2011 (11) TMI 430 - HC - Income Tax

Expenditure in respect of exempt income - Held That - The formula of calculating Total turnover includes export turnover when a particular expenditure is excluded from export turnover(numerator) than same should also be deducted from export turnover(denominator).

Summary

Issues:
Interpretation of section 10A of the Income-tax Act, 1961 regarding the treatment of expenditure in computing relief.

Analysis:
The primary issue in this judgment revolves around the correct interpretation of section 10A of the Income-tax Act, 1961 concerning the treatment of expenditure in computing relief. The central question is whether the Tribunal was correct in holding that the expenditure incurred by the assessee should not form part of the total turnover and thus be excluded from the total turnover if reduced from the export turnover. This issue was addressed by referring to a previous case, CIT v. Tata Elxsi Ltd., where it was emphasized that there should be uniformity in the ingredients of both the numerator and the denominator of the formula to avoid anomalies or absurd results. Section 10A is considered a beneficial section aimed at promoting exports by providing incentives to exempt profits related to exports. The formula for computing the deduction under section 10A involves apportioning the total profits of the business based on turnovers, with the export turnover being a component of the denominator alongside domestic turnover. The court highlighted that the interpretation should be consistent between the numerator and the denominator components, ensuring that what is excluded from the export turnover in the numerator should also be excluded when calculating the export turnover as part of the total turnover in the denominator. This alignment is crucial to respect the legislative intent and prevent any contradictory interpretations. Therefore, the court dismissed the appeal, affirming that the interpretation of the formula for deduction under section 10A should follow the prescribed method outlined in the judgment.

In conclusion, the judgment clarifies the application of section 10A of the Income-tax Act, 1961 in computing relief related to export turnover and total turnover. By emphasizing the need for consistency in interpreting the formula components and aligning the treatment of expenditure, the court ensures that the legislative intent behind providing incentives for promoting exports is upheld. The ruling in this case reaffirms the importance of a uniform approach in calculating deductions under section 10A to prevent any misinterpretations or inconsistencies that could undermine the purpose of the provision.