2021 (4) TMI 1134 - HC - Income Tax

Computation of deduction u/s 10A - tribunal held that the travelling expenditure incurred in foreign currency is to be reduced from the total turnover also for the purpose of computation of deduction - HELD THAT - As decided in M/S. SRA SYSTEMS LTD. 2021 (3) TMI 977 - MADRAS HIGH COURT when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well. Decided in favour of the assessee.

Summary

Issues involved:
Challenge to order passed in I.T.A.No.329Mds/2012 regarding Assessment Year 2005-2006 on the file of the Income Tax Appellate Tribunal, Chennai; substantial question of law regarding deduction under section 10A of the Act based on traveling expenditure in foreign currency.

Analysis:
The Revenue challenged the order passed by the Income Tax Appellate Tribunal regarding the deduction under section 10A of the Act concerning traveling expenditure in foreign currency. The substantial question of law revolved around whether the Tribunal was correct in holding that such expenditure should be reduced from the total turnover for the purpose of computing the deduction under section 10A.

During the hearing, the appellant's counsel referred to a decision of the Court in a different case, which supported the Revenue's position. On the other hand, the respondent's counsel cited various judgments, including a Supreme Court decision and several decisions of the High Court, to argue in favor of the assessee. These judgments emphasized the importance of allowing deductions in a manner that aligns with the legislative intent and ensures a fair interpretation of the law.

The judgments referred by the respondent's counsel highlighted the need to interpret the law in a manner that avoids illogical or unjust outcomes. They emphasized that deductions related to specific activities, such as technical services provided abroad, should be allowed proportionately from both export turnover and total turnover to maintain consistency and fairness in the computation process.

The Division Bench of the Court, based on the arguments presented and the precedents cited, concluded that the questions of law raised in the appeal were adequately addressed by the decisions relied upon by the respondent's counsel. Consequently, the Court decided the questions of law against the Revenue and in favor of the assessee, leading to the dismissal of the Tax Case Appeal.

In summary, the judgment underscored the importance of interpreting tax laws in a manner that upholds fairness and consistency. By relying on established legal principles and precedents, the Court resolved the issues raised in the appeal in favor of the assessee, highlighting the significance of aligning deductions with the legislative intent to prevent unintended consequences and ensure a just outcome in tax matters.