2007 (3) TMI 306 - AT - Income Tax

Computation Of Total Turnover - expenses incurred in foreign exchange for providing technical services outside India - Whether, in absence of the definition of the term total turnover in s. 10A, it should be interpreted by having recourse to the definition of the term export turnover furnished in the section? - HELD THAT - It has also been pointed out that the deduction has to be computed under sub-s. (4) on the basis of the ratio of export turnover to the total turnover . In the case of Sudarshan Chemicals Industries Ltd. 2000 (8) TMI 73 - BOMBAY HIGH COURT , a similar question confronted the Hon'ble Bombay High Court u/s 80HHC. The definition of the export turnover , in s. 10A excludes from its ambit any expenses incurred in foreign exchange in providing technical services outside India. In view of the decision in the case of Sudarshan Chemicals Industries Ltd., such expenses will have to be included (sic-excluded) from the total turnover also. Therefore, we are of the view that the learned CIT(A) was right in holding that the total turnover shall not include expenses incurred in foreign exchange in providing technical services outside India - In result, the appeal is dismissed.

Issues Involved:
1. Exclusion of expenditure incurred in foreign exchange for payments to software professionals outside India from total turnover.
2. Exclusion of expenditure incurred in foreign exchange for sending software professionals abroad from total turnover.

Detailed Analysis:

Issue 1: Exclusion of expenditure incurred in foreign exchange for payments to software professionals outside India from total turnover

The appeal by the revenue challenges the order of the Commissioner (Appeals), who directed the exclusion of expenditure incurred in foreign exchange for payments to software professionals outside India from the total turnover while computing the deduction under Section 10A of the Income Tax Act, 1961. The assessing officer had included these expenses in the total turnover, arguing that the term "total turnover" was not defined in Section 10A, and thus, its natural meaning should be adopted. The Commissioner (Appeals) disagreed, stating that if such expenses are excluded from the "export turnover," they should also be excluded from the "total turnover" to maintain consistency in the computation formula under Section 10A.

Issue 2: Exclusion of expenditure incurred in foreign exchange for sending software professionals abroad from total turnover

Similarly, the Commissioner (Appeals) directed the exclusion of expenditure incurred in foreign exchange for sending software professionals abroad from the total turnover. The assessing officer had included these expenses, arguing that the total turnover should encompass all receipts, including those not brought into India in convertible foreign exchange. The Commissioner (Appeals) held that to avoid an inconsistent ratio in the computation of deductions under Section 10A, such expenses should be excluded from both the export turnover and the total turnover.

Legal Reasoning and Precedents:

The revenue's representative argued that the natural meaning of "total turnover" should be adopted since it was not defined in Section 10A. In contrast, the assessee's counsel pointed out that statutory examples exist where terms depart from their natural meanings. The counsel referred to Section 80HHC, where "total turnover" excludes certain expenses, suggesting a similar contextual interpretation for Section 10A.

The counsel cited several cases, including the Hon'ble Delhi High Court's decision in Jaypee Hotels Ltd., which held that the term "total receipts of the business" should be interpreted consistently with the numerator (foreign exchange receipts) for computing deductions. The Supreme Court's decision in J.B. Boda & Co. (P) Ltd. was also referenced, emphasizing that procedural formalities should not overshadow the substance of transactions.

Tribunal's Conclusion:

The Tribunal considered the facts and rival submissions, noting that the computation of deductions under Section 10A involves a ratio of "export turnover" to "total turnover." It referred to the Bombay High Court's decision in Sudarshan Chemicals Industries Ltd., which excluded statutory levies from the total turnover to avoid artificially reducing the deduction. The Tribunal concluded that, consistent with this reasoning, expenses excluded from the export turnover should also be excluded from the total turnover to maintain a fair computation. Consequently, the Tribunal upheld the Commissioner (Appeals)'s decision, affirming that the total turnover should not include expenses incurred in foreign exchange for providing technical services outside India.

Final Decision:

The appeal by the revenue was dismissed, affirming the exclusion of the specified foreign exchange expenditures from the total turnover for the purpose of computing deductions under Section 10A.

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