Technotree Convergence Ltd.,, New ... vs Department Of Income Tax

Income Tax Officer, Vs. M/s Technotree Convergence Ward 16(2), New Delhi Ltd., 16th Floor DLF Building No. 5, Tower-A, DLF Cyber City, Phase-III, Gurgaon-122002 (PAN: AAACL7345L) (Appellant) (Respondent)

Appellant by : Smt. P.K. Sidhu, CIT, DR Respondent by: Sh. Saubhagya Agarwal, Adv.

ORDER

PER SHRI R.S. SYAL, AM:

1. This appeal by the Revenue is directed against the order passed

by the learned CIT(A) on 10.12.2012 in relation to the assessment year

2009-10.

2. The only grievance raised in this appeal is against the direction

of the learned CIT(A) to exclude the expenses incurred in foreign currency

outside India from "total turnover" of the assessee for the purposes of

calculating deduction under Section 10A of the Income-tax Act, 1961

(hereinafter also called as "the Act").

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3. Briefly stated the facts of the case are that the assessee is

engaged in the business of developing software products and making

export sales as well as domestic sales. It also renders software services to

its clients. Deduction under Section 10A of the Act was claimed at Rs.

27.89 crore on the export turnover of Rs. 100.48 crore. The Assessing

Officer, while finalizing the assessment under section 143(3) of the Act,

reduced, inter alia, expenditure incurred in foreign currency from the

amount of export turnover and re-worked out the benefit of deduction

under section 10A of the Act afresh at Rs. 17.28 crore. The learned CIT(A)

upheld the view taken by the Assessing Officer in excluding the amount of

expenses incurred outside India from the amount of "export turnover".

However, relying on CIT Vs. Genpact India (2011) 203 Taxman 632

(Del.); CIT Vs. M/s Gem Plus Jewellery India Ltd. (2011) 330 ITR 175

(Bom.); and CIT Vs. Tata Elxsi Ltd. (2012) 349 ITR 98 (Kar.), the learned

CIT(A) came to hold that such amount of expenses should also be

excluded from the "total turnover". The Revenue is aggrieved against the

direction of the learned CIT(A) for reducing the amount of qualifying

expenses incurred in foreign currency from the amount of 'total turnover'

as well.

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4. We have heard the rival submissions and perused the relevant

material available on record. Section 10A of the Act is a special provision

in respect of newly established undertakings in free trade zone. Sub-section

(1) of this section provides that subject to the provisions of the section, a

deduction of such profit and gains as are derived by an undertaking from

the export of articles etc., shall be allowed from the total income of the

assessee for a period of ten consecutive assessment years beginning with

the assessment year relevant to the previous year in which the undertaking

begins to manufacture or produce such articles or things etc. Sub-section

(4) provides that the 'profits derived from export of articles or things' etc.

shall be the amount which bears to the profits of the business of the

undertaking the same proportion as the "export turnover" is in respect of

such articles or things etc. bears to the "total turnover" of the business

carried on by the undertaking. Thus, it is apparent on a conjoint reading of

sub-sections (1) and (4) of section 10A of the Act that the profits of the

business of the undertaking are eligible for the benefit of deduction under

section 10A of the Act in the ratio of "export turnover" to "total turnover".

5. The term "export turnover" has been defined in Explanation 2(iv) at

the end of the section, as under :-

"Explanation 2(iv)--For the purposes of this section, -

Page 4 of 8 (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 sub-section (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."

(emphasis supplied by us)

6. A bare perusal of the expression "export turnover" as used in

section 10A of the Act manifests that it shall mean the consideration in

respect of export of the eligible articles brought into India in convertible

foreign exchange but does not include freight, telecommunication charges

or insurance attributable to the delivery of articles or things etc. incurred

outside India. On a circumspection of connotation of the expression

"export turnover", it becomes evident that the specified expenses incurred

outside India are liable to be excluded from the amount of export

turnover, so as to determine the amount of 'export turnover' for the

purposes of computing the amount of deduction u/s 10A of the Act. To

this extent, we hold that the learned CIT(A) was justified in upholding the

Assessing Officer's opinion in excluding these expenses from the amount

of "export turnover".

7. The next question which is relevant for the purpose and which

forms the bedrock of the Revenue's appeal is whether such expenses Page 5 of 8

incurred outside India reduced for determining the amount of "export

turnover" should also be excluded for determining the amount of "total

turnover". Unlike the definition of "export turnover" given in Explanation

2(iv) of section 10A of the Act, we find that the legislature has not

provided any definition of the expression "total turnover". In common

parlance, the amount of "total turnover" is equal to the amount of "export

turnover" and "domestic turnover". Once it is held that the amount of such

expenses incurred by the assessee outside India are liable to be reduced for

ascertaining the amount of "export turnover", the natural corollary which,

ergo, follows is that the finally determined amount of 'export turnover'

should be included in the 'total turnover', meaning thereby that such

expenses should also be reduced from the ambit of "total turnover". If we

accept the Revenue's stand in excluding such expenses only from "export

turnover" and not from "total turnover", the denominator in the formula

(Profits of the business * Export Turnover / Total turnover) for calculation

deduction under section 10A of the Act would then embrace a different

figure of "export turnover" from the one included in the "total turnover".

Since the amount of "total turnover" is a sum total of both the export and

domestic turnover, it cannot be accepted that the scope of the expression Page 6 of 8

"export turnover" should be different in the numerator from that in the

denominator impliedly included in the expression "total turnover".

8. The Hon'ble jurisdictional High Court in the case of Genpact

India (supra), has held that the qualifying expenses incurred outside India

should be excluded both from the "export turnover" as well as "total

turnover". Similar view has been expressed by the Hon'ble Bombay High

Court in the case of Gem Plus Jewellery India Ltd. (supra). The Hon'ble

Karnataka High Court in Tata Elxsi Ltd., (supra) has also laid down the

same proposition for excluding the amount of such expenses both from the

"export turnover" as well as "total turnover".

9. The learned DR relied on the judgments of the Hon'ble

Supreme Court in CIT vs. K. Ravindranathan Nair (2007) 295 ITR 228

(SC) and CIT Vs. Punjab Stainless Steel Industries, (2014) 364 ITR 144

(SC) to bring home her point that the amount of such expenses incurred

outside India should be excluded only from the amount of "export

turnover" without simultaneously deducting from the amount of "total

turnover".

10. We are unable to accept the contention put forth by the learned

DR because both these judgments do not support her view point. In the

case of K. Ravindranathan Nair (supra), the Hon'ble Supreme Court has Page 7 of 8

held that 90% of processing charges, being an independent income, should

be reduced for determining the business profits and the same should be

included in the total turnover in the formula given in section 80HHC(3) of

the Act. It can been seen from the facts and the decision of that case that

the controversy involved therein was quite different inasmuch as the

question there was the treatment to be given of an item of income, in the

name of processing charges, earned in India. On the contrary, we are

instantly concerned with the amount of expenses incurred outside India.

11. The other judgment of the Hon'ble Suprme Court in the case of

Punjab Stainless Steel Industries (supra) simply lays down that the amount

of sale of scrap is not includible in the 'total turnover'. Here again, we find

that this judgment does not in any manner advance the case of the

Revenue. Whereas, it deals with the treatment of an item of domestic

income in the context of deduction under section 80HHC of the Act, we

are concerned with the treatment of specific expenses incurred and that,

too, outside India.

12. Thus, it is vivid that both the above referred judgments are in

altogether different contexts. These deal with the treatment to be given to

income earned from the domestic market in the context of section 80HHC. Page 8 of 8

On the other, we are dealing with the specific expenses incurred outside

India in the context of section 10A. As against these judgments from the

Hon'ble Summit Court, we find that the above discussed three judgments

including that of the Hon'ble jurisdictional High Court in Genpact India

(supra) are squarely on the point and in the context of the same section.

No direct contrary judgment of any other Hon'ble High Court has been

brought to our notice by the learned DR. As such, we countenance the view

taken by the learned CIT(A) in directing the exclusion of such expenses

incurred outside India from the ambit of 'total turnover' as well.

13. In the result, the appeal of the Revenue is dismissed.

The decision is pronounced in the open court on 16th January, 2015.

Sd/- Sd/- (A.T. Varkey) ( R.S. Syal) Judicial Member Accountant Member Dated: 16th January, 2015. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi