Income Tax Appellate Tribunal - Bangalore
M/S Ge India Technology Centre Pvt. ... vs Department Of Income Tax on 14 February, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCH "A"
BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND
SHRI GEORGE GEORGE K, JUDICIAL MEMBER
I.T.A. No.453/Bang/2011
(Assessment Year : 2005-06)
Dy. Commissioner of Income Tax,
Cir. 11(3), Nrupathunga Road, Bangalore. .... Appellant.
Vs.
M/s. GE India Technology Centre Pvt. Ltd.,
EPIP, Phase II, Hoodi Village,
Whitefield, Bangalore-560 066 ..... Respondent.
PAN AABCG 0559J
Appellant By : Mr. Etwa Munda.
Respondent By : Mr. K. N. Ganesh.
Date of hearing : 14.2.2012.
Date of pronouncement : 24.2.2012.
O R D E R
Per Shri N.K. Saini, A.M. :
This is an appeal by the department and is directed against the order dated 22.2.2011 of learned Commissioner of Income Tax (Appeals) LTU, Bangalore.
2. The following grounds have been raised in this appeal :
" The order of the learned CIT(A), in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case.
The learned CIT(A) was not justified in directing the Assessing Officer to recomputed the deduction allowable under section 10A of the I.T. Act, 1961 after reducing the communication charges of Rs.4.36 crores both from the 2 ITA No.453/Bang/2011 export turnover and the total turnover, without appreciating the facts and circumstances of the case.
The learned CIT(A) has erred in not appreciating that there is no provision in section 10A, which requires the communication charges reduced from the export turnover as per clause (iv) of Explanation 2 to section 10A, to be reduced from the total turnover also.
The learned CIT(A) ought to have considered the fact that the various decisions of the ITAT, Bangalore Bench relied upon by her, have not been accepted by the department and appeals have been filed before the Hon'ble High Court of Karnataka.
For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed in so far as the above mentioned issue is concerned and that of the Assessing Officer be restored.
The appellant craves leave to add, to alter, to amend or to delete any of the grounds that maybe urged at the time of hearing of the appeal."
3. From the above grounds, it is gathered that only grievance of the department relates to the deduction under section 10A of the Income Tax Act, 1961 (herein after referred as 'the Act') which was computed by the Assessing Officer by reducing the communication charges from the export turnover but the learned CIT(A) directed the Assessing Officer to reduce the same from export turnover as well as the total turnover.
4. The facts of the case in brief are that the assessee was engaged in the business of export of customized electronic data, computer software, articles or things generated from engineering analysis and Research & Development, etc. The assessee filed its return of income on 30.9.2005 declaring a total income of Rs.1,02,99,700 after claiming deduction under section 10A of the Act to the extent of Rs.14,85,04,996. The said return was processed under section 143(1) of the Act. Subsequently, the case was selected for 3 ITA No.453/Bang/2011 scrutiny. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had incurred telecommunication expenses attributable to the delivery of software outside India. He was of the view that the said expenses should have been reduced from the export turnover but the provisions of section 10A do not provide that such expenditure should be reduced from the total turnover. He, therefore, excluded the communication expenses amounting to Rs.4,36,61,936 attributable to the delivery of software outside India from the export turnover for the purpose of computing deduction under section 10A of the Act. Accordingly, excess claim under section 10A of theAct was worked out at Rs.24,48,668 which was added to the income of the assessee.
5. Being aggrieved the assessee carried the matter to the learned CIT(A) and the submission made before him as mentioned in para 12.1.1 of the impugned order which reproduced verbatim as under :
" 12.1.1 The appellant's arguments vide its written submissions are broadly summarized as under :
i) It was submitted that the telecommunication expenses were used for connectivity within India as well as outside India and that it was practically impossible to determine the usage of the same to the extent attributable to the delivery of software outside India.
ii) Reliance was placed on the Supreme Court decision in the case of B.C. Srinivasa Setty 128 ITR 294 wherein it was held that the charging section and the computation provisions together constitute an integrated code. IN other words, when there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section.
iii) Even assuming that the above expenditure should be reduced from the export turnover, a corresponding deduction should also be made from the total turnover while computing the deduction under section 10A in view of the 4 ITA No.453/Bang/2011 decisions of the AP High Court in CIT Vs. Dredging Corporation of India (1988) 174 ITR 682 and the decision of the ITAT, Chennai Bench in the case of Neyveli Lignite Corporation Ltd. Vs. ACIT (2004) 93 TTJ 685 wherein it was held that total turnover would comprise of both export turnover and domestic (no-export) turnover and that consequently there should be partly of basis between the numerator and the denominator. In support of the contention that the numerator and the denominator should be reduced by like items, the appellant placed reliance on the following decisions.
* CIT Vs. Bharat Earth Movers Ltd. (2004) 268 ITR 232 (Kar) * CIT Vs. Sudarshan Chemicals Industries Ltd. (2000) 245 ITR 769 (Bom) * CIT Vs. Kantilal Chhotalal (2000) 246 ITR 439 (Bom) * CIT Vs. Chloride India Ltd. (2000) 130 Taxman 352 (Cal) * CIT Vs. Abad Fisheries (2002) 258 ITR 641 (Ker) * CIT Vs. H.M. Exports Ltd. 276 ITR 299 (Cal)
iii) The provisions of section 10A of the Act have been inserted in the statute to encourage the establishment of export oriented industries in free trade zones etc. Thus the provisions of section 10A of the Act should be construed so as to advance the objective of the section and not to frustrate it.
iv) The appellant placed reliance on various judicial precedents to support its view that section 10A is an incentive provision and the same should be interpreted liberally, especially the Supreme Court decisions in the case of Bajaj Tempo Ltd. Vs. CIT (1992) 196 ITR 149. Accordingly, the definition of "total turnover" as given in section 80HHE and as clarified by CBDT Circular NO.564 dated 5.7.1990 in the context of the definition of "total turnover"
under section 80HHC should be followed for the purpose of computing deduction under section 10A.
v) Finally, the appellant relied on recent decisions of the Hon'ble ITAT, Hyderabad Bench in the case of ITO Vs. M/s. DE Block India Software Private Limited (ITA No.983 and 984/HYD/2006) and the Delhi Bench in the case of DCIT Vs. Binary Semantics Ltd (109 TTJ 556) which held that expenses excluded from the export turnover ought to be excluded from the total turnover for the purpose of computing deduction under section 10A. Reliance was also placed on the Supreme Court decisions in CIT Vs. Lakshmi Machine Works (2007) 290 ITR 667 and CIT Vs. Catapharma (India) (P) Ltd (2007) 292 ITR 641 wherein it has been held that excise duty and sales tax should not be included in the total turnover as the same are not includible in the export turnover."5 ITA No.453/Bang/2011
6. The learned CIT(A) after considering the submissions of the assessee directed the Assessing Officer to exclude the expenditure incurred on telecommunication charges from the export turnover as well as the total turn over and the relevant findings given by him mentioned in paras 12.1.2 and 12.1.3 of the impugned order which were as under :
" 12.1.2 In this connection, it is pertinent to note that the issue has been laid to rest after the decision of the Hon'ble ITAT, Bangalore Bench in the case of Tata Elxsi Ltd. Vs. ACIT 115 TTJ 423 wherein the Tribunal has ruled as under :
A. The formula prescribed for computing deduction under section 10A of the Act is the same as prescribed in section 80HHE of the Act.
B. Section 10A of the Act has incorporated in entirety the philosophy of section 80HHE of the Act.
C. The definition of the terms 'computer software' and 'convertible foreign exchange' in section 10A are the same as in section 80HHE. However, from out of the three terms relevant for applying the formula, section 10A defines only one term namely 'export turnover'. The other two terms 'profits of the business' and 'total turnover' are not defined. Since the section proceeds broadly on lines similar to section 80HHE, in the absence of the definition of any term in section 10A, one could refer to the definition of a similar term in section 80HHE. Thus, the term 'total turnover' for section 10A purposes should be the same as understood for the purposes of section 80HHE.
D. The term 'total turnover' would be an enlargement of the term 'export turnover.' In other words, the sum total of export turnover and domestic turnover would constitute 'total turnover.' The term 'export turnover' would then be a component or part of the denominator; the other component being domestic turnover. In other words, to the extent of 'export turnover', there would be a commonality between the numerator and the denominator of the formula. In view of the commonality, the understanding should also be the same.
E. If the 'export turnover' in the numerator is to be arrived at after excluding certain expenses the same should also be excluded in computing the 'total turnover' in the denominator.
F. Though there is no definition of the term 'total turnover' in section 10A, there is also nothing in the said section to mandate that what is excluded from the 6 ITA No.453/Bang/2011 numerator (export turnover) would nevertheless form part of the denominator. One would have to apply consistent standards in understanding and applying a term, particularly when such term, i.e. 'export turnover', has an independent function and at the same time a part of a larger term 'total turnover'. Thus if some expenses, for any reason are excluded in arriving at 'export turnover' the same should be reduced from 'total turnover' also.
G. The Tribunal also observed that in the context of section 80HHC where a similar formula is applicable, it has been held that the components entering into export turnover and the total turnover should be the same. In other words, one should compare apples with apples and not apples with oranges. In this regard, the Hon'ble Tribunal, Bangalore Bench, relied on the following judgments of various High Courts rendered in the context of section 80HHC/HHE :
* CIT Vs. Sudarshan Chemicals Industries Ltd. (245 ITR 769) (Bom) * CIT Vs. Chloride India Ltd. (256 ITR 625) (Cal) * CIT Vs. Bharat Earth Movers Ltd. (268 ITR 232) (Kar) * CIT Vs. Lakshmi Machine Works (290 ITR 667) (SC) * CIT Vs Trans Lotus Travel P. Ltd. (290 ITR 1) (Del) 12.1.3 It was also held by the Hon'ble ITAT, Bangalore Bench in the case of ACIT/DCIT, Circle 11(4), Bangalore Vs. M/s. Infosys Technologies Ltd., Bangalore (ITA No.653 & 969 (Bang)/2006 dt.17.10.2007) that expenditure incurred in foreign currency by the assessee should be excluded from the total turnover as the same is not to be considered in export turnover by relying on its earlier decision in the case of m/s. Tata Elxsi Ltd. (supra). In yet another decision of the Hon'ble ITAT, Bangalore Bench 'B' namely, M/s. iGate Global Solutions Ltd. (ITA No. 248 & 249/Bang/2007), it was held, following the same reasoning, that uplinking/telecommunication charges which are reduced fro ascertaining the export turnover are not to be considered for the purposes of total turnover as total turnover is the sum total of export turnover and internal turnover. The Hon'ble ITAT, Bangalore Bench in the case of ISeva Systems Pvt. Ltd. (ITA No.401/Bang/2007 dated 7.12.2007), following its earlier decision in the case of M/s. iGate Global Solutions Ltd. (supra) also held that telecommunication charges which were reduced fro ascertaining the export turnover are not to be considered for the purpose of total turnover in view of the fact that the total turnover is the sum total of export turnover and internal turnover, meaning thereby that whatever is reduced from the export turnover ahs to be reduced from the total turnover for the purpose of computing deduction under section 10A. It is also noteworthy that the Hon'ble ITAT, Special Bench 'D', Chennai, having discussed this issue at length in the case of ITO Vs. M/s. Sak Soft Ltd. Chennai (2007) 313 ITR 353 was in respectful agreement with the view expressed by the Bangalore 7 ITA No.453/Bang/2011 Bench in the case of Tata Elxsi (supra) with reference to section 10A observing that the provisions of sections 10A and 10B were identical in all material respects before arriving at the following :
" 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."
Further, in the case of Jaipuria Silk Mills (P) Ltd. Vs. ACIT (ITA No.1112 (Bang)/2009), the jurisdictional Tribunal placed reliance on the decision of the Chennai Special Bench in the case of Sak Soft (supra) in concluding the freight & insurance expense were to be reduced from both the export turnover and total turnover while computing deduction under section 10A. I am, therefore, of the view that the appellant succeeds in the alternative submission made. Respectfully following the decisions of the jurisdictional Tribunal (supra) and the decision of the Special Bench (supra), I, accordingly, direct the Assessing Officer to exclude the expenditure incurred on telecommunication charges from the total turnover as well.'
7. Now the department is in appeal.
8. The learned Departmental Representative strongly supported the order of the Assessing Officer while the learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that this issue is squarely covered in favour of the assessee by the decision of the ITAT, Chennai (Special Bench) in the case of ITO Vs. M/s.Sak Soft Ltd. (2009) 313 ITR (AT) 353 and judgment of Hon'ble Bombay High Court in the case of CIT Vs. Gem Plus Jewellery India Ltd. (2010) 330 ITR 175 (Bom).
9. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that the assessee has claimed deduction under section 10A of the Act. However, the Assessing Officer while framing the assessment under section 143(3) of the Act computed the deduction under section 10A of the Act by reducing expenditure incurred in foreign 8 ITA No.453/Bang/2011 exchange on account of freight, the telecommunication charges attributable to delivery of the articles or things or computer software outside India or expense, if any, incurred in foreign exchange in providing the technical services outside India amounting to Rs.4,36,61,936/- from the export turn over and not from the total turn over.
10. This issue now has been settled by the Special Bench of ITAT, Chennai in the case of ITO Vs. M/s.Sak Soft Ltd. (2009) 313 ITR (AT) 353 (Chennai (SB) by holding as under :
" To say that in the absence of any definition of "total turnover" for the purpose of section 10B, there is no authority to exclude anything from the expression as understood in general parlance would be wrong, as there has to be an element of turnover in the receipt if it has to be included in the total turnover. That element is missing in the case of freight, telecom charges or insurance attributable to the delivery of the goods outside India and expenses incurred in foreign exchange in connection with the provision of technical services outside India. These receipts can only be received by the assessee as reimbursement of such expenses incurred by him. Mere reimbursement of expenses cannot have an element of turnover. It is only in recognition of this position that in the definition of "export turnover" in section 10B the aforesaid two items have been directed to be excluded. Secondly, the definition of export turnover contemplates that the amount received by the assessee in convertible foreign exchange should represent "consideration" in respect of the export. Any reimbursement of the two items of expenses mentioned in the definition can under no circumstances be considered to represent "consideration" for the export of the computer software or articles or things. Thus the expression "total turnover" which is not defined in section 10B should also be interpreted in the same manner. Thus the two items of expenses referred to in the definition of "export turnover" cannot form part of the total turnover since the receipts by way of recovery of such expenses cannot be said to represent consideration for the goods exported since total turnover is nothing but the aggregate of the domestic turnover and the export turnover. In the formula prescribed by section 10B(4) the figure of export turnover has to be the same both in the numerator and in the denominator of the formula. It follows that the total turnover cannot include the two items of expenses recovered by the assessee and referred to in the definition of "export turnover."9 ITA No.453/Bang/2011
It has further been held that -
" The common thread running through sections 80HHC, 80HHE and 80HHF is that they are all provisions granting relief to the assesses in respect of profits derived from export. The difference between Chapter III in which section 10B falls, and Chapter VI-A in which these sections fall, is that while the former excludes the income in question totally from the purview of total income and gives total exemption from tax, the latter gives deduction of a part of the profits and gains of the concerned business from the gross total income. Both, however, are chapters which give relief to assesses from taxation subject to the conditions bring fulfilled and in that sense they are of the same genre. The object of these sections is to encourage the earning of foreign exchange and provide incentive to promote exports. If some of the sections such as sections 80HHE and 80HHF provide for a formula for calculating the deduction which is identical with the formula prescribed by section 10B, it would be incongruous to interpret section 10B in a manner different from those two sections merely because there is no definition of "total turnover" in that section. "Export turnover" as defined in these sections excludes freight, telecom charges or insurance attributable to the delivery of the computer software outside India or expenses, if any, incurred in foreign exchange in providing technical services outside India. Thus statutory parity is maintained between export turnover and total turnover in these sections. There is no reason why such parity cannot be maintained between export turnover and total turnover in section 10B just because "total turnover" has not been defined in that section."'
11. Similar view has been taken by the Hon'ble High Court of Bombay in the case of CIT Vs. Gem Plus Jewellery India Ltd. (2010) 330 ITR 175 (supra) wherein it has been held as under :
" Under sub-section 10A of the Income Tax Act, 1961, a deduction is allowed from the total income of the assessee of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years commencing from the assessment year relevant to the previous year in which the undertaking begins manufacture or production. Sub-section (4) of section 10A provides the manner in which the profits derived from the export of articles or things or computer software shall be computed. Under sub-section (4) the proportion between the export turnover in respect of the articles or things, or, as the case may be, computer software exported, to the total turnover of the business carried over by the undertaking is applied to the profits of the business of the undertaking in computing the profits derived from export. In 10 ITA No.453/Bang/2011 other words, the profits of the business of the undertaking are multiplied by the export turnover in respect of the articles, things or, as the case may be, computer software and derived by the total turnover of the business carried on by the undertaking. The expression "total turnover" has not been defined at all by Parliament for the purposes of section 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. 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."
12. A similar view has been taken by the Hon'ble jurisdictional High Court in the case of CIT Vs. Tata Elexi (2011) TIOL - 684 (Karn.) and the relevant finding given therein reads as under :
"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 11 ITA No.453/Bang/2011 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 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"
13. From the ratio laid down in the aforesaid judicial pronouncements by the Hon'ble jurisdictional High Court and Hon'ble High Court of Bombay, it is crystal clear that if an item is excluded from the export turn over, the same should also be excluded from the total turn over to maintain parity between the numerator and denominator while calculating the deduction under section 10A of the Act. In view of the above, we do not see any merit in the appeal of the department.
14. In the result, the appeal of department is dismissed.
(Order pronounced in the open court on 24.2.2012.)
Sd/- Sd/-
(GEORGE GEORGE) (N.K. SAINI)
Judicial Member Accountant Member
Bangalore,
Dated: 24.2. 2012.
*Reddy gp
12
ITA No.453/Bang/2011
Copy to :
1. Appellant
2. Respondent
3. C.I.T.
4. CIT(A)
5. DR, - A Bench.
6. Guard File.
(True copy) By Order
Asstt. Registrar, ITAT, Bangalore