2021 (2) TMI 382 - HC - Income Tax

Computation of deduction u/s 10A - Tribunal held that the expenses incurred in foreign exchange should be excluded from the export turnover for the purpose of computing deduction - whether Tribunal was right in holding that the export turnover consisting exclusively of consideration received in foreign exchange should be reduced by expenditure incurred on telecommunication? - HELD THAT - The issue involved in the present appeal is covered by the decision of this Court made in M/s.Polaris Consulting Services Ltd. 2018 (11) TMI 1553 - MADRAS HIGH COURT . In view of the submissions made by the learned counsel on either side while leaving the substantial questions of law open we are remitting the matter back to the Assessing Officer for fresh consideration. The Assessing Officer shall decide the matter on merits and in accordance with law after taking into consideration the judgment above.

Summary

Issues:
1. Exclusion of expenses incurred in foreign exchange from export turnover for computing deduction under Section 10A of the Income Tax Act.
2. Reduction of export turnover by expenditure on telecommunication.
3. Determining whether telecommunication charges are part of the expenditure incurred in the development of software/data and should not be considered in the export turnover.

Analysis:
1. The appellant, engaged in Software Development and Consultancy, challenged the order of the Income Tax Appellate Tribunal regarding the exclusion of expenditure in foreign exchange from the export turnover for the assessment year 2003-04. The Assessing Officer excluded the expenditure incurred in foreign currency for technical services from the export turnover, which the appellant contested as representing salary, allowances, and administrative expenses not provided for services outside India. The Tribunal held that the expenditure should be excluded from both the export turnover and total turnover. The appellant argued that part of the expenditure should not be excluded from the export turnover.

2. The substantial questions of law admitted for the appeal included whether the Tribunal was correct in excluding expenses in foreign exchange from the export turnover for deduction under Section 10A of the Act and if the export turnover, consisting solely of consideration in foreign exchange, should be reduced by telecommunication charges. The appellant cited a previous judgment related to software development activities to support their case, emphasizing the distinction between software development and technical services, urging a fresh consideration by the Assessing Officer based on this precedent.

3. In light of the submissions, the Court remitted the matter back to the Assessing Officer for a fresh examination, considering the judgment of the Division Bench. The Assessing Officer was directed to decide the issue on merits and in accordance with the law, allowing the appellant to present all relevant records to support their case. The Tax Case Appeal was disposed of without costs, leaving the substantial questions of law open for further consideration by the Assessing Officer based on the provided legal precedent.