Income Tax Appellate Tribunal - Bangalore
Goldman Sachs Services Private Limited ... vs Assessee on 17 July, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCH 'C', BANGALORE
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER
AND
SHRI JASON P BOAZ, ACCOUNTANT MEMBER
IT(TP)A No.1685(B)/2012
(Assessment year : 2008-09)
M/s Goldman Sachs Services Pvt. Ltd.
Crystal Downs, Embassy Golf Links Business Park,
Off Intermediate Ring Road,
Bangalore-560 071
PAN No.AACCG2435N Appellant
Vs
The Deputy Commissioner of Income-tax,
Cirlce-11(3),
Bangalore Respondent
Assessee by : Shri Ajithkumar Jain, CA
Revenue by : Shri R.K.Mishra, CIT-III
Date of hearing : 02-07-2015
Date of pronouncement : 17-07-2015
ORDER
PER SHRI VIJAY PAL RAO, JM:
This appeal by the assessee is directed against the assessment order dated 19-10-2012 passed u/s143(3) r.w.s.144C of the IT Act in pursuant to the directions of the DRP dated 26-09-2012 for the assessment year 2008-09.
2. The assessee has filed the following concise grounds; 2 IT(TP)A No.1685(B)/12
"1. The order passed by the DRP and the ld.AO/TPO is not in accordance with the law and is contrary to the facts and circumstances of the present and in any case in violation of the principle of equity and natural justice.
Transfer pricing
2. The Hon'ble DRP and the ld.AO/TPO have erred in law and on facts in rejecting without appreciate reasons, the detailed benchmarking analysis conducted by the appellant and embarking on a fresh search for comparables.
3. The Hon'ble DRP and the ld.AO/TPO erred in fact and in law ij determining the ALP by adopting the financial data for a single year(i.e the financial year 2007-08) of the comparable as against multiple year data considered by the appellant.
4. The DRP and theld.AO/TPO erred in fact and in law in using selective information, which was not available in public domain, obtained u/s133(6) of the IT Act and identifying additional comparables based on the same.
5 The Hon'ble DRP and the ld.AO/TO has erred in determining the ALP based on co. which are not comparable to the appellant due to various factors such as functional comparability, product/intangible segment financials, irreconcilable differences in accounting policy extra ordinary events/business restructuring abnormal fluctuation in margins, exceptional year, lower employee cost levels, fails TPO's own filters etc. 3 IT(TP)A No.1685(B)/12
6. The Hon'ble DRP and the ld.TPO/AO has also erred in selecting companies which have earned super profits and super growth not in line with the industry even though a filter was applied by the learned TPO to reject loss making and declining revenue companies.
7. The Hon'ble DRP and the ld.AO/TPO erred in rejecting certain companies selected in the transfer pricing study of the appellant based on incorrect reasons.
8. The Hon'ble DRP and the ld.AO/TPO erred in law and on facts in upholding the AL margin arrived at y theld.TPO by not considering the benefit of the 5 percent tolerance range allowed under the Act and the Rules.
9. The ld.AO/Hon'ble DRP have erred in not granting appropriate working capital adjustments to the appellant based on the appropriate working capital adjustment workings which were provided by the appellant.
10.The ld.AO/Hon'ble DRP have erred in upholding the ld.TPO's action of not making further downward margin adjustment to consider the risk, differentials between the appellant and the comparable companies, thereby rejecting the risk adjustment workings provided by the appellant.
11. The ld.TPO erred in computing the operating margins of the comparable co. at higher levels and determining the operating margin of the appellant to be lower than the margin actually earned by the appellant, and the Hon'ble DRP and the ld.AO have erred in upholding the same.4 IT(TP)A No.1685(B)/12
12. The Hon'ble DRPld.AO have erred in law and on facts in upholding the TPO's action of adding the recovery of expenditure received from the associated enterprises amounting to Rs.3,18,81,914/- to the operating cost and operating revenue of ITES segment while determining Alp for international transactions. The Hon'ble DRP/TPO have erred in including the recovery of expenses to the operating income and operating costs of the appellant.
13. The Hon'ble DRP/ld.AO have erred in law and on facts in not considering foreign exchange gain/loss and provision for bad debts as operating items while computing the margins for benchmarking.
14. The Hon'ble DRP and the AO/TPO have erred in fact and in law in applying the provisions of TP to the appellant without appreciating the fact that the appellant was entitled to 100 percent deduction of profits u/s 10A during the relevant year and therefore, there would be not be any motive to shift profits to the other country.
Adjustment under the sec.10A of the Act.
15. The Hon'ble DRP and the ld.AO has erred in law and in facts in concluding that the communication expenses (being lease line charges of 2,29,89,758/-) are to be excluded from the export turnover for the purpose of computation of relief under the sec.10A of the Act.
16. The Hon'ble DRP has erred in law and on facts in upholding the ld. AO's conclusion that the said expense 5 IT(TP)A No.1685(B)/12 should not be reduced from total turnover for the purpose f computation of relied under section 10A of the Act.
Disallowance under section 40a(ia) of the Act.
17. The Hon'ble DRP ld.AO has erred in disallowing an amount of Rs.7,42,22,683/- under section40(a)(i) of the Act and upholding conclusion that the appellant has failed to deduct tax at source on payments made to certain non- resident vendors which are in the nature of royalty fees for technical service (FTS) and were subject to tax deduction at source (TDS) under provisions of Chapter-XVIIB of the Act, without considering the beneficial provisions of the relevant tax treaty".
3. Ground no.1 is general in nature and does not require any specific adjudication.
3.1 At the time of hearing, learned AR of the assessee has submitted that the assessee does not press ground no.2 to 4,6to 14 and 17 of the grounds of appeal. Therefore, it was pleaded that the ground no.2 to 4 and 6 to 14 and 17 may be dismissed as not pressed.
4. The learned DR has not objected if the ground as prayed are dismissed as not pressed. Accordingly, ground no.2 to 4, 6 to 14 and 17 are dismissed being not pressed. Thus, the only grounds in the appeal of 6 IT(TP)A No.1685(B)/12 the assessee are left for our consideration and adjudication are ground no.5,15 & 16.
5. Ground no.5 regarding the transfer pricing adjustment made by the TPO and confirmed by the DRP. The assessee company is engaged in the business of export of software development services and ITEs Services. There is no dispute as far as the international transactions of the assessee in the segments of oftware development services. The dispute before us is only in respect of the international transactions carried out by the assessee in the ITES segment. The assessee is a subsidiary of Goldman Sachs Mauritius LLP. The assessee provides following services to Goldman Sachs group companies.
i) Bank end services to support business processes in the areas of operations, technology, support, finance, investment banking, global investment research, business intelligence group, human capital management etc. and
ii) Software Development Services
6. The AE group of assessee is a goldman investment banking securities and investment management group that provides a wide range of services to worldwide to a diversified client sake. The assessee benchmark its transaction in ITES segment by selecting 13 comparables and using 3 years data. The TPO rejected 8 comparables selected by the 7 IT(TP)A No.1685(B)/12 assessee and added 15 more comparables for determining the ALP in respect of the international transactions in ITES segment. The final set of comparables comprising 20 companies has been given by the TPO at page- 14 & 15 of the impugned order as under;
Sl.No. Name of the company OP/TC%
1 Accentia Techolgies Ltd (Seg.) 41.77
2 Acropetal Technologies Ltd (Seg.) 35.30
3 Aditya Birla Minacs Worldwide Ltd(Earlier known as -4.00
Transworks Information Services Ltd)
4 Asit C Meha Financial Services Ltd (Seg.) 9.42
5 Caliber Point Business Solutions Ltd 10.97
6 Coral Hubs Ltd (Earlier known as Vishal Information 50.68
Tech.Ltd)
7 Cosmic Global Ltd 23.30
8 Crossdomain Solutions Ltd 27.03
9 Datamatics Financial Services Ltd (Seg.) 29.11
10 E4e Halthcasre Solutions Ltd( Formerly known as 18.54
Nittany Outsourcing Services Pvt.Ltd)
11 Eclerx Services Ltd 58.80
12 Genesis International Corpn.Ltd 47.40
13 Infosys BPO Ltd 19.66
14 IServices India Pvt.Ltd 10.77
15 Jindal Intellicom Pvt.Ltd -10.29
16 Mold tex Technologies Ltd 96.66
17 R Systems International Ltd (Seg.) 4.30
18 Spanco Ltd (Seg.) Earlier known as Spanco 8.81
Telesystems & Solutions Ltd
8 IT(TP)A No.1685(B)/12
19 Wipro Ltd (Seg.) 30.05
20 Alilsec Tehnologies Ltd -13.29
Average 24.75
Thus, the TPO has determined the average margin of the comparable companies at 24.75%. This set of comparables considered by the TPO also includes 5 comparables companies selected by the assessee which are as under;
Sl.No Name of the comparable company Op.margin to cost (FY 2007-08) 1 Caliber Point Business Solutions Ltd 10.97 2 Cosmic Global Ltd 23.30 3 Spanco Ltd (SEg.) earlier known as Spanco 8.81 Telesystems & Solutions Ltd) 4 Allsec Technologies Ltd -13.29 5 R Systems International Ltd ()Seg.) 4.30 The TPO also allowed the working capital adjustment at 0.74% while making adjustment on account of ALP. The TPO worked out the assessee's operating margin at 16.62% and accordingly, proposed an adjustment of Rs.30,27,18,666/- after allowing the working capital adjustment at 0.72%. The assessee objected the proposed adjustment of TPO by filing the objections before the DRP. The DRP rejected one comparable out of the 20 9 IT(TP)A No.1685(B)/12 set of comparable selected by the TPO and also revised the working capital adjustment to 2.79% instead of 0.72%. However, the assessee was not satisfied with the order of the DRP and challenged the comparable selected by the TPO in this appeal.
7. Before us, though the assessee has challenged the entire set of comparables selected by the TPO in the set of comparables however, the learned AR of the assessee has confined his argument only in respect of 2 companies namely Eclerx Services Ltd and Mold Tek Technologies Ltd which are at sl.no.11 & 16 of the list of comparables selected by the TPO. The learned AR submitted that the assessee is low end ITES providing Co. whereas the Eclerx Services Ltd is a high end service providing Co. and therefore, the said Co. is in the services of Knowledge Process Outsourcing (KPO). He has referred the annual report of the said Co. at page-135 of the paper book and submitted that as per the management commentary the said Co is a KPO providing data analytic and data processing solution to some of the largest brands in the world. He has referred some of the instances of the service provided by the Eclerx to its clients as narrated in the annual report and submitted that this Co. is in the consultancy services as well as data analytic solution providing services and therefore, this Co. is providing high end services. Eclerx is a very different Co. with industry specialized services for meeting complex clients needs. The Co. has categorically explained that this Co. is a data analytic KPO service 10 IT(TP)A No.1685(B)/12 provider specializing in two business verticals- Services and Retail and Manufacturing. Apart from this, the learned AR has pointed out that the Eclerx (supra) has also acquired UK based Co. namely; M/s Ignetica Travel Solutions Ltd., on July 2007. This acquisition has given the co. an entry platform into a new vertical i.e travel and hospitality besides, consolidating Co's position in retail and manufacturing space. Thus, the learned AR has submitted that this Co. is functionally dissimilar to that of the assessee. Further, the Co. is declaring only one segment in its operational revenue's. Therefore, the result of the said Co. cannot be compared with that of the assessee which is in a different nature of activities which is low end ITES. The learned AR has further pointed out that though, the TPO for theAY:2010-11 proposed to include Eclerx Services Ltd in the list of comparables however, while passing the final order dated 30.01.14 by the TPO Eclerx was excluded from the final set of comparables selected by the TPO. The learned AR submitted for the AY: 2010-11 the TPO itself had excluded this said Co. by treating the same as not comparable with the assessee. He has referred the show cause notice dated 1.11.2013 at page- 589 of paper book no.2 and the TPO order dated 30.1.13 at page no.602 of paper book no.2 in support of his contention that this Co. was found not comparable by the TPO for the purpose of determination of ALP in respect of ITES segment. In support of his contention the learned AR relied upon the decision of the Mumbai Bench of the Tribunal in the case of Maersk Global Centres India Pvt.Ltd Vs ACIT 31 ITR (Trib.)1 as well as the decision 11 IT(TP)A No.1685(B)/12 dated 9.7.14 and in case of Lionbridge Technologies Pvt.Ltd. Vs ITO in ITA No.7498(M)/2012.
8. On the other hand, the learned DR has submitted that the objects of assessee regarding low end services and high end services was duly considered by the TPO as well as by the DRP and it was found not acceptable because f the reasons that all the comparables selected by the TPO are providing ITES services. Thus, the assessee as well as the comparable selected by the TPO are in the same business activity of ITES and merely because of the nomenclature of KPO given by some of the Co's in their annual report could not change the real nature of services and business activities of these Co's. The learned AR has further submitted that when the assessee itself has selected 13 comparables without applying this filter of BPO/KPO than, the assessee cannot raise this objection only against Co's selected by the TPO. He has relied upon the orders of the authorities below.
9. We have considered the rival submissions as well as the material on record. As it is clear from the business profile of the assessee recorded by the TPO that the international transactions in the ITES pertaining to data processing and in the nature back end service support to the AE group of Co's. The assessee claimed that the assessee is in low end data processing services which has not been disputed by the TPO while determining the comparables and ALP by using the mean margin of the 20 12 IT(TP)A No.1685(B)/12 comparables selected by the TPO. There is no dispute regarding the most appropriate method being TNM method adopted by the assessee as well as the TPO. We find that the comparability and nature of services provided by Eclerx (Supra) has been examined by the Special Bench in case of Maersk Global Centres India (P)Ltd (Supra) in para-82 & 83 as under;
"82. In sofar as M/s eClerx Services Ltd is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at pp.166 to 183 of the paper book. A perusal of the same shows that the said company provides data analysis and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that a eClerx is a different company with industry specialized services for meeting complex client needs, data analysis KPO service provider specializing in two business verticals financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services (P)Ltd is also claimed to have a scalable delivery model and solutions offered that include data 13 IT(TP)A No.1685(B)/12 analytics, operations management audits and reconciliation ,metrics management and reporting services. It also provides tailored process outsourcing and management services alongwith multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support delivery. These software automation tools increase productivity allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services (P)Ltd and its functional profile, we are of the view that this company is also mainly engaged in providing high end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low end services to the group concerns.
83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AE are compared with the functional profile of M/s eClerx Services(P)Ltd and Mold-Tek Technologies Ltd. it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the directions of the DRP.14 IT(TP)A No.1685(B)/12
10. Thus, it is clear that the functional profile of eClerx Service (P)Ltd (Supra) was examined by the Special Bench and it was found that the said Co. is mainly engaged in providing high end services involving specialized expertise in the field and the same cannot be compared with a Co. mainly engaged in providing low end services to its group concerns. We further note that by following the decision of the Special Bench in the case of Maersk Global Centres India Ltd. the Co-ordinate Bench of Mumbai Tribunal in case of M/s Lionbridge Tech.Pvt.Ltd.(Supra) as observed in para-8 as under;
"8. In respect of comparable Eclerx Services Ltd, as included by TPO, we found that this company is Knowledge Process Outsourcing (KPO) engaged in providing data analysis and data process solutions. Online operation support, customer relationship management support, data de-duplication services etc. Since functionally, it is different from assessee-company, DRP was not justified in not excluding the same from the list of comparables".
11. Having regard to the nature of the services provided by the assessee to its group concern in comparison to the nature of services provided by eClerx Service Ltd.,(Supra) to its client we do not find any reason to take a different view that of the Special Bench in case of M/s Maersk Global India Pvt.Ltd. as well as in case of M/s Lionbridge Tech.Pvt.Ltd.(Supra) Accordingly, following the decision of the Special 15 IT(TP)A No.1685(B)/12 Bench in case of M/s Maersk Global India Pvt.Ltd., we hold that eClerx Services Ltd is functionally dissimilar to that of the assessee in sofar as the ITES segment is concerned and therefore, the said Co. cannot be compared with the assessee Co. for the purpose of determining ALP in respect of international transactions of providing ITES to its associated enterprise. Accordingly, we direct the AO/TPO to exclude eClerx Services Ltd.,(Supra) from the set of comparables selected by the TPO. Mold Tex Technologies Ltd.,
12. The learned AR of the assessee has referred to the director's report of M/s Mold Tex Technologies Ltd., and submitted that this Co. was not having an extra ordinary event of demerger of its subsidiary M/s Mold Tek Tech.Ltd., and amalgamated with Tekmen Tool (P)Ltd., The scheme of amalgamation was approved by the Hon'ble Andhra Pradesh High Court vide order dated 15/07/2008 therefore, there was amalgamation and demerger in respect of this Co. during the year under consideration. He has referred to the business activity of the said Co. as involved in the structural engineering KPO. Thus, the learned AR has submitted that this Co. is entirely in the different nature of activity and functions which is not comparable with the assessee. In support of his contention he has relied upon the decisions of the Special Bench of Mumbai (Supra) The learned AR has pointed out that this Co. is declaring only one segment operating revenue therefore, this cannot be compared with the assessee. 16 IT(TP)A No.1685(B)/12
13. On the other hand, learned DR has relied upon the orders of the authorities below and submitted that this Co. is in the field of ITES and therefore, functionally comparable with the assessee.
14. We have considered the rival submissions as well as the material on record. At the outset, we note that functional analysis of the Co. has been examined by the Special Bench in case of M/s Maersk Global India Pvt.Ltd(Supra) in para-81 & 83 as under;
"81. Insofar as the case of M/s Mold Tek Technologies Ltd is concerned, it is observed from the annual report of the said company for the FY: 2007-08 placed at pp.139 to 151 of the paper book that he said company was pioneer in structural engineering KPO services and its entire business comprised of providing only structural engineering services to various clients. Further, information of M/s Mold Tek Technologies Ltd available on their website is furnished in the form of printout at pp.158 to 165 of the paper book and a perusal of the same shown that it is a leading provider of engineering and design services with specialization in civil, structural and mechanical engineering services. It is stated to have a strong team of skilled resources with world class resources and skill sets. It is also stated to have consistently helped the clients to cut down design and development cost of civil, structural, mechanical and plant design by 30-40 percent and delivered technologically superior outputs to match and exceed expectations. It is claimed to have in-house 17 IT(TP)A No.1685(B)/12 software development team, quality control training and trouble shooting facilities. M/s Mold Tek is also rendering web design and development services with experience in turning them into an effective graphic design representation and creating dynamic and graphic rich web applications from IT specs, design prints etc. Keeping in view this information available in the annual report of M/s Mold Tek as well as on its website, we are of the view that the said company is mainly involved in providing high end services to its clients involving higher special knowledge and domain expertise in the field and the same cannot be taken as comparable to the assessee company which is mainly involved in providing low end services. It may be pertinent to note here that the financial year 2007-08 was a unique ear for Mold Tek Tech.Ltd. as the scheme of arrangement involving amalgamation between Tekmen Tool (P)Ltd and Mold Tek Tech.Ltd. and demerger between Mold Tek Technologies Ltd., simultaneously, was sanctioned by the Hon'ble Andhra Pradesh High Court by 15th July, 2008 with the appointed date for amalgamation and demerger being as October, 2007 and April 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company provision for derivative loss of Rs.6.43 Crores made by Mold Tek Tech.Ltd. was excluded by the AO treating the same as non-operating expenses whereas in the case of Rusabh Diamonds Vs Asst.CIT(reported at (2013) 155 TTJ (Mum.) 386 (2013) 89 DTR (Mum.)(Trib.) 57 Ed) it was 18 IT(TP)A No.1685(B)/12 held by the Division Bench of this Tribunal that the gain or loss arising from the forward contract entered for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit.
83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AE are compared with the functional profile of M/s eClerx Services(P)Ltd and Mold- Tek Technologies Ltd. it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the directions of the DRP.
15. The Special Bench has examined the functional comparability of this Co. with that of ITES low end service providing assessee and found that this Co. is rendering web designing and development of services with expertise in turning them in to effective graphics, design representative and creating dynamics and graphic rich web application from IT speces, design, prints etc. Further, this Co. was already found to be involved in providing structural engineering services coupled with extraordinary event of amalgamation and demerger. Following the decision of this Special Bench in case of M/s Maersk Global India Pvt. Ltd. 19 IT(TP)A No.1685(B)/12 (Supra),Mumbai Benches the Tribunal in the case of M/s Lionbridge Tech. Pvt. Ltd(Supra) also took a similar view in para-7 as under;
"7. By applying the arithmetic mean of 30.10% an adjustment of Rs.10,39,54,664/- was sustained by DRP. Out of the comparables taken by the DRP, learned AR has contended against three companies namely; Mold Tek Tech.Ltd. Exclerx Service :Ltd and Acropetal Tech.Ltd which were alleged to be functionally different from the assessee company being a low end back office support service provider. We found that Mold Tek Tech.Ltd provides KPO services in the field of engineering. We also found that Mold Tek hass demerged its subsidiary Mold Tek Plastics Ltd w.e.f. April, 2007 which is an extra- ordinary event. Furthermore, since the Mold Tek is into providing KPO engineering services, hence, cannot be functionally compared with the assessee company which is engaged in the provision of back office operations. For this purpose, reliance may be placed on the decision of Special Bench in the case of Maersk Global Centres (Ind.) Pvt.Ltd, ITA NO.7466/Mum/2012. Accordingly, we do not find any justification in the order of DRP for not excluding Mold Tek as comparable which is a Knowledge Processing Company. Thus, the DRP was not justified in the comparing the same with the assessee which is functionally different insofar as assessee is engaged in providing low end back office support services".
16. In view of the above facts and nature of the functions performed by the Mold Tek which have been examined by the Special Bench and 20 IT(TP)A No.1685(B)/12 found is not compared with the low end ITES service provider Co. we hold that this Co. is functionally not comparable with that of the assessee. Accordingly, we direct the AO/TPO to exclude Mold Tek from the list of comparables.
17. The learned AR of the assessee has submitted that the assessee would not seek further exclusion of other comparables if the TPO/AO is directed to exclude these two companies from the comparables than the mean margin would be within the tolerance range of +=5% and consequently no adjustment can be made on this account. In view of the statement and plea of the learned AR we direct the AO/TPO to re-compute the ALP after excluding the above two Co. namely M/s Eclerx and M/s Mold Tek (Supra) and then determine the adjustment, if any after giving the benefit of tolerance range of +=5%.
18. Ground no.15 & 16 is regarding exclusion of communication expenses/lease line charges from export turnover for the purpose of computation of deduction u/s 10A of the Act.
19. We have heard the learned AR as well as the learned DR and considered the relevant material on record. The only grievance of the assessee on this issue is that if the communication expenses are excluded from the export turnover then, the same should also be excluded from the total turnover in view of the judgment of jurisdictional High Court in the 21 IT(TP)A No.1685(B)/12 case of M/s Tata Elxsi Ltd. reported in 349 ITR 98 for the assessment year 2003-04. At the outset, we note that this issue is now covered in the case of M/s Tata Elxsi Ltd. cited supra, wherein the Hon'ble High Court while dealing with the issue has held in para-17 & 18 as under;
"17. From the aforesaid judgments, what emerges is that, there should be uniformity in the ingredients of both the numerator and the denomination of the formula, since otherwise, it would produce anomalies or absurd results. Section 10A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of section 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in section 10A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. The export turnover would be a component or part of a denominator, the other component being the 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, 22 IT(TP)A No.1685(B)/12 the understanding should also be the same. In other words, 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 export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the deno0minator cannot be different. Therefore, though there is no definition of the term 'total turnover' in section 10A, there is nothing in the said section to mandate that what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined y the Legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the Legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the Legislature, they would have expressly stated so. If they have not chosen to expressly define what the total turnover means, then, when the total turnover includes export turnover, the meaning assigned by the Legislature to the export turnover is to be respected and 23 IT(TP)A No.1685(B)/12 given effect to, while interpreting the total turnover which is inclusive of the export turnover. Therefore, the formula for computation of the deduction under section 10A, would be as under;
In that view of the matter, we do not see any error committed by the Tribunal in following the judgments rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the revenue".
Following the judgment of the Hon'ble High Court this issue is decided in favour of the assesee.
20. In the result, the appeal of the assessee is partly allowed. Pronounced in the open Court on the 17-07-2015 Sd/- Sd/-
(JASON P BOAZ) (VIJAY PAL RAO)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:
Place: Bangalore
am*
Copy to :
1 Appellant
2 Respondent
t3 CIT(A) Bangalore
4 CIT
5 DR, ITAT, Bangalore.
6 Guard file
By order,
AR, ITAT, Bangalore