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TMI Blog2021 (7) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Counsel in all appeals For the Respondent : Notice served in all appeals COMMON JUDGMENT M. DURAISWAMY, J. T.C.A.No.171 of 2016 arises against the order passed in I.T.A.No.58/Mds/2014 in respect of the Assessment Year 2008-09, T.C.A.No.172 of 2016 arises against the order passed in I.T.A.No.362/Mds/2014 in respect of the Assessment Year 2008-09, T.C.A.No.173 of 2016 arises against the order passed in I.T.A.No.1280/Mds/2014 in respect of the Assessment Year 2009-10, T.C.A.No.174 of 2016 arises against the order passed in I.T.A.No.2021/Mds/2014 in respect of the Assessment Year 2009-10, on the file of the Income Tax Appellate Tribunal, Madras, B Bench. The above appeals are filed by the Revenue challenging the order passed by the Income Tax Appellate Tribunal. 2.The assessee is a company engaged in the business of providing customer support, services in the form of e-mail support, voice support and chatting. During the Assessment Year 2009-10, the assessee filed return of income on 25.09.2009 claiming deduction under Section 10-B of the Income Tax Act, 1961. The return of income was taken up for scrutiny assessment and the Assessing Officer found that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.A.No.173 of 2016 was admitted on the following substantial question of law : Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in confirming the order of CIT (A) and confirmed the disallowance to ₹ 12,31,129/- under Rule 8D of the Income Tax Rules? 8.Since the issues involved in all these appeals are common, Mr.Karthik Ranganathan, learned Senior Standing Counsel, appearing for the appellant/Revenue, submitted that all the appeals may be taken up together and disposed of by a common order. 9.Further, the learned Senior Standing Counsel fairly submitted that the questions of law that arise for consideration in all these appeals were already decided against the Revenue and in favour of the assessee in the following judgments : i. [2018] 93 taxmann.com 33 (SC) [Commissioner of Income-Tax, Central-III v. HCL Technologies Ltd.] , wherein, the Hon'ble Supreme Court held as follows : 8.The whole controversy revolves around the claim of certain expenses attributable to the delivery of software outside India or in providing technical services from 'total turnover' by the Respondent under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a component of total turnover. Export Turnover/Total Turnover/Business: Form 56F prescribes the report under Section 10A for and Annexure-A thereto refers to export proceeds and sale proceeds . Both together form the total turnover of the undertaking. 10.The question arises here that when the particular term has not been defined in any particular Section, is it allowed to import the meaning of such term from the other provisions of the same Act? Section 10A of the IT Act is a special beneficial provision and the purpose of deduction under such Section is to encourage and boost the new business undertakings situated in the free trade zone of this Nation by providing suitable deductions to such business entities. Sometimes, while calculating the deduction, disputes arise regarding the methodology of deduction which ought to be followed. Undisputedly, it is a matter of record that the Respondent is engaged in the activity of trading of generic software and providing customized software development services for domestic as well as for foreign clients through its two units situated in Software Technology Park, Gurgaon (Now Gurugram) which falls under definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 10A as per certificates filed on Form No. 56F. The Respondent, while computing the deduction, has taken the same figure of export turnover as of total turnover. The Respondent cited various judicial cases but all these cases pertain to deduction under Section 80HHC. Further, the definition of total turnover has been defined in Section 80HHC and 80HHE of the IT Act. As discussed earlier, the definition of total turnover has not been defined under Section 10A of the IT Act. 14. In the above backdrop, we are of the opinion that the definition of total turnover given under Sections 80HHC and 80HHE cannot be adopted for the purpose of Section 10A as the technical meaning of total turnover, which does not envisage the reduction of any expenses from the total amount, is to be taken into consideration for computing the deduction under Section 10A. When the meaning is clear, there is no necessity of importing the meaning of total turnover from the other provisions. If a term is defined under Section 2 of the IT Act, then the definition would be applicable to all the provisions wherein the same term appears. As the term 'total turnover' has been defined in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on results in equity rather than in injustice then such construction should be preferred to the literal construction. Furthermore, in the instant case, we are dealing with an artificial liability created for counteracting the effect only of attempts by the assessee to reduce tax liability by transfer.. 17.The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT vs. Tata Elxsi Ltd. (2012) 204 Taxman 321/17/taxmann.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from 'export turnover' must also be excluded from 'total turnover, since one of the components of 'total turnover' is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These facts are akin to the case of Pragati Krishna Gramin Bank (supra) decided by Karnataka High Court. The legal position, as interpreted above by various judgments and again reiterated by us in this judgment, remains that the disallowance of expenditure incurred to earn exempted income cannot exceed exempted income itself and neither the Assessee nor the Revenue are entitled to take a deviated view of the matter. Because as already noted by us, the negative figure of disallowance cannot amount to hypothetical taxable income in the hands of the Assessee. The disallowance of expenditure incurred to earn exempted income has to be a smaller part of such income and should have a reasonable proportion to the exempted income earned by the Assessee in that year, which can be computed as per Rule 8D only after recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure under section 14A made by the Assessee or his claim that no expenditure was incurred is validly rejected by the Assessing Authority by recording reasonable and cogent reasons conveyed to Assessee and after giving opportunity of hearing to the Assessee in this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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