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TMI Blog2016 (11) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... refore in our considered opinion, the assessee is entitled for deduction under section 10A of the Act. In prior assessment years, the Assessing Officer has accepted the claim of the assessee and deductions have been allowed. In the year under consideration, there is no change in the business activity of the assessee, thus, in our view, the principle of consistency also demand that this deduction should be allowed to the assessee. Whether if the deduction under section 10A of the Act is allowed to the assessee, then the export turnover for computation of deduction under section 10A should be reduced by the communication and insurance expenses? - Held that:- In the case of the assessee, the expenses on communication and insurance have not been incurred in foreign exchange and also not included in the invoices issued to the foreign customer. Apropos the above discussion, since the assessee has not charged the expenses on telecommunication and insurance from its customers, the same are not required to be excluded while computing the export turnover for the purpose of determining deduction u/s 10A of the Act. Once, the telecommunication insurance expenses are not part of export turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment of India. In the return of income filed on 28/09/2008, the assessee declared income of ₹ 10,125/-. This return was revised subsequently. In the return of income filed, the assessee claimed deduction amounting to ₹ 63,18,643/- under section 10A of the Income Tax Act, 1961 (in short the Act ). The Assessing Officer did not find clarity in respect of the actual outsourcing activity as it was worded differently in the report filed under section 92E in form No. 3CEB (Business Process Management and Call Centre services), Tax Audit Report in form No. 3CD (Business of Outsourcing Services related to global consumer and commercial collection and debt recovery) and in the submission dated 21st of October, 2010 made before the Assessing Officer (BPO Services related to accounts receivable and recovery management) and, therefore, he asked the details of actual services rendered by the assessee and whether the calls made for recovery of debts were manual or computerized. In response, the assessee submitted that the services rendered by the assessee company were generally in the nature of outbound call centre activities for debt and mortgage collection and data entry funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices rendered by it and why the same fall in the definition of the computer services before the learned Commissioner of Income-tax (Appeals), who reproduced the same in the impugned order as under: 2.1 It is submitted that the Appellant is a service provider for its group company, Chex Systems Inc, USA ( CSI ). A copy of agreement of the Appellant with CSI which was placed on record before the Ld. AO is placed as Annexure 1 of the Paper book. The services rendered by the Appellant are generally in the nature of outbound call centre activities for debt and mortgage collection and data entry functions for CSI s international customers. CSI provides all technical information utilized by the Appellant in the provision of the required services to CSI which is available to the Appellant on its computer systems connected through dedicated internet data lines. The activities undertaken by the Appellant for proving the services are as under: Financial Institutions ( FIs )based in USA (who are customers of CSI) report debt accounts through a web application known as CCC (e-access) which is assessable to CSI which in-turn provides access of the said, information to the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stem which is transmitted to the customer outside India electronically using the internet system. Also, after the recovery is made, the system is updated based on the collections and the said information is transmitted to the customer electronically using the internet system. From the above, it is submitted that sophisticated softwares are used at each and every process right from accessing the information regarding debtors on a real-time basis, making calls to the debtors, updation of the system regarding collection, etc. 2.2 It is pertinent to mention here that the Ld. AO while disallowing the deduction under section 10A claimed by the Appellant has alleged that the Appellant does not fulfill the essential condition of a customized electronic data to fall in the definition computer software . It has been further alleged that by the Ld. AO that the Appellant only takes the information relating to the international customers from CSI to make calls to them and there is no customized electronic data which is being prepared and sent to CSI. It is submitted that it is evident from the aforesaid activity undertaken by the Appellant that customized electronic data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the undertaking of the Appellant in Mumbai is registered under the Software Technology Parks of India ( STPI ) scheme formulated by the Government of India for the development of computer software/IT enabled services on 8 June 2004. The copy of the said permission and transfer intimation issued by the STPI Authority, Mumbai duly highlighting that the nature and activities of the assessee company have been examined and accepted as IT Enabled Services which was placed on record before the Ld. AO (please refer 2 of the Paper book). It is submitted that the STPI authority is the authority which makes an in-depth verification while accepting that the nature of services of any unit to be an IT enabled service provider for the purpose of granting approval for operating a STP unit. Also, the eligible unit is required to file return of its activities and other details with the STPI authority. The return filled for the year under consideration submitted before the Ld. AO and placed as Annexure 3 of the Paper book. The said STPI return submitted by the Appellant duly states that the core business area of the assessee company is BPO Call Centre and there has been no adverse inference eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity for operations. 3.2 The assessee also submitted before the learned Commissioner of Income-tax (Appeals) why its activity are in the nature of call centers, as under: 2.5 The Ld. AO disregarded the submissions made by the Appellant and held that that the activities of the Appellant is not eligible for deduction under section 10A of the Act since the internet data lines used by the Appellant in connection with its business of providing call centre services are only a communication channel and communication device and mere change of communication channel from telephone line to Internet line cannot be regarded as usage of computer software for provisioning of the said service. This is disregarding the fact that the Appellant is engaged in outbound call centre activities for debt collection and there is no dispute thereon. Also, CSI provides all technical information utilized by the Appellant in the provision of the services which is available to the Appellant on its computer systems connected through dedicated internet data lines. The detail of the business process and the usage of the software and technology is elaborately discussed above. The Appellant would not be ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior Departmental Representative relying on the order of the Assessing Officer submitted that the activities of the assessee were not in the nature of call centre and, therefore, the assessee was not entitled for deduction under section 10A of the Act and accordingly submitted that order of the learned Commissioner of Income Tax(Appeals) might be set-aside and the order of the Assessing Officer might be restored, and the appeal of the Revenue might be allowed. 4.2 On the other hand, the learned Authorized Representative for the assessee filed paper book containing pages from 1 to 268, reiterating the submission made before the learned Commissioner of Income Tax (Appeals), as under: (i) that the call made by the STPI unit of the assessee, are being dialled by the Predictive Dialler Software and when the software detects a human voice at the other end, the call is automatically connected by the software to any available collector who would be able to view the particulars of the relevant debtor to whom the call is connected by the Predictive Dialler Software on the computer screen. (ii) that No call Centre can work without human intervention (iii) that the unit of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f stated that Appellant is engaged in the provision of services in the sphere of managing accounts receivable and recovery. The ASSHSSING OFFICER further admits that the Appellant is making calls to CSI s International customers, however the ASSESSING OFFICER disputes that the appellant was not using any computer software in the process of making outbond calls to its customers, therefore deduction u/s 10A was disallowed. b. The contention of the ASSESSING OFFICER that there is no application of any computer software whatsoever neither for data processing nor for making any such computerized calls is not correct. The appellant has described in his submission reproduced above wherein it has stated that appellant is using sophisticated software like web application CCC(e-access), AS400, TCS, Predictive Dialler Software, etc. at each and every process right from accessing the information regarding debtors on a real-time basis, making calls to the debtors, updating the system regarding collection, transmitting the information to the customers electronically, etc. The use of all these software in the business process has been elaborately explained by the appellant. Thus, it makes c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction u/s 10A. To this also I do not agree with the contention of the ASSESSING OFFICER. Since the Appellant has been using sophisticated software in carrying out its business activities and the same is discussed in detail above. It has been observed that after the call, the personals of the Appellant collect inputs of the relevant information obtained from the debtor of the US Financial Institutions in the real-time system and then transmit the same to the customers outside India electronically using the internet system. Thus, customized data are being transmitted electronically to the customer of the Appellant. In this regard the reference can be made to the decision of Hon ble ITAT Chennai in the case of ITO v. Accurum India (?.) Ltd. [2010] 126 IT'D 69 (CHENNAI) (TM) wherein it has made important observation in respect of customized electronic data as under: The requirement of the provision is that there should be a customized electronic data and such data should be exported outside India The data which a customer may require, may be gathered either by manual effort or by electronic means, as for example, through internet. By whatever means the data is collecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Appellant has been placed on record before me. It is also seen that the nature of business activities of the Appellant remains the same in the year under appeal as well as in the earlier assessment years i.e. 2006-07 and 2007-08. Thus, the Appellant is eligible for deduction u/s 10A of the Act. The ASSESSING OFFICER is directed to allow deduction under section 10A of the I.T. Act, 1961 to the Appellant. 4.4 According to the Assessing Officer there is no application of any computer software either for the data processing or for making computerized calls. But this contention of the Assessing Officer is not found to be correct as assessee has shown use of sophisticated software like web application CCC (e-access), AS400, and particularly Predictive Dialer Software for making outbound calls. The learned Authorized Representative has further explained that the Predictive Dialer Software has a web application interface for the personal login and start receiving calls and thus we find that the call dialing is not done manually and calls are being dialed by the Predictive Dialer Software using Internet facility. 4.5 We find that call Centre activity is specifically c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2 Submission of the appellant During the year under consideration, the Appellant incurred telecommunication and insurance expenses amounting to ₹ 14,38,863 and ₹ 20,632 respectively. The break-up of the telecommunication expenses incurred by the Appellant (and duly submitted before the Id. AO during the course of assessment proceedings are as under: Nature Total(in Rs.) Voice Lines expenses 1,000 Date Lease Lines 14,24,413 Telephone expenses 13,450 Grand Total 14,38,863 The insurance expenses amounting to 20,632 relates to the insurance of the assets of the Appellant. The telecommunication and insurance expenses were incurred by the Appellant during the course of its business and the same were not incurred currency. The Ld. AO held without quantifying that the telecommunication expenses and insurance expenses respectively are attributable to data delivery lines are excluded from export turnover for computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. The Appellant had only received consideration for services rendered to the customer. Thus, since the Appellant had only received sales consideration for services and no expenses had been charged by the Appellant to customers, the Ld. AO has erred in deducting the telecommunication which are attributable to data line and connectivity and insurance charges from the export turnover while computing deduction under section 10A of the Act. The contention of the Appellant that what is required to be excluded is out of what is received. This principle is squarely covered by the decision of the Hyderabad Tribunal in the case Patni Telecom (P) Ltd. vs. ITO dated 11 January 2008 reported 120 ITD 105 wherein the assessee was engaged export of software and was claiming deduction under section IDA of the Act. The Assessing Officer deducted certain communication expenses from the export turnover which were confirmed by the Commissioner (Appeals). The Tribunal held that the aspect which is required to he considered is that the consideration received in convertible foreign exchange is including such expenses. If such expenses are not included in the consideration received in conver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses being related to insurance of fixed assets being neither attributable to the delivery outside India nor these expenses are charged to the customer and they do not form part of the export receipts. Thus, the same are not required to be deducted from the export turnover while computing deduction under section 10A of the Act. 3.3 Without prejudice to the above contention, it is also submitted the expenses, if deducted from the export turnover, are also liable to be deducted from the total turnover and the ultimate deduction under section IOA would remain unchanged as the export turnover and the total turnover would remain the same. The issue has been considered in various judicial decisions and it has been held that where any expenditure is deductible from export turnover same is required to be deducted from the total turnover as. Some of the decisions are enlisted hereunder: a) In a recent case of the Hon ble Bombay High Court in the case CIT vs. Gem Plus Jewellery India Limited (please refer Annexure 14 of the Paper book) reported in [2011] 194 Taxman 192 (Bom.) it was held that for purpose of application of formula prescribed by section 10A(4),export turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is to be reduced from the total turnover when the same is reduced from the export turnover for the purpose of computation of deduction under section 10A of the Act. 3.1 At the very outset, it is submitted by both the parties that first issue mentioned above is covered by the order of the Tribunal in assessee's own case (ITA Nos. 248 249/Bang/2007 dated 27th November, 2007) as well as the decision of the Special Bench of the Tribunal in the case of ITO v M/s Sak Soft Ltd. (2009) 313 ITR (AT) 353 (Chennai)(S.B.) = (2009-TIOL-187-ITAT-MAD-SB),wherein the Special Bench held as follows:- We hold that for the purpose of applying the formula under sub-section (4)of section 1 OB the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the 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. 3.2 As it is not disputed by the revenue that the above issue is already covered by the aforesaid, the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts reduced while calculating export turnover would also need to be reduced while calculating value of Total turnover for the purposes of allowing exemption u/s 10A of the IT k) In the case of the Asst. Commissioner of Income tax vs. M/s Khoday India Ltd ITA No 89/Bang/08, Bangalore Tribunal held that: .we hold that whatever is not included in the export turnover cannot be included in the total turnover as total turnover is the sum of export turnover + domestic turnover. The above-referred issue has been considered by this Bench in a number of cases and it has been held that whatever is not included the export turnover should not be included in the total turnover. 1) The jurisdictional Delhi Tribunal in the case of Deputy Commissioner of Income Tax vs. Binary Semantics Ltd. reported in 109 TTJ 556, where in it was held as under: The question before us is whether, in absence of the definition of the term total turnover in s. 10A, it should be interpreted by having recourse to the definition of the term export turnover furnished in the section? We have furnished the definition of the term export turnover already. It has also been pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A) right holding that the total turnover shall not include expenses incurred in foreign exchange in providing technical services outside India. (emphasis supplied) m) M/s Goodrich Aerospace Services Private Limited vs. DCIT, ITA No. 58/(Bang.)/2008, wherein the Bangalore Tribunal held as under: ...we hold that the expenses reduced from the export turnover are to be reduced from the total turnover for the purpose of computing eligible profit for deduction u/s 10A of the Income-tax Act, 1961 (hereinafter referred to as the Act ) . Thus, based on the above rulings it apparently clear in law that telecommunication and insurance expenses if deducted from the export turnover will also be deducted from the total turnover. 3.4 It is further submitted that in earlier years the telecommunication expenses and insurance expenses have been excluded from export turnover for the purpose of claiming deduction under section 10A of the Act in earlier years, i.e., Assessment Year 2006-07 and onwards. It is submitted that in an appeal filed by the assessee company respect to the same the Hon ble CIT (Appeals)-VIII Delhi allowed the appeal and directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of computing the deduction under section 10A of the I.T. Act. It is seen that the Appellant had appealed against the assessment order for the AY 2006-07 and AY 2007-08 before the CIT(A)-VIII, New Delhi and the CIT(A)- V, New Delhi respectively and the said appeals have been decided in favour of the Appellant. The relevant extract of the decision of the CIT (Appeal) for A.Y. 2007-08 is reproduced hereunder:- The assessment order passed by the AO for the year under consideration relies on the asst, order the case of the Appellant in the earlier year i.e. AY 2006-07 wherein the erstwhile AO has excluded the telecommunication and insurance expenses from export turnover for the purpose of computing the deduction under section 10A of the Act. It seen that the Appellant had appealed against the assessment order for the Assessment Year 2006-07 before the CIT(Appeals)-VIII, New Delhi and the said appeals was decided favour of the Appellant. As the facts are identical, I am in agreement with the views of the New Delhi and the AO is therefore directed to allow deduction u/s 10A without excluding the telecommunication and insurance expenses from export turnover. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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