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Income Tax Appellate Tribunal, BANGALORE BENCHES “B” BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT BEENA PILLAI
ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is remanded by Hon’ble High Court vide order dated 06/04/2021 in ITA no. 208/2017.
Brief facts are as under: For the assessment year 2006-07, assessee filed the return of income after having claimed deduction u/s. 10A of the Act to the Page 2 of 6 IT(TP)A No. 1455/Bang/2010 extent of Rs. 104,27,07,900/- in respect of the profits relating to its Software Technology Park Units. The aforesaid return was taken up for assessment by the Assistant Commissioner of Income Tax and a draft order of assessment was passed. The assessee, against the draft order of assessment, filed objections before the Dispute Resolution Panel. The Dispute Resolution Panel confirmed the draft assessment order with regard to reduction of communication expenses and expenses incurred in foreign currency from export turnover. Thereafter, the Ld.AO passed a final order of assessment in accordance with the directions issued by the Dispute Resolution Panel. The assessee, thereupon, filed an appeal before this Tribunal. This Tribunal considered the appeal filed by the assessee based on the following grounds: “
9. The Honourable DRP and the learned AO has erred in law and on facts in concluding that communication expenses and expenditure incurred in foreign currency are to be excluded from the export turnover for the purpose of computation of relief under the section 10A of the Act.
10. The Honourable DRP and the learned AO has erred in law and on facts in upholding that the said communication expenses and expenditure incurred in foreign currency should not be reduced from the total turnover for the purpose of computation of relief u/s. 10A of the Act even if these are reduced from the export turnover.” This Tribunal by order dated 11.01.2017 partly allowed the appeal preferred by the assessee. Against the said order, assessee filed appeal before Hon’ble High Court
3. Before the Hon’ble High Court, it was argued that the Tribunal erred in not adjudicating the Ground no. 9 independently and in holding that the same is covered by a decision of Hon’ble High Court in the case of CIT Vs. Tata Elxsi as reported in 349 ITR 98.
Page 3 of 6 IT(TP)A No. 1455/Bang/2010 Hence the Hon’ble High Court remanded the issue back to this Tribunal to adjudicate Ground no. 9 independently. After hearing both the parties and perusing the material on record. The Ld.AR placed reliance of following decisions: CIT v Motor Industries Co Ltd [2015] 55 taxmann.com 377 (Karnataka) CIT v Mphasis Ltd [2016] 74 taxmann.com 274 (Karnataka) CIT v Mphasis Ltd [2020] 113 taxmann.com 74 (SC) CIT v Kshema Technologies Ltd [2016] 66 taxmann.com 165 (Karnataka) TATA Elxsi Ltd v ACIT of 2008 decision dated 20.10.2014 — Karnataka High Court Mindtree Ltd v ACIT [2020] 427 ITR 338 (Kar) CIT v Aztec Software Technology Ltd ITA No. 348 of 2013 dated 16.9.2020 Karnataka High Court CIT v Zylog Systems Ltd [2020] 121 taxmann.com 280 (Madras) Zylog Systems Ltd v ITO [2011] 128 ITD 105 (Chennai SB)
Ground No. 9 raised by assessee is as under: Ground No. 9 of the assessee before the ITAT was as under: "9. The Honourable DRP and the learned AO has erred in law and on facts in concluding that communication expenses and expenditure incurred in foreign currency are to be excluded from the export turnover for the purpose of computation of relief under the section 10A of the Act." The term "export turnover" is defined in clause (iv) of Explanation 2 of section 10A and states that,- "Explanation 2.—For the purposes of this section,— (iv) "export turnover" means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable 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 services outside India;".
Page 4 of 6 IT(TP)A No. 1455/Bang/2010 4. The Ld.AR relied on case laws that were delivered in the context of sections 80HHC/80HHE and the definitions of "export turnover" and "total turnover" as defined in say section 80HHC are as follows, namely,- "Explanation.—For the purposes of this section,— (b) "export turnover" means the sale proceeds, received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) ; (ba) "total turnover" shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962): Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression "total turnover" shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28;"
On the issue of importing definition of a term from one section to another, Hon'ble Supreme Court in the case of CIT vs HCL Technologies Ltd. reported in [2018] 93 taxmann.com 33 (SC) held as under: "14. In the above backdrop, we are of the opinion that the definition of total turnover given under Sections 80HHC and 80HHE cannot be adopted for the purpose of Section 10A as the technical meaning of total turnover, which does not envisage the reduction of any expenses from the total amount, is to be taken into consideration for computing the deduction under Section 10A. When the meaning is clear, there is no necessity of importing the meaning of total turnover from the other provisions. If a term is defined under Section 2 of the IT Act, then the definition would be applicable to all the provisions wherein the same term appears. As the term 'total turnover' has been defined in the Explanation to Section 80HHC and 80HHE, wherein it has been clearly stated that 'for the purposes of this Section only", it would be applicable only for the purposes of that Sections and not for the purpose of Section 10A. If denominator includes certain amount of certain type which numerator does not include, the formula would render undesirable results."
Page 5 of 6 IT(TP)A No. 1455/Bang/2010
Hon’ble Supreme Court further held that- "19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature."
Further, we note that in the case of PrCIT vs Mizpah Publishing Services Pvt Ltd (2021) 127 Taxmann.com 883(Mad), Hon'ble Madras High Court dealt with similar issue as under:- "Whether from the facts and circumstances of the case, the Appellate Tribunal was right in holding that the expenditure in foreign exchange is to be excluded from both export turnover and total turnover while computing eligible deduction under section 10A of the Income-tax Act?"
Hon’ble High Court gave the decision in favour of the assessee relying on CIT vs HCL Technologies Ltd reported in [2018] 93 taxmann.com 33 (SC). Co-ordinate Bench of this Tribunal in the case of DCIT Vs. Yahoo Software Development Pvt Ltd. reported in (2020) 116 Taxmann.com 403 and ITO vs Sabre Travel Technologies Pvt Ltd. reported in (2020) 120 Taxmann.com 362 held on similar lines to the above decisions.
We find that this issue is squarely covered by the judgment of the Hon'ble Supreme Court in the case of CIT v. HCL Technologies Ltd. (2018) 93 taxmann.com 33, wherein it was held by the Hon'ble Supreme Court that the expenditure incurred towards telecommunication charges and foreign travel expenses attributed to the delivery of computer software for providing technical services outside India to be excluded both from export turnover and total turnover for the purpose of computation of Page 6 of 6 IT(TP)A No. 1455/Bang/2010 deduction u/s 10A of the Act. The Ld.AO is directed to compute the deduction under section 10A in accordance with principles laid down by Hon'ble Supreme Court in the case of CIT v. HCL Technologies Ltd.(supra). Accordingly this ground raised by assesssee stands allowed. In the result appeal filed by assessee stands allowed Order pronounced in open court on 08th November, 2021.