2016 (6) TMI 896 - HC - Income Tax

Deduction u/s 10A - telecommunication and insurance expenditure is not to be reduced from the export turnover as per ITAT - Held that - As provision mandates reduction of telecommunication and insurance charges if it is incurred in foreign exchange for providing of software outside India. We find that the Assessing Officer has in the order not given any finding with regard to respondent s contention that this expenditure had been incurred only in India and not with regard to export of software outside India. The CIT (A) as well as the Tribunal have rendered finding of fact that this telecommunication and insurance expenses have been incurred in local currency in India and not with regard to providing software services outside India. This concurrent finding of fact has not been shown to be perverse in any manner. On the above finding of fact, it is evident that exclusion part of Explanation 2(iv) of Section 10A of the Act will not apply to the present facts. In the above view, the question as framed does not give rise to any substantial question of law. - Decided against revenue Disallowance u/s 14A - Tribunal held that Rule 8D is not retrospective and restricting the disallowance to 2% of the dividend received - Held that - This issue is concluded against the revenue by virtue of decision of this Court in Assistant Commissioner of Income Tax Vs. Godrej and Boyce Mfg. Co. Ltd. 2010 (8) TMI 77 - BOMBAY HIGH COURT - Decided against revenue

Summary

Issues:
- Interpretation of Section 10A of the Income Tax Act regarding the exclusion of telecommunication and insurance charges from export turnover.
- Retrospective application of Rule 8D for disallowance of expenses in calculating dividend received.

Analysis:

Issue 1: Interpretation of Section 10A regarding exclusion of telecommunication and insurance charges from export turnover:
- The appeals arose from an order by the Income Tax Appellate Tribunal concerning the Assessment Years 2005-06, 2006-07, and 2007-08.
- The primary question raised in all three appeals was whether the telecommunication and insurance expenditure should be reduced from the export turnover for the purpose of claiming benefits under Section 10A of the Income Tax Act.
- The respondent-assessee argued that the expenses on telecommunication and insurance were not attributable to software exported outside India and thus should not be deducted from the export turnover.
- The Assessing Officer reduced the claimed exemption under Section 10A by the amount of telecommunication and insurance expenditure without considering the respondent's contentions.
- The Commissioner of Income Tax (Appeals) allowed the respondent's appeal, stating that the expenses were not related to software delivery outside India.
- The Tribunal upheld the decision, noting that the expenses were incurred locally in India and not in relation to software exported outside the country.
- The Tribunal's decision was based on the fact that the expenses were not incurred in foreign exchange for providing software services outside India, as required by Explanation 2(iv) of Section 10A.
- Consequently, the Tribunal dismissed the revenue's appeal, as the exclusion part of Explanation 2(iv) did not apply to the facts of the case.

Issue 2: Retrospective application of Rule 8D for disallowance of expenses in calculating dividend received:
- The second question raised in the appeals pertained to the retrospective application of Rule 8D and the restriction of disallowance to 2% of the dividend received.
- Counsel for the revenue acknowledged that the issue was settled against the revenue based on a previous decision of the Court.
- Citing the decision in Assistant Commissioner of Income Tax Vs. Godrej and Boyce Mfg. Co. Ltd., the revenue accepted that the question did not give rise to any substantial question of law.
- As a result, the Court did not entertain the second question and dismissed all three appeals without costs.

In conclusion, the High Court of Bombay dismissed the appeals, upholding the decisions of the lower authorities regarding the interpretation of Section 10A and the application of Rule 8D in the calculation of expenses.