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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 ..... g on the question as to whether the activity related to the first part of sub-section (1) of Section 80HHE or second part thereof and in the absence of the same, directing exclusion of the expenses becomes a hypothetical situation for excluding and it is because of this position Not agreed with the view that the 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. It is open to the assessee to place the materials relevant for the period related to the assessment year in question and the assessing officer to examine the same and to record a finding as to the nature of the activity keeping in view the legal position as we discussed above and answer the question related to exclusion of expenses strictly keeping in view the kind of amounts sought to be excluded in the case of export turnover being attributable to export of computer software, in which event, the exclusion being only freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India and if it is the case of providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal 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 the Act and the Explanation being only explanatory was always retrospective? 4) Whether the Tribunal was correct in holding that the contributions made to Traffic Police, Bangalore, to regulate the traffic on Hosur Road, of a sum of Rs.6.93 lakhs was out of business compulsions and commercial expediency and therefore allowable under Section 37 of the Act? 5) Whether the Tribunal was correct in allowing deduction in respect of payments made to police for maintaining traffic without taking into consideration and appreciating that the police were public servants discharging public duty being State Government servants and any payment received to discharge such a public duty is prohibited under law and which is also an offence as per the Indian Penal Code and the Prevention of Corruption Act and therefore, cannot be allowed as a deduction as per Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 turnover of the assessee. Explanation.-For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. xxx (3) For the purposes of sub-section (1), profits derived from the business referred to in that sub-section shall be the amount which bears to the profits of the business, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. xxx (5) Where a deduction under this section is claimed and allowed in respect of profits of the business referred to in sub-section (1) for any assessment year, no deduction shall be allowed in relation to such profits un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount 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. Expenditure in foreign currency other than on marketing offices 1993-94 14,52,14,229 2,24,45,978 1994-95 30,08,47,456 7,43,70,642 1995-96 57,70,42,862 10,56,81,309 1996-97 93,41,33,705 15,72,61,058 particularly, as the assessee had indicated that from out of its business activities in supplying software products to its customers abroad, it had incurred expenditure as indicated in column (3) of the above table for each of the assessment years and also indicated that it was on the activity other than marketing offices. 7. The assessee had claimed the benefit under Section 80HHE of the Act on the premise that it had sold software products to its foreign buyers and therefore claimed the benefit in terms of clause-(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee had claimed as under:- i. Overseas Sales (Non Marketing) 2,24,45,978 ii. Overseas Sales (Marketing) 99,78,874 iii. Marketing branch expenses 4,13,515 iv. Travel expenses (Marketing) 3,66,725 and opined that as the assessee had admitted the expenses attributable to overseas sales (non-marketing), is a considerable figure at Rs 2,24,45,978/-, it is impliedly an expenditure incurred for rendering technical services and therefore requires to be excluded from the total turnover and export turnover. In so far as other three items are concerned, the matter was sent back to the assessing officer with a direction to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges 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 Section 80HHE of the Act, the revenue is aggrieved by this order of the tribunal and is in appeal before this court, as noticed earlier, raising the questions of law as already referred to above. 13. It is in this background, the appeals are examined. 14. Appearing on behalf of the appellant-revenue, Sri E R Indrakumar, learned senior counsel, has taken us through the provisions of Section 80HHE of the Act as also familiarizes us with the definition of export turnover and total turnover and submits that the tribunal has without any rhyme or reason and without any material before it, has reversed the finding recorded by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that its activity is only one for producing software and even development of onsite software is also on a par with the export of computer software and therefore would fall only under clause[i] of sub-section [1] of section 80HHE of the Act. 17. Sri Percy Pardiwalla, learned senior counsel, has placed reliance on the amendment to this section by introduction of explanation to Section 80HHE of the Act with effect from 1.4.2001 by Finance Act 2001 and the follow up board circular No.3/2004 dated 12.2.2004, clarifying the scope of this amendment and the manner in which the explanation is to be understood and submits that the ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred 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 purpose of such computation, while a formula is envisaged in this section one has to understand the phrases export turnover and total turnover , which are the key figures. It is to be found in the explanation to sub-section (5). The controversy though is mainly in computing these two figures, on a proper understanding of the provisions, we find there is no much difficulty, in the sense, that the amount to be arrived at as export turnover is in so far as the actual export or deemed export of computer software is concerned, and it is the corresponding received by the assessee in convertible foreign exchange as per subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on behalf of the assessee was that all earlier agreements were also of the same type. The tribunal proceeded to examine not only a general specimen copy of the agreement, which, it is claimed, had been produced before the appellate commissioner, which was also available before the tribunal but the further agreement of the year 2002, which was placed before the tribunal for the first time by the assessee and based on this, opined that the activity of the assessee should be taken to be only as one attributable to the export of computer software, because of on site development of software as envisaged in the explanation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee vis- -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 either to the assessee or to the revenue and particularly so, as the initial authorities were proceeded on the premise that the amount foreign exchange remittance is attributable to the activity in rendering technical services for production of software outside India and the tribunal took the other view viz., that the activities are in the nature of a deemed export of computer software. The question was only limited to the extent of excluding the expenditure incurred and disallowing the claim of the assessee totally under Section 80HHE of the Act. It is only with regard to the amount of Rs 3,36,99,093/- the dispute as to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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