2011 (11) TMI 429 - HC - Income Tax

Computation for relief u/s 10A - Whether expenditure incurred by the assessee should be excluded from the total turnover if the same are reduced from export turnover for computing relief u/s 10A Held that - To ascertain the profits from export business the total profits of the business are to be apportioned on the basis of turnovers. 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 - See CIT Versus Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT . Decided in favor of the assessee.

Summary

Issues:
1. Interpretation of Section 10A of the Income-tax Act, 1961 regarding the computation of relief.
2. Whether the expenditure incurred by the assessee should be excluded from the total turnover when computing relief under Section 10A.
3. Justification of setting aside the proceeding initiated under Section 148 of the Income Act, 1961.

Issue 1: Interpretation of Section 10A:
The High Court analyzed the interpretation of Section 10A of the Income-tax Act, 1961 in the context of computing relief. Referring to the case of CIT v. Tata Elxsi Ltd., the court emphasized the need for uniformity in the ingredients of both the numerator and the denominator of the formula to avoid anomalies. Section 10A aims to provide incentives for promoting exports by exempting profits related to exports. The court highlighted that the export turnover should be excluded from the total turnover, as the formula for computing the deduction under Section 10A involves apportioning profits based on turnovers. The court stressed that the components of the export turnover in the numerator and the denominator should be the same to align with the legislative intent.

Issue 2: Exclusion of Expenditure from Total Turnover:
The court addressed the question of whether the expenditure incurred by the assessee should be excluded from the total turnover when computing relief under Section 10A. It was held that if certain expenses are excluded from the export turnover in the numerator, the same should also be excluded when computing the export turnover as a component of the total turnover in the denominator. The court emphasized that the total turnover includes export turnover, and therefore, the interpretation should align with the legislative intent to respect the meaning assigned by the legislature to the export turnover.

Issue 3: Setting Aside Proceeding under Section 148:
Regarding the contention of the revenue that the Commissioner of Income Tax and the Tribunal were not justified in setting aside the proceeding initiated under Section 148 of the Income Act, 1961, the court found this question to be purely academic in view of the findings on the interpretation of Section 10A. As a result, the court did not provide an answer to this question. The court dismissed the appeal, stating that based on the legal position discussed, there was no merit in the appeal. The substantial question of law framed in the appeal was answered in favor of the assessee and against the revenue.