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TMI Blog2013 (6) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... t 80HHE of the Act deduction should be allowed to the Assessee without excluding the foreign exchange expenditure incurred by the Assessee during the current assessment year? IN ITA No 2973 of 2005 1) Whether the Tribunal was correct in holding that 80HHE of the Act deduction should be allowed to the Assessee without excluding the foreign exchange expenditure incurred by the assessee during the current assessment year? 2) Whether the Tribunal was correct in holding that the expenses of Rs.15,89,613/- incurred by the assessee towards brick works, cement, plastering, painting walls, ceiling and providing and laying ceramic tiles, providing M.S. grill, internal sanitary fixtures, sewerage works, supply and fixing of water supply pipes on the leased premises would not amount to major repairs as held by the Apex Court in 224 ITR 414? 3) Whether the Tribunal was correct in holding that the expenses incurred for repairs and maintenance of leased premises for a period of six years should be treated as an allowable revenue expenditure under Section 30(a) of the Act, without taking into consideration the explanation which omitted capital expenditure from the purview of Section 30(a) of t ..... 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Indian company or a person (other than a company) resident in India, is engaged in the business of,- (i) export out of India of computer software or its transmission from India to a place outside India by any means; (ii) providing technical services outside India in connection with the development or production of computer software, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of the profits, referred to in sub-section (1B), derived by the assessee from such business : Provided that if the assessee, being a company, engaged in the export out of India of computer software, issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export specified therein, the deduction under this sub-section is to be allowed to a supporting software developer, then the amount of deduction in the case of an assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export, the same proportion as the amount of the export turnover specified in such certificate bears to the total export tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such benefit and to provide particulars and information, and the explanation to sub-section (5) provides the meaning for certain expressions used in the context of this section and for the present purpose what is in issue is the meaning of the phrase 'export turnover' as defined in clause-(c) of the explanation to Section 80HHE and the scope of the phrase 'total turnover' as defined as per clause-(e) of the explanation to Section 80HHE of the Act. 5. In so far as the present appeals are concerned, the dispute mainly relates to the quantification of the qualifying profits of the assessee attributable to its export activity as provided in the section itself and in arriving at this figure, particularly while computing the figure attributable to the export turnover and the figure attributable to total turnover, as the qualifying amount is that fraction to be arrived at by dividing the export turnover by the total turnover and the profit as arrived at by the assessee in general to be multiplied by this fraction. 6. The particular dispute in the present appeals revolves around the following amounts attributable to each of these appeals:- Assessment Years Total turnover in Rs. Expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emonstrated by the assessee as earnings from export of computer software and therefore rejected the stand of the assessee that the receipts are not attributable to an activity as envisaged in clause-(i) of subsection (1) of Section 80HHE of the Act, but on the other hand considered the amount as an expenditure incurred abroad in connection with rendering of technical services and therefore held that the amount of Rs 2,24,45,778/- should be excluded before arriving at the export turnover figure and so also the total turnover as envisaged in explanation to Section 80HHEE of the Act. 10. The appellate commissioner expressed the same view in the appeals of the assessee relatable to two following assessment years of 1994-95 and 1995-96 and by a separate order dated 15-11-2000 in the appeal of the assessee relating to assessment year 1996-97 also, the very reasoning was given to reject the stand of the assessee that the assessing officer was in error in deducting this amount while arriving at the figure of export turnover and total turnover. 11. For such purpose, the appellate commissioner looked into the materials placed before him, examined the nature of expenditures which the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export of computer software, while arriving at the export turnover and total turnover for the purpose of this section, there was no scope for deducting this amount from these two figures, as an exclusion of the kind of expenditure as contemplated only in a situation where it is an expenditure incurred in connection with providing technical service in relation to development of software and the assessee's case being one of export of software, there is no question of exclusion contemplated as per the very definition of export turnover in respect of the export of computer software being only in the nature of freight, technical charges or insurance attributable to delivery of computer software outside India and such expenses incurred in foreign exchange otherwise is not one to be excluded and therefore held that export turnover should be computed without excluding the amount which is in issue. The tribunal passed a common order in respect of the four assessment years and having opined in uniform that the exclusion of the amounts in question is not contemplated as per the definition of 'export turnover' and 'total turnover' under clauses (c) and (e) respectively of the explanation to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only an activity in the nature of export of computer software. It is therefore urged that reversing the finding of Appellate Commissioner and accepting the stand of the assessee that the amount in issue cannot be excluded from computing the export turnover and total turnover is a flaw, not tenable in law and the appeals deserve to be allowed. 15. Sri Indrakumar, learned senior counsel appearing for the appellants has also submitted that the appellate commissioner had remanded the matter to the assessing authority in respect of the expenses relatable to marketing activities and related branches and travel expenses and the Appellate Tribunal has committed an error even without taking note of this remand, in proceeding ahead and holding that the entire amount is not to be excluded. 16. On the other hand, Sri Percy Pardiwalla, learned senior counsel appearing for the respondent-assessee, has drawn our attention to the assessment order passed by the assessing officer and the manner of computation of relief by the assessing officer insofar as claim of the assessee under section 80HHE for the Act is concerned and has submitted that the assessee's claim before the assessing officer th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visaged in section 80HHE[1][i] of the Act. 19. Sri Indrakumar, learned senior counsel appearing for the revenue, in reply, has again drawn our specific attention to the order passed by the appellate commissioner and has pointed out to the portion of the order at page 66, wherein it is categorically held by the appellate commissioner that the activity of the assessee not being accepted to be as one of export of software, but is only one of providing technical services in connection with the production of computer software etc., and it is for this reason, the commissioner has also directed exclusion of the expenditure incurred on the personnel employed in connection with providing such services. 20. In so far as the provisions of the Act is concerned, the provisions of Section 80HHE do provide a benefit to an assessee to the extent of reducing from the taxable income of the assessee, an amount equivalent to the profits from the export of computer software etc., from the total taxable income of the assessee. Two situations are envisaged as indicated in clauses (i) and (ii) to sub-section (1) of Section 80HHE of the Act. The computation is as envisaged in sub-section (3) and for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etail, as the assessee in its appeal contended that no part of this amount could have been excluded in arriving at the export turnover. The appellate commissioner on examining the activities as revealed by the assessee before it and with only production of a specimen copy of the agreement that it enters into between its foreign collaborators either for sale of computer software or for providing technical services; opined that the activity is essentially in the nature of providing technical services abroad in connection with the production of computer software. The appellate commissioner did give some reasons indicating that transfer of ownership of the software does not take place immediately, but it is only after some time and subject to various other conditions and therefore was not a sale of computer software, in the sense, export of computer software etc. 23. In the further appeal of the assessee before the appellate tribunal, what we are clarified by Sri Indrakumar, learned senior counsel appearing for the revenue is that a copy of the agreement with one of the clients of the assessee which had been placed before the tribunal was an agreement of the year 2002 and submission o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction as claimed by the assessee under Section 80HHE of the Act should have been allowed without excluding the foreign exchange expenditure incurred by the assessee during the current assessment year. 26. Under the Act, the question arises for each of the assessment year and an answer on any disputed aspect has to be based on the material relevant and available for the accounting period corresponding to the assessment year in question. We are of the view that on an examination of a subsequent general form of agreement and to apply that to all situations irrespective of the factual situation and the activities of the assessee vis-à-vis its foreign corroborator who had remitted the foreign exchange to the assessee, is only a finding on assumption and presumption of a hypothesis. It is not a finding based on the relevant material. 27. In this view of the matter, we have to answer the questions in the negative by holding that the tribunal was not correct in answering the questions in favour of the assessee and against the revenue by reversing the decision of the appellate commissioner. But, we think, allowing the matter at this stage will not be doing justice or is fair e ..... 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