2015 (10) TMI 2428 - AT - Income Tax

Exemption u/s 11A - Expenditure incurred on telecommunication charges and bandwidth & internet charges and travel expenditure incurred in foreign currency excluded by the AO from the export turnover for the purpose of computing deduction u/s 10A - Held that - As decided in case of Tata Elxsi 2011 (8) TMI 782 - KARNATAKA HIGH COURT there should be uniformity in the ingredients of both the numerator and the denominator of the formula, Section 10-A is a beneficial section. It is intended to provide incentives to promote exports. 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. - Decided in favour of assessee

Summary

Issues:
Exclusion of certain expenses from export turnover for deduction u/s 10A computation.

Analysis:
The appeal concerned the exclusion of expenses on telecommunication charges, bandwidth & internet charges, and travel expenditure in foreign currency from export turnover for deduction u/s 10A. The AO excluded these expenses from export turnover, but the CIT(A) directed their exclusion from total turnover as well, citing the decision of the Hon'ble Jurisdictional High Court in the Tata Elxsi case. The High Court emphasized the importance of uniformity in the formula for calculating deductions under section 10A, stating that the export turnover and total turnover should have consistent components. The Court highlighted that total turnover includes export turnover, and thus, expenses excluded from export turnover should also be excluded from total turnover. This approach ensures conformity with the legislative intent of promoting exports and prevents anomalies in computation.

The Tribunal upheld the CIT(A)'s decision, emphasizing the legislative intent behind section 10A to provide incentives for exports. The formula for computing deductions under section 10A involves apportioning profits based on turnovers, where export turnover is a component of total turnover. Therefore, the components of export turnover in the numerator and denominator must align to prevent inconsistencies. The Tribunal concluded that following the principles established for section 80HHC interpretation in the context of section 10A was appropriate, as both provisions share similar objectives. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order based on the Tata Elxsi judgment.

In summary, the judgment clarified that expenses excluded from export turnover for deduction u/s 10A should also be excluded from total turnover to maintain consistency and align with the legislative intent of promoting exports. The decision highlighted the significance of uniformity in the formula for calculating deductions and emphasized the need to interpret the provisions in a manner that supports the promotion of exports and prevents inconsistencies in computation.