2021 (9) TMI 573 - HC - Income Tax

Computation of deduction u/s 10A - Tribunal excluding the freight and insurance expenses both from the Export turnover and also from the Total turnover while computing deduction u/s 10A - HELD THAT - As decided in M/S. CHENGEPOND TECHNOLOGIES PVT. LTD. 2021 (8) TMI 567 - MADRAS HIGH COURT if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software u/s 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature. Even in the common parlance, 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 - expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover - Decided against the Revenue.

Summary

Issues:
1. Appeal against order directing re-computation of income under Section 10A for assessment year 2009-10.
2. Appeal against order regarding deduction claimed under Section 10A for Siruseri unit for assessment year 2010-11.

Issue 1:
The first appeal under Section 260A of the Income Tax Act, 1961, for the assessment year 2009-10 challenged the order directing the Assessing Officer to recompute income in light of the decision in the case of Sak Soft. The main substantial questions of law were whether the Tribunal was correct in excluding freight and insurance expenses from both Export turnover and Total turnover while computing deduction under Section 10A. The Tribunal's finding was questioned, especially in light of Explanation 2(iv) to Section 10A. The High Court considered similar issues in previous cases and dismissed appeals by the Revenue, citing relevant judgments. The Court referenced decisions by the Supreme Court and previous Division Bench judgments to support the dismissal of the appeal, stating that the questions of law were covered by previous rulings. The Court concluded that the substantial questions of law were answered against the Revenue, leading to the dismissal of the appeal.

Issue 2:
The second appeal under Section 260A of the Income Tax Act, 1961, for the assessment year 2010-11 concerned the deduction claimed under Section 10A for the Siruseri unit. The substantial questions of law revolved around whether the Tribunal was correct in allowing the deduction claimed under Section 10A for the Siruseri unit, considering the transfer of technical manpower and the reconstruction of the Adyar unit. The Tribunal's decision not to consider the closure of the Adyar unit by a certain date was also challenged. Additionally, the eligibility of the Assessee to claim deduction under Section 10A without fulfilling specific conditions was questioned. The High Court referenced previous judgments and decisions by the Supreme Court and Division Benches to support the dismissal of the appeal. The Court highlighted that the issues raised were covered by previous rulings and, following the established legal principles, the substantial questions of law were answered against the Revenue, resulting in the dismissal of the appeal.

In both cases, the High Court relied on established legal precedents and interpretations of relevant sections of the Income Tax Act to dismiss the appeals brought by the Revenue. The Court emphasized consistency with previous decisions and the application of legal principles to determine the outcomes of the appeals. The judgments highlighted the importance of adhering to statutory provisions and interpreting them in a manner consistent with the legislative intent, ultimately leading to the dismissal of the appeals and upholding the decisions of the Tribunal.