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TMI Blog2008 (2) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration in convertible foreign exchange for both types of services. Expenditure incurred by the assessee is on account of travelling allowances and others for the purpose of development of software at client s site outside India i.e. in respect of goods. Such expenditure is not in the nature of expenditure for technical services. Since the expenditure is not for technical services, there is no need to exclude these expenditures from consideration received in convertible foreign exchange for the purpose of calculating export turnover as defined in clause ( iv ) of Explanation 2 of section 10A.'' Following the order of the Tribunal, we accept the contention of the assessee that the on-site expenditure incurred for development of software need not be reduced from convertible foreign exchange received by the assessee, for the purpose of calculation of export turnover. The order of the CIT(A) is accordingly modified. Hence, the main plea taken by the assessee has been allowed. Therefore, the grounds raised by the revenue in its appeal against the finding of the CIT(A) with regard to the alternative plea of the assessee do not survive. Therefore, the grounds of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting the finding of the CIT(A) that the site expenditure is required to be reduced from the convertible foreign exchange received by the assessee for the purpose of calculation of export turnover . 4. The learned Authorised Representative submitted that all the details in respect of on-site expenses alongwith copies of the debit notes were filed before the Assessing Officer. The on-site expenses related to development of software and on identical set of facts, Hyderabad Bench of the Tribunal, in Patni Telecom (P.) Ltd. [Formerly Cymbal Information Services Ltd. ] v. ITO [IT Appeal No. 354 (Hyd.) of 2006 for assessment year 2000-01 and IT Appeal No. 5 (Hyd.) of 2005 for assessment year 2001-02], vide order dated 11-1-2008 has decided the issue in favour of the assessee. The learned Departmental Representative, though relied on the order of the Assessing Officer, has not controverted the contention of the assessee that the facts of the case and the issue involved in these matters are identical and the issue is covered by the above decision of the Tribunal in favour of the assessee. 5. We have heard the learned representatives for the parties and records perused. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by an undertaking from the export of such articles or things or computer software : Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2010 and subsequent years. Explanation 2 of section 10A defines certain terms for the purpose of section 10A. "Export Turnover" has been defined in the said Explanation 2 to section 10A under clause ( iv ) which reads as under : "( iv )"export turnover" means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India;" Sub-section (4) of section 10A states about profits of the business relating to export turnover. The said sub-section (4) of section 10A reads as under : "(4) For the purposes of section 57 [sub-sections (1) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce), receivable by the assessee in convertible foreign exchange. In other words, FOB value of exports. The Finance Act, 1990 has restricted the definition of the term "Export turnover" to mean FOB sale proceeds actually received by the assessee in convertible foreign exchange within six months of the end of the previous year or within such further period as the Chief Commissioner/Commissioner may allow in this regard." On the basis of the above material and discussion, it can be said that only those freight, telecommunication charges or insurance attributable to delivery of goods out of India are to be considered while reducing from consideration received in convertible foreign exchange. Thus if such expenses are not attributable to delivery of goods outside India, such expenses are not required to be deducted from the consideration. One more aspect which is required to be considered here is that the consideration received in convertible foreign exchange is including such expenses. If such expenses are not included in the consideration received in convertible foreign exchange, deduction of such expenditures from the consideration does not arise. Normally in a transaction of purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 10A on consideration received against supply of goods at FOB. Therefore, the condition of delivery of goods at FOB has been put and the definition of export turnover as provided in clause ( iv ) of Explanation 2 to section 10A is required to be interpreted accordingly. 7.3 The definition of export turnover can be summarized in the following formula : Particulars Amount The consideration in respect of export (by undertaking) of articles or thing or computer software received in or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3). xxxxxxxxx Less : (1) Following expenses attributable to the delivery of articles or things or computer software outside India (if same are included in above consideration) ( i ) Freight x ( ii ) Telecommunication charges x ( iii ) Insurance or x xx (2) Expenses, if any, incurred in foreign Exchange in providing technical Services outside India xxx Export Turnover xxxxxxxx 7.4 Now we examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange while calculating export turnover for the purpose of section 10A of the Income-tax Act. 8. Another expenditure of Rs. 1,16,61,307 excluded for the purpose of export turnover by Assessing Officer is on account of expenses incurred in foreign exchange in providing technical services outside India. On reading of clause ( iv ) of Explanation 2 to section 10A, we notice that all expenses need not be reduced from consideration received in convertible foreign exchange for the purpose of calculation of export turnover under section 10A. Only those expenses incurred in foreign exchange in providing technical services outside India are required to be reduced. Thus expenditure incurred should be for providing technical services. The technical services relevant to clause ( iv ) of Explanation 2 of section 10A have not been defined in the section. However, technical services are defined in other provisions of the Act, that is in Explanation 2 to section 9(1)( vii ) of the Income-tax Act. The said definition reads as under : " Explanation 2. For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applications to its customers. It also had identified standard business processes that can be integrated across the diverse applications and chose web methods as its integration platform to deliver its EAI services. While Aristasoft corp. was focusing on business vision and marketing activities, its GTC in Hyderabad was executing its vision. The activities involved in gathering the customers requirements, implementing, customizing the applications, and supporting the customers after they go live. These activities call for a lot of travel to the customers place and demand dedicated connectivity to customers data-centers. Supporting the customer s issues adhering to the Service Level agreements with them, GTC had implemented technology that would connect it to its US office via voice/data called VOIP. This demands, again, high hand width connectivity between US office and Hyderabad." As per the agreement the assessee was to pay amount as per Exhibit A which reads as under : "1.Fixed Price Projects executed : ( a )On Site (At "Developer" premises) Project Cost is derived based on the assumption that the "Developer" will provide all the hardware and software necessary f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Projects, the invoices will be categorized and specify the category. These invoices will be produced periodically on the basis of project milestones as determined by the "Contractor". However, in no case will the "Contractor" invoice the "Developer" in advance for work not yet performed unless approved by the "Developer". The invoice produced will carry the name of the Individual contributor assigned by the "Contractor" and the total number of hours worked along with the bill rate and the amount that is payable by the "Developer". ( b )Onsite (At Developers premises) The "Contractor" will assume all the administrative and other travel related expenses other than lodging costs. The project will be billed by the "Contractor" to the "Developer" at a flat fee as previously agreed and approved and will be based on estimated efforts spent multiplied by an hourly rate of US $ 70. In case the efforts put in exceed 10 per cent of the previously estimated efforts due to no fault of the "Contractor", then the "Developer" will be required to pay for additional efforts and it will be negotiated in good faith between the "Developer" and the "Contractor"." From the above terms and cond ..... X X X X Extracts X X X X X X X X Extracts X X X X
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