2012 (7) TMI 582 - AT - Income Tax

Eligibility for deduction u/s 1OA - assessee company has five units registered under STPI - Held that - To avail the facilities and privileges admissible under the STP scheme the unit has to be custom bonded. The assessee has obtained clarification from STPI as per letter dated 20th April, 2004 from Director, STP. It is mentioned that if the assessee intend to avail any duty concession, then the assessee is required to approach custom for custom bonding. Hence, it cannot be read in the provisions of the Act that for availing deduction s/u lOA, the assessee should first obtain the custom bonding and then should commence production - the assessee has demonstrated that first invoice has been raised after it has obtained the approval of STPI. Thus claim of exemption u/s 10A is admissible. For the purpose of computing deduction u/s 10A of the Income-tax Act, if any income is excluded from the export turnover, then the same has to be excluded from the total turnover also. Addition of an amount as foreign exchange gain for the purpose of computing deduction u/s 10A by assessee - Held that - CIT Vs. Infosys Technologies Ltd. 2011 (11) TMI 443 - KARNATAKA HIGH COURT wherein the Hon ble Karnataka High Court confirmed that the fluctuation in the valuation of currency which has to be converted to foreign exchange currency has direct nexus to the export of software and can never be included as income from other sources - in favour of assessee. Inclusion of income in the nature of interest income and miscellaneous income in the profits of the undertaking as eligible for deduction u/s 10A - Held that - The interest income and miscellaneous income for units 5 and 6 have been excluded from the profits and gains of the undertaking for computation u/s 10A and while making such adjustment in computation, inadvertently foreign exchange gain was also excluded from the profit of the business of the undertaking - thus to consider the actual bifurcation deem it fit and proper to remit the issue back to the file of the AO for reconsideration. Claim of assessee to include the income from recruitment fee as part of export turnover for the purpose of computing the deduction u/s 10A - assessee submitted the recruitment/human resource services rendered by the company squarely falls within the ambit of human resources services mentioned in the notification dated 26.9.2000 - Held that - As both the parties have agreed for accepting the alternate plea that the assessee must prove with supporting evidence as to which expenses are allowable under the Act and should produce evidence for claiming the expenses relating to the business of body shopping by the assessee,no reason to adjudicate on the issue as to whether the recruitment fee would form part of export turnover. Therefore, the issue is left open to the assessee to agitate in appropriate cases - direct the AO to consider only the net income from manpower supply as income from other sources

Summary

Issues Involved:
1. Eligibility of units 2, 3, and 4 for deduction under Section 10A of the Income-tax Act.
2. Exclusion of telecommunication charges from export turnover and total turnover.
3. Inclusion of foreign exchange gain in export turnover for computing deduction under Section 10A.
4. Deduction under Section 10A for interest income and miscellaneous income.
5. Deduction under Section 10A for income from human resource services.

Issue-wise Detailed Analysis:

1. Eligibility of units 2, 3, and 4 for Deduction under Section 10A:
The assessee company, engaged in software development services, claimed deductions under Section 10A for units 2, 3, and 4. The Assessing Officer (AO) denied the deductions, stating that these units commenced production before obtaining the license for bonded warehouse, a requirement under Section 10A. The CIT(A) upheld this decision. However, the Tribunal noted that in previous years, similar issues were resolved in favor of the assessee. The Tribunal referred to the case of Bajaj Tempo Ltd. v. CIT and other relevant judgments, concluding that the units were eligible for the deduction as the first invoice was raised after obtaining STPI approval. Thus, grounds 2 to 7 were allowed in favor of the assessee.

2. Exclusion of Telecommunication Charges from Export Turnover and Total Turnover:
The assessee contested the exclusion of telecommunication charges from export turnover. However, the Tribunal, referencing the Karnataka High Court decision in CIT Vs. Tata Elxsi Ltd., held that if any income is excluded from the export turnover, it must also be excluded from the total turnover. Consequently, ground 10 was rejected, and grounds 11 and 12 were allowed.

3. Inclusion of Foreign Exchange Gain in Export Turnover for Computing Deduction under Section 10A:
The AO excluded foreign exchange gain from the export turnover, arguing it was not directly derived from the export. The Tribunal, referencing judgments from various High Courts, including CIT Vs. Infosys Technologies Ltd., held that foreign exchange gain directly related to export operations should be included in the export turnover. Thus, grounds 13 and 14 were allowed in favor of the assessee.

4. Deduction under Section 10A for Interest Income and Miscellaneous Income:
The AO excluded interest income and miscellaneous income from the profits eligible for deduction under Section 10A, citing they were not derived from the export of software. The Tribunal agreed that the facts had not been properly appreciated and remitted the issue back to the AO for reconsideration, allowing ground 15 for statistical purposes.

5. Deduction under Section 10A for Income from Human Resource Services:
The AO and CIT(A) excluded income from human resource services, treating it as manpower supply rather than an IT-enabled service eligible for deduction. The Tribunal, referencing the CBDT Notification and various Tribunal decisions, recognized human resource services as eligible IT-enabled services. However, both parties agreed that if this income is excluded from export turnover, it should also be excluded from total turnover, following the Tata Elxsi Ltd. decision. Thus, grounds 8 and 9 were rejected, but the alternate plea was accepted, directing the AO to consider only the net income from manpower supply as income from other sources.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, granting relief on several grounds related to Section 10A deductions while remitting certain issues back to the AO for further consideration. The decision emphasized adherence to judicial precedents and proper appreciation of facts in determining eligibility for tax deductions.