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TMI Blog2015 (7) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... to put forth his claim for warranty by virtue of the impugned orders where an order of remand was passed. The said order is in conformity with the law declared by the Apex Court in the case of Rotork Controls India (P) Ltd. v. CIT [2009 (5) TMI 16 - SUPREME COURT OF INDIA ] and therefore once a claim of warranty is made after undertaking the aforesaid exercise before putting forth a claim, we are satisfied from the material on record that the claim made by the assessee is in accordance with law and in accordance with the judgment of the Supreme Court and therefore no case for interference with the said order is made out much less for remanding the case to the Assessing Authority - Decided in favour of assessee. Entitlment to deduction under Section 80HHC - without including the sales tax and excise duty collected during the assessment year by the assessee when computing the total turnover before computing the deduction? - Held that:- The Apex Court in the case of CIT v. Lakshmi Machine Works [2007 (4) TMI 202 - SUPREME Court] held that the excise duty and sales tax cannot form part of turnover in the formula contained in Section 80HHC of the Act and therefore the order passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. Thereafter computer software is manufactured and then it is transmitted from India to a place outside India. The software Engineers deputed abroad who among other things have to do testing, installation and monitoring of software supplied to the client. Though the said services are technical in nature it does not fall within clause (ii) of sub-section (1) of section 80HHE of the Act of providing technical services outside India in connection with the development or production of computer software. It falls under sub-clause (i) of sub-section (1) of Section 80HHE of the Act. Therefore, the said expenditure cannot be excluded in computing export turn over. In that view of the matter we do not see any merit in this appeal. Accordingly, the said question of law is answered in favour of the assessee Whether the Tribunal was correct in holding that Scrap Sales Turnover cannot be included in the total turnover for the purpose of computation of deduction under Section 80HHC and 80HHE of the Act? - Held that:- In the instant case the assessee is in the business of export of computer software. For the purpose of Section 80HHC of the Act the income generated from the sale of scrap cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80HHC was not allowable? (6) Whether the Tribunal was correct in holding that the assessing officer cannot exclude expenditure of ₹ 3,80,55,766/- incurred in foreign exchange for providing technical services in working out the export turnover as well as total turnover for the purpose of deduction under section 80HHE of the Act? (7) Whether the Tribunal was correct in holding that Scrap Sales Turnover cannot be included in the total turnover for the purpose of computation of deduction under Section 80HHC and 80HHE of the Act? On Substantial question Nos. 1 and 2 4. The Tribunal for the three assessment years held that the provision for warranty is an allowable expenditure as it is an ascertainable liability. However, the basis of ascertaining such provision has not been provided. Therefore, it directed the Assessing Officer to verify the basis for provision and in case the basis for provision is the same as in the last year, then the provision to that extent has to be allowed as the assessee has been allowed deduction as per the provision for warranty in the immediately preceding year. In para 28a of the impugned order, the provision of warranty for the period 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed before them at pages 193 to 194 of the paper books the details of methodology of making impugned provisions. It is discernable that the assessee takes into consideration the past historical cost, cost escalation, length of warranty with regard to the equipment and spares, increase in volumes over such period etc. It is also clear that the actual expenses incurred on warranty are debited to provisional account and not to the Profit and Loss Account. On consideration of the entire facts and circumstances the provisions made reflect accrual of liability that the impugned provisions is computed on scientific and reasonable basis and hence they declined to interfere with the conclusions drawn by the first Appellate Authority which had granted the relief. This is the basis on which the assessee was expected to put forth his claim for warranty by virtue of the impugned orders where an order of remand was passed. The said order is in conformity with the law declared by the Apex Court and therefore once a claim of warranty is made after undertaking the aforesaid exercise before putting forth a claim, we are satisfied from the material on record that the claim made by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits and gains of business or profession , was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business.' 7. In the light of the aforesaid judgment of the Apex Court there is no merit in the appeal and the said substantial question of law is answered in favour of the assessee and against the revenue. On substantial question No. 5 8. In the assessee's case itself this Court in the case of CIT v. Motor Industries Co. Ltd., [2011] 331 ITR 79 held as under: that admittedly that the assessee was in the business of export of goods and merchandise. The assessee was earning foreign exchange out of that export business. The disputed income was earned by the assessee for its fees towards developmental work from the foreign enterprise. The developmental work was intimately connected with the business of manufacture and sale of goods by the assessee. There was immediate nexus between the activity of export and the developmental work. The consideration received for developmental work was not liable to be deducted under clause (baa) in computing the profits of the business. 9. In view of the aforesaid legal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . For the aforesaid reasons, we are of the view that the view expressed by the High Court is in conformity with the normal accounting practice followed by the traders, including the respondent - assessee and it was justified in coming to a conclusion that the proceeds generated from the sale of scrap would not be included in the total turnover .' 11. In the instant case the assessee is in the business of export of computer software. For the purpose of Section 80HHC of the Act the income generated from the sale of scrap cannot be included in the total turnover and that is precisely what the Tribunal had held. We do not see any error in the said finding. In view of the law declared by the Apex Court in the aforesaid judgment, the said question of law is answered in favour of the assessee and against the revenue. On question No. 6 12. This question is involved in all cases except for the assessment year 1995-96. For the assessment year 1993-94 the assessee claimed a sum of ₹ 1,29,02,817/-as the total export turnover. It included a sum of ₹ 62,70,232/- incurred in foreign exchange in providing the technical service outside India. The assessee claimed benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in foreign exchange. Further, a copy of software projects agreement entered into with M/s. Bosch was submitted. On perusal of the agreement and other details submitted, it is clear that the project is a combination of export of software and rendering technical services outside India in connection with the production of the said software. The software engineers who were deputed abroad, among other things did a testing, installation and monitoring of software supplied to M/s. Bosch. They had initial discussions with regard to requirements of specifications etc. these services are obviously technical services outside India in connection with the production of software. Therefore the expenditure incurred in foreign exchange in providing such technical services of outside India of ₹ 62.7 lakhs was excluded in computing the export turnover and total turnover for arriving at deduction u/s. 80 HHE. 14. The assessee preferred an appeal to the Commissioner of Income Tax (Appeals) against the said order. The Appellate Authority confirmed the said order. It is against the said two orders that the assessee preferred appeal to the Tribunal. The Tribunal, by following the judgment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of such services is to be excluded from the total export turnover. Therefore he submits that the Tribunal was not justified in holding that such expenses are not required to be excluded from the export turnover. Per contra learned counsel for the assessee contended that the assessee is in the business of export out of India computer software. It is not in the business of providing technical services outside India. However in connection with the business of export of computer software their Engineers visit the customer outside the country, have interaction, then come back and manufacture the computer software according to the client's specifications. Thereby when the software is exported out of India they undertake the responsibility of installing, testing and monitoring the said software. All that is done as a part of export of computer software and does not render technical service and therefore the expenditure incurred in foreign exchange in connection with the remuneration paid to the Engineers is not to be excluded from the export turnover and therefore he submits that no case for interference with the order passed by the Tribunal is made out. 16. Section 80HHE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certificate has been issued by the said company 16to such extent and for such years as specified in sub-section (1B). (1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of profits shall be an amount equal to- (i) eighty per cent of such profits for an assessment year beginning on the 1st day of April, 2001; (ii) seventy per cent thereof for an assessment year beginning on the 1st day of April, 2002; (iii) fifty per cent thereof for an assessment year beginning on the 1st day of April, 2003; (iv) thirty per cent thereof for an assessment year beginning on the 1st day of April, 2004, and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year. (2) The deduction specified in sub-section (1) shall be allowed only if the consideration in respect of the computer software referred to in that sub-section is received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1.-The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the exporting company containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the exporting company has not claimed deduction under this section : Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts of the exporting assessee under the provisions of this Act or under any other law. (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 under any other provision of this Act for the same or any other assessment year. Explanation.-For the purposes of this section,- (a) convertible foreign exchange shall have the meaning assigned to it in clause (a) of the Explanation to section 80HHC; (b) computer software means,- (i) any computer programme recorded on any disc, tape, perforated media or other information storage device; or (ii) any customised electronic data or any product or service of similar nature as may be notified by the Board, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exchange is deducted from the profits of the said business. In other words the assessee is not liable to pay any income tax on such consideration received from export of computer software. However the said export turnover does not include freight, telecommunication charges or insurance attributable to the delivery of computer software outside India or expenses if any incurred in foreign exchange in providing technical service outside India. In other words out of the said export turnover the following amounts have to be deducted; a. freight b. telecommunication charges c. insurance attributable to the delivery of computer software outside India; d. expenses, if any, incurred in foreign exchange in providing technical services outside India; 19. If the assessee is engaged in the business of providing technical services outside India in connection with the development or production of computer software then expenses if any incurred in foreign exchange in providing technical services outside India is liable to be deducted out of export turnover. The said provision has no application in the case of export out of India of computer software or its transmission from India ..... 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