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TMI Blog2010 (11) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... the business carried on by the “Undertaking” only - The amended section is applicable for the years under consideration The claim of the assessee is that if the communication expenses incurred by it are to be reduced from the export turnover; it should also be reduced from the total turnover also - 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 Ltd. [IT Appeal Nos. 893 and 894 (Hyd.) of 2006], wherein a similar view was expressed In the result, all the three appeals of the assessee and the appeal of the revenue for the assessment year 2005-06 are treated as partly allowed for statistical purposes- The appeal of the revenue for the assessment year 2004-05 is allowed - 195, 229 and 409 (VIZAG) OF 2007 AND 476, 495/2008 - - - Dated:- 24-11-2010 - SUNIL KUMAR YADAV, B.R. BASKARAN, JJ. Y. Suryachandra Rao for the Appellant. T.L. Peter for the Respondent. ORDER B.R. Baskaran, Accountant Member. All these appeals are directed against the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the components of receipts that should form part of the Profits of Business , Export Turnover and the Total Turnover and the same has led to the difference in the quantum of deduction that was worked out by both the parties. It is pertinent to note that the term Export Turnover only has been defined under section 10A and the other two terms have not been defined in that section or in the definition section of the Act. In view of the above, we proceed to resolve the dispute with regard to the meaning of the terms Profits of Business ; Total Turnover and Export Turnover . 4. The dispute between the parties on the meaning of the term Profits of Business is with regard to the interest received from Bank deposits and other income. The assessee claimed before the learned CIT(A) in assessment years 2003-04 and 2004-05 that the said receipts should be included in the profits of business. However, the learned CIT(A) decided the issue against the assessee in the assessment year 2003-04 since the assessee had conceded before the Assessing Officer that they shall not form part of the Profits of Business . However, in the assessment year 2004-05, the learned CIT(A) decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first question is whether the interest received from bank deposits and other income shall form part of turnover or not. As stated earlier, in the assessment year 2003-04, the Assessing Officer had included the abovesaid receipts in the total turnover. However, in the succeeding assessment year 2004-05, the said receipts were not included in the total turnover. In the preceding paragraphs, we have already held that the receipts in the nature of interest from bank deposits and other income are assessable under the head Income from other sources . Since these receipts are not to be assessed under the Business head, in our view, they shall not form part of total turnover also. We order accordingly. 6. The next question is whether the deduction under section 10A is assessee specific or undertaking specific. The Assessing Officer is of the view that the deduction is assessee specific, whereas the claim of the assessee is that it is undertaking specific. If the said section is assessee specific, then the total turnover shall include the turnover from all the units and operations carried on by the assessee. If, however, it is held to be undertaking specific, then the total turnover sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be aggregated for arriving at the Total Turnover . It is pertinent to note that the Income-tax Act has not defined the term Undertaking . However, the Courts have interpreted the said term and the assessee has placed reliance on the decision of Hon ble Supreme Court in the case of Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195. The said decision has been rendered under section 15C of the 1922 Act. In that case, the assessee therein was entitled to a deduction under section 15C of the 1922 Act in respect of the new unit established for manufacture of articles. The Hon ble Apex Court had the occasion to dwell upon the meaning of the term Undertaking and the relevant observations of the Hon ble Apex Court are extracted below : It is clear that the principal business of the assessee is heavy engineering in the course of which it manufactures boilers, wagons, etc. If an industrial undertaking produces certain machines or parts which are, by themselves, identifiable units being marketable commodities and the undertaking can exist even after the cessation of the principal business of the assessee, it cannot be anything but a new and separate industrial undertaking t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Cotton Mills Ltd. [1999] 240 ITR 4341 in the context of section 80J of the Act. The relevant observations of the said Court are extracted below : There is, thus, no requirement in section 80J of the Act that the undertaking in respect of which the deduction can be claimed must have been set up as an independent unit. As noticed earlier, the unit being independent by itself will not entitle such a unit to claim the benefit. The essential requirement for claiming the benefits under the provision is the installation of plant and machinery and the manufacture or production of articles with the aid of such plant and machinery. The plant and machinery so installed is not to be the plant and machinery transferred from an existing business. The requirements of the section are met if the assessee is able to demonstrate that the assessee has established an industrial undertaking which manufactures or produces article with the aid of plant and machinery newly installed in that undertaking. The term industrial undertaking is not defined in section 80J of the Act. The word undertaking is not to be equated with the legal entity which may own undertaking. A single legal entity may own an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute with regard to the fact that the software division located at Bhogapuram is a self-contained unit, having all the required infrastructure to be called as an Undertaking . In any case, the Learned Authorised Representative has submitted that the assessee has obtained separate Central Excise Registration Number for that division and further the said division has been acknowledged by the Ministry of Commerce Industry as the Information Technology Enabled Services unit. Hence, considering the decisions of Hon ble Courts extracted above with regard to the meaning of the term undertaking, we hold that the software division of the assessee-company located at Bhogapuram has to be taken as a separate undertaking for the purpose of calculating deduction under section 10A of the Act and consequently, we hold that the turnover pertaining to the other two units should not be included in Total Turnover for the purpose of calculation of deduction under section 10A of the Act. 8. The next point of difference is with regard to the meaning of the term Export Turnover . The said term has been defined clause (iv) of Explanation 2 to section 10A and the same is extracted below : ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in this regard the assessee has placed reliance on the decision of Hon ble Supreme Court in the case of NTPC Ltd. v. CIT [1998] 229 ITR 383. Having regard to the submissions made by the assessee, we admit the additional ground raised by the assessee in the assessment years 2003-04 and 2004-05. The point of disagreement with regard to the term Export Turnover gives rise to the following two questions : (a) Whether the telecommunication charges incurred by the assessee should be deducted only from export turnover or both from export turnover as well as total turnover ? (b) Whether the telecommunication charges incurred by the assessee can fully be attributable to the delivery of software ? 8.3 We have already noticed that the term Export turnover has been defined in section 10A of the Act; however, the term Total turnover has not been defined in that section. The claim of the assessee is that if the communication expenses incurred by it are to be reduced from the export turnover; it should also be reduced from the total turnover also. The said claim is based on the reason that both the numerator and denominator in a formula should be of same category and should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cal.) 432 : [2002] 256 ITR 625 (Cal.); (iii) CIT v. Bharat Earth Movers Ltd. [2004] 188 CTR (Kar.) 488 : [2004] 268 ITR 232 (Kar.); (iv) CIT v. Lakshmi Machine Works [2007] 210 CTR (SC) 1 : [2007] 290 ITR 667 (SC); (v) CIT v. Lotus Trans Travels (P.) Ltd. [2007] 207 CTR (Delhi) 105 : [2007] 290 ITR 1(Delhi). 11(a). In the case of CIT v. Sudarshan Chemicals Industries Ltd. (supra) at p. 773 the Hon ble Bombay High Court held as under : Further, the meaning of export turnover in clause (b) of Explanation to section 80HHC, therefore, clearly shows that export turnover did not include excise duty and sales tax. The export turnover is the numerator in the above formula whereas the total turnover is the denominator. The above formula has been prescribed to arrive at the profits from export. In the circumstances, the above two items, namely, sales-tax and excise duty cannot form part of the total turnover. In fact, if the denominator was to include the above two items and if the numerator excluded the above two items then the formula would become unworkable . 11(b). In the case of CIT v. Chloride India Ltd. (supra) at p. 630, the Hon ble Calcutta High Court held as under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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