2018 (4) TMI 193 - HC - Income Tax

Method of computing the exemption u/s 10-A - whether the expenses excluded from the export turnover are also to be excluded from the total turnover for the purpose of Section10-A? - Held that - The method of computing the exemption under Section 10-A and precisely, the question as to whether the expenses excluded from the export turnover are also to be excluded from the total turnover for the purpose of Section10-A of the Act, has been dealt with by this Court in the case of TATA ELXSI LTD. 2011 (8) TMI 782 - KARNATAKA HIGH COURT as held if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be different.

Summary

Issues:
- Interpretation of deduction under Section 10-A of the Income Tax Act, 1961
- Whether expenses excluded from export turnover should also be excluded from total turnover for computing profits eligible for deduction under Section 10-A
- Applicability of the decision in the case of COMMISSIONER OF INCOME TAX v. TATA ELXSI LTD.: [2012] 349 ITR 98 (Karnataka)

Analysis:
The High Court of Karnataka considered three appeals by the Revenue under Section 260-A of the Income Tax Act, 1961, arising from a common order by the Income Tax Appellate Tribunal. The appeals pertained to the assessment years 2008-2009 to 2010-2011 and involved similar issues. The respondent-assessee, engaged in software development, had its deductions restricted under Section 10-A of the Act by the Assessing Officer, along with transfer pricing adjustments. The assessee contended that if any amount was adjusted from the export turnover, an equal amount should also be reduced from the total turnover for computing profits eligible for deduction under Section 10-A. The Commissioner of Income Tax (Appeals) accepted these contentions, citing the decision in the case of TATA ELXSI LTD.

The Tribunal upheld the CIT(A)'s decision, following the precedent set by the TATA ELXSI LTD. case. The Revenue sought to challenge this decision, arguing that expenses reduced from export turnover should not be reduced from total turnover as per Section 10-A of the Act. After examining the arguments and applicable law, the Court found no substantial question of law and dismissed the appeals. The Court referred to the TATA ELXSI LTD. case, emphasizing that if expenses are excluded from export turnover, they should also be excluded from total turnover for computing deductions under Section 10-A.

The Court highlighted that the legislative intent must be respected, and if the export turnover is a component of total turnover, the same interpretation should be applied to both. Therefore, the Court concluded that the expenses excluded from export turnover should also be excluded from total turnover for computing deductions under Section 10-A. As the principles from the TATA ELXSI LTD. case were directly applicable to the present cases, the Court found no issues with the impugned order and dismissed the appeals.