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TMI Blog2013 (2) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... Exclusion of telecommunication expenses from the total turnover - Held that:- As decided in CIT and another v Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] there should be uniformity in the ingredients of both the numerator and the denominator of the formula. It is intended to provide incentives to promote exports. 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 export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover - in favour of assessee. Disallowance of set off of carried forward losses and unabsorbed Depreciation prior to allowing deduction under section 10B - Held that:- As decided in Yokogowa India Ltd. [2011 (8) TMI 845 - KARNATAKA HIGH COURT] deduction under section 10B is to be granted prior to setting off of brought forward business loss and unabsorbed depreciation. No brought forward depreciation - Held that:- As the assessee has vouched a sum available as brought forward depreciation for the relevant assessment year & had filed a comprehensive statement of available unabsorbed depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance of Rs.75,46,693/-". 3.2 On further appeal, the first appellate authority allowed the claim of the assessee by treating the said expenses as revenue expenditure. The relevant finding of the CIT(A) reads as follows:- 6.3 I have examined the claim of the appellant. The software purchased is in the nature of application software, the licenses for which enable the holder to exercise the right to use the software. However, I also find that with effect from the assessment year 2003-04, computer software is includible in the block of computers for depreciation purposes. The application software has the function of increasing the capacity and functionality of the computer system which is a capital asset. It is thus a part of the computer system apparatus. It is a tangible asset and a goods as held by the Ld. Supreme Court in the case of Tata Consultancy Services v State of Andhra Pradesh (2004) 271 ITR 401 (SC). The High Court in Arawali Constructions Co. Pvt. Ltd. (2003) 259 ITR 30 (Rajasthan) found that software is in the nature of technical know-how and required to be treated as capital expenditure. However, in the present case before us, the life of the license is state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ria. In the instant case, the assessee had wherever the computer software license has an enduring benefit, had treated the same as capital expenditure and capitalized in the books of accounts. In the concerned year, an amount of Rs.15,81,96,506/- was capitalized on account of purchase of computer systems including computer software. 3.5.2 The Hon ble High Court of Karnataka in the case of CIT and Another v Toyota Kirloskar Motors Pvt. Ltd. reported in 349 ITR 65 had held that when the life of a computer software is less than two years and the right to use it is for a limited period, the fee paid for the acquisition of the right is allowable as revenue expenditure and if the software is licensed for a particular period, fresh license fee is to be paid for utilizing it for subsequent years. Therefore, without renewing the license or without paying the fee for such renewal, it is not possible to use the software. In such circumstances, the fee paid for obtaining the software and the licence for renewing it was revenue expenditure . In the instant case, the license fees paid was for renewal of the usage of software and for a limited period for less than two years. Hence, following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover also. Ground No.8 : The CIT(A) erred in following the High Court order and created a new law rather than interpreting the existing statute. 5.1 The assessee had claimed deduction under section 10B of the Act amounting to Rs.83,20,34,709/-. The Assessing Officer while completing the assessment, recomputed the deduction under section 10B of the Act by excluding the expenses under the head communication charges incurred in foreign currency to the tune of Rs.12,20,772/- from the export turnover for making a corresponding deduction in the total turnover. As a result of the re-computation of deduction under section 10B of the Act, the same was reduced to Rs.83,18,49,254/- as against the assessee s claim of Rs.83,20,34,709/-. 5.2 Aggrieved by the re-computation of deduction, the assessee carried the matter in appeal before the first appellate authority. 5.3 Before the first appellate authority it was submitted that the expenses of Rs.12,20,772/- being telecommunication charges incurred in foreign exchange ought not to have been reduced from the export turnover while computing deduction under section 10B of the Act. Alternatively, it was submitted, if the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of section 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in section 10-A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. To the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. 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 export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to the current year and sought to set off the same against the income of the current assessment year. 6.2 The first appellate authority by following the judgment of the Hon ble jurisdictional High Court in the case of Yokogowa India Ltd. reported in 341 ITR 385, allowed the appeal of the assessee. It was held that 10A deduction is to be allowed prior to setting off of the brought forward business losses and unabsorbed depreciation. 6.3 We have heard the rival submissions and perused the materials on record. It is a settled position of law that the claim of deduction under section 10B is to be granted prior to setting off of brought forward business loss and unabsorbed depreciation. The Hon ble jurisdictional High Court in the case of CIT v Yokogowa India Ltd. (supra) had held as follows:- .Similarly, as per section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year s depreciation under section 32(2) is to be set off. As deduction under section 10A has to be excluded from the total income of the assessee the question of unabsorbed business loss being set off against such profit and gains of the under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 : The learned CIT(A) is not justified in upholding of the action of the learned DCIT in reducing certain expenses (expenditure incurred in foreign currency and communication expenses) from export turnover for the purpose of computation of deduction under section 10AA of the IT Act. 7.1 The facts relating to the first ground, in brief, are as follows:- The assessee is a company engaged in software development and allied services. For the concerned assessment year 2007-08, a return of income was filed on 31/10/2007 declaring a total income of Rs.1,63,73,610/- after claiming deduction under section 10B amounting to Rs.83,20,34,709/-. While completing the assessment, the Assessing Officer re-computed the deduction under section 10B of the Act by excluding from the export turnover a sum of Rs.12,20,772/- being telecommunication expenses incurred in foreign exchange. The Assessing Officer, however, did not reduce the same expenses from the total turnover while computing deduction under section 10B of the Act. 7.2 On appeal, it was pointed out by the assessee that the expenses of Rs.12,20,772/- ought not to have been reduced from the export turnover while computing deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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