Income Tax Appellate Tribunal - Bangalore
Tata Elxsi Ltd. vs Asstt. Cit on 16 October, 2007
Equivalent citations: (2008)115TTJ(BANG)423
ORDER
P. Mohanarajan, J.M.
1. This appeal is by the assessee directed against the order of the learned Commissioner (Appeals)-III, Bangalore, dated 24-2-2006.
2. We have heard both sides and perused the records. The assessee is a limited company engaged in the business of distribution of computer systems, designs and development of computer software. The assessee filed return of income for the present assessment year returning income at Rs. 9,11,36,889. The return was processed under Section 143(1) of the Income Tax Act, 1961. Subsequently notice under Section 143(2) was issued and the assessment has been completed on 24-3-2005. The assessee claimed benefits under Section 10A of the Act. While re-computing deduction under Section 10A, the assessing officer had made certain adjustments as under:
(a) In the return of income a sum of Rs. 9,88,87,066 was deducted by the appellant while arriving at the figure of export turnover. In addition, the assessee has deducted a further sum of Rs. 4,13,33,000 in computing the export turnover. In the written submissions the appellant had submitted that even deducting the sum of Rs. 9,88,87,066 was not correct and appropriate relief be given.
(b) The expenditure incurred in foreign currency has been excluded only from export turnover and not from total turnover.
(c) A sum of Rs. 1,38,40,813 has been excluded from export turnover on the ground that the export proceeds have not been brought into India within the stipulated time.
(d) A sum of Rs. 350-51 lakhs has been excluded from export turnover being money received from M/s Texas Instruments (P) Ltd., on the ground that the sale is not an export sale.
Aggrieved with this, assessee carried the matter before the learned Commissioner (Appeals) where the action of the assessing officer was confirmed. Still aggrieved assessee is now before this Tribunal.
3. Learned Counsel for assessee submitted that the action of the assessing officer in deducting expenditure in foreign currency while arriving at the figure of export turnover is incorrect. Assuming without admitting that the foreign currency expenditure is to be reduced from the figure of export turnover, on a parity of reasoning, it should be reduced from the figure of total turnover. The lower authorities have erred in not appreciating the fact that the assessee is not involved in rendering of technical services. Therefore, the question of reducing expenditure in foreign currency from the figure of export turnover should not arise. Alternatively, it was contended by the learned Counsel for assessee that in case if the first limb of argument is not accepted, then foreign currency expenditure has to be reduced from the-figure of total turnover. The learned Counsel for assessee also filed brief summary of the contentions.
4. On the other hand, the learned Departmental Representative contended that for the detailed reasons given in the impugned assessment order the assessing officer had excluded the expenditure incurred in foreign currency from export turnover is in addition to the amounts already excluded by the assessee. Expenses claimed will not fall under the definition of export turnover provided in Explanation 2 to Section 10A. The assessee, under this head, had paid salaries to staff, lease rentals and advertisement expenses only towards earning receipts from technical services provided to the overseas customers. Therefore, the assessee is not correct in claiming that they are deductible from the export turnover. The assessee has no other operations apart from providing software technical services. The learned departmental Representative also relied on the order of the learned Commissioner (Appeals). Further, he contended that the orders of the assessing officer as well as the learned Commissioner (Appeals) need not to be interfered with. To counter the alternative argument advanced by the learned Counsel for assessee, the learned departmental Representative fully relied on the orders of the authorities below.
5. We have heard the rival submissions and perused the records, Out of total expenditure of Rs. 1,372.02 lakhs in foreign currency pertaining to STP unit, the assessee itself had excluded Rs. 958.87 lakhs from export turnover in the return of income. It appears only during the course of assessment proceedings, the assessee made a claim that it was not involved in rendering of technical services and even expenditure which was reduced from the export turnover by the assessee should not have been done. Exclusion of part of expenditure incurred in foreign currency from the export turnover was obviously under the presumption that the assessee was involved in rendering technical services outside India. From the assessment order it transpires that the assessee was engaged in rendering technical services outside India. The assessing officer, in his order at p.4 had noted down the services rendered by the assessee outside India:
(a) The assessee company's business profile indicates that it is a high-technology driven company. Where overseas foreign companies are not in a position to maintain their own R&D units, they outsource the activity to the assessee company. Thus, the assessee company designs and develops software solutions specific to the requirements of the customers. This clearly is in the nature of providing technical solutions and not as export of software.
(b) The invoices raised by the assessee for all the sales clearly describes the work as either 'for providing technical services' or 'for providing software services'. No invoice is raised for sale of software.
(c) The agreements entered by the assessee with its customers also show that it is not merely sale of software but a comprehensive technical service and support that is being provided.
(d) Further, all these years the assessee has had the same business and has been claiming only as providing of technical services.
6. The learned Commissioner (Appeals), while considering the decision rendered by this Tribunal in the case of Infosys Technologies Ltd., reached a finding that the facts in the assessee's case are not akin to the facts of the case relied on. In this context, the learned Counsel for assessee relied on the decision of this Tribunal in the case of Infosys Technologies Ltd. v. Jt. CIT in ITA Nos. 1022 & 1130/Bang/2003 dated 7-4-2006 (reported at (2007) 109 TTJ (Bang) 631 Ed.), wherein this Tribunal had specifically held as under:
...We accordingly hold that the appellant company was not involved in the business of providing technical services outside India in connection with the development of computer software. We therefore direct that in computing the figures of export turnover and total turnover relevant for the application of the formula in Sub-section 3 of Section 80HHE, no exclusion be made of any expenditure incurred in foreign currency other than those already done by the assessee company.
A cursory perusal of the same would indicate that in the case relied on by the assessee, cited supra, assessee did not involve in the business of providing technical services outside India in connection with development of computer software but only completed export obligation. The learned Commissioner (Appeals), considering this aspect rightly rejected the contention of the assessee. In the present case, there are materials to show that the expenditure in foreign currency is related to technical services rendered outside India by the assessee in connection with development of computer software to the customers outside India.
7. The aforesaid three aspects clearly reveal that the expenditure incurred by the assessee in foreign currency do not relate to any of the export obligation done by the assessee. When once expenditure so incurred in foreign currency is not for purpose of export obligation, there is no substance in the assessee's claim to deduct the same from the export turnover. Considering this aspect, we do not find any infirmity in the order of the learned Commissioner (Appeals) in confirming the action of the assessing officer. It is ordered accordingly.
8. Alternatively, learned Counsel for assessee had insisted for reduction of expenditure in foreign currency from the total turnover in case expenditure has to be reduced from export turnover. In our view, the alternative relief sought for by the assessee appears to be sound and proper.
9. The formula prescribed for computing the deduction under Section 10A is the same as prescribed in Section 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 entirety the philosophy of Section 80HHE. 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.
10. The term 'total turnover' no doubt is not defined in Section 10A. However, the term 'total turnover' would be an enlargement of the term 'export turnover'. In other words, the sum of total export turnover and domestic turnover would constitute 'total turnover'. The formula for computation of the deduction under Section 10A, when restated in the above manner, would be as under:
Profits of the business x Export turnover (Export turnover + domestic turnover) 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 excluding 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 Section 10A, there is also nothing in the said section to mandate that what is excluded from the 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, 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.
11. Even otherwise, in the context of Section 80HHC where under 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. Various High Courts have held so in the following cases:
(i) CIT v. Sudorshon Chemicals Industries Ltd. ;
(ii) CIT v. Chloride India Ltd. ;
(iii) CIT v. Bhorat Earth Movers Ltd. ;
(iv) CIT v. Lakshmi Machine Works ;
(v) CIT v. Lotus Trans Travels (P) Ltd. .
11(a) In the case of CIT v. Sudarshan Chemicals Industries Ltd. (supra) at p. 773 the Hon'ble Bombay High Court held as under:
Further, the meaning of export turnover in Clause (b) of Explanation to Section 80HHC, therefore, clearly shows that export turnover did not include excise duty and sales-tax. The export turnover is the numerator in the above formula whereas the total turnover' is the denominator. The above formula has been prescribed to arrive at the profits from exports. In the circumstances, the above two items, namely, sales-tax and excise duty cannot form part of the total turnover. In fact, if the denominator was to include the above two items and if the numerator excluded the above two items then the formula would become unworkable.
11(b) In the case of CIT v. Chloride India Ltd. (supra) at p. 630 the Hon'ble Calcutta High Court held as under:
We find no reason to differ from the view of the Division Bench of the Bombay High Court expressed in the above noted case (CIT v. Sudarshan Chemicals Industries Ltd. (supra)) In our view, octroi, excise duty and sales-tax cannot have any element of profit and as such those items cannot be included in the total turnover. If contrary view is taken that will make the object sought to be achieved by the legislature nugatory.
11(c) In the case of CIT v. Bharat Earth Movers Ltd. (supra) at p. 238 the Hon'ble Karnataka High Court held as under:
Consequently, it follows that if the export turnover does not have the elements of sales-tax or excise duty, the total turnover should also not have the said inputs. In the circumstances, to-include excise duty and sales-tax for arriving at the total turnover, when sales tax and excise duty cannot from part of export turnover, would be illogical and arbitrary.
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 assessing officer to exclude the expenditure incurred in foreign currency by the assessee from the total turnover. It is ordered accordingly.
12. In the next ground, the assessee agitated against exclusion of a sum of Rs. 1,38,40,813 from the export turnover. This amount was excluded by the assessing officer on the ground that foreign exchange in respect of the same was not received in time. At the time of hearing,' learned Counsel for assessee pointed out that M/s Ganara bank issued a letter dated 13-2-2003 by which the banker, being an authorized dealer, was authorized to permit extension as the bills raised during the relevant year by the assessee are less than USD 10000 value. Considering this, we direct the assessing officer to verify and allow the claim of the assessee. It is ordered accordingly.
13. The next issue arises under Section 10A of the Income Tax Act. The assessee is a STP (Software Technology Park) unit. During the relevant assessment year, the assessee had made certain sales to M/s Texas Instruments India Ltd., which is a registered STP. This transaction, assessee had claimed, as export for the purposes of Section 10A. This was not accepted by the assessing officer and subsequently confirmed by the learned Commissioner (Appeals).
13(a) The learned Counsel for assessee submitted that this sale should be treated as deemed export. M/s Texas Instruments India Ltd., is a registered STP unit and sale to such company should be regarded as exports for the purpose of Section 10A. Section 10A has been introduced by the Government to encourage export sales for which Export and Import Policy has been formulated. As the sale by assessee to M/s Texas Instruments India Ltd., is regarded as an export sale under Exim Policy, the same meaning should be attached to understand the term 'export turnover' for the purpose of Section 10A also. Learned Counsel for assessee also relied on the decision of the Hon'ble Supreme Court in the case of (i) Sunrise Biscuits Co Ltd. and Anr. v. State of Assam and Ors. 148 STC 58 (SC), Hon'ble Calcutta High Court in the case of Bourne & Shepherd v. The Collector of Customs and Ors. (1989) 2 CALLT 47 (Col), Tribunal, Pune Bench in the case of Kinetic Honda Motor Ltd. v. Jt. CIT (2001) 72 TTJ (Pune) 72 : (2001) 77 ITD 393 (Pune) and Tribunal, Cochin Bench in the case of P.V. Basheer Ahammed v. 1TO (1993) 44 ITD 604 (Coch). The learned Counsel for assessee further submitted that as per clarification given by the Ministry of Commerce & Industry, department of Commerce, sales by one STP to another STP within India is a deemed export. Learned Counsel for assessee also referred to Circular No. 6 dated 6-7-1968. Besides that learned Counsel for assessee has filed a copy of Exim Policy 2002-07 relating to paras 6 and 8.
13(b) On the other hand, the learned Departmental Representative contended that in the Exim Policy relied on by the learned Counsel for assessee 'deemed export' is to give benefit to such people to the extent stated under Clause 8.3 of Chapter 8 and not beyond that. The learned Departmental Representative further pointed out that the assessee has been provided with certain benefit in case beyond 25 per cent of the products of the assessee sold to similar STP within India. Learned Departmental Representative further pointed out that the assessing officer had also taken note of this fact and concluded the issue against the assessee. The learned Commissioner (Appeals) also took into consideration entire details and confirmed the order of the assessing officer. The learned Departmental Representative therefore, submitted that the orders of the authorities below need not be interfered with at this stage.
14. We have heard rival submissions and perused the records. Chapter 8 of the Exim Policy issued by the Ministry of Commerce & Industry defines 'deemed export' as under:
8.1 'Deemed Exports' refers to those transactions in which goods supplied do not leave country and payment for such supplies is received either in Indian rupees or in free foreign exchange.
Under Clause 8.3 benefit for deemed exports are as under:
8.3 Deemed exports shall be eligible for any/all of following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to terms and conditions as in HBP v1.
(a) Supply of goods against advance authorization/advance authorization for annual requirement/DF1 A.
(b) Deemed export drawback.
(c) Exemption from terminal excise duty where supplies are made against ICB. In other cases, refund of terminal excise duty will be given.
A cursory perusal would indicate that sale of such software by one STP to another STP within the country would be treated as deemed export only for the purpose of duty draw back and exempt from terminal excise duty. As rightly contended by the learned Departmental Representative, Section 10A, with relevant proviso, stood during the relevant time itself provides that when domestic sales of STP unit do not exceed 25 per cent, such sale should be deemed to be the profits and gains derived from the export of such articles or things or computer software. Thus the provisions of Section 10A as it stood specifically provide how much benefit to be given to the assessee if sales to another STP when not exceeded 25 per cent of the total products.
The Exim Policy 2002-07 (Chapter 6, Clause 6.12) also clarifies other entitlements as under:
6.12 Other entitlements of EOU/EHTP/STP/ BTP units are as under:
(a) Exemption from income-tax as per Sections 10A and 10B of Income Tax Act."
Further, from the perusal of the Exim Policy (Chapter 6) extracted above, it is seen that whatever benefit given should be as per the provisions of Sections 10A and 10B of the Income Tax Act. Apart from the benefit conferred under the aforesaid chapter, nothing has been indicated in respect of any deemed export when the issue is considered under the Income Tax Act. The Exim Policy extracted above (Chapter 8.1 and 8.3) obviously does not include in respect of benefit to be given under Income Tax Act other than one referred to under Chapter 6.12(a). When this being consciously omitted in the policy, we do not find any force in the stand taken by the learned Counsel for assessee to treat the sales effected to other STP by the assessee as deemed export. This ground fails.
In the result, the appeal filed by the assessee is partly allowed to the extent indicated above.