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TMI Blog2015 (9) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance attributable to the delivery of articles or things or computer software outside India or expenses if any, incurred in foreign exchange in providing the technical services outside India. The arithmetic consequential implication of such exclusion of the above stated expenditures from “export turnover” would be, to iron out the element of those expenditures, while computing the eligible deduction U/s. 10A of the Act. In the given case before us, the relevant expenditure that has to be excluded from the “export turnover” is “telecommunication charges”. Thus on giving effect to Explanation 2(iv) to Section 10A of the Act, the “telecommunication charges” should be excluded not only from “export turnover”, but it has also to be reduced from the “debit” side of “profit and loss account”. Moreover, once the “telecommunication charge” is reduced from the “export turnover”, it will stand reduced to that extend in “total turnover” because “export turnover” is a part and parcel of “total turnover” while drawing the “profit and loss account”. Further, needless to mention that “total turnover” is a “credit” side item in the “profit and loss account”. Thus, the overall effect in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion U/s.10A of the Act. 4. When the matter cropped up before the Ld. CIT (A) with respect to the first issue supra, the Ld. CIT (A) allowed the appeal of the assessee by relying on the decision of Chennai Benches of the Tribunal in the case Scientific Atlanta India Technology Pvt Ltd. Vs. ACIT ITA No.536/Mds./2007 dated 05.02.2010 reported in 38 SOT 252(Chennai). The relevant portion of the order is extracted herein below for reference:- 9. Arguing against these two adjustments, the AR relied on the decision of Scientific Atlanta India Technology P Ltd. v ACIT I.T.A. No. 536/Mds/2007 dt. 05/02/2010 and submitted the following observation of Hon'ble ITAT in the said case which is reproduced here below: 23. . . . . . From the reading of the section, it can be easily inferred that what is contemplated is only deduction of profits and gains derived by an undertaking from export of articles or things or computer software. The very fact that the s. 10A is brought under separate sub-heading and the specific word deduction is used in the section would go to show that the intention of the legislature was to give only deduction and not exclusion from total income. Of cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after). Even though it is a deduction to be given, it is to be deducted while arriving at the profits of business and profession and not from the gross total income as envisaged under Chapter VI-A. Thus, we hold that deduction under s. 10A under Chapter III of the IT Act is to be granted while computing the profits and gains of business and profession itself and not from the gross total income. 24. Having held it is only deduction let us now consider whether the provisions of s. 80AB of Chapter VI-A of the IT Act would be applicable. Sec. 80AB reads as follows:- 80AB. Where any deduction is required to be made or allowed under any section included in this chapter under the heading 'C-Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this chapter) shall alone be deemed to be the amount of income of that nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains derived by an assessee from an industrial undertaking to which the section applies shall not be included in the total income of the assessee. In other words, it is clear that the income derived from an industrial undertaking by the assessee to which s. 10A applies could not be included in the total income of the assessee. Once that is the case, the petitioner was right in filing the income by excluding the income of income in terms of s. 10A. In view of the above decision of the Bombay High Court also, we do not find force in the contention of the learned standing counsel that the decision rendered in the case of IPCA Laboratory Ltd. (supra) would be applicable. 25. Having held that the claim under s. 10A is only deduction and the same is not subjected to s. 80AB of Chapter VI-A, now, let us consider whether the deduction so to be given under s.10A is undertaking specific or otherwise. 26. It can be noticed from the language of s. 10A(1) that a deduction of such profits and gains as are derived by an undertaking qualifies under s. 10A is to be given from the total income. Interestingly, the legislature has mentioned the profits and gains as are derived by an unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as under :- Under the existing provisions of s. 10A, a deduction is given of 100 per cent of profits and gains from export earnings of new undertakings (emphasis, italicized in print, supplied) established in free trade zones, software technology parks, electronic hardware technology parks........... Para 19.4 of the said circular reads as under :- In view of the need for resource mobilisation in the short run, the Finance Act, 2002, seeks to restrict the 100 per cent deduction under ss. 10A and 10B, for one assessment year, i.e., 2003-04 to 90 per cent of such profits and gains as are derived by an undertaking from the export of articles or things or computer software. Further, it can be seen that nowhere it is mentioned in the section that such deduction is to be restricted to the total income of the assessee computed under the provisions of the Act, before allowing such deduction. On the other hand, wherever the legislature wants to restrict the deduction, it has provided such restriction. For example, we can mention s. 24 dealing with respect to interest as per the proviso to s. 24(b). 27. Having held that the deduction under s. 10A is not an exemption but onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as non-10A losses, it is essential to extract the provisions of sec.10A(8) here. 10A. Special provision in respect of newly established undertakings in free trade zone, etc. (1) . (8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnished to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to be him, the provisions of this section shall not apply to him for any of the relevant assessment years. 12. From the simple reading of the above provisions under sec 10A(8), it is inferred that any unit eligible for the benefits under sec 10A can opt out of the scheme for a particular year or years by filing a declaration. If such a declaration is filed by an assessee, the profits or losses of that year or years would be treated under normal provisions, that is, under Chapter IV of the Act. As such, under this scheme of S.10A(8), the assessee company had opted out of S.10A for the A.Y. 2003-04 and 2004- 05 by filing declarations along with the respective returns of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following decisions in support of its claim: DCIT Vs. M/s.Honeywell International India Circle (P) Ltd. -2013 TIOL- 269-ITAT-DEL-Income Tax-Sections 10A, 36, 92CA export turnover whether when telecommunication expenses excluded from the export turnover also needs to be excluded from the total turnover for computing deduction U/s. 10A whether computer peripherals from an integral part of the computer, eligible for the same rate of depreciation as the computer whether expenses incurred on training of employees has an enduring benefit and thus, not allowable as a revenue expenditure Revenue s appeal dismissed: The Karnataka High Court in the case of Dell International Services India Private Ltd and others has held that expenses reduced from export turnover should also be reduced from total turnover while computing the deduction U/s. 10A of the Income tax Act, 1961(the Act). The High Court has made reference to the decisions of Supreme Court in the case of Lakshmi Machine Works (290 ITR 667)(2007) and Cataphrama (India) P Ltd (2007) 292 ITR 641 (SC) in the context of section 80HHC of the Act, the Bombay High Court in the case of Gem Plus Jewellery India Limited ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in providing technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula. The same analogy is applicable with respect to Section 10A of the Act. Let us examine this issue in another perspective. Sub section (4) to Section.10A stipulates that the profit derived from export of article of things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Thus, the eligible profit for deduction U/s. 10A would be:- Profit X Export turnover Total Turnover In this context, Explanation 2(iv) to Section 10A of the Act stipulates that export turnover does not include freight, telecommunication charges or insurance attributable to the delivery of articles or things or computer software outside India or expenses if any, incurred in foreign exchange in providing the technical services outside India. The arithmetic consequential implicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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