2014 (1) TMI 1538 - HC - Income Tax

Whether the turnover of the undertaking eligible for deduction under Section 10A be included in the total turnover for deductions u/s 80HHE - Held that - As per section 80HHE(3) - In order to determine the profits derived from the export of computer software the amount shall be the amount which bears to the profits of the business, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee - The total turnover of the business referred to under Sub-Section(3) cannot be construed as the total turnover of the business carried on by the assessee - The total turnover refers only to the business carried on under Section 80HHE namely the business of software - Neither the profits of Section 10A units nor the turnover of 10A units could be added to find out the profit from export of computer software under Section 80HHE. Once the assessee has been given the benefit of total exemption from payment of tax under Section 10A in respect of these two units to which Section 10A is attracted, neither the profit and gains of that business nor the turnover of that business could be added to the business of which Section 10A is not applicable - The third unit of the assessee is eligible for deduction in respect of export turnover of computer software under Section 80HHE While computing the profits of the said unit, the turnover of other 10A units cannot be added to arrive at the total turnover of the business as stipulated under Sub14 Section (3) of Section 80HHE Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 80HHE of the Income Tax Act.
2. Calculation of deduction under Section 80HHE and Section 10A.
3. Treatment of turnover and profits of different business units.

Interpretation of Section 80HHE:
The High Court reviewed the provisions of Section 80HHE of the Income Tax Act, which allows a deduction for profits derived from the export of computer software. It highlighted the conditions for eligibility, emphasizing that the assessee must be engaged in the business of exporting computer software from India. The judgment clarified that the deduction is applicable only when the export turnover is a part of the total turnover of the business carried out by the assessee.

Calculation of Deduction under Section 80HHE and Section 10A:
The Court analyzed the case where an assessee was involved in both Section 10A (exemption for software units) and Section 80HHE (deduction for software export). It discussed how the profits and turnover of units eligible for deduction under Section 10A should not be included while calculating the deduction under Section 80HHE. The judgment emphasized that once profits from a unit eligible for Section 10A deduction are separately computed and allowed, those profits should not form part of the "profits of the business" under Section 80HHE. Therefore, the turnover related to Section 10A units should not be considered in the total turnover for Section 80HHE deduction calculations.

Treatment of Turnover and Profits of Different Business Units:
The Court examined the interplay between the profits and turnover of business units eligible for different deductions. It referenced Section 80A(4) to explain that when profits and gains of an undertaking are allowed as a deduction under one provision, they cannot be added under any other provisions. This principle guided the judgment that the turnover and profits of units eligible for Section 10A deduction should not be added when calculating the profits from export of computer software under Section 80HHE. The Court concluded that the Tribunal's decision to set aside the Commissioner's order and restore the Assessing Authority's order was justified, ruling in favor of the assessee against the revenue.

This detailed analysis of the judgment showcases the Court's interpretation of the relevant sections of the Income Tax Act and the specific application of these provisions to the case at hand.