2018 (4) TMI 1367 - HC - Income Tax

Eligibility for deduction u/s.10A - excluding the value of telecommunication expenses and traveling expenses in foreign currency both from the export turnover and total turnover - Held that - Taking into consideration the decision rendered in the case of CIT v. Tata Elxsi Ltd 2011 (8) TMI 782 - KARNATAKA HIGH COURT we are of the view that the order directing to exclude communication charges and travelling and conveyance expenses both from export turnover and total turnover, is just and proper and calls for no interference.

Summary

Issues:
Challenge to order passed by Income Tax Appellate Tribunal regarding deduction under Sec.10A of the Income Tax Act by excluding certain expenses from export turnover and total turnover.

Analysis:
The High Court heard the counsels for both parties and noted that the matter was covered by a previous decision of a co-ordinate Bench in the case of Commissioner of Income Tax vs. Tata Elixi Limited. The appeal challenged the ITAT order dated 13.10.2016, which questioned whether the Commissioner of Income Tax was correct in re-computing deduction under Sec.10A by excluding telecommunication and traveling expenses in foreign currency from export and total turnover. The Tribunal, following the precedent set by the earlier judgment in the Tata Elixi case, held that expenses reduced from export turnover must also be reduced from total turnover when computing deduction under Section 10A.

The High Court referred to the previous judgment in the Tata Elixi case, emphasizing the need for uniformity in the ingredients of both the numerator and denominator of the formula to avoid anomalies. Section 10A aims to provide incentives for exports by exempting profits related to exports. The Court highlighted the importance of apportioning profits based on turnovers and explained that if certain expenses are excluded from export turnover in the numerator, they should also be excluded in computing export turnover as part of the total turnover in the denominator. In line with this interpretation of the law, the High Court found no merit in the appeal and dismissed it.

The High Court concluded that since the other question decided in the previous judgment did not apply to this case, there was no need to address it. Therefore, the appeal was dismissed based on the principles laid down in the Tata Elixi case and the interpretation of Section 10A provided therein.