Income Tax Appellate Tribunal - Chennai
Deputy Commissioner Of Income Tax vs Sra Systems Ltd. on 15 June, 2007
ORDER
Shamim Yahya, Accountant Member
1. This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-V, Chennai-34 dated 13.10.2004 and pertains to assessment year 2001-02.
2. The issue raised in the appeal is that Commissioner of Income Tax (Appeals) erred in holding that the expenses incurred in foreign currency should be excluded from the total turnover for the purpose of Section 10A of the Income Tax Act. SRA Systems Ltd., 100, Valluvar Kottam High Road, Nungambakkam, Chennai-600 034.
3. On this issue, the assessee had claimed that the expenditure incurred by the assessee in foreign exchange for the services provided outside India should be excluded from the export turnover as well as the total turnover for the purposes of computation of deduction under Section 10A of the Income Tax Act. However the Assessing Officer referred to definition of export turnover given in Section 10A and deducted the said expenditure from export turnover and not from the total turnover.
4. Upon assessee's appeal, the learned Commissioner of Income (Appeals) held that though the total turnover is not defined under Section 10A, the same was defined for a similar deduction under Section 80HHE wherein the total turnover was defined to exclude the expenditure incurred in foreign exchange as in the case of export turnover. Hence, the learned Commissioner of Income Tax (Appeals) concluded that Section 10A is akin to deduction under Section 80HHE and the deduction can be properly computed only by excluding the expenditure incurred in foreign exchange both from the total turnover and also from the export turnover.
5. We have heard the rival contentions and perused the relevant records. The learned counsel of the assessee further placed reliance upon Hon'ble Apex Court decision in the case of CIT v. Lakshmi Machine Works 290 ITR 667.
6. We have given a careful consideration to the above and we find that Section 10A Explanation 2 (iv) defines 'export turnover' as, 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.
7. However, there is no definition of 'total turnover' given in Section 10A of the Act. But we note that Section 80HHE which provides for deduction in respect of profits from export of computer software etc., defines export turnover' on similar lines as Section 10A as under in Explanation (c):
Export turnover means the consideration in respect of computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with Sub-section (2), but does not include freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India.
It further defines 'total turnover' in Explanation (e) as:
'Total turnover' shall not include--
i) any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28;
ii) any freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India; and
iii) expenses, if any, incurred in foreign exchange in providing the technical services outside India
8. Thus, it is seen that what is excluded from export turnover is also excluded from total turnover. Now in this case, the learned Commissioner of Income Tax (Appeals) has held that Section 10A is akin to Section 80HHE, hence the deduction can be properly computed only by deducting expenditure incurred in foreign exchange, both from the total turnover and also from the export turnover.
8. We find that Hon'ble Apex Court in the case of CIT v. Lakshmi Machines had the occasion to consider the meaning of 'total turnover' with respect to Section 80HHC. In that context, the Court expounded that (head notes):
Section 80HHC of the Income Tax Act, 1961, is a beneficial section: it was intended to provide incentive to promote exports. The intention was to exempt profits relatable to exports. Just as commission received by the assessee is relatable to exports and yet it cannot form part of "turnover" for the purposes of Section 80HHC, excise duty and sales tax also cannot form part of "turnover". Just as interest, commission, etc., do not emanate from the "turnover" so also excise duty and sales tax do not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover such taxes had to be excluded. Commission, interest, rent, etc., do yield profits, but they do not partake of the character of turnover and therefore they are not includible in the "total turnover". If so, excise duty and sales tax also cannot form part of the "total turnover" under Section 80HHC(3).
One cannot interpret the words "total turnover" with reference to the definition of the word "turnover" in other laws like the Central Sales Tax or as defined in accounting principles.
Excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government.
9. The Hon'ble Apex Court further held that, The principal reason for enacting a formula in Section 80HHC of the Income Tax Act, 1961, is to disallow a part of the concession there under when the entire deduction claimed cannot be regarded as relating to exports. Therefore, while interpreting the words "total turnover" in the formula in Section 80HHC one has to give a schematic interpretation. The various amendments made therein show that receipts by way of brokerage, commission, Interest, rent, etc., do not form part of business profits as they have no nexus with the activity of export. The amendments made from time to time indicate that they became necessary in order to make the formula workable. If so, excise duty and sales tax also cannot form part of the "total turnover" under Section 80HHC(3) : otherwise the formula becomes unworkable.
10. On the anvil of aforesaid exposition, we find that Section 10A also is a beneficial section. It is intended to provide incentive to promote exports. In fact Section 10A is meant to provide a larger benefit than that provided by Section 80HHE by providing the tax holiday to the assessee. If the expenditure incurred in foreign currency are excluded from export turnover but not from total turnover, the benefit granted by Section 10A would be considerably reduced. This, in our opinion, cannot be the scheme of the Act.
11. In this regard, Hon'ble Apex Court in the case of K.P. Varghese v. Income Tax Officer, Ernkaulam and Another 131 ITR 597 (SC) had held that a literal construction that leads to absurdity, unjust result or mischief should be avoided. Similarly Hon'ble Apex Court in the case of Bajaj Tempo Ltd. v. Commissioner of Income Tax 196 ITR 188 with respect to relief for new industrial undertaking under Section 15C of the Income Tax Act, 1922 has held that such provisions should be construed liberally. Very literal construction which defeats the very purpose of enacting the provision should be avoided.
12. Considering the aforesaid, in our view, these expenditures incurred in foreign currency which are excluded from export turnover should also be excluded from total turnover in order to properly work out and grant relief that is intended by this section. Hence, in our opinion, these items which are to be excluded from export turnover cannot be included in total turnover while calculating the relief under Section 10A. Hence, we uphold the order of the learned Commissioner of Income Tax (Appeals) in this regard and decide the issue in favour of the assessee.
In the result, this appeal by the Revenue is dismissed.