL KATIYARFor Respondent: KAVITA JHA
AI SummaryDismissed

What were the facts?

The assessee, HCL Technologies Ltd., engaged in software development and export, filed its return for Assessment Year 2004-05. The Assessing Officer (AO) re-assessed taxable income, treating software development charges as expenses for technical services outside India and estimating 40% as such expense. The Commissioner of Income Tax (Appeals) partly allowed the appeal, estimating 10% as software development charge. The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue's appeal and allowed the assessee's appeal. The High Court dismissed the Revenue's appeal. The Revenue has appealed to the Supreme Court. The core dispute revolves around the computation of deduction under Section 10A of the Income Tax Act, 1961, specifically concerning the exclusion of certain expenses from 'total turnover'.

What did the Supreme Court hold?

The Supreme Court held that for computing deduction under Section 10A of the Income Tax Act, 1961, expenses like freight, telecommunication, and insurance attributable to the delivery of computer software, which are deducted from export turnover, must also be deducted from total turnover. The Court reasoned that any other interpretation would lead to an "inadvertent, unlawful, meaningless and illogical result" and cause "grave injustice" to the assessee, which could not have been the intention of the legislature. The Court emphasized the principle of harmonious construction and cited the Karnataka High Court's decision in CIT vs. Tata Elxsi Ltd. regarding the ordinary meaning of words in context. Similarly, the Court held that expenses incurred in foreign exchange for providing technical services outside India should also be excluded from total turnover, applying the same principle to ensure the calculation formula is not futile, unworkable, or absurd. The appeals filed by the Revenue were dismissed as devoid of merit.

What were the issues?

1. Whether, for computing deduction under Section 10A of the Income Tax Act, 1961, expenses like freight, telecommunication, and insurance attributable to the delivery of computer software, which are deducted from export turnover, should also be deducted from total turnover? (Question of law) Assessee's contention: The assessee argued that if these expenses are excluded from export turnover, they must also be excluded from total turnover to avoid an illogical and unjust result, as the intention of the formula is to ascertain profit from export business. They relied on the principle of harmonious construction and the decision in CIT vs. J.H. Gotla. Revenue's contention: The Revenue contended that the definition of 'total turnover' in the Explanation to Section 80HHC and 80HHE, which states 'for the purposes of this Section only', implies it is not applicable to Section 10A. They argued that including certain amounts in the denominator that are not in the numerator would lead to undesirable results. 2. Whether expenses incurred in foreign exchange for providing technical services outside India should be excluded from total turnover for the purpose of Section 10A deduction? (Question of law) Assessee's contention: Similar to the first issue, the assessee argued that the same principle of interpretation should apply, and these expenses should also be excluded from total turnover to make the calculation formula workable and avoid an absurd result. Revenue's contention: No specific argument for the Revenue on this issue is recorded.

Which sections of the Income-tax Act were involved?

Section 10A,Section 143,Section 80HHC,Section 80HHE

AI-generated summary — verify with the full judgment below

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURI ICTION CIVIL APPEAL NOS. 8489-8490 OF 2013 Commissioner of Income Tax, Central-III …..Appellant(s)

Versus HCL Technologies Ltd. …. Respondent(s) WITH CIVIL APPEAL NO. 8535 of 2013 CIVIL APPEAL NO. 8555-8556 of 2013 CIVIL APPEAL NO.7853 of 2012 CIVIL APPEAL NO.8789 of 2012 CIVIL APPEAL NO.8559 of 2013 CIVIL APPEAL NO.8558 of 2013 CIVIL APPEAL NOs.8529-8530 of 2013 CIVIL APPEAL NO.8515 of 2013 CIVIL APPEAL NO.8557 of 2013 CIVIL APPEAL NO.8524 of 2013 CIVIL APPEAL NO.8518 of 2013 CIVIL APPEAL NO.8525 of 2013 CIVIL APPEAL NO.8539 of 2013 CIVIL APPEAL NO. 4392 OF 2018 (Arising out of Special Leave Petition (C) NO. 5345 OF 2014) CIVIL APPEAL NO.8562 of 2013 CIVIL APPEAL NO.8533 of 2013 CIVIL APPEAL NO.7854 of 2012 CIVIL APPEAL NO.8560 of 2013 CIVIL APPEAL NO. 4393 OF 2018 (Arising out of Special Leave Petition (C) NO. 31028 OF 2012) 1 CIVIL APPEAL NO.8537 of 2013 CIVIL APPEAL NO.8543 of 2013 CIVIL APPEAL NO.8492 of 2013

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