2018 (6) TMI 1471 - HC - Income Tax

Deduction of expenditure incurred for Export Turn Over required to be deducted from Total Turn Over for the purpose of computing the deduction u/s.10A - Held that - The controversy is no longer res integra as held exclusions made from export turnover have to be considered for reduction from total turnover also while working out deduction available u/s.10A of the Act. Accordingly, we direct the AO to rework the deduction available to the assessee u/s.10A. See case of M/s. Tata Elxsi Ltd., vs. Asst. Commissioner of Income Tax, 2015 (10) TMI 634 - KARNATAKA HIGH COURT affirmed by Income-tax, Central III vs. HCL Technologies Ltd., 2018 (5) TMI 357 - SUPREME COURT

Summary

Issues:
1. Deduction of expenditure for 'Export Turn Over' in computing deduction u/s.10A of the Income Tax Act.

Analysis:

Issue 1: Deduction of expenditure for 'Export Turn Over'

The High Court addressed the issue of whether expenditure incurred for 'Export Turn Over' should be deducted from 'Total Turn Over' for computing the deduction under section 10A of the Income Tax Act. The Court referred to the decision of the Division Bench in the case of M/s. Tata Elxsi Ltd., which was affirmed by the Supreme Court in the case of Commissioner of Income-tax, Central – III vs. HCL Technologies Ltd. The Division Bench held that to claim the benefit of Section 10A, the assessee must export articles or software, and the export should yield foreign exchange. The Court emphasized that export should earn foreign exchange, whether done directly by the assessee or through another exporter. The Court highlighted the importance of Clause 6.11 of the Exim Policy, which treats supplies from the DTA to STP as 'deemed export.' The Court concluded that the assessee is entitled to deduction of profits and gains derived from the export of computer software, even if the export was done through another STP unit. The Supreme Court also reiterated a similar stance in the case of HCL Technologies Ltd., emphasizing that deductions on expenses like freight, telecommunication, and insurance attributable to the delivery of software under Section 10A should be allowed from both Export Turnover and Total Turnover. The Court emphasized that excluding such deductions from Total Turnover would lead to illogical results and go against the legislative intent.

In conclusion, the High Court disposed of the appeal in favor of the assessee, holding that deductions on expenses related to export activities should be allowed from both Export Turnover and Total Turnover to arrive at a fair and logical computation of profits for the purpose of claiming benefits under Section 10A of the Income Tax Act.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the Court's interpretation and application of the relevant provisions of the Income Tax Act in determining the deduction of expenditure for 'Export Turn Over' in computing benefits under Section 10A.