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TMI Blog2013 (1) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... s [2011 (8) TMI 782 - KARNATAKA HIGH COURT] while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded from the total turnover in the denominator. When the statute prescribed a formula and in the said formula, ‘export turnover’ is defined, and when the ‘total turnover’ includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. Thus, there is no error committed by the Tribunal in following the judgements rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same - Thus CIT(A) was justified in directing the AO to exclude the above mentioned expenses both from the export turnover as well as from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejected. Further in the light of the ratio of decision of Hon ble High Court of Karnataka above mentioned no comments/counter arguments for the case laws mentioned by the assessee is deemed necessary . 3.2 The submission of the assessee that it had opted out of section 10A benefit and had submitted declaration under section 10A(8) of the Act in respect of the earlier assessment years in which the Bangalore Unit of the assessee had incurred loss, was rejected by the Assessing Officer, since according to him, the letters of the assessee company dated 28/10/2004 and 30/10/2004 claimed to have been filed, did not bear the seal of the Assessing Officer s office. Hence, according to the Assessing Officer, the assessee s filing the above declaration could not be accepted and hence, the assessee s contention with regard to declaration filed for opting out of 10A scheme by invoking the provisions of section 10A(8), was rejected. 3.3 Aggrieved by the assessment order, the assessee carried the matter in appeal before the first appellate authority. 3.4 The CIT(A) partly allowed the appeal of the assessee. The CIT(A) directed that the loss of the non-STPI unit (Mumbai Unit) amounting to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t form part of the total income i.e. income of the 10A unit has to be excluded before arriving at the gross total income and hence the brought forward loss cannot be set off under section 72 against the income of the 10A unit before the 10A deduction is claimed. Deduction under section 10A from total income cannot be equated with deduction under Chapter VIA. He ought to have appreciated that the main object of section 10A was not to tax profits from export oriented units. v) The learned CIT(A) also erred in holding that the decisions of the Hon ble Bangalore Tribunal in the following cases are not applicable to the case of assessee company: - Yokogawa India Ltd. - Aditi Technologies Pvt. Ltd. - Nous Infosystems Pvt. Ltd. - Scientific Atlanta India Technology Pvt. Ltd. - SCT Software Solutions (I) Pvt. Ltd. 3.6 The learned AR submitted that the issue in question is squarely covered by the Hon ble jurisdictional High Court in the case of CIT v Yokogawa India Ltd. (2012) 341 ITR 385 (Kar.). According to the learned AR, the main reasoning for the judgment of the Hon ble jurisdictional High Court in the case of CIT v Yokogawa In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B, cannot be made applicable to the present case; iv) Also, the various case laws relied by the Hon ble HC in Himmatsingke pertain to deduction under Chapter VIA. The judicial principles rendered in the context to Chapter VIA cannot be considered for deduction under section 10A; v) The decision did not take into consideration the decision of Hon ble Bombay HC and also of the same court in HMT. It was submitted by the learned AR that the Hon ble High Court in the case of Yokogawa, encompasses batch of cases wherein the case of Intellinet (supra) of the Tribunal was reversed and decided in favour of the assessee. It was submitted that the order of the Tribunal in the case of 24/7 (supra), which was in favour of the assessee, was affirmed by the Hon ble High Court. With regard to the submission on declaration of 10A(8), it was submitted as follows:- The implication of declaration under section 10A(8) is that a 10A unit, if it incurs losses, can file the declaration thereby opting out of the 10A scheme for that year. So, if the declaration is filed, it will be treated as non-10A unit for the year. So, a unit can be either a STP unit or non-STP unit, by filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard the rival submissions and perused the materials available on record. The Hon ble jurisdictional High Court in the case of Yokogawa India Ltd. (supra) had held that deduction u/s 10B is allowable without setting off the brought forward loss and loss of the current year pertaining the other units. The Hon ble High Court was considering the following substantial questions of law:- (i) Whether the appellate authorities failed to take into consideration that the amendment to section 10A by the Finance Act of 2000 with effect from April 1, 2001, the deduction of profits and gains as earned by an undertaking from the export of articles or things or computer software is required to be allowed from the total income of the assessee and consequently the loss from the non-STP unit is required to be set off against the income of the other STP unit before allowing deduction under section 10A of the amended Act? (ii) Whether the Tribunal was correct in holding that the deduction under section 10A or section 10B of the Act during the current assessment year has to be allowed without setting off brought forward unabsorbed losses and the depreciation from earlier assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that though the assessee may be having more than one undertaking for the purpose of section 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income of the assessee. It is only after the deduction of the said profits and gains, the income of the assessee has to be computed. 32. The provisions of this sub-section will apply even in the case where an assessee has opted out of section 10A by exercising his option under sub-section (8). As discussed, it is permissible for an assessee to opt in and opt out of section 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the STP undertaking would suffer tax in the normal course subject to various provisions of the Act including those of Chapter VI-A. If in such a year, the assessee has suffered losses, such losses would be subject to inter source and inter head set off. The balance if any thereafter can be carried forward, for being set off against profits of the subsequent assessment years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as indicated above. ITA No.1207/Bang/2011 (Revenue s appeal) 5. The revenue has raised five grounds of appeal. Ground nos.1, 4 5 are general in nature and no specific adjudication is called for. Hence, the same are dismissed. 5.1 The remaining grounds, namely, ground nos.2 and 3 reads as follows:- 2) The learned CIT(A) erred in holding that the deduction under section 10A should be allowed in respect of profits of 10A unit without setting off of current year loss of any other non-10A unit while this decision runs contrary to the provisions of sec.70, 32(2) and 72 of the I T Act, 1961. 3) The learned CIT(A) erred in holding that expenditure of Rs.2,31,06,882/- towards telecommunication expenses, Rs.3,30,61,328/- towards travel expenses incurred in foreign currency are to be excluded from total turnover as well whereas such exclusion is permitted to arrive at the export turnover only as per the definitions given in sec.10A of the Act and total turnover has not been defined in the section. Ground No.2 is linked to assessee s appeal (ITA No.1187/Bang/2011) 5.2 Brief facts in relation to the above ground read as follows:- The assessee had claimed deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. 5.9 We have heard the rival submissions and perused the materials on record. The Hon ble jurisdictional High Court in the case of Yokogawa India Ltd. (supra) had held that deduction u/s 10A/10B is allowable without setting off the non-STPI unit. The Hon ble High Court was considering the following substantial questions of law:- (i) Whether the appellate authorities failed to take into consideration that the amendment to section 10A by the Finance Act of 2000 with effect from April 1, 2001, the deduction of profits and gains as earned by an undertaking from the export of articles or things or computer software is required to be allowed from the total income of the assessee and consequently the loss from the non-STP unit is required to be set off against the income of the other STP unit before allowing deduction under section 10A of the amended Act? (ii) Whether the Tribunal was correct in holding that the deduction under section 10A or section 10B of the Act during the current assessment year has to be allowed without setting off brought forward unabsorbed losses and the depreciation from earlier assessment year or current assessment year either in the case of non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submission and perused the material on record. The Hon ble Karnataka High Court in the case of CIT v M/s Tata Elxsi Ltd. Others had held that while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded from the total turnover in the denominator. The relevant finding of the Hon ble jurisdictional High Court reads as follows:- ..Section 10A is enacted as an incentive to exporters to enable their products to be competitive in the global market and consequently earn precious foreign exchange for the country. This aspect has to be borne in mind. While computing the consideration received from such export turnover, the expenses incurred towards 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 should not be included. However, the word total turnover is not defined for the purpose of this section. It is because of this omission to define total turnover , the word total turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. Thus, there is no error committed by the Tribunal in following the judgements rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same . 6.8 The Hon ble Mumbai High Court in the case of Gem Plus Jewellery India Ltd. (supra), in identical circumstances, held that since the export turnover forms part of the total turnover, if an item is excluded from the export turnover, the same should also be reduced from the total turnover to maintain parity between numerator and denominator while calculating deduction u/s 10A of the Act. The relevant finding of the Hon ble Mumbai High Court reads as follows:- The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided. Moreover, a receipt such as freight and insurance which does not have any element of profit cannot be included in the total turnover. Freight and insurance charges do not have any element of turnover. For this reason in addition, these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary CIT v Sudarshan Chemicals Industries Ltd. (2000) 163 CTR (Bom) 596: (2000) 245 ITR 769 (Bom) applied; CIT v Lakshmi Machine Works (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) and CIT v Catapharma (India) (P) Ltd. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) relied on 6.9 In the case of Sak Soft Ltd. (supra), the assessee was engaged in the business of exporting computer software and claimed deduction u/s 10B of the Act. In completing the assessment u/s 143(3) of the Act, the AO reduced the expenditure incurred in foreign exchange in providing the technical services outside India, from the export turnover without corresponding reduction from total turnover, thereby reducing the deduction claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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