2013 (11) TMI 144 - AT - Income Tax

Deduction u/s 10B Internet Charges Held that - Following ITO v. Sak Soft Ltd. 2009 (3) TMI 243 - ITAT MADRAS-D If expenses incurred to provide technical services outside are excluded from export turnover then such expenses should also be excluded from the total turnover for computing income u/s 10B Following the principle of parity between the export turnover and total turnover laid down in CIT v. Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME Court . Setting-off of brought forward losses Held that - When two different views of the different jurisdictional High Courts are available, the decision favourable to the assessee is to be followed - Following Yokogawa India Ltd. 2011 (8) TMI 845 - Karnataka High Court - As the relief under section 10A is in the nature of exemption although termed as deduction and the said relief is in respect of commercial profits, such income is neither subject to charge of income tax nor includible in the total income - The relief under section 10A will have to be given before Chapter IV Decided against Revenue.

Summary

Issues Involved:
1. Exclusion of 50% internet charges from total turnover.
2. Computation of deduction under section 10B without setting off brought forward losses and unabsorbed depreciation.

Issue-wise Detailed Analysis:

1. Exclusion of 50% Internet Charges from Total Turnover:

The assessee, engaged in electronic printing and data processing, filed a return of income for AY 2005-06 showing "nil" taxable income. Upon scrutiny, the Assessing Officer included 50% of internet charges amounting to Rs. 1,88,638 in the "total turnover" but excluded it from the "export turnover." The Commissioner of Income-tax (Appeals) reversed this decision, excluding the internet charges from the total turnover as well, relying on the Tribunal's decision in Deputy CIT v. SRA Systems Ltd. [2008] 305 ITR (AT) 427 (Chennai). The Revenue appealed, arguing that excluding these charges from total turnover would defeat the purpose of the exclusion from export turnover. The Tribunal, referencing the Special Bench decision in Sak Soft Ltd. [2009] 313 ITR (AT) 353 (Chennai) and the Supreme Court judgment in CIT v. Lakshmi Machine Works [2007] 290 ITR 667 (SC), upheld the Commissioner's decision, stating that expenses excluded from export turnover should also be excluded from total turnover to maintain parity. Thus, the appeal on this ground was dismissed.

2. Computation of Deduction Under Section 10B Without Setting Off Brought Forward Losses and Unabsorbed Depreciation:

The Assessing Officer set off brought forward losses from AY 2001-02 before granting the deduction under section 10B. The Commissioner of Income-tax (Appeals) held that the deduction should be computed without such set-offs, relying on the Tribunal's decision in Intimate Fashions (India) P. Ltd. The Revenue argued that the assessee had not appealed a similar decision for AY 2003-04 and cited the Supreme Court's judgment in CIT v. Dalmia Cement (Bharat) Ltd. [1995] 216 ITR 79 (SC) and the Special Bench decision in Scientific Atlanta India Technology P. Ltd v. Asst. CIT [2010] 2 ITR (Trib) 66 (Chennai), supporting the set-off before deduction. The Tribunal noted divergent views from various High Courts: the Karnataka High Court in CIT v. Yokogawa India Ltd. [2012] 341 ITR 385 (Karn) and the Bombay High Court in CIT v. Black and Veatch Consulting Pvt. Ltd. [2012] 348 ITR 72 (Bom) supported the assessee's view, while the Kerala High Court in CIT v. Patspin India Ltd. [2011] 62 DTR (Ker) 364 supported the Revenue's view. Following the principle that the interpretation favorable to the assessee should be adopted (CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC)), the Tribunal upheld the Commissioner's decision, dismissing the Revenue's appeal on this issue as well.

Conclusion:

Both grounds of the Revenue's appeal were dismissed. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decisions to exclude 50% of internet charges from total turnover and to compute the deduction under section 10B without setting off brought forward losses and unabsorbed depreciation.