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> the term 'export turnover' has been defined in Expln. 2 (iv) as meaning the consideration in respect of export by the under-taking 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. Upon literal interpretation of the aforesaid provision, it is clear that it is permissible for the AO to remove any items other than specifically provided therein. The consideration received in respect of export of so called specified hardware device along with the software in convertible foreign exchange received in India clearly falls within the meaning of 'export turnover' as defined above. If in the perception of the AO, the export of hardware does not form part of export turnover as defined in the aforesaid Explanation, the same cannot also form part of the export turnover as a component of the total turnover;

ITA No.1430 of 2010 Subex Limited Bangalore Referring to Clause (iv) of Expln. 2 to s. 10A of the Act which defines 'export turnover', it was contended by the assessee that the phrase used in the aforesaid Explanation is 'does not include' and not 'to be reduced by'. The phrase 'does not include' deals with items which by trade practice or contractual terms or accounting treatment are considered as components of export turnover but by the aforesaid fiction are not to be so considered. The phrase 'to be reduced by' may mean statutory deduction irrespective of the composition of the sale price. Thus, it was argued, the aforesaid condition of 'does not include' stands satisfied without any adjustment. However, in the second case, as freight and insurance form part of sale price, in order to satisfy the aforesaid condition, the same are required to be excluded. In relation to telecommunication charges also, the same principle should apply, therefore, if the telecommunication charges and insurance charges have not formed part of export turnover, the aforesaid condition remains satisfied without calling for any adjustment by way of exclusion of telecommunication charges debited to profit and loss account from the export turnover;

5.3.3. At this point of time, our attention was drawn to the judgment of the Hon'ble jurisdictional High Court, in an identical issue, in the case of CIT v. M/s. Tata Elxsi Limited and others & also CIT v. M/s. Subex Limited [the present assessee] for the assessment year 2003-04 reported in 2011-TIOL-684-HC- Kar II dated 30.8.2011.

5.3.4. The issue [in the case of Tata Elxsi Ltd] before the Hon'ble Court, in brief, was that the assessee was engaged in the business of specialized after sales services, marketing and distribution of customized high technology computer systems and storage devices, computer consultancy and solutions and software promotion. During the year under consideration, the main source of revenue for the assessee was from trading division and STP Unit engaged in Call Centre Operations. The assessee had incurred a sum of Rs.10.44 crores in forex towards communication expenses which was claimed as exemption u/s 10A of the Act for the profits and gains derived from STP Unit. While arriving at its total turnover, the communication expense was included. Being queried to substantiate the non-inclusion of the said sum being expenses incurred in foreign currency for the purpose of computation of exemption of income claimed u/s 10A of the Act, the assessee justified its action. The assessing authority had, however, held s. 10A defines only export turnover. The fact that only export turnover is defined and total turnover is not defined clearly manifests the Legislature's intention to give ITA No.1430 of 2010 Subex Limited Bangalore the natural meaning to the term 'total turnover' and, therefore, it was held, no deduction from total turnover was possible. Aggrieved, the assessee took up the issue with the first appellate authority who upheld the AO's stand on the premise that the word 'total turnover' was not defined under the said chapter, the interpretation placed by the AO was found to be proper and, accordingly, dismissed the assessee's appeal. On an appeal, the Tribunal, by relying on the judgment of the Hon'ble Apex Court in the case of CIT v. Lakshmi Machine Works [(2007) 290 ITR 667 (SC)] held that the expenditure incurred by the assessee should not form part of total turnover and, accordingly, directed the AO to re-compute the relief u/s 10A of the Act excluding the said communication charges from export turnover as well as from the total turnover. Aggrieved by the findings of the Tribunal, the Revenue had approached the Hon'ble Court for relief.

Profits of the business x export turnover Total turnover From the aforesaid judgments, what emerges is that. there should be uniformity in the ingredients of both ITA No.1430 of 2010 Subex Limited Bangalore the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Sec. 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 s. 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in s. 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, 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 denominator cannot be different. Therefore, though there is no definition of the term 'total turnover' in s. 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 by 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 ITA No.1430 of 2010 Subex Limited Bangalore adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover.