Income Tax Appellate Tribunal - Bangalore
Dcit, Bangalore vs M/S Technicolor India Pvt. Ltd.,, ... on 17 July, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
IT(TP)A No.201/Bang/2016
Assessment year : 2011-12
The Deputy Commissioner Vs. M/s. Technicolor India Pvt. Ltd.
of Income Tax, Level-9, Navigator ITPL,
Circle 7(1)(1), Whitefield Road,
Bangalore. Bangalore - 560060.
PAN: AAECP 1029R
APPELLANT RESPONDENT
Appellant by : Shri C.H. Sundar Rao, CIT(DR-I), ITAT, Bangalore.
Respondent by : Shri Umashankar Gautam, Advocate
Date of hearing : 03.07.2019
Date of Pronouncement : 17.07.2019
ORDER
Per N V Vasudevan, Vice President This is an appeal by the Revenue against the final order of Assessment dated 31.12.2015 passed by the DCIT, Circle-7(1)(1), Bangalore, u/s.144C read with Sec.143(3) of the Income Tax Act, 1961 (Act).
2. The only issue that arises for consideration in this appeal is with regard to computation of Export Turnover and total turnover while computation deduction u/s.10A of the Act. The grievance of the revenue in this regard is projected in the following grounds of appeal raised by the Revenue:-
IT(TP)A No.201/Bang/2016 Page 2 of 6 "1. The directions of the Dispute Resolution Panel are opposed to law and facts of the case.
2. "Whether the DRP was correct in reversing the finding of the Assessing Officer that the expenditure incurred in foreign currency, towards telecom and travelling expenses, to be deducted from export turnover for the purpose of computation of deduction us.10A of the Act"
3. "Whether the DRP is correct in taking into consideration Explanation 2(iv) of section 10A of the Act which clearly contemplated that such expenditure was liable to be deducted from the export turnover for the purpose of computing deduction u/s.10A of the Act?"
4. "Whether the DRP is correct in law in holding that the deduction u/s.10A should be computed in the above manner following the judgments of jurisdictional High Court in the case of CIT Vs. Tata Elxsi which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Apex Court."
5. For these and other grounds that may be argued at the time of hearing, it is prayed that the directions of Dispute Resolution Panel in so far as it relates to the above grounds may be reversed.
6. The appellant craves leaves to add, alter, amend and /or delete any of the grounds mentioned above."
3. The Assessee was entitled to claim deduction u/s.10A of the Act on the profits derived from export of computer software u/s.10A of the Act. Sec.10A(4) provides the methodology of computation of deduction u/s.10A of the Act and it lays down that the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Export turnover has been defined under Explanation 2 (iv) to Sec.10A as:-
IT(TP)A No.201/Bang/2016 Page 3 of 6 "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."
4. While computing the deduction u/s.10A of the Act, the AO noticed that during the relevant assessment year, the Assessee had incurred travelling and conveyance expense to the extent of Rs.1,12,75139/-, telecommunication expenses to the extent of Rs.39,54,734 and a sum of Rs.51,90,023/- in all a sum of Rs.2,04,19,896/- in foreign currency. The AO noticed that the aforesaid expenditure was not reduced from the export turnover while computing deduction of Rs.15,48,05,079/- under section 10A of the Act. The AO therefore excluded the aforesaid sum from the export turnover without excluding them from the total turnover. As a result, the deduction claimed u/s.10A of the Act by the Assessee was allowed at a lesser sum than what was claimed by the Assessee i.e., at a sum of Rs.15,26,65,714/-. It was the plea of the Assessee in the appeal against the draft assessment order before the Dispute Resolution Panel (DRP) that at all times during the relevant previous year, it was engaged in development of computer software and not in rendering any technical services. Communication expenses were incurred not for export of computer software outside India and therefore the exclusion from export turnover as done by the AO was not correct. Without prejudice to its contention that the aforesaid sums should not be excluded from the export turnover while computing deduction u/s.10A of the Act, the Assessee has also made an alternate prayer that expenses that are reduced from the export turnover should also be reduced from the total turnover and in this regard has placed reliance on the decision of the Hon'ble Karnataka High IT(TP)A No.201/Bang/2016 Page 4 of 6 Court in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn) wherein it was held that while computing deduction u/s.10A of the Act expenses that are reduced from the export turnover should also be reduced from the total turnover. The CIT(A) allowed the alternative claim of the Assessee by relying on the decision of Karnataka High Court in the case of Tata Elxsi Ltd.(supra).
5. Aggrieved by the order of DRP which was incorporated in the order impugned in this appeal, the revenue has filed the present appeal before the Tribunal. The learned counsel for the Assessee submitted that section 10A of the Act seeks to allow deduction in respect of the profit derived by an assessee from the export of articles or things or computer software etc. in accordance with conditions provided therein. For the purpose of working out the profit from export, a formula has been provided whereby if the business is of a composite nature, meaning thereby, it includes both exports as well as domestic sales, the proportionate profit relatable to the export business is to be calculated by apportioning the profits of the business in the same proportion as the 'Export Turnover', as defined under clause (iv) of the Explanation 2 to section 10A of the Act, bears to the 'Total Turnover'. "Export Turnover" as defined in Explanation 2 to section 10A means the consideration in convertible foreign exchange excluding freight, telecommunication charges or insurance attributable to the delivery of computer software outside India and expenses incurred by an assessee in foreign exchange in providing the technical services outside India. The term "Total Turnover" has, however, not been defined for the purposes of section 10A of the Act. In view of the aforesaid definition, what needs to be excluded from the export turnover are, inter-alia, the telecommunication charges attributable to delivery of software outside India. It was submitted that in the present case, the sums excluded by the AO while computing export turnover were not of the nature which are IT(TP)A No.201/Bang/2016 Page 5 of 6 excluded by the definition of Export turnover for the purpose of Sec.10A of the Act. The learned DR relied on the order of the CIT(A).
6. We have considered the rival submissions. Taking into consideration the decision rendered by the Hon'ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd [2012] 349 ITR 98 (Karn), we are of the view that charges in question incurred in foreign currency should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. Moreover, the order of the Hon'ble Karnataka High Court has been upheld by the Hon'ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal No.8489-98490 of 2013 & Ors. dated 24.04.2018. In view of the above, we find no merits in this appeal by the revenue and the same is dismissed.
7. In the result appeal by the revenue is dismissed.
Pronounced in the open court on this 17th day of July, 2019.
Sd/- Sd/-
( JASON P. BOAZ ) ( N.V. VASUDEVAN)
Accountant Member VICE PRESIDENT
Bangalore,
Dated, the 17th July, 2019.
/ Desai Smurthy /
IT(TP)A No.201/Bang/2016
Page 6 of 6
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR, ITAT, Bangalore.
6. Guard file
By order
Assistant Registrar,
ITAT, Bangalore.