2013 (11) TMI 204 - AT - Income Tax

Deduction u/s 80-HHE - Whether the total turnover for the purpose of deduction u/s. 80-HHE would be the total turnover of the eligible unit or the total turnover of all the units Held that - It was only the profits of the assessee s computer software business, christened as the eligible business , that would stand to be apportioned u/s.80-HHE(3) - it was only the total turnover of such eligible business that would stand to be taken in the denominator figure, with the export turnover having been already defined to be the qualifying export turnover of such business only - The assessee s manner of computation of deduction u/s. 80-HHE, thus, merits approval. It was only the profits of the eligible business, to the extent they were from or attributable to export out of India, which were subject to deduction under the section - No doubt, therefore, both global profits and global turnover could be considered for applying the proportionate turnover formula in determining the relevant profit, as indeed the language of the provision suggests - However, such a course is fraught with serious aberrations, leading to deduction being allowed on non-eligible profits on one hand, and being denied on the eligible profit, on the other. Non-segregation of the profits on the basis of activity, or even broadly, i.e., on the basis of trading and manufacturing sectors, which we find to have been the legislative response in respect of the para materia provision of s. 80-HHC by Finance Act, 1990 and Finance (No.2) Act, 1991, which also bore a similar computation formula based on the ratio of the relevant turnover, introducing some segregation in the computation mechanism of s. 80-HHC(3) and, correspondingly, concepts such as adjusted profits and adjusted total turnover . The provision of s. 80-HHE(3), however, has remained unchanged, so that the structural infirmity obtains - It was this rationalization that had guided the tribunal in interpreting the provision in a manner consistent with the intent of according the benefit there-under only to the profits from the specified, qualifying activity. The question of restricting the total turnover to that of the eligible unit or business does not arise - A provision, even if beneficial, was to be read only in terms of its language, which was clear and unambiguous - If the intention of the Legislature was not to be found in the statute, its edict, it was to be found nowhere else - This was more so as not so reading may lead to the provision of s. 80HHE(3) being as rendered as of no consequence Decided in favour of Assessee.

Summary

Issues Involved:
1. Deduction under section 80HHE and its computation.
2. Inclusion of turnover from all units versus only the eligible unit for the purpose of deduction under section 80HHE.

Issue-wise Detailed Analysis:

1. Deduction under section 80HHE and its computation:
The primary issue in this appeal is whether the deduction under section 80HHE should be computed based on the turnover of all the units of the appellant company or only the turnover of the eligible unit. The assessee claimed a deduction of Rs. 55,99,722/- under section 80HHE, which was restricted by the Assessing Officer (AO) to Rs. 8,02,842/-. The AO's computation included the turnover of all units, contrary to the assessee's claim that only the eligible unit's turnover should be considered.

2. Inclusion of turnover from all units versus only the eligible unit for the purpose of deduction under section 80HHE:
The assessee argued that the 'total turnover' for computing the deduction should be limited to the eligible unit's turnover. Various case laws were cited to support this contention, including decisions in Mike Agencies, Datamatics Ltd. v. ACIT, and others. The Revenue, however, contended that the 'total turnover' should include all units' turnover, citing decisions in CIT v. Parry Agro Industries Ltd. and others. The Tribunal examined the relevant provisions of section 80HHE and noted that the term 'total turnover' is not explicitly defined in the statute, except for specific exclusions.

The Tribunal observed that the deduction under section 80HHE is business-specific rather than unit-specific, meaning it pertains to the business of exporting computer software or providing related technical services. The Tribunal also noted that the profits to be apportioned under section 80HHE(3) should be derived from the business of computer software, which implies that the turnover of this specific business should be considered.

The Tribunal referred to the decision in Tessitura Monti India (P.) Ltd. and other relevant case laws, concluding that the 'total turnover' should be confined to the eligible business of computer software. The Tribunal emphasized that including the turnover of other unrelated businesses would lead to absurd results and dilute the benefit intended for the specified activity of exporting computer software.

Conclusion:
The Tribunal held that for the purposes of section 80HHE, the 'total turnover' should be limited to the turnover of the eligible business of computer software. Consequently, the assessee's method of computing the deduction by considering only the eligible unit's turnover was approved. The appeal was allowed in favor of the assessee.