9911796707
TMI Blog2010 (11) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... stomers. The assessee claimed exemption under section 10A of the Act in respect of profit earned from the business of export of software. There is no dispute with regard to the eligibility of the assessee to claim the said deduction. There is dispute with regard to the quantum of deduction. The amount of deduction claimed by the assessee was reduced by the Assessing Officer. The learned CIT(A) dismissed the appeal of the assessee for the assessment year 2003-04 and partly allowed the appeals in other two years. Hence, the assessee is in appeal for all the three years in respect of issues which were decided against it. In the similar manner, the revenue is in appeal for two years on the issues which were decided against it. 3.1 We have heard the rival contentions and also perused the record. We notice that sub-section (4) of section 10A provides for the manner of computation of deduction under section 10A. For the sake of convenience, we reproduce below the said sub section : "(4) For the purposes of sub-sections (1) and (1A), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m other sources and, accordingly, they shall not be included in the business profits. The learned Departmental Representative did not object to the submissions of the assessee. Accordingly, we hold that the interest received from bank deposits and other income should be assessed under the head "Income from other sources" and accordingly they shall not form part "Profit from business" for the purpose of computation of deduction under section 10A of the Act. 5. The next point of disagreement is with regard to the term "Total Turnover". The Assessing Officer has included the receipts by way of interest from bank deposits and other income in the total turnover for the assessment year 2003-04 only and the said receipts were not included in other two years. According to the assessee, the said receipts should not be included in the total turnover. Further, according to the assessee, the total turnover of the "Software export division" should only be taken as the "Total Turnover", where as according to the revenue, the turnover of the assessee from all the units have to be aggregated for arriving at the "Total turnover". Based on the rival submissions made at the time of hearing and on as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (4) of section 10A was substituted by Finance Act, 2001 with effect from 1-4-2001 and prior to its substitution, sub-section (4) reads as under : "(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the assessee." It can be noticed that, before its substitution by Finance Act, 2001, the deduction has to be computed by taking the total turnover of the business carried on by the assessee, i.e., the turnover of all the units and operations have to be aggregated. However, after the amendment made by the Finance Act, 2001, the total turnover shall comprise of the total turnover of the business carried on by the "Undertaking" only. The amended section is applicable for the years under consideration. Hence, the "Total turnover" shall comprise of the total turnover of the business carried on by the undertaking only for the purpose of calculation of eligible amount of deduction under section 10A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not decisive to deny the benefit of section 15C. Section 15C partially exempts from tax a new industrial unit which is separate physically from the old one, the capital of which and the profits thereon are ascertainable. There is no difficulty to hold that section 15C is applicable to an absolutely new undertaking for the first time started by an assessee. The cases which give rise to controversy are those where the old business is being carried on by the assessee and a new activity is launched by him by establishing new plants and machinery by investing substantial funds. The new activity may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced and at least a minimum of ten persons with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognizable unit of an assessee cannot be said to be reconstruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Courts cited above, it is clear that the concept of common ownership/management is not relevant for deciding whether a unit is a separate "Undertaking". The Hon'ble Madras High Court has held clearly that the word "Undertaking" should not be equated with the "legal entity" which may own undertaking. Thus the legal entity, which is normally assessed to tax, is a broader one and the "Undertaking" is a part of the legal entity for the purpose of taxation. For that reason, it has been held by the Hon'ble Madras High Court that a single entity may own and operate more than one industrial undertaking. It has also been clearly held that what is relevant is the existence of all the facilities including factory buildings, plant, machinery godowns and things which are incidental to the carrying on of manufacture or production, all of which where taken together are capable of being regarded as an industrial undertaking, i.e., the undertaking should be a self-contained unit. 7.4 Now turning into the facts of the case, it is already noticed that the assessee is having three separate units, viz., a Manpower Training Division called "Gurukulam", a Consultancy Services Division and a Soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery of articles or things or computer software outside India or expenses, if any, incurred in foreign exchange, in providing the technical services outside India. 8.1 The assessee has paid in all the years under consideration certain amounts in US dollars to MCI World Com for the IPCL leased lines, which were used for communication between the assessee and its associate concern named Miracle Software, USA. The Assessing Officer has treated the said communication charges as the amount attributable for the delivery of computer software and has accordingly deducted the same from the "Export Turnover". The claim of the assessee before the tax authorities was that the amount so paid for IPCL leased lines are only communication expenses, i.e., they have been incurred for inter-office communication between Miracle Software, USA (Associated Company) and the assessee-company and there is no direct delivery expenses as the delivery is made by its associate concern in USA. However, the said claim did not find favour with the learned CIT(A) also. 8.2 However, in the assessment year 2005-06, the assessee contended before the learned CIT(A) that the impugned telecommunication charges sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10A, when restated in the above manner, would be as under : . . . The term 'export turnover' would then be a component or part of the denominator, the other component being the domestic turnover. In other words, to the extent of 'export turnover' there would be a commonality between the numerator and denominator of the formula. In view of the commonality, the understanding should also be the same. In other words, if the 'export turnover' in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the 'total turnover' in the denominator. Though there is no definition of the term 'total turnover' in section 10A, there is also nothing in the said section to mandate that what is excluded from the numerator (export turnover) would nevertheless form part of the denominator. One would have to apply consistent standard in understanding and applying a term, particularly when, such term, viz., export turnover has an independent function and at the same time a part of a larger term, viz., total turnover. Thus, if some expenses, for any reason are excluded in arriving at the export turnover, the same should be reduced from total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the total turnover should also not have the said inputs. In the circumstances, to include excise duty and sales tax for arriving at the total turnover, when sales tax and excise duty cannot form part of export turnover, would be illogical and arbitrary. Therefore, from the aforesaid discussion and the decisions rendered by various High Courts, we are of the view that the assessee should succeed in the alternative submissions made. Accordingly we direct the Assessing Officer to exclude the expenditure incurred in foreign currency by the assessee from the total turnover. It is ordered accordingly'." The view of the Tribunal stated above was consistently followed by the Bangalore Bench of the ITAT in the following cases also : (a) I-Gate Global Solutions Ltd. v. Asstt. CIT [2008] 24 SOT 3 (Bang.) (URO). (b) I Seva Systems Ltd. [IT Appeal No. 401 (Bang.) of 2007]. 8.4 We notice that the learned CIT(A), in the assessment year 2005-06, has accepted this claim of the assessee on the basis of the decisions of Bangalore Bench of ITAT and also by placing reliance on the decision of Hyderabad Bench of ITAT in the case of ITO v. D.E. Block India Software ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
