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2010 (9) TMI 1116 - AT - Income TaxDeduction u/s 10A - Exclusion of satellite expenses while computing the export turnover - expenses on satellite link charges as within the scope of 'telecommunication charges' - While determining the total income the AO recomputed deduction u/s 10A by reducing the expenses relating to technical fees and satellite charges to arrive at the export turnover as defined u/s 10A Explanation 2(iv) - CIT(A) held that satellite charges are to be considered as telecommunication charges attributable to delivery of processed data and accordingly upheld the action of the A.O. - A.O. treated the above satellite link charges as part of telecommunication charges HELD THAT - This issue was discussed elaborately by the Coordinate Bench in the case of Patni Telecom (P.) Ltd. vs. ITO (wherein one of us, the J.M. was a member) 2008 (1) TMI 452 - ITAT HYDERABAD-A wherein on similar facts the issue was considered with reference to export turnover as defined in clause (iv) of section 10A and and held what is to be excluded is out of what is received. In the instant case, the assessee received consideration against software, i.e., goods. For this purpose, the assessee had demonstrated by referring to invoices and agreement. The agreement, invoices and the turnover clearly showed that the assessee did not recover any such expenditure. Therefore, there was no scope for any exclusion from the export turnover on account of such expenses. If at all on presumption, it was to be excluded for the purpose of 'export turnover', then on the same assumption, reason and analogy it should be excluded from 'total turnover'. Therefore, the Assessing Officer was not correct in excluding ISP expenses from consideration received in convertible foreign exchange while calculating export turnover for the purpose of section 10A. The ISP expenses considered in the above said decision are similar to the satellite link charges paid by the assessee. As seen from the bills placed on record before the authorities the assessee has paid satellite link charges to VSNL, MTNL and also to Software Technology Park India (STPI) towards bi-monthly half circuit charges/international half circuit charges and rent for TMI - Frame Relay CCT charges including port charges. The port charges, however, were calculated on the basis of USD per annum basis where as rest of the charges were paid on annual lease agreement periodically and these are fixed charges not connected with the delivery attributable to the export of goods. Even though the assessee has utilised the satellite link for receiving data and also for transferring data this cannot be considered as telecommunication charges for delivery of goods on FOB basis. Not only that what the assessee was getting was a fixed service charge for processing data from the foreign company, Trinity Processing Services Ltd. on a monthly basis in terms of the agreement dated 16th October 2001. There are no separate charges recovered from the foreign company towards telecommunication charges which can be considered as amount recovered in foreign exchange from the foreign party. Since no such amount is recovered or included in the turnover, question of exclusion from the export turnover also does not arise on the facts of the case. Alternate contention that the satellite link charges, in case they are considered as telecommunication charges this should also be excluded from the total turnover - Since we have considered that the satellite link charges cannot be considered as telecommunication charges to be excluded as per the definition of export turnover there is no need to consider the alternate contention. Accordingly, this alternate ground raised is not considered as it becomes academic in nature. As expenses on satellite link charges does not come within the scope of 'telecommunication charges' as provided in clause (iv) of Explanation 2 to section 10A and accordingly, the A.O. is directed not to exclude the same from export turnover. A.O. is directed to recalculate the deduction under section 10A. - Appeal of the assessee is allowed.
Issues Involved:
1. Exclusion of satellite expenses from the export turnover for the purpose of deduction under section 10A of the Income Tax Act. 2. Exclusion of satellite expenses from the total turnover if they are to be excluded from the export turnover. Detailed Analysis: 1. Exclusion of Satellite Expenses from Export Turnover: The primary issue in this case was whether the satellite expenses incurred by the assessee should be excluded from the export turnover while computing the deduction under section 10A of the Income Tax Act. The assessee argued that the satellite expenses should not be excluded from the export turnover because: - The expenses were not invoiced to the overseas clients. - The expenses were fixed charges and not dependent upon usage. - The expenses were incurred in Indian currency and not in foreign exchange. The Assessing Officer (A.O.) had treated the satellite link charges as telecommunication charges attributable to the delivery of processed data and excluded them from the export turnover. The CIT(A) upheld this view, leading to the present appeal. The ITAT referred to the case of Patni Telecom P. Ltd. vs. ITO, where it was held that expenses for Internet Service Provider (ISP) do not come within the scope of telecommunication charges as provided in clause (iv) of Explanation 2 to section 10A. The ITAT noted that the satellite link charges paid by the assessee were similar to ISP expenses and were fixed charges for obtaining effective Internet connectivity, not directly attributable to the delivery of goods outside India. Therefore, these expenses should not be excluded from the export turnover. 2. Exclusion of Satellite Expenses from Total Turnover: The assessee also argued that if the satellite expenses were to be excluded from the export turnover, they should also be excluded from the total turnover to maintain parity. This argument was based on the principle established in the case of ITO vs. Sak Soft Ltd., where it was held that expenses excluded from the export turnover should also be excluded from the total turnover. However, since the ITAT concluded that the satellite link charges should not be considered as telecommunication charges and should not be excluded from the export turnover, the alternate contention regarding the exclusion from the total turnover became academic and was not considered. Conclusion: The ITAT held that the satellite link charges do not fall within the scope of 'telecommunication charges' as provided in clause (iv) of Explanation 2 to section 10A. Therefore, the A.O. was directed not to exclude these expenses from the export turnover. Consequently, the appeal of the assessee was allowed, and the A.O. was instructed to recalculate the deduction under section 10A without excluding the satellite expenses from the export turnover.
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