2012 (4) TMI 314 - HC - Income Tax

Scope of deduction under Section 10B(4) - the sale proceeds received in convertible foreign exchange i.e. export turnover, the AO reduced there from the canvassing commission paid by the assessee to foreign agents and took only the net export turnover realized for the computation of export profit for deduction - Revenue stated since the assessee has DTA sales, the eligible export profit for deduction has to be worked out in terms of Section 10B(4) of the Act, which provides for working out proportionate profit on export turnover from the total profit - Held that - There is nothing to indicate in the records or in any of the orders including the assessment order that the agent, who rendered service and to whom payment is made by the assessee, has rendered any technical or professional service answering the definition of technical service - no deduction is called for in terms of Explanation 2(iii) of sub Section (9A) of Section 10B for the purpose of computation of deduction under sub Section (4) of Section 10B

Issues involved:
Interpretation of Section 10B of the Income Tax Act regarding the deduction of canvassing commission paid in the determination of export turnover for the purpose of deduction.

Detailed Analysis:

1. Issue: Interpretation of export turnover for deduction under Section 10B of the Income Tax Act.

- The assessee, a 100% export-oriented unit, claimed deduction under Section 10B on the profit earned on exports, but the dispute arose regarding the determination of export turnover for the deduction.

- The Assessing Officer reduced the canvassing commission paid to foreign agents from the export turnover, while the assessee argued that only the sale proceeds received in convertible foreign exchange should constitute export turnover.

- The appellate authorities agreed with the assessee's claim, leading to the Revenue filing appeals against the Tribunal's decision for the assessment years from 2004-05 to 2006-07.

2. Analysis: Scope of deduction under Section 10B(4) of the Income Tax Act.

- The key question revolved around the definition of "export turnover" as per Section 10B(4) and Explanation 2(iii) to Section 10B(9A) of the Act.

- The Revenue contended that the commission paid to foreign agents for canvassing orders should be deducted as a technical service under Explanation 2(iii) of Section 10B(9A) while determining export turnover.

- In contrast, the assessee argued that the commission payment was solely for canvassing orders and did not constitute technical or professional services, emphasizing that the payment was only a small percentage of the export turnover.

3. Judgment: Determination of whether canvassing agents provide technical services.

- The High Court analyzed the definition of "technical service" and found no evidence indicating that the agents providing canvassing services rendered technical or professional services justifying deduction under Explanation 2(iii) of Section 10B(9A).

- While acknowledging the broad interpretation of technical service, the Court emphasized that there was no indication that the agents provided such services in this case.

- As a result, the Court dismissed the Revenue's appeals, stating that no deduction was warranted for the commission paid to canvassing agents in the computation of export turnover for the purpose of deduction under Section 10B.

4. Conclusion: The High Court's judgment clarified the scope of deduction under Section 10B of the Income Tax Act concerning the treatment of canvassing commission in the determination of export turnover. The decision highlighted the necessity for expenditures to qualify as technical services to warrant deduction from export turnover, emphasizing the absence of evidence indicating such services in the case at hand.

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