9911796707
TMI Blog2024 (8) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... export turnover as appearing in section 80HHE in peacemeal, without considering the other related provisions. Even otherwise section 10A(2)(ia) compares the export proceeds with total sales. It is not in dispute that, section 10A is a beneficial section like section 80HHE. Section 10A is intended to provide incentive to promote exports. In fact section 10A is meant to provide a larger benefit than that is provided by section 80HHE, by providing the tax holiday to the assessee. If the expenditure incurred in foreign currency are excluded from export turnover but not from total turnover, the benefit granted by section 10A would be considerably reduced. This, in our opinion, cannot be the scheme of the Act. In any event, the EXIM policy explained hereinabove is clear on this aspect. Hon'ble Supreme Court in the case of K.P. Varghes [ 1981 (9) TMI 1 - SUPREME COURT] held that, a literal construction that leads to absurdity, unjust result or mischief should be avoided. Similarly Hon'ble Supreme Court in the case of Bajaj Tempo Ltd [ 1992 (4) TMI 4 - SUPREME COURT] with respect to relief for new industrial undertaking under section 15C of the Income-tax Act, 1922, held that, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o exemption u/s. 10A in respect of its income from STPI units. 2.2 Aggrieved by the order of the Ld.CIT(A), the revenue filed appeal before this Tribunal vide ITA No. 3464/Bang/2004. The Hon ble Tribunal vide order dated 31.10.2007 held as under: The fact remains that the assessee has exported from STP units and the engagement of the sub-contractors by the assessee to whom assessee paid from its bank account maintained abroad, which only provided services to the assessee and have not exported anything by themselves and it would not be considered as exports unless provision of those services from one STP unit to another units that export is considered as exports within the meaning of the Act. Since, It is accepted that it is the assessee who had exported computer software, for which it was paid, the entitlement of exemption u/s 10A is satisfied. 2.3 Aggrieved by the order of this Tribunal, the revenue filed appeal before the Hon ble Karnataka High Court vide ITA No. 286/2010 raising the following substantial question of law amongst the other questions. (substantial question No. 5): Whether the appellate authority were correct in holding that the assessee would be entitled to exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gross sales credited in the overseas bank account maintained by the assessee with the approval of RBI. He thus submitted that the condition required u/s. 10A2(ia) to claim deduction u/s. 10A stands satisfied. 3.3 The Ld.AR submitted that, the Ld.AO imported the definition of export turnover for the purposes of 80HHE for the year under consideration, without considering Explanation 1 to section 80HHE, that was applicable for the purposes of computing the total revenue generated by the assessee from the STP units through exports. 3.4 To bring out the difference between the provisions as it was applicable for the year under consideration, the Ld.AR drew our attention to the amendment that was introduced by Finance Act, 2000 w.e.f. AY 2001-02 to the section 10A, wherein for the first time, the definition of export turnover was introduced. The said relevant amended provisions, was applicable from AY 2001-02 reads as under: Income-Tax Act, 1961 - As Amended by Finance Act 2000 Income-Tax Act, 1961 - As Amended by Finance Act 2001 Special provision in respect of newly established industrial undertakings in free trade zones. 10A. (1) Subject to the provisions of this section, any prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any building, machinery, plant or furniture used for the purposes of the business of the industrial undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of subsection (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction; (ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) [or sub-section (3)] of section 74 and no deficiency referred to in sub-section (3) of section 80J, in so far as such loss or deficiency relates to the business of the industrial undertaking, shall be carried forward or set off where such loss, or, as the case may be, deficiency relates to any of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. [(8) References in sub-section (5) to any other provision of this Act which has been amended or omitted by the Direct Tax Laws (Amendment) Act, 1987 shall, notwithstanding such amendment or omission, be construed, for the purposes of that sub-section, as if such amendment or omission had not been made.] Explanation. For the purposes of this section, (i) free trade zone means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section; [(ii) relevant assessment years means the ten consecutive assessment years referred to in sub-section (3);] [(iii) manufacture includes any (a) process, or (b) assembling, or (c) recording of programmes on any disc, tape, perforated media or other information storage device;] [(iv) electronic hardware technology park means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce; (v) software technology park means any park set up in accordance with the Software Technology Park Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computer software during the previous year relevant to the assessment year (a) commencing on or after the 1st day of April, 1981, in any free trade zone; or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park; (c) commencing on or after the 1st day of April, 2001 in any special economic zone; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation. The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (3) This section applies to the undertaking, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of sub-section (2) of section 33, subsection (4) of section 35 or the second proviso to clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction; (ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or sub section (3) of section 74 in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Act, 1973 (46 of 1973), and any rules made thereunder or any other corresponding law for the time being in force; (iii) electronic hardware technology park means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce and Industry; (iv) export turnover means the consideration in respect of export [by the undertaking] of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with subsection (3), but does not include 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. (v) free trade zone means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section; (vi) relevant assessment year means any assessment year falling within a period of ten consecut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng reasons: a) income from exports should be more than 75% of the total turnover under section 10A(2)(ia) of the Act and not the 'inward remittance' b) The bank account maintained by the assessee outside India is undisputedly approved by RBI c) The payment made to the sub-contractors are towards the STP course of business. d) 100% of the sales of the STP units relates to export sales and no domestic sales has been made during the relevant year under consideration. 3.8 The Ld.AR submitted that the assessee filed revised working of the profits attributable to STP units, exports u/s. 80HHE and domestic sales to the Ld.AO as well as the Ld.CIT(A), which has not been disputed by the authorities at any point of time. 3.9 The Ld.AR submitted that the provisions of section 80HHE cannot be borrowed into section 10A of the act in peacemeal. He also submitted that the gross credits in the overseas bank accounts maintained by the assessee is with the approval of RBI and since all these receipts pertains to exports from India the conditions required to be satisfied as per section 10A(2)(ia) stands fully complied with. 3.10 On the contrary, the Ld.DR vehemently relied on the orders passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue that is remanded by Hon ble Karnataka High Court , we analyse the reason for insertion of subsection (ia) to clause (2) of section 10A: It is noted that as per EXIM policy during the relevant period, the units established in FTZ, EHTP and STP got special treatment by virtue of the fact that they exported their entire produce. However, in order to provide economic flexibility and allow the units to dispose of the export rejects and by-products, the units were allowed to sell 25% of their produce in the domestic market. In effect, such units could avail exemption for 5 years even in respect of profits from the 25% domestic sales allowed to them. 4.6 Further, it was also ensured that the units could avail tax exemption, only if the exports are substantial. Section 10A was accordingly amended with effect from assessment year 1996-97 to provide that in case of the units which commences manufacture or production of any article or thing on or after 1-4- 1995, the tax holiday shall be available, only if its exports of such article or thing are not less than 75% of the total sales thereof during the previous year. 4.7 The amendment by introducing sub-section (ia) to clause (2) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he export turnover the Legislature has made a specific exclusion of freight and insurance charges. 4.10 Be that as it may, in absence of definition of the term export turnover in sec.10A, for assessment year 2000-01, the Ld.AO considered the definition of export turnover for the purposes of section 80HHE of the act that reads as under: India export turnover means the consideration in respect of computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with subsection (2), but does not include freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India; 4.11 While considering the above definition, the Ld.AO ignored the definition of 'total turnover' in Explanation (e) to section 80HHE that read as under: 'Total turnover' shall not include ( i ) any sum referred to in clauses ( iiia ), ( iiib ) and ( iiic ) of section 28; ( ii ) any freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India; and ( iii ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
