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TMI Blog2013 (11) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a course is fraught with serious aberrations, leading to deduction being allowed on non-eligible profits on one hand, and being denied on the eligible profit, on the other. Non-segregation of the profits on the basis of activity, or even broadly, i.e., on the basis of trading and manufacturing sectors, which we find to have been the legislative response in respect of the para materia provision of s. 80-HHC by Finance Act, 1990 and Finance (No.2) Act, 1991, which also bore a similar computation formula based on the ratio of the relevant turnover, introducing some segregation in the computation mechanism of s. 80-HHC(3) and, correspondingly, concepts such as 'adjusted profits' and 'adjusted total turnover'. The provision of s. 80-HHE(3), however, has remained unchanged, so that the structural infirmity obtains - It was this rationalization that had guided the tribunal in interpreting the provision in a manner consistent with the intent of according the benefit there-under only to the profits from the specified, qualifying activity. The question of restricting the 'total turnover' to that of the eligible unit or business does not arise - A provision, even if beneficial, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the assessee's claim by taking into account the turnover of all the units of the appellant-company instead of the turnover of only the eligible unit, as being claimed by the assessee. In appeal in the second round, the ld. CIT(A) upheld the order of the AO. Aggrieved, the assessee is in second appeal. 4.1 Before us, the ld. AR relied on the decisions in the case of Mike Agencies (in ITA No.4205/Mum/1995); Datamatics Ltd. v. ACIT, 15 SOT 588 (Mumbai);CIT v. Rathore Bros , 254 ITR 656 (Mad); Wipro Ltd. v. DCIT , 96 TTJ (Bangalore) 211; and ITO v. Sak Soft Ltd, 121 TTJ (Chennai) (SB) 865, contending that the 'total turnover' for the purpose of computing deduction u/s. 80-HHE would be the 'total turnover of the eligible unit' and not the 'total turnover of all the units'. 4.2 The ld. CIT-DR, on the other hand, would submit that if the contentions of the assessee were to be accepted, the whole premise or basis of the allocation of profits, for arriving at the eligible profit u/s. 80-HHE, as prescribed per sub-section (3) thereof, would stand to be defeated inasmuch as only the turnover of the assessee's export unit, i.e., the export turnover, would be its total turnover, renderin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 80-HHE, the Revenue's case is that the expression 'total turnover' could not possibly be assigned different meanings in the context of different sections, particularly considering that they are para materia, and defined identically. The said expression has been understood in the context of s. 80-HHC in an inclusive manner, i.e., to include the entire turnover of the assessee, i.e., over all its different Units, and which has found acceptance by the higher courts of law. The deduction under section 80-HHC is, again, not unit specific, so that there is no occasion to limit the total turnover to only that of the eligible unit, but has to be considered qua an assessee, as in the case of s. 80-HHC, with there being nothing in the language of the section to suggest otherwise. As such, the question of restricting the 'total turnover' to that of the eligible unit or business does not arise. A provision, even if beneficial, is to be read only in terms of its language, which is clear and unambiguous. If the intention of the Legislature is not to be found in the statute, its edict, it is to be found nowhere else. This is more so as not so reading may lead to the provision of s. 80HHE(3) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India;" (e) "total turnover" shall not include - (i) any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28; (ii) any freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India; and (iii) expenses, if any, incurred in foreign exchange in providing the technical services outside India. " Our first observation in the matter is that the deduction u/s. 80-HHE, in contrast to that under sections 10-A, 10-B, 80-IA, 80-IB, 80-IA, 80-HH, etc. is not unit-specific, so that the assessee contending of the total turnover as being confined to that of its SEEPZ unit only cannot be accepted. The section nowhere speaks of the deduction as being qua a unit or undertaking, as in the case of some of the other sections referred to, but, as would be apparent from a reading of section 80-HHE(l), is with reference to the business of export (out of India) of computer software, including by way of transmission as well as toward providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 'total turnover' shall therefore have to be decided and adjudicated upon, i.e., the issue as enumerated. The two issues are, in fact, clearly inter-related. 5.3 In this context, we may firstly refer to the decision by the tribunal in the case of Tessitura Monti India (P.) Ltd. (in ITA No.7127/Mum/2010 dated 11.01.2013), where, in the context of section 10B, its stands held, while interpreting a similar apportionment formula in section 10B(4), that the purpose of such apportionment is toward limiting the qualifying profits to that derived from export. What would be these qualifying profits?. The deduction, sure enough, is not unit specific, but it is definitely business specific. Should not, therefore, only the profits of this business be considered, i.e., of the same generic business, the exports from which are liable for deduction under the provision, and to determine which, i.e., the profits as derived from the export activity, the said apportionment formula is being applied. That the export turnover is only of the computer software further lends credence to this proposition. In fact, it is this that has prevailed with the tribunal in the decisions relied upon by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res, assuming the turnover of such items by the assessee, in computing the 'total turnover' or the 'adjusted total turnover' u/s. 80-HHC as well? As such, drawing a correct parallel, so as to provide a meaningful and workable understanding to the provision, leads us to the concept or notion of the eligible business, i.e., the computer software business. Not so read, it may be appreciated, could lead to absurd results. Consider a case where the assessee is also in trading business (domestic or even export) with a huge turnover, albeit a marginal profit of (say) 1 %, as against a very healthy profit of (say) 50% in the computer software business. Considering the two together, as a literal interpretation would suggest, shall considerably dilute the benefit sought to be provided to the computer software activity (where in relation to export outside India). It may also be noted that this would also be contrary to the principle advocated in the case of Tessitura Monti India (P.) Ltd. (supra) that the turnover apportionment formula is only toward further restricting the qualifying profits to determine that derived from exports. It would also be in clear conflict with the intent of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (by Finance Act, 1990 w.e.f 01/4/1991, and by Finance (No.2) Act, 1991, w.e.f. 01.04.1992), that led the Legislature to effect wholesale changes in the said sub-section (3) thereof. The said changes must be considered as a legislative response to the said problem/s, which thus stand taken note of and considered. This would also meet the Revenue's reliance on the decision by the hon'ble Kerala High Court in the case of Parry Agro Industries Ltd. (supra), which clarifies that it is not possible to interpret the term 'total turnover' so as to exclude the turnover of some or any of the assessee's businesses, as that would amount to rewriting the Legislation, which the courts, not to speak of the tribunals, are incompetent to do. In fact, even granting that the hon'ble courts of law could do so, it is highly suspect if the tribunals could read down the law. However, it needs to be appreciated that the decision by the hon'ble High Court in the case of Parry Agro Industries Ltd. (supra) is for AY 1989-90, i.e., before the amendment afore-stated to sec. 80HHC(3), so that the Legislature had duly responded to address the genuine concerns of the trade as well as the anomalies that stood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of s. 80-HHE(3), however, has remained unchanged, so that the structural infirmity obtains. It is this rationalization that has guided the tribunal in interpreting the provision in a manner consistent with the intent of according the benefit there-under only to the profits from the specified, qualifying activity. Accordingly, it is only the profits of the assessee's computer software business, christened as 'the eligible business', that would stand to be apportioned u/s.80-HHE(3). As a natural corollary, it is only the total turnover of such eligible business that would stand to be taken in the denominator figure, with the export turnover having been already defined to be the qualifying export turnover of such business only. The assessee's manner of computation of deduction u/s. 80-HHE, thus, merits approval. We may before parting with the order, also clarify that in arriving at the said decision, we have duly perused and considered all the decisions cited by both the parties, even as a specific reference to some of them may not have found place in our discussion, finding it as being covered by the ratio of other decisions, or as being not directly on the point. No inferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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