Income Tax Appellate Tribunal - Bangalore
M/S. Mphasis Ltd, Bangalore vs Department Of Income Tax on 18 October, 2011
Page 1 of 7 1 ITA No.120/Bang/2011
INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCHES 'B'
BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND
SHRI GEORGE GEORGE K, JUDICIAL MEMBER
ITA No.120/Bang/2011
(Asst. Year 2006-07)
The Deputy Commissioner of Income Tax,
Circle-12(1), Bangalore. - Appellant
Vs
M/s Mphasis Ltd.,
Bagmane Technology Park,
Byrasandra, C V Raman Nagar,
Bangalore-93. - Respondent
PA No.AAACB6820C
Date of hearing : 18/10/2011
Date of pronouncement : 18/10/2011
Appellant by : Shri Etwa Munda, CIT-III
Respondent by : Shri Ajay Rotti, C.A.
ORDER
PER GEORGE GEORGE K :
This appeal instituted by the department is directed against the order of the CIT(A)-III, Bangalore dated 19/10/2010.. The relevant asst. year is 2006-07.
2. The solitary issue that is raised in this appeal is whether the CIT(A) is justified in directing Assessing Officer to exclude Page 2 of 7 2 ITA No.120/Bang/2011 telecommunication expenses amounting to Rs.2,45,84,173/- from the total turnover for the purpose of computation of deduction u/s 10A of the I T Act, 1961.
3. Briefly stated the facts are as follows:-
The assessee is a Company. It is engaged in the business of information technology services. For the concerned asst. year, return of income was filed on 28th November, 2006 declaring a total income of Rs.6,74,61,729/- after claiming deduction u/s 10A of the Act. Scrutiny assessment was completed u/s 143(3) of the Act vide order dated 23/12/2009. The AO recomputed the deduction allowable u/s 10A of the Act by reducing the expenses incurred on telecommunication expenses from the export turnover. The AO, however, did not reduce the same expenditure from the total turnover while computing deduction u/s 10A of the Act. Consequent to re-computation of deduction by the AO, the 10A claim of the assessee was reduced from Rs.74,15,77,435/- to Rs.70,69,30,669/-. The excess claim of Rs.3,46,46,766/- was added to the total income of the assessee.
4. Aggrieved by the re-computation of deduction, the assessee carried the matter in appeal before the first appellate authority.
5. Before the first appellate authority it was argued that the expenses in question should also be reduced from the total turnover as computed by the assessee company at the time of filing of the return of income. The assessee relied on the following judgement/order of the Tribunal:-
Page 3 of 7 3 ITA No.120/Bang/2011
• Gem Plus Jewellery India Ltd. (2010) (233 CTR 248) (Bom.); • M/s Sak Soft Ltd. (2009) (313 ITR 353) (SB).
6. The first appellate authority, following the judgement of the Hon'ble Mumbai High Court in the case of CIT v Gem Plus Jewellery India Ltd. 330 ITR 175 and the decision of the Special Bench in the case of ITO v M/s Sak Soft Ltd. 313 ITR 353, directed the AO to exclude the above said expenses from both the export turnover and the total turnover for the purpose of computation of deduction u/s 10A of the Act.
7. Aggrieved by the order of the CIT(A), the department is in appeal before us.
8. The learned DR relied on the findings of the AO.
9. On the other hand, the learned AR submitted that the issue in question is squarely covered by the judgement of the Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. 330 ITR 175 and the order of the Special Bench in the case of ITO v M/s Sak Soft Ltd. 313 ITR
353.
10. We have heard the rival submissions and perused the material on record. The Hon'ble Mumbai High Court in the case of Gem Plus Jewellery India Ltd. (supra), in identical circumstances, held that since the export turnover forms part of the total turnover, if an item is excluded from the export turnover, the same should also be reduced from the total turnover to maintain parity between numerator and denominator while calculating Page 4 of 7 4 ITA No.120/Bang/2011 deduction u/s 10A of the Act. The relevant finding of the Hon'ble Mumbai High Court reads as follows:-
"Held : The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator in as much as the export turnover is a part of the total turnover. The export turnover, in the numerator must have the same meaning as the export turnover which is constituent element of the total turnover in the denominator. The legislature has provided a definition of the expression "export turnover" in Expln.2 to s.10A which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore in computing the export turnover the legislature has made a specific exclusion of freight and insurance charges. The submission which has been urged on behalf of the revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the revenue, however, misses the point that the expression "total turnover" has not been defined at all by Parliament for the purposes of s.10A. However, the expression "export turnover" has been defined. The definition of "export turnover" excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression "export turnover" cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a Page 5 of 7 5 ITA No.120/Bang/2011 provision which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation would lead to an absurdity. If the contention of the Revenue were to be accepted, the same expression viz. 'export turnover' would have a different connotation in the application of the same formula. The submission of the Revenue would lead to a situation where freight and insurance, though these have been specifically excluded from 'export turnover' for the purposes of the numerator would be brought in as part of the 'export turnover' when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided. Moreover, a receipt such as freight and insurance which does not have any element of profit cannot be included in the total turnover. Freight and insurance charges do not have any 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 - CIT v Sudarshan Chemicals Industries Ltd. (2000) 163 CTR (Bom) 596: (2000) 245 ITR 769 (Bom) applied; CIT v Lakshmi Machine Works (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) and CIT v Catapharma (India) (P) Ltd. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) relied on"
10.1 In the case of Sak Soft Ltd. (supra), the assessee was engaged in the business of exporting computer software and claimed deduction u/s 10B of the Act. In completing the assessment u/s 143(3) of the Act, the AO reduced the expenditure incurred in foreign exchange in providing the technical services outside India, from the export turnover without corresponding reduction from total turnover, thereby reducing the deduction claimed by the assessment u/s 10B of the Act. 10.2 In light of the above facts, the Special Bench held as under:- Page 6 of 7 6 ITA No.120/Bang/2011
"For the above reasons, we hold that for the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula. The appeals filed by the department are thus dismissed".
Although the order of Special Bench is in the context of section 10B of the Act, the ratio laid down in the above decision applies to section 10A of the Act as well, as the provisions of sections 10A and 10B are identical on all material aspects. More particularly, both the sections define only export turnover but not total turnover and sub-section (4) of both the sections prescribe an identical formula for computing the export profits. 10.3 In the light of the above reasoning, we uphold the order of the CIT(A) and direct the AO to exclude the above mentioned expenses both from the export turnover as well as from the total turnover while calculating deduction u/s 10A of the Act.
11. In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 18th day of October, 2011 Sd/- Sd/-
(N BARATHVAJA SANKAR) (GEORGE GEORGE K)
VICE PRESIDENT JUDICIAL MEMBER
Page 7 of 7 7 ITA No.120/Bang/2011
Copy to:-
1. The Revenue 2. The Assessee 3. The CIT concerned 4. The CIT(A)
concerned 5. The DR 6. GF
MSP/- By Order
Asst. Registrar, ITAT, Bangalore.