Income Tax Appellate Tribunal - Bangalore
Sanyo Lsi Technology India Pvt. Ltd.,, ... vs Department Of Income Tax
ITA No.786/B/09
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
ITA No.786/Bang/2009
Assessment year : 2005-06
The Dy. Commissioner of
Income-tax,
Circle 12(3),
Bangalore. : APPELLANT
Vs.
Sanyo LSI Technology India Pvt.
Ltd.,
Unit-3, Level-8, Discoverer Block,
International Technology Park,
Whitefield Road,
Bangalore - 560 066. : RESPONDENT
Appellant by : Smt. Jacinta Zimik Vashai
Respondent by : Shri Madhukar D.
ORDER
PER GEORGE GEORGE K, JUDICIAL MEMBER
This appeal by the revenue is directed against the order of the CIT(Appeals)-V, Banglaore dated 18.5.09.
2. The effective ground raised in this appeal reads as follows :
"The CIT(A) erred in directing the AO to exclude 'the expenditure incurred in foreign currency towards telecommunication travel, project related ITA No./786/B/09 Page 2 of 8 expenses, computer software written off, other expenses attributable to the delivery of software outside India., etc., from the total turnover for the purposes of computation of deduction u/s 10A of the IT Act, 1961.
3. The brief facts are assessee-respondent is a company engaged in the business of design and development of integrated chips and coding of embedded software. It filed its return of income for the A.Y. 2006-06 on 30.10.2005 declaring an income of Rs.27,54,550. The return was processed under section 143(1) and intimation was issued to the assessee. Subsequently the case was taken up for scrutiny by issue of notice u/s. 143(2) and various details and information was called for. The Assessing Officer passed an order u/s. 143(3) dated 17.10.2008 by recomputing the deduction claimed by the assessee under section 10A of the Act, by reducing the following amounts from the export turnover of the assessee company.
- Telecommunication charges of Rs.11,90,199.
- Travel expenses amounting to Rs.66,94,916
- Training and project related expenses of Rs. 23,75,699.
- Computer software written off of Rs.9,54,820 - Other expenses of Rs.3,28,445.
However, the same has not been reduced from the total turnover. Thus assessee claim of deduction u/s10A of Act amounting to Rs.3,07,34,986/- was reduced to Rs.2,79,92,505/- and excess deduction u/s 10A of ITA No./786/B/09 Page 3 of 8 Rs.27,42,482/- was added back and assessment was completed determining the total income of assessee at Rs.59,97,032/-.
4. Aggrieved by the assessee preferred an appeal before the CIT(Appeals). The CIT(Appeals) allowed the appeal in favour of the assessee vide his order dated 18.5.2009 directing the AO to exclude the expenditure incurred towards freight, telecommunication charges etc. by the assessee both from export turnover and total turnover for the purposes of deduction u/s. 10A. Aggrieved by this order of the CIT(Appeals), the revenue is in appeal before us.
5. The learned AR at the very outset submitted, the matter is covered by various decisions of the Tribunal including the Special Bench decision of Tribunal in the case of ITO Vs. M/s Sak Soft Ltd.,(2009) 313 ITR (AT) 353 (Chennai)(SB). The learned DR did not controvert the statement of the learned AR.
6. We have heard the rival submissions and perused the material on record. We find the issue in question is covered in favour of the assessee by various decisions of the Tribunal. In ITO Vs. M/s Sak Soft Ltd.,(2009) 313 ITR (AT) 353 (Chennai)(SB), the assessee engaged in the business of exporting computer software claimed deduction u/s. 10B of the Act. The AO in the assessment u/s. 143(3) reduced the expenditure incurred in foreign exchange in providing the technical services outside India, from the ITA No./786/B/09 Page 4 of 8 export turnover without corresponding reduction from the total turnover, thereby reducing the deduction claimed by the assessee u/s. 10B of the Act. In the light of above facts, Special Bench of the Tribunal held, thus, "we hold that for the purpose of applying the formula under sub-sec.(4) of sec. 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 service outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and denominator respectively in the formula. The appeals filed by the department are thus dismissed."
7. All though, the order of the Special Bench (supra) was in the context of section 10B of the Act, the ratio laid down therein applies to section 10A of the Act also, as the provisions of sections 10A and 10B are identical on all material aspects. More particularly, both the sections define only export turnover but not total turnover and sub-section (4) of both the sections prescribe an identical formula for computing the export profits.
8. Further in the case of M/s. Tata Elexsi Limited v. ACIT (ITA No.315/Bang/2006), the Hon'ble Bangalore Tribunal held that for the computation of deduction u/s 10A of the Act, if certain expenses are to be excluded from the export turnover, the same would also need to be excluded from the total turnover.
ITA No./786/B/09 Page 5 of 8 The Hon'ble Tribunal held that "the formula prescribed for computing the deduction u/d 10A is the same as prescribed in sec. 80HHE. The formula provides for a deduction of profits from the business in the ratio of export turnover as compared to the total turnover. Section 10A has incorporated in entirely the philosophy of sec. 80HHE. The definition of the terms 'computer software' and 'convertible foreign exchange' in sec. 10A are the same as in sec.
80HHE. However, from out of the three terms relevant for applying the formula, sec. 10A defines only one term namely 'expert turnover'. The other two terms 'profits of the business' and 'total turnover' are not defined. Since the section proceeds broadly on line similar to sec. 80HHE in the absence of the definition of any term in sec. 10A, one could refer to the definition of a similar term in sec. 80HHE. Thus, the term 'total turnover' for sec. 10A purposes, should be the same as understood for the purpose of sec. 80HHE' The term 'total turnover' no doubt is not defined in sec. 10A. However, the term 'total turnover' would be an enlargement of the term 'expert turnover'. In other words, the sum total export turnover and domestic turnover would constitute 'total turnover'. The formula for computation of the deduction u/s 10A, when re- stated in the above manner, would be as under :
Profits of the business X Export turnover Export turnover + Domestic turnover ITA No./786/B/09 Page 6 of 8 The term 'export turnover' would then be a component or part of the 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 denominator of the formula. In view of the commonality, the understanding should also be the same. In other words, if the 'export turnover' in the numerator is to be arrived at after certain expenses, the same should also be excluded in computing the 'total turnover' in the denominator. Though there is no definition of the term 'total turnover' in sec. 10A, there is also nothing in the said section to mandate that what is excluded from the numerator (export turnover) would nevertheless from part of the denominator. One would have to apply consistent standards in understanding and applying a term, particularly when, such term, viz export turnover has an independent function and at the same time a part of a larger term viz total turnover. Thus, if some expenses, for any reason are excluded in arriving at the 'export turnover' the same should be reduced from 'total turnover' also".
The Hon'ble Tribunal also placed reliance on the following cases :
1. CIT Vs. Sudarshan Chemicals Industries Ltd., 245 ITR 769, Bom.
2. CIT Vs. Chloride India Ltd., 256 ITR 625, Cal.
ITA No./786/B/09 Page 7 of 8
3. CIT Vs. Bharat Earth Movers Ltd., 268 ITR 232, Kar.
4. CIT Vs. Lakshmi Machine Works, 290 ITR 667, SC.
5. CIT Vs. Trans Lotus Travel Pvt. Ltd., 290 ITR 1, Del."
After an analysis of the above stated cases the, Hon'ble Tribunal held that "Therefore, from the aforesaid discussions and the decisions rendered by various High Courts we are of the view that the assessee should succeed in the alternative submission made. Accordingly, we direct the AO to exclude the expenditure incurred in foreign currency by the assessee from the total turnover. It is ordered accordingly.".
9. Therefore, respectfully following the decision of Special Bench cited supra, and the decision of the co-ordinate bench decision of Bangalore Tribunal in case of M/s TATA Elaxi Ltd. Vs. CIT (ITA No.315/Bang/06), we hold CIT(A) is justified in excluding the expenditure incurred towards freight, telecommunication charges etc. by company from both export turnover and total turnover for the purposes of deduction u/s 10A of the Act.
ITA No./786/B/09 Page 8 of 8
10. In the result, the appeal filed by the revenue is dismissed.
Pronounced in the open court on this 23rd day of December, 2009.
Sd/- Sd/-
(A. MOHAN ALANKAMONY ) (GEORGE GEORGE K.)
Accountant Member Judicial Member
Bangalore,
Dated, the 23rd December, 2009.
vms
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file (1+1)
By order
Assistant Registrar
ITAT, Bangalore.