2015 (3) TMI 1220 - AT - Income Tax

Deduction under Section 10A computation - exclusion of telecommunication expenses, insurance charges, personnel expenses, professional expenses, branch office expenses and other expenses incurred in foreign exchange from export turnover for the purpose of computing from export turnover for the purpose of computing deduction - Held that - Respectfully following the decision of the Hon ble High Court of Karnataka in the assessee s own case for Assessment Years 2001-02 to 2004-05 we hold that expenses incurred in foreign currency should not be reduced from export turnover for the purposes of computation of deduction under Section 10A of the Act. In respect of telecommunication charges in respect of Assessment Years 2006-07 and 2007-08, the Assessing Officer shall verify whether the expenditure incurred on telecommunication charges and insurance charges were recovered and included in the export turnover so that this expenditure are liable to be excluded from export turnover. On the other hand, if the expenditure incurred on telecommunication charges and insurance charges were not recovered and not included in the export turnover, the Assessing Officer shall not reduce the same from the export turnover. Further, from the submissions made before the Assessing Officer it is submitted that insurance charges were paid to protect the assessee against the risk of bankruptcy of the overseas customers and it was not incurred for the purpose of export of computer software. The Assessing Officer is directed to verify this aspect and reduce the insurance charges only if the said expenditure is incurred for the purpose of export of computer software.

Summary

Issues:
1. Whether certain expenses incurred in foreign currency should be excluded from export turnover for computing deduction under Section 10A of the Income Tax Act.
2. Whether telecommunication charges and insurance charges should be reduced from export turnover.

Analysis:
Issue 1:
The appeals by the assessee for Assessment Years 2006-07, 2007-08, and 2008-09 were remanded to the Tribunal by the High Court of Karnataka for reconsideration of excluding expenses incurred in foreign currency from export turnover for the purpose of computing deduction under Section 10A of the Act. The assessee contended that if such expenses were to be excluded from export turnover, they should also be excluded from total turnover. The Tribunal accepted the alternate plea of the assessee based on previous High Court decisions and held that expenses in foreign currency should not be reduced from export turnover for computing the deduction under Section 10A.

Issue 2:
Regarding telecommunication and insurance charges, the Assessing Officer had reduced these expenses from export turnover. The CIT(A) held that for Assessment Years 2006-07 and 2007-08, telecommunication and insurance charges should be excluded from export turnover. However, for Assessment Year 2008-09, the CIT(A) accepted the assessee's contentions that these charges were not incurred for the purpose of export of computer software and thus should not be reduced from export turnover. The Tribunal directed the Assessing Officer to verify if these charges were recovered and included in export turnover, and to exclude them only if they were not recovered. The appeals for Assessment Years 2006-07 and 2007-08 were partly allowed, and the appeal for Assessment Year 2008-09 was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, holding that expenses in foreign currency should not be reduced from export turnover for computing deduction under Section 10A of the Act. Additionally, it directed the Assessing Officer to verify the recovery and inclusion of telecommunication and insurance charges in export turnover before reducing them from the calculation.