Income Tax Appellate Tribunal - Hyderabad
Bodhtree Consulting, Hyderabad vs Department Of Income Tax on 18 August, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH ' B ', HYDERABAD
BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND
SHRI CHANDRA POOJARI ACCOUNTANT MEMBER
ITA No.1591/Hyd/2008 A.Y. 2004-05
ACIT, Range 1, Hyderabad Vs Bodhtree Consulting Ltd.
Hyderabad
(PAN AABCB 3103 D)
(Appellant) (Respondent)
ITA No.1554/Hyd/2008 A.Y. 2004-05
Bodhtree Consulting Ltd. Vs ACIT, Range 1, Hyderabad
Hyderabad
(PAN AABCB 3103 D)
(Appellant) (Respondent)
Appellant by : Smt. Nivedita Biswas, DR
Respondent by : Shri K. Vasant Kumar
ORDER
Per Chandra Poojari, Accountant Member
These two appeals one by the Revenue and the another by the assessee are directed against the different orders passed by the CIT(A) -II, Hyderabad dated 18.8.2008. Since common issues are involved in the two appeals, they are clubbed together, heard together and disposed off vide this common order for the sake of convenience.
2. First we will take up the appeal of the assessee. Brief facts of the case are that the assessee company had filed the return of income on 28.10.2004 declaring an income of Rs.1,44,583/- During the ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad 2 ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad course of assessment proceedings, the assessing officer noticed that the assessee had claimed exemption u/s 10B to the tune of 53,18,173/- before setting off the brought forward losses of earlier years. Accordingly, the assessee was asked to substantiate why the exemption u/s 10B should not be allowed after set off of brought forward losses. In reply, the assessee stated that the exemption which the assessee is entitled to for its current year income are to be deducted from its current year's business profit and only the balance income has to be considered for set off of b/f losses. It was also stated that the question of setting off of b/f losses arises only when the assessee has a positive taxable income. And the positive income figure has to be arrived only after deducting income which is exempt from tax. Hence, Section.10B income has to be reduced from the current year profit before positive figure is arrived and from this positive figure b/f losses are to be set off. The assessee also referred to the provision of sec.72(1) relating to carry forward and set off of losses and also distinguished the provision of sec.10B which is included in Chapter III from the deduction u/s 80HHC and 80I which form part of Chapter VI of the IT Act. The explanation offered by the assessee was not accepted by the assessing officer. The assessing officer held that sec.10B has been amended w.e.f. 1.4.2001 and the same is treated as a deduction instead of exemption. Accordingly, the claim of deduction u/s 10B has to be allowed before 2 3 ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad allowing such deduction. The assessing officer relied on the decision of Hon'ble Supreme Court in the case of Cambay Electricity Supply Co.Vs. CIT (Guj)-II (113 ITR 84). Accordingly, the assessing officer concluded that the exemption u/s 10B is to be allowed after setting off of the b/f losses. The assessing officer also found from the Tax Audit Report that out of total export turnover of Rs.3,81,00,420/- turnover of Rs.2,26,30,000 was for consideration in the form of equity shares in a foreign company. It was stated that this amount was also treated as foreign exchange received in India in time. When asked to explain, the assessee had enclosed a communication from RBI which referred to overseas direct investment in a joint venture in USA. The contention of the assessee that this amount is to be treated as foreign exchange received in India was not accepted by the assessing officer. The assessing officer observed that the assessee was allotted equity shares in an American company in view of the above sales. Since there was no inflow of foreign exchange into India, the assessing officer reduced the amount of Rs.2,26,30,000 from the export turnover. Further, the assessing officer observed that from out of the expenditure incurred by the assessee, an amount of Rs.7,16,389/- was towards internet/web services which was nothing but communication charges. Accordingly, proportionate amount from out of the same was reduced from the export turnover. The assessing officer made a nothing that 3 4 ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad communication expenditure was allowed proportionately only in respect of actual export turnover considered to have been received in India. Considering all above, the total income was computed at Rs.9,22,853/- and a tax demand of Rs.3,40,886/- was raised.
3. On appeal, the CIT(A) directed the assessing officer to compute the deduction u/s 10B before setting off of the brought forward business loss. Against this the Revenue is in appeal before us. Further, the CIT(A) has directed the assessing officer to exclude the communication expenses at Rs.4,25,505/- from the export turnover as well as from the total turnover for the purpose of computing deduction u/s 10B. Against this direction of CIT(A) for exclusion of communication expenses from the total turnover, the Revenue is in appeal before us. The assessee is in appeal before us on the direction of the CIT(A) to exclude communication expenses and Rs.2,26,30,000/- being export earnings received in the form of equity investment in an American Company from the export turnover.
4. First we will take up assessee's appeal. The authorized representative submitted that the amount has been received at Rs.2,26,30,000/- on account of export turnover in the form of equity investment in an American company for which the Reserve Bank of India has given permission to receive in that form and as such, it cannot be 4 5 ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad reduced from the export turnover of the assessee and that amount has to be considered for the purpose of determining the deduction u/s 10B.
5. The authorised representative drew our attention to the Hand book of Rules and Procedures under STP Scheme by Y. Rangaiah and and Subba Rao P.V. relating to utilization of export value for investment abroad/Exports of goods towards equity specifically Para 9.17:
1. An Indian Party exporting goods/software/plant and machinery from India towards equity contribution in a joint venture or wholly owned subsidiary outside India shall declare it on GR/SDF/SOFTEX form as the case may be, which shall be super scribed as "Exports against equity participation in the JV/WOS/aborad', and also quoting Identification No. if already allotted by Reserve Bank.
2. Notwithstanding anything contained in Regulation 11 of the Foreign Exchange Management (Export of goods and services) Regulation, 2000, the Indian Party shall, within 15 days of effecting the shipment of the goods, submit to the RBI a custom certified copy of the invoice through the branch of an authorised dealer designated by it.
3. An All Party capitalizing exports under Regulation 10 shall, within six months from the date of export, or any further time as allowed by Reserve Bank, submit to Reserve Bank, copies of the share certificate/s or any document issued by the Joint Venture or wholly owned subsidiary outside India to the satisfaction of Reserve Bank evidencing the investment from the Indian Party together with the duplicate GR/SDF/SOFTEX form through the branch of an authorised dealer designated by it. (FEM transfer or issue of any foreign security Regulations).
Para 9.18 Counter Trade: Any arrangement involving adjustment of value of the goods imported into India against the value of goods exported from India shall require the prior approval of the RBI. 5 6 ITA Nos.1591 & 1554/Hyd/2008
Shri Bodhtree Consulting Ltd., Hyderabad
6. The authorised representative for the assessee further relied on the judgement of the Hon'ble Supreme Court in the case of J.B. Boda & Company (P) Ltd. Vs. CBDT (223 ITR 271) where in it was held that when an assessee acting as agent for foreign re-insurer collecting brokerage from the ceding insurance company in India and remitting the same to the foreign insurer in foreign exchange with the permission of the Reserve Bank of India after retaining its brokerage in foreign exchange, the brokerage income retained by the assessee is represents income in convertible foreign exchange qualifying for deduction u/s 800. Further, he relied on the order of the Tribunal Bombay Bench in the case of Raymond Ltd. Vs. DCIT (86 ITD 791) for the proposition that even equity investment in foreign is deemed to be received by the assessee in convertible foreign exchange. He relied on Mcleod Russel (1) Vs. DCIT (73 TTJ 349) for the proposition that expenditure incurred outside India is to be included for determining the export turnover for the purpose of sec.10B.
7. On the other hand, the DR submitted that assessee stated that since the sales proceed is received and reinvested in equity, it is deemed to have received and can claim deduction of such amount u/s 10B. She submitted that since the sales proceeds not brought into India , it cannot claim deduction u/s 10B. The departmental 6 7 ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad representative further submitted that it is not disputed that sales proceedings have not been repatriated in foreign convertible exchange into India. The assessee has not brought the amount of Rs.2,26,30,000/- sales turnover into India since it was invested into purchase of equity shares in a foreign company. The hand book of rules and procedure under ST scheme, of Sept. 2004 at para 9.17 page 28 referred by the authorised representative tells about the procedure for FDI in equity of a foreign company. It does not spell out any IT benefit for such FDI investment. Hence as per the section specified specifically mentioned the concept of repatriation of profits/sales proceeds into India. Only then the software companies can avail the deduction and government will not lose out revenue in such export incentive scheme.
8. We have heard both the parties and perused the material available on record. In our opinion, 'export turnover' means the sale proceeds of any goods or merchandise exported out of India, but does not include freight or incidence attributable to the transport of goods or merchandise beyond the customs stations as defined in the Customs Act. The Sec. 10B was brought into statute book with a object to grant incentive to export oriented undertaking engaged in export of article of things or computer software. The deduction is made available on export 7 8 ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad of software turnover, the proceeds whereof are received in foreign exchange. It is not available on other export turnover, the receipts whereof are in an Indian currency or in currency which is not a convertible foreign exchange. The object therefore, appears to be to encourage more inflow of convertible exchange and not the mere export of goods. Making it available with reference to the realization in convertible exchange is suggestive of the fact that it was with a view to encourage foreign exchange inflow. Under the provisions of S.10B to avail the deduction under this sec. the undertaking has to bring into India the sale proceedings in convertible foreign exchange, which shall be physically brought to India. Repatriation of this receipts is the main contention, in availing of Sec.10B. The sale proceeds must be receivable in convertible foreign exchange. Therefore, the avowed object is to encourage inflow of convertible foreign exchange. If that object is kept in mind, amount received in the form of investment in equity shares in foreign exchange cannot be considered received in the form of convertible foreign exchange. The sale proceed received in convertible foreign exchange means the 'actual receipt' not 'deemed receipt'. The assessee taken a plea that the RBI has given permission to make investment in equity shares. The role of RBI is limited to the exteion of the time period within which the money in foreign exchange received can be brought into India. The RBI is the nodal agency for all Forex 8 9 ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad matters and give guide lines and permission to deal with the foreign exchange. Giving the permission to the assessee to receive foreign exchange in the form of equity investment does not leads to the conclusion that the assessee received export proceeds in convertible foreign exchange. The RBI has no role to play or to suggest whether any investment/income for capitalization of expenditure is genuine or otherwise in terms of sec.10B of the IT Act. The investment in equity shares by assessee is nothing but a application of its sales proceeds without bringing into India in the form of convertible foreign exchange. In our humble opinion, assessee is not entitled for benefit of Sec.10B on this investment of Rs.2,26,30,000/-. Further, various case laws cited by the assessee have been carefully gone through by us. These case laws are of no assistance to the assessee. Since these are delivered on different context, the judgement to be read in its totality of its context in which the questions arose for decision in that case. It neither desirable nor permissible to pick out a word or a sentence from the judgement, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by the court. The judgment must be read as a whole and the observation from the judgement have to be considered in the light of the questions which were before the Court. A decision takes its colour from the questions involved in the case in which it is rendered and, while applying the 9 10 ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad decision to a later case it must be carefully try to ascertain the true principles laid down by the decision. Accordingly, this ground of the assessee is dismissed.
9. The next ground in assessee's appeal is w.r.t. excluding Rs.4,25,505/- being communication expenses from the export turnover and the Revenue is in appeal before us excluding the same from the total turnover.
10. We have both the parties and perused the material available on record. This issue has been decided by Tribunal, in the case of ITO Vs. Saks Soft India Ltd. (121 TTJ 865) ,(30 SOT 55) (Chennai Special Bench) where in it was held that for the purpose of applying the form under sub sec.4 of sec.10B, the freight, telegraph charges or insurance attributable to the delivery of articles or things or computer software outside India of 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 total turnover which are enumerated or the denominator respectively in the formula.
11. In view of the order of the Tribunal, we are of the opinion that communication expenses to be reduced both from export turnover 10 11 ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad as well as from total turnover and as such we do not find any infirmity in the order of the CIT(A) appeal on this issue and the same is confirmed. Accordingly, this ground in assessee appeal as well as Revenue appeal is dismissed.
12. The next ground in Revenue appeal with reference to set off of brought forward business loss from profits and gains of undertaking while determining the deduction u/s 10B..
13. We have heard both the parties and perused the material available on record. Similar issue came up for consideration before this Tribunal vide its order dated 11.9.2009 in the case of M/s CCL Products (I) Ltd., in ITA Nos.150/Hyd/2009 & 949/Hyd/2009 for the assessment years 2000-01 and 2004-05 and the Tribunal after considering the entire facts of the case held as follows:
9. We have duly considered the rival contentions and the material on record. It is not in dispute that the assessee is eligible for deduction u/s 10B of the Act. Undoubtedly, S.10B is a part of Chapter III of the Act. It is true that heading of Chapter III is 'Incomes which do not form part of total income' up to the assessment year 2001-02 i.e. before amendment of S.10B by Finance Act 2000 w.e.f. 1.4.2001. However, this caption of Chapter III cannot be conclusive about the exact purport of any provision contained in the said chapter. Earlier, this chapter contained only S.10 which provided for the exclusion of several incomes from the total income. The opening sentence of S.10 itself reads as 'In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included". The language of this sentence clearly indicates that the incomes of the type falling within the clauses in S.10 will not be included in the total income of a person. In other words, these incomes do not enter the computation part at all. Subsequently also S.10A was first introduced by the Finance Act, 1981 w.e.f. 1st April, 1981, the said provision provided for 11 12 ITA Nos.1591 & 1554/Hyd/2008 Shri Bodhtree Consulting Ltd., Hyderabad total exemption of the income described in S.10A. Similarly, when S.10B was introduced for the first time by the Finance Act, 1988 w.e.f. 1st April, 1989, sub-s(1) thereof provided for a clear exclusion of the income referred to in the said section from the total income of an assessee. Since these provisions provided for total exclusion from the total income, they were grouped along with S.10 in Chapter III of the Act. However, later on, the nature of relief provided by these sections underwent a sea change in so far as that total exclusion of the income was removed and only deduction was provided w.e.f. 1.4.2001. This is clear from the language used in S.10A, S.10AA, S.10B and S.10BA. Again, S.10C provides for total exclusion of the income derived by assessee from an industrial undertaking in any Integrated Infrastructure Development Centre or Industrial Growth Centre located in the North Easter region. Thus, wherever the legislature has intended for total exclusion of income it has specifically provided so and wherever it is not intended, the word 'deduction' has been used in those sections.
10. Coming to the facts of the case before us, the assessee has claimed deduction u/s 10B of the IT Act. Once the deduction u/s10B has to be allowed, the total income of the undertaking will enter the computation and then only deduction will given to the assessee. In this event the findings of the CIT(A) cannot be accepted that S.10B is a secluded provisions Had it been a case where total exclusion from income was provided for, then for us the observation of the CIT(A) that such income cannot be taken into consideration for set off u/s 70, 71 or 72 would not be proper. In the light of above, we are inclined to agree with the consent with the learned Departmental Representative and accordingly we confirm the order of the assessing officer that 10B deduction to be computed after set off of the unabsorbed business losses and depreciation carried forward from earlier years for the assessment year 2004-05. This view of ours fortified by the order of the Tribunal in the case of eFunds International (P) Ltd. Vs. DCIT (120 TTJ (Del.) 305) wherein held that carried forward unabsorbed business loss of unit entitled for deduction u/s10A can be set off with the income of the other business of the assessee. Applying the same principle carried forward unabsorbed business loss or unabsorbed depreciation to be set off with the business income of the assessment year under consideration before computing the 10B deduction.
10.1. Further the judgement relied by the learned Departmental Representative in the case of Sword Global (I) Pvt. Ltd. Vs. ITO cited supra will also support our view.
10.2. Accordingly, the ground No.2 in the Revenue appeal in ITA No.949 /Hyd/2008 allowed. However, for the assessment year 2000-01 the unamended provisions of S.10B is applicable and income of E.O.U is totally exempted from the tax and it is not become part of the total income of the assessee for the assessment year 2000-01, as such, there is no question of set off of brought forward losses of earlier years with the income of the assessee in the current year. Accordingly ground No.3 in ITA No.150/Hyd./2009 is dismissed. The ground No.4in this appeal related to Ground No.3, consequently this ground also dismissed.12 13 ITA Nos.1591 & 1554/Hyd/2008
Shri Bodhtree Consulting Ltd., Hyderabad
14. Respectfully following the above ratio laid down by the Tribunal in its order cited supra, we reverse the order of the CIT(A). Before us the AR relied on DCIT Vs. Glen mark Laboratories Ltd. (127 TTJ 719). The facts of the above case is entirely different from the facts of the present case. Hence, we decline to comment on this issue.
15. In the result, the appeal of the assessee is dismissed and the Revenue appeal is partly allowed.
Order pronounced in the open Court : 21.5.2010
Sd/- sd/-
G.C. GUPTA CHANDRA POOJARI
VICE PRESIDENT ACCOUNTANT MEMBER
Dated the 21st May, 2010
Copy forwarded to:
1. M/s Bodhtree Consulting Ltd. 1-8-617, Prakash Nagar, Begumpet, Hyderabad
2. ACIT, Circle 1 (3), Hyderabad
3. CIT(A)-II Hyderabad.
4. CIT, Hyderabad
5. The D.R., ITAT, Hyderabad.
Np 13