2021 (4) TMI 794 - HC - Income Tax

Computing eligible deduction u/s 10A - tribunal holding that the expenditure in foreign exchange is to be excluded from both export turnover and total turnover while computing eligible deduction under section 10A - HELD THAT - As relying on case of M/s. SRA Systems Ltd., Chennai 2021 (3) TMI 977 - MADRAS HIGH COURT question of law may be decided in favour of the assessee and the appeal may be dismissed.

Summary

Issues:
Challenge to order passed by Income Tax Appellate Tribunal regarding Assessment Year 2006-2007 on exclusion of expenditure in foreign exchange from export turnover and total turnover for computing deduction under section 10A of the Income Tax Act.

Issue 1: Exclusion of expenditure in foreign exchange from export turnover and total turnover for deduction under section 10A

The High Court analyzed the substantial question of law regarding the exclusion of expenditure in foreign exchange from both export turnover and total turnover while computing the eligible deduction under section 10A of the Income Tax Act. The appellant challenged the Tribunal's order on this issue. The appellant's counsel cited a decision of the High Court in a related case, affirming that such deductions should be allowed from the total turnover in the same proportion as from the export turnover. The counsel for the respondent relied on various judgments, including a Supreme Court decision and other High Court judgments, to support the position that the exclusion of such expenses is necessary to prevent illogical and unjust results. The Court examined the principles laid down by the Supreme Court and previous High Court decisions, concluding that the expenses incurred in foreign exchange for providing technical services outside should be excluded from both export and total turnover for calculating the deduction under section 10A.

Issue 2: Applicability of Section 10A for different Assessment Years

The Court delved into the applicability of Section 10A for various Assessment Years based on the decisions in different cases. It discussed cases where the eligibility for deduction under Section 10A was contested, including issues related to the formation of new businesses, renovation expenses, and compliance with statutory conditions. The Court referred to judgments confirming the eligibility of certain taxpayers for deductions under Section 10A despite challenges raised by the Assessing Officer. It highlighted instances where the Tribunal's orders were upheld by the High Court, emphasizing the importance of adhering to legal principles in determining the deductions under Section 10A.

Conclusion:
The High Court dismissed the appeal, ruling in favor of the assessee based on the legal precedents and interpretations provided in various judgments. The Court affirmed that the exclusion of expenses in foreign exchange from both export turnover and total turnover is essential for computing deductions under section 10A. Additionally, the Court upheld the eligibility of certain taxpayers for deductions under Section 10A for different Assessment Years, emphasizing the significance of following legal principles in such matters.