2019 (12) TMI 509 - HC - Income Tax

Deduction u/s 10A computation - unrealised sale proceeds in foreign exchange within the prescribed period inclusion in the total turnover - HELD THAT - When the object of the formula is to arrive at the profit from export business expenses excluded from export turnover have to be excluded from total turnover also. Otherwise any other interpretation makes the formula unworkable and absurd. Hence we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well. What is export turnover for the purpose of the numerator would have to be the export turnover for the purpose of denominator as well and export turnover cannot assume two different characteristics for two parts of the same formula. In the present case the quantum of export turnover has been taken to be the actual remittances of foreign exchange after excluding the unrealised foreign exchange. This then would be the same figure to be adopted so far as the denominator is concerned as well. In fine total turnover for purposes of the formula would be the actual sale receipts excluding unrealised foreign exchange as adopted for export turnover . This conclusion is also supported by the reasoning that the provisions of Section 10A/10B are beneficial in nature and seek to encourage an assessee engaging in a prescribed activity. See M/S. MAARS SOFTWARE INTERNATIONAL LTD. 2019 (3) TMI 578 - MADRAS HIGH COURT

Summary

Issues:
1. Interpretation of Section 10A of the Income Tax Act regarding the treatment of unrealized sale proceeds in foreign exchange within the prescribed period while computing deduction.
2. Application of the formula under Section 10A for profits derived from export activities.
3. Comparison with previous judgments related to similar issues under different sections of the Income Tax Act.

Analysis:
1. The primary issue in this case revolves around the interpretation of Section 10A of the Income Tax Act concerning the treatment of unrealized sale proceeds in foreign exchange within the prescribed period. The contention is whether such proceeds should be included in the total turnover while computing the deduction under Section 10A. The court refers to a Division Bench judgment to analyze this issue and concludes that the unrealized foreign exchange should be excluded from the numerator (export turnover) but included in the denominator (total turnover) to align with the legislative intent of promoting foreign exchange inflows into the country.

2. Section 10A of the Act provides a special provision for deduction concerning income derived from export activities. The computation of this deduction is governed by a formula outlined in subsection (4) of the section. The court emphasizes that the profits derived from export activities should be proportionate to the export turnover concerning the total turnover of the business. The judgment clarifies the application of this formula in the context of the case, highlighting the significance of adhering to the statutory provisions for determining the deduction accurately.

3. The court draws parallels with previous judgments, particularly referring to cases under Section 80HHC of the Income Tax Act, to provide a comprehensive analysis. The court discusses the definitions of 'export turnover' and 'total turnover' in different sections to distinguish the treatment of various components within the formula for calculating deductions. Additionally, the court examines the applicability of Supreme Court decisions in similar contexts to establish consistency in interpreting statutory provisions across different sections of the Income Tax Act.

Conclusion:
The judgment clarifies the treatment of unrealized sale proceeds in foreign exchange under Section 10A of the Income Tax Act, emphasizing the need to exclude such proceeds from the numerator but include them in the denominator while computing deductions. By referencing relevant legal precedents and statutory provisions, the court ensures a comprehensive analysis of the issues involved, ultimately providing clarity on the application of the formula for determining profits derived from export activities.