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TMI Blog2008 (2) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... preciating that the appellant is not engaged in providing any technical services outside India, and therefore the question of exclusion of expenses from export turnover does not arise. (5) The learned CIT(A) has erred in concluding that the brought forward loss and unabsorbed depreciation of earlier years are to be set off against the business income of the current year before allowing the deduction under s. 10A. (6) Interest levied under s. 234B be deleted." 2. The brief facts of the case are that the assessee is a company and it is engaged in the computer software development. The assessee filed its return of income disclosing an income of Rs. 1,79,915 on 3rd Nov., 2003. The return was processed under s. 143(1) and was selected for scrutiny by issue of notice under s. 143(2), dt. 25th Nov., 2004. In response to the notice, the representative of the assessee filed the details called for. During the assessment proceedings, the AO noticed that the assessee has Claimed exemption under s. 10A of the Act on gain on exchange fluctuation amounting to Rs. 3,82,837. Apart from this, the assessee has also claimed exemption under s. 10A on the interest income from bank deposits as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) allowed the establishment and maintenance expenses pertaining to the foreign branch to be included in the export turnover, but the other expenses of travelling, salaries, remuneration, etc. to the technical professionals were disallowed and thereby the AO was directed to compute the deduction under s. 10A as per the directions, after obtaining necessary details from the assessee. Regarding insurance charges and telecommunications charges, the CIT(A) directed the AO to exclude 50 per cent of telecommunication expenses which are attributable to the delivery of articles outside India. But, the CIT(A) has upheld the action of the AO in excluding insurance and balance of telecommunication charges while computing the deduction under s. 10A. While deciding the issue of brought forward loss pertaining to asst. yr. 2001-02, the CIT(A) has held that brought forward loss of the assessee are first required to the set off against the income of the current year and then, from the balance, 90 per cent of the income will be allowable as exemption under s. 10A. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before us. 4. As regards the issue of gain from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign exchange would be included in the total turnover while computing the deduction under s. 10A of the Act. 7. Regarding the issue of interest on fixed deposits, the learned counsel for the assessee, submitted that the deposits were made only for the purpose of business activity and therefore, the interest income is incidental to earning income from export and eligible under s. 10A. 8. On the other hand, the learned Departmental Representative has submitted that the interest income on deposits has no connection with the business of the assessee. He has relied upon the judgment in the case of CIT vs. Menon Impex (P) Ltd. (2003) 180 CTR (Mad) 40 : (2003) 259 ITR 403 (Mad). 9. We have considered the rival contentions and material on record. We do not agree with the contention of the learned counsel for the assessee that the interest on fixed deposits is connected with the business activity of the assessee. In the case of CIT vs. Menon Impex (P) Ltd., after following the decision of the Hon'ble Supreme Court in the case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC) has held that "In this case the interest received by the assessee was on deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1998 in the case of Infosys Technologies Ltd. passed on 31st March, 2005. The learned counsel for the assessee has alternatively contended that deduction under s. 10A is available in respect of the profits derived from export of computer software. The term "export turnover" is defined in cl. (iv) of Expln. 2 to s. 10A but the total turnover is not defined. Therefore, by virtue of definition, certain items of expenses are to be excluded in computation of export turnover. In arriving at the figure of total turnover, the very same items are to be excluded for the reason of consistency in the components that constitute export turnover and total turnover. Thus, he submitted that if certain expenses are not allowed as part of the export turnover, the same is also to be excluded from the total turnover while computing the exemption/deduction under s. 10A. 11. On the other hand, the learned Departmental Representative has contended that in view of cl. (iv) of Expln. 2 to s. 10A, the expenses incurred in foreign exchange in providing technical services outside India do not form part of export turnover. He has further relied upon the order of the CIT(A). 12. After hearing the rival content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oniously. Explanation 2(i) provides the meaning of computer software and it is clear that any computer programme recorded on any disc, tape, perforated media or other information storage device or any customized electronic data or any product or service of similar nature, as may be notified which is transmitted or exported from India to any place outside India by any means. Explanation 3 further removes the doubts and clearly provides that the profits and gains derived from on site development of computer software including services for development of software outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. The exclusion of charges or expenses incurred in foreign exchange in providing technical services outside India by cl. (iv) of Expln. 2 is only those expenses which are incurred for rendering and providing technical services outside India to the other party and not the expenses incurred for technical services utilized for development of computer software on site. Therefore, cl. (iv) of Expln. 2 is not derogatory or contradictory to the Expln. 3 and these two provisions deal with separate subjects. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction under s. 10A as held by the Hon'ble apex Court in the case of CIT vs. K. Ravindranathan Nair (2007) 213 CTR (SC) 227 : (2007) 295 ITR 228 (SC) that in terms of cl. (baa) of s. 80HHC, 90 per cent of the independent income had to be deducted from the gross total income to arrive at the business profits to which fiction has to be applied. The processing charges constitute independent income similar to rent, commission, brokerage, etc. which form part of gross total income, the same had to be reduced by 90 per cent as contemplated in cl. (baa) to arrive at the business profits. Therefore, the said processing charges were includible in the total turnover in the formula under s. 80HHC(3) of the Act. In view of the above observation, it is clear that independent income does not form part of the profits and gains and also shall not form part of export turnover but the same shall be included in the total turnover while computing the deduction. As a result, the issue is decided in favour of the assessee and the order of the CIT(A) is set aside in this regard. 16. The next issue is setting off of brought forward losses. The learned counsel for the assessee has submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26th June, 2007 and in the case of Asstt. CIT vs. Yokgama India Ltd. in ITA No. 1802/Mds (Bang)/2005, dt. 4th Aug., 2006. 17. On the other hand, the learned Departmental Representative contended that in view of sub-s. (6) of s. 10A, no brought forward loss can be set off against the profit in the block period since the assessee has chosen for availing deduction under s. 10A. Therefore, brought forward loss cannot be set off against the income for which the deduction under s. 10A is claimed. He has relied upon the order dt. 27th Nov., 2007 in ITA No. 2097/Mum/2006 passed by this Tribunal in the case of Intimate Fashions (India) (P) Ltd. He has also relied upon the order of the CIT(A) on this issue. 18. Sec. 10A is part of Chapter III and deals with income which does not form part of the total income. This provision provides deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software. Sub-s. (6) of s. 10 which provides for setting off of carried forward losses and unabsorbed depreciation from the previous year ending before the 1st day of April, 2001 outside the block period (the period which the assessee has opte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucting the unabsorbed carried forward business losses of the earlier years in giving set off while computing the total income of any particular year. Having regard to the above discussion it seems to us clearly that unabsorbed carried forward losses cannot be given preference over current depreciation in the matter-of set off in computing an assessee's income for any particular assessment year and as such the question has been correctly decided in Aluminium Corporation of India Ltd. vs. CIT (1958) 33 ITR 367 (Cal) and CIT vs. Malwa Sugar Mills Co. Ltd. (l982) 26 CTR (Cal) 347 : (1982) 134 ITR 56 (Cal) by the Calcutta High Court in CIT vs. Gujarat State Warehousing Corporation 1976 CTR (Guj) 306 : (1976) 104 ITR 1 (Guj) by the Gujarat High Court and in Addl. CIT vs. Andhra Printers Ltd. (1979) 117 ITR 555 (AP) by the Andhra Pradesh High Court. In the impugned judgment in the civil appeals, the High Court has relied on some observations of this Court in CIT vs. Jaipuria China Clay Mines (P) Ltd. (1966) 59 ITR 555 (SC), but that case dealt with a different point altogether and as such the observations made in the context of the points that arose for decision there would be of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that deduction of the unit qualifying for exemption is to be given to the extent of income computed in respect of that unit as per the provisions of the Act. It is an accepted principle of interpretation that beneficent provision should be liberally construed. 15. In the case of Naveen Bharat Industries Ltd. it as held that there is no provision in the Act by which the assessee can be forced to avail the benefit under s. 10A for five years. In case the assessee wants to put the income under the normal computation provision then there appears to be no bar for doing so. In view of that it was held that loss of s. 10A unit can be adjusted against non-s. 10A unit as the assessee is not claiming benefit under s. 10A. This decision is not applicable in the instant case. 16. Keeping in view of the discussion as contained in earlier paras, it is held that learned CIT(A) was justified in directing the AO to allow deduction under s. 10A without setting off brought forward and current year losses of non-s. 10A unit." Similarly in the case of Asstt. CIT vs. Yokgawa India Ltd. cited supra, the Bangalore Bench of the Tribunal has held as under: "13. In view of the above referred judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and therefore profits and gains of the software services division will be exempt under s. 10A without setting off the loss of other division or the setting of carry forward losses of other division. In view of above discussion we hold that learned CIT(A) was justified in directing the AO to allow exemption under s. 10A without setting of loss of non-s. 10A unit and consequently allowed carry forward of such losses and depreciation of non-s. 10A unit." 20. After considering the rival contentions, the materials on record and the legal propositions on the issue we note that a perusal of the provisions contained in s. 10A along with sub-s. (6) shows that it is a distinct and separate deeming provision which laid down a special manner of computation of profits and gains entitled for deduction under s. 10A of the Act. Moreover the sub-s. (6) of s. 10A is of an overriding nature providing specifically that during each of the assessment years in the tax holiday period in which the assessee is entitled to deduction under s. 10A of the Act this provision will be applied as if the undertaking is an independent unit and is the one and the only source of income of the assessee. Therefore, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction. Wherever the legislature intends so to restrict the deduction, the same is provided in the Act itself. Therefore there is no scope for any interpretation that the profits and gains of the specified undertaking should be computed under the normal course as per the provisions of the Act and not under the special provisions of s. 10A. Accordingly the deduction under s. 10A is not to be restricted to the total income of the assessee computed before allowing the deduction under s. 10A, since the deduction is given on the profit and gain derived from the export activity and not on the total income as computed under the provisions of the Act. Therefore the only interpretation which is applicable in respect of s. 10A is that the deduction of the unit qualifying for exemption is to be given to the extent of income computed in respect of the said unit. Keeping in view the above discussion we are of the view that the CIT(A) was not justified in holding that the total income of the assessee for any relevant assessment year is required to be computed after taking into consideration the carried forward losses incurred after 1st April, 2001 and after setting off the loss if there is any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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