2020 (3) TMI 181 - HC - Income Tax

Benefit of deduction u/s 10B - determination of export turnover - Whether expenditure incurred by the Assessee in foreign currency in the foreign country where they exported computer software will be included in the 'export turnover', on which the Assessee is entitled to the benefit of deduction under Section 10B? - HELD THAT - Controversy is no longer res integra in view of the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax -Vs- Mphasis Ltd 2019 (2) TMI 122 - SC Order has affirmed the view taken by the Division Bench of the Karnataka High Court 2014 (8) TMI 690 - KARNATAKA HIGH COURT and the Hon'ble Supreme Court 2019 (2) TMI 122 - SC ORDER has held that such expenditure incurred by the Assessee in foreign currency will be includible in the definition of 'export turnover' for the purpose of computing deduction under Section 10B of the Act. - Decided against revenue

Summary

Issues:
1. Interpretation of provisions of Section 10B of the Income Tax Act regarding exclusion of certain expenses from export turnover.
2. Application of legal principles in determining the deductibility of expenses incurred in foreign exchange for providing technical services outside India for the purpose of computing deduction under Section 10B.

Issue 1: Interpretation of provisions of Section 10B of the Income Tax Act regarding exclusion of certain expenses from export turnover:
The High Court of Madras heard appeals filed by the Revenue Department under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal. The Tribunal had decided in favor of the Assessee, stating that the expenditure incurred in foreign currency for providing technical services outside India should be included in the 'export turnover' for the purpose of claiming deduction under Section 10B. The Tribunal relied on a Special Bench decision in the Assessee's own case to support this conclusion. The Revenue argued that a Supreme Court decision in the case of "Commissioner of Income Tax -Vs- Mphasis Ltd" affirmed that such expenditure should indeed be included in the export turnover. The High Court referred to a judgment of the Division Bench of the Karnataka High Court in the case of "CIT -Vs- Mphasis Ltd.," which emphasized that expenses incurred in foreign exchange for providing technical services outside India should not be excluded from the export turnover. Based on these legal precedents, the High Court held that the expenditure in foreign currency should be considered part of the export turnover for the purpose of computing deduction under Section 10B.

Issue 2: Application of legal principles in determining the deductibility of expenses incurred in foreign exchange for providing technical services outside India for the purpose of computing deduction under Section 10B:
The High Court analyzed the legal principles involved in determining the deductibility of expenses incurred in foreign exchange for providing technical services outside India. Referring to the judgment of the Division Bench of the Karnataka High Court in the case of "CIT -Vs- Mphasis Ltd.," the Court highlighted that the law distinguishes between technical services rendered in connection with the export of computer software and export of technical services for the development or production of computer software outside India. The Court emphasized that expenses incurred in foreign exchange for technical services should not be excluded from the export turnover calculation. The Court also referred to a judgment in the case of "Commissioner of Income-Tax And Another Vs. Tata Elxsi Ltd.," which underscored the importance of uniformity in the ingredients of the formula for computing deductions under Section 10B. The Court concluded that the expenses incurred in foreign exchange for providing technical services outside India should be included in the export turnover, aligning with the legal precedents and principles established in previous judgments.

By analyzing the legal provisions, precedents, and principles laid down by various judgments, the High Court of Madras upheld the decision in favor of the Assessee, ruling that the expenses incurred in foreign exchange for providing technical services outside India should be included in the export turnover for the purpose of claiming deduction under Section 10B of the Income Tax Act. The Court dismissed the appeals filed by the Revenue Department, emphasizing the settled legal position and the application of relevant legal principles in the interpretation of the provisions of the Income Tax Act.