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TMI Blog2012 (2) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange of ₹ 22,03,62,997/- towards providing marketing services to its subsidiary at USA and other expenses relating to onsite development from total turnover for the purpose of computing deduction under section 10A of the Act. iii) The CIT(A) erred in holding that the professional fess of ₹ 1,55,890/- paid by the assessee for the consultancy services availed by the assessee is allowable under section 37 of the Act without appreciating the fact that the assessee incurred the said expenditure for the valuation of certain properties at Bangalore and Chennai and to ascertain the tax implications on sale thereof and therefore, the said expenditure had nothing to do with the earning of business income. 3.1 The facts in relation to ground no.2 referred above are as follows:- The assessee is a company. It is engaged in the business of development and export of computer software. The Assessing Officer while computing deduction under section 10A of the Act, excluded from the export turnover the telecommunication expenses and insurance expenses amounting to ₹ 86,18,618/- and also expenses incurred in foreign currency, in total amounting to ₹ 22,03,62,997/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at after excluding certain expenses, the same should also be excluded from the total turnover in the denominator. The relevant finding of the Hon ble jurisdictional High Court reads as follows:- ..Section 10A is enacted as an incentive to exporters to enable their products to be competitive in the global market and consequently earn precious foreign exchange for the country. This aspect has to be borne in mind. While computing the consideration received from such export turnover, the expenses incurred towards freight, telecommunication charges, or insurance attributable to the delivery of the articles or things or computer software outside India, or expenses if any incurred in foreign exchange, in providing the technical services outside India should not be included. However, the word total turnover is not defined for the purpose of this section. It is because of this omission to define total turnover , the word total turnover falls for interpretation by this Court; ..In section 10A, not only the word total turnover is not defined, there is no clue regarding what is to be excluded while arriving at the total turnover. However, while interpreting the provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislative intent and impermissible. Thus, there is no error committed by the Tribunal in following the judgements rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same . 3.9 The Hon ble Mumbai High Court in the case of Gem Plus Jewellery India Ltd. (supra), in identical circumstances, held that since the export turnover forms part of the total turnover, if an item is excluded from the export turnover, the same should also be reduced from the total turnover to maintain parity between numerator and denominator while calculating deduction u/s 10A of the Act. The relevant finding of the Hon ble Mumbai High Court reads as follows:- The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator in as much as the export turnover is a part of the total turnover. The export turnover, in the numerator must have the same meaning as the export turnover which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Freight and insurance charges do not have any element of turnover. For this reason in addition, these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary CIT v Sudarshan Chemicals Industries Ltd. (2000) 163 CTR (Bom) 596: (2000) 245 ITR 769 (Bom) applied; CIT v Lakshmi Machine Works (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) and CIT v Catapharma (India) (P) Ltd. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) relied on 3.10 In the case of Sak Soft Ltd. (supra), the assessee was engaged in the business of exporting computer software and claimed deduction u/s 10B of the Act. In completing the assessment u/s 143(3) of the Act, the AO reduced the expenditure incurred in foreign exchange in providing the technical services outside India, from the export turnover without corresponding reduction from total turnover, thereby reducing the deduction claimed by the assessment u/s 10B of the Act. 3.11 In light of the above facts, the Special Bench held as under:- For the above reasons, we hold that for the purpose of applying the formula under sub-section (4) of section 10B, the freight, telec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses are for the purpose of valuation of certain properties and to ascertain the tax implications on sale thereof. Therefore, it was submitted that the said expenses have nothing to do with the earning of business income and the expenditure was on account of capital front. 4.5 The learned AR argued that the above said expenses are incurred in the normal course of business and the same is an allowable expenditure under section 37 of the Act. 4.6 We have heard the rival submissions and perused the materials on record. The details of the expenses and the purpose for incurring the expenses are not discussed in detail. We feel that the facts are not very forthcoming on this issue. Therefore, this matter needs re-consideration and accordingly, we restore the matter to the file of the Assessing Officer for fresh consideration. The assessee shall place all the details with reference to the expenses before the Assessing Officer and he shall dispose off the matter as expeditiously as possible after affording a reasonable opportunity of hearing to the assessee. Hence, ground no.3 in revenue s appeal is allowed for statistical purposes. 4.7 In the result, the appeal filed by the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the provisions of Chapter VI of the Act. 8.1 The facts in relation to ground no.3.1 are as follows:- The assessee in respect of its Bangalore Unit and Chennai Unit had debited a sum of ₹ 7,71,400/- ₹ 70,400/- respectively towards computer software expenses. The above said expenses was treated as capital in nature and was not allowed as a deduction under section 37 of the Act by the Assessing Officer. On appeal, it was argued that the expenses incurred for computer software relates towards the payment of annual licence fees for utilization of software for back office support functions and are bonafide revenue expenses allowable under section 37 of the Act. The CIT(A) however rejected the claim of the assessee by applying the ratio of judgement of the Hon ble Supreme Court in the case of CIT v Ashok Leyland Limited (86 ITR 549) and the order of the Special Bench in the case of Amway India Enterprises v DCIT (301 ITR (AT) 1). The CIT(A) concluded that the software expenses incurred by the assessee company have an enduring benefit and are capital in nature. Thus, the assessee s contention on this issue was rejected. 8.2 The learned AR submitted that the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter. It is ordered accordingly. Therefore, ground no.3.1 is allowed for statistical purposes. 9. Ground Nos.5.1 and 5.2 is regarding the set off of losses of taxable units of the assessee, against the income of the exempted units. 9.1 The Assessing Officer while completing the assessment had set off of the business losses incurred in the Bangalore taxable unit of the assessee against the income of Chennai exempt unit . It was contended before the first appellate authority that each unit is separate undertaking within the meaning of section 10A and as such, losses/profits from each unit would have to be dealt with independently. 9.2 The CIT(A) however rejected the assessee s contention. The CIT(A) followed the order of the Tribunal in the case of Intellinet Technologies India Pvt. Ltd. v ITO (ITA No.1021/Bang/2009), which in turn relied on the jurisdictional High Court in the case of Himatsingke Seide Ltd. 286 ITR 255. 9.3 The assessee being aggrieved is in appeal before us. 9.4 At the outset, it was pointed out by the assessee that the issue in question is squarely covered by the judgement of the jurisdictional High Court in the case of CIT v M/s Axa Busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s derived from export of articles or things from 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. Therefore, it is clear that though the assessee may be having more than one undertaking for the purpose of section 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income of the assessee. It is only after the deduction of the said profits and gains, the income of the assessee has to be computed. 30. The provisions of this sub-section will apply even in the case where an assessee has opted out of section 10A by exercising his option under sub-section (8). As discussed, it is permissible for an assessee to opt in and opt out of section 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the STP undertaking would suffer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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