Deputy Commissioner of Income tax,, Bangalore v. M.s Sasken Communications Technologies Ltd, Bangalore

ITA 1253/BANG/2014 | 2005-2006
Pronouncement Date: 31-07-2015 | Result: Dismissed

Appeal Details

RSA Number 125321114 RSA 2014
Bench Bangalore
Appeal Number ITA 1253/BANG/2014
Duration Of Justice 9 month(s) 21 day(s)
Appellant Deputy Commissioner of Income tax,, Bangalore
Respondent M.s Sasken Communications Technologies Ltd, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 31-07-2015
Date Of Final Hearing 09-07-2015
Next Hearing Date 09-07-2015
Assessment Year 2005-2006
Appeal Filed On 09-10-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI VIJAYPAL RAO JUDICIAL MEMBER AND SHRI JASON P BOAZ ACCOUNTANT MEMBER ITA NOS.1253 & 1254/BANG/2014 (ASST. YEARS - 2005-05 & 2006-07) THE DY. COMMISSIONER OF INCOME-TAX CIRCLE-12(3) BANGALORE. . APPELLANT VS. M/S SASKEN COMMUNICATION TECH. LTD. NO.139/25 RING ROAD DOMLUR BANGALORE. . RESPONDENT CO NOS.32 & 33/BANG/2015 (ASST. YEARS - 2005-05 & 2006-07) (BY ASSESSEE) REVENUE BY : SHRI PK SRIHARI ADL. CIT ASSESSEE BY : SHRI PADAMCHAND KHINCHA C.A DATE OF HEARING : 9-7-2015 DATE OF PRONOUNCEMENT : 31-7-2015 O R D E R PER BENCH : THESE TWO APPEALS ARE FILED BY THE REVENUE AND THE CROSS OBJECTIONS ARE FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEARS ARE ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 2 2005-06 AND 2006-07. THE APPEALS ARE DIRECTED AGAI NST THE TWO SEPARATE ORDERS OF COMMISSIONER OF INCOME-TAX (APPE ALS) II CIT(A) BOTH DATED 28/2/2014. THE APPEALS ARISE OUT OF THE ASSESSMENTS COMPLETED U/S 143(3) OF THE INCOME-TAX ACT 1961. 2. THE REVENUE HAS RAISED COMMON GROUNDS IN THESE A PPEALS. THE GROUNDS RAISED FOR THE ASSESSMENT YEAR FOR 2005-06 ARE AS UNDER:- (1) THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW A ND FACTS OF THE CASE. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN LAW IN HOLDING THAT THE COMPENSATION AMOUNT OF RS.1.32 CRORES RECEIVED BY T HE ASSESSEE IS CAPITAL IN NATURE AND HENCE NOT TAXABLE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE ITS ELF HAD TREATED THE SAME AS REVENUE RECEIPT IN THE RETURN O F INCOME FILED. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN LAW IN DIRECTING THE AO TO EXCLUDE THE REIMBURSEMENT OF CERTAIN EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM TOTAL TURN OVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A WITHOUT APPRECIATING THE FACT THAT THE STATUTE ALLO WS EXCLUSION OF SUCH EXPENDITURE ONLY FROM EXPORT TURN OVER BY WAY OF SPECIFIC DEFINITION OF EXPORT TURNOVER AS ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 3 ENVISAGED BY SUB-CLAUSE (4) OF EXPLANATION 2 BELOW SUB-SECTION (8) OF SECTION 10A AND THE TOTAL TURNOV ER HAS NOT BEEN DEFINED IN THIS SECTION. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO COMPUTE DEDUCTION U/S 10A IN THE ABOVE MANNER BY PLACING RELIANCE ON THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S TATA ELXSI LTD. WHICH HAS NOT BECOME FINAL SINCE THE SAME HAS NOT BEEN ACCEPT ED BY THE DEPARTMENT AND SLPS ARE PENDING BEFORE THE HONBLE SUPREME COURT. (5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN HOLDING THAT BROUGHT FORWAR D LOSSES ARE TO BE SET OFF WITHOUT APPRECIATING THAT THE AO HAD DULY RECORDED THE REASONS FOR DENYING THE CARRY FORWARD OF LOSS IN THE ASSESSMENT ORDER AS WELL AS IN THE REMAND REPORT SUBMITTED. (6) FOR THESE AND OTHER GROUNDS THAT THEY MAY BE URGED AT THE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT THE ASSESSING OFFICER MAY BE RESTORED. 3. IN THE CROSS-OBJECTIONS FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 4 (1) THE LEARNED CIT(A) II BANGALORE HAS ERRED IN CONFIRMING THE EXCLUSION OF COMPENSATION RECEIVE D FOR TERMINATION OF CONTRACT AMOUNTING TO RS.1 35 54 60 0/- FROM THE PROFIT OF THE BUSINESS WHILE COMPUTING THE DEDUCTION U/S 10A OF THE ACT. (2) THE LEARNED CIT(A)-II BANGALORE HAS ERRED IN NOT GIVING A FINDING ON GROUND RAISED IN RESPECT OF REIMBURSEMENT OF TRAVEL EXPENSES AMOUNTING TO RS.2 27 325/- TO BE INCLUDED IN PROFIT OF THE BUSIN ESS WHILE COMPUTING THE DEDUCTION U/S 10A OF THE ACT. (3) THE LEARNED CIT(A)-II BANGALORE HAS ERRED IN NOT GIVING A FINDING ON GROUND RAISED IN RESPECT OF DEEMED EXPORTS RECEIVED IN FOREIGN CURRENCY AMOUNTI NG TO RS.1 00 43 496/- TO BE INCLUDED AS PART OF EXPOR T TURNOVER FOR THE PURPOSES OF SEC. 10A OF THE INCOME -TAX ACT 1961. (4) IN VIEW OF THE ABOVE AND OTHER CROSS OBJECTION S TO BE RAISED AT THE TIME OF HEARING THE CROSS OBJE CTOR PRAYS THAT THE ORDER PASSED BY THE LEARNED DY. COMMISSIONER OF INCOME-TAX CIRCLE-12(3) BANGALORE BE QUASHED. OR IN THE ALTERNATIVE (I) COMPENSATION RECEIVED FOR TERMINATION OF CONTRACT BE TREATED AS BUSINESS INCOME AND BE INCLUDED IN PROFIT OF THE BUSINESS WHILE COMPUTING THE DEDUCTIONS U/S 10A. ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 5 (II) REIMBURSEMENT OF TRAVEL EXPENSES BE INCLUDED IN PROFIT OF THE BUSINESS WHILE COMPUTING THE DEDUCTION U/S 10A. (III) DEEMED EXPORTS BE TREATED AS EXPORT AND INCLUDED IN THE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION U/S 10A. 4. GROUND NO.1 IN THE REVENUES APPEAL IS GENERAL I N NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 5. THE GROUND NO. 2OF THE REVENUES APPEAL AND GROU ND NO.1 OF THE CROSS-OBJECTIONS OF THE ASSESSEE ARE COMMON IN RESPECT OF THE COMPENSATION AMOUNT OF RS.1.32 CRORES RECEIVED BY THE ASSESSEE ON ACCOUNT OF TERMINATION OF CONTRACT. SINCE THE ASSE SSEE HAS RAISED AN ALTERNATIVE PLEA IN THE CROSS-OBJECTION ON THIS ISS UE AND CLAIMED THAT EVEN IF THE COMPENSATION RECEIVED FOR TERMINATION O F CONTRACT IS TREATED AS REVENUE INCOME OF THE ASSESSEE THE SAME WILL FORM PART OF THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMP UTING DEDUCTION U/S 10A OF THE INCOME-TAX ACT. 6. WE PROPOSE FIRST TO TAKE UP AND ADJUDICATE THE I SSUE RAISED BY THE ASSESSEE IN THE CROSS-OBJECTIONS REGARDING THE COMPENSATION ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 6 RECEIVED BY THE ASSESSEE WOULD BE PART OF PROFIT OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE INCOM E-TAX ACT. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE R ECEIVED AN AMOUNT OF RS.1 35 54 600/- FROM A CUSTOMER TOWARDS COMPENS ATION FOR THE TERMINATION OF SERVICE CONTRACT WITH THE ASSESSEE. THE ASSESSEE HAS SHOWN THIS AMOUNT SEPARATELY UNDER SCHEDULE VIII AS OTHER INCOME. THE ASSESSEE CLAIMED DEDUCTION U/S 10A IN RESPECT O F THE SAID AMOUNT OF COMPENSATION RECEIVED FROM THE CUSTOMER. THE AS SESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION U/S 10A AND BROUG HT THE AMOUNT TO TAX. BEFORE THE CIT(A) THE ASSESSEE HAS ALSO RAIS ED AN ALTERNATIVE PLEA THAT EVEN IF THE CLAIM OF DEDUCTION U/S 10A IS NOT CONSIDERED THE SAID AMOUNT CANNOT BE TAXED BEING CAPITAL IN NATURE . THE COMMISSIONER HAS ACCEPTED THE ALTERNATIVE PLEA OF T HE ASSESSEE AND HELD THAT AMOUNT RECEIVED BY THE ASSESSEE IN QUESTI ON ON ACCOUNT OF TERMINATION OF CONTRACT IS CAPITAL IN NATURE AND T HEREFORE NOT TAXABLE. THUS BOTH THE REVENUE AS WELL AS THE ASSESSEE ARE A GGRIEVED BY THE FINDING OF THE CIT(A). 7. THE REVENUE HAS CHALLENGED THE ORDER OF THE CIT( A) ON THE ISSUE THAT THE AMOUNT RECEIVED BY THE ASSESSEE AS COMPENSATION ON TERMINATION OF CONTRACT IS NOT TAXABLE WHEREAS THE ASSESSEE IS ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 7 AGGRIEVED BY THE ACTION OF THE CIT(A) IN NOT ADJUDI CATING THE ISSUE OF ALLOWABILITY OF DEDUCTION U/S 10A ON THIS AMOUNT OF COMPENSATION. 8. BEFORE US THE LEARNED AR OF THE ASSESSEE HAS SU BMITTED THAT THIS AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE ON AC COUNT OF TERMINATION OF THE CONTRACT BY THE CUSTOMER IN WHIC H THE ASSESSEE WAS TO RENDER THE SERVICES OF SOFTWARE DEVELOPMENT TO I TS CLIENT. THEREFORE THE CONTRACT OF SUPPLY OF SERVICES WAS P ART AND PARCEL OF THE BUSINESS ACTIVITY OF THE ASSESSEE AND THE AMOUNT RE CEIVED ON ACCOUNT OF TERMINATION IS NOTHING BUT BUSINESS INCOME OF TH E ASSESSEE. THE AMOUNT HAS BEEN RECEIVED IN THE ORDINARY COURSE OF BUSINESS ACTIVITY OF THE ASSESSEE AND IN PURSUANT TO THE BUSINESS CON TRACT WITH THE CLIENT. THEREFORE THE COMPENSATION RECEIVED FOR TERMINATIO N OF THE CONTRACT IS ELIGIBLE FOR DEDUCTION U/S 10A. THE LEARNED AR HAS RELIED UPON THE DECISION OF THE DELHI BENCH IN THE CASE OF SONY IND IA PVT. LTD. VS DCIT 114 ITD 448 AS WELL AS THE DECISION OF MUMB AI TRIBUNAL IN THE CASE OF 3I INFOTECH LTD. VS. ACIT IN ITA NO. 3354 AND 3355 OF 2010 DATED 21/8/2013. ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 8 9. THUS THE LEARNED AR HAS PLEADED THAT THE ASSESS EE IS ENTITLED FOR DEDUCTION U/S 10A OF THE ACT IN RESPECT OF THE COMPENSATION RECEIVED ON ACCOUNT OF TERMINATION OF CONTRACT. 10. ON THE OTHER HAND THE LEARNED DR HAS SUBMITTED THAT THE ASSESSEE ITSELF HAS SHOWN THE AMOUNT UNDER SCHEDUL E VIII BEING OTHER INCOME AND THEREFORE THIS AMOUNT RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS BUSINESS INCOME ARISING OUT OF EXPORT ACTIVITY OF THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT SINCE THE AMOUNT WAS RECEIVED ONLY AS COMPENSATION AND NOT ON ACCOUNT OF EXPORT OF SOFTWARE THEREFORE THIS CANNOT BE SAID TO HAVE BE EN EARNED FROM THE EXPORT OF SOFTWARE. 11. HE HAS RELIED UPON THE ORDER OF THE ASSESSING O FFICER AS WELL AS THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CA SE OF CIT VS. PANDIAN CHEMICALS LTD. 233 ITR 497. THUS LEARNE D DR HAS SUBMITTED THAT THE INCOME RECEIVED BY THE ASSESSEE ON ACCOUNT OF TERMINATION OF THE CONTRACT HAS NO CONNECTION WITH THE ACTUAL CONDUCT OF BUSINESS OF INDUSTRIAL UNDERTAKING OR EXPORT OF SOFTWARE. SECTION 10A PROVIDES DEDUCTION ONLY FOR THE INCOME DERIVED FROM EXPORT OF SOFTWARE. THE ASSESSING OFFICER HAS TREATED THE SA ID AMOUNT OF ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 9 RS.1 35 54 600/- AS DEEMED INCOME U/S 40(1) OF THE INCOME-TAX ACT AND THEREFORE THE SAID INCOME IS NOT ELIGIBLE FO R DEDUCTION U/S 10A. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS MATERIAL ON RECORD. 13. THERE IS NO DISPUTE ON THE FACT THAT A SUM OF R S.1 35 54 600/- WAS RECEIVED BY THE ASSESSEE FROM ITS CLIENT ON TER MINATION OF THE CONTRACT. THE CONTRACT IN QUESTION WAS STATED TO B E FOR SUPPLY OF SOFTWARE TO THE CLIENT AND THEREFORE THE ASSESSEE WAS COMPENSATED BY THE CLIENT WHEN THE CONTRACT WAS TERMINATED. IT IS NOT CLEAR FROM THE RECORD WHETHER THE CONTRACT IN QUESTION WAS ALREADY GIVEN EFFECT BY THE ASSESSEE AND IT WAS A CONTINUING CONTRACT OR T HE CONTRACT WAS ONLY FOR FUTURE EXPORT OF SOFTWARE AND PRIOR TO ITS EXEC UTION OF SUPPLY BY THE ASSESSEE IT WAS TERMINATED BY THE OTHER PARTY A ND CONSEQUENTLY THE ASSESSEE WAS COMPENSATED FOR A SUM OF RS.1 35 5 4 600/-. THUS SO FAR AS THE NATURE OF THE AMOUNT RECEIVED BY THE ASS ESSEE WHETHER IT IS CAPITAL IN NATURE OR REVENUE THE COMPLETE FACTS AR E NOT RECORDED BY THE AUTHORITIES BELOW. WE FURTHER NOTE THAT EVEN THE CIT(A) HAS NOT RECORDED THE FACT WHETHER THE CONTRACT IN QUESTION WAS ONGOING CONTRACT IN WHICH THE ASSESSEE HAS BEEN SUPPLYING T HE SOFTWARE TO ITS ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 10 CLIENT. THEREFORE INSTEAD OF GOING INTO THE QUEST ION OF CAPITAL RECEIPT OR REVENUE RECEIPT WE PROPOSE TO FIRST TAKE UP AND DECIDE THE ISSUE OF ALLOWABILITY OF DEDUCTION U/S 10A RAISED BY THE AS SESSEE IN THE CROSS- OBJECTION. 14. THE FACTS EMERGED FROM THE RECORD CLEARLY MANI FEST THAT THE CONTRACT WAS FOR EXPORT OF SOFTWARE WHICH MEANS TH E CONTRACT WAS IN RELATION TO THE ORDINARY BUSINESS ACTIVITY OF EXPOR T OF SOFTWARE. WHEN THE CONTRACT WAS FOR SUPPLY OF SOFTWARE AND ON TERM INATION OF SAID CONTRACT THE ASSESSEE RECEIVED THE COMPENSATION AM OUNT THEN THE SAID AMOUNT CANNOT PARTAKE THE NATURE OF INCOME OTHER TH AN THE INCOME DERIVED AND ARISEN FROM THE BUSINESS ACTIVITY OF TH E ASSESSEE. IT HAS NOT BEEN DISPUTED THAT THE CONTRACT WAS FOR THE ORD INARY BUSINESS ACTIVITY OF THE ASSESSEE FOR SUPPLY AND EXPORT OF S OFTWARE. THEREFORE THE AMOUNT RECEIVED BY THE ASSESSEE UNDER THE SAID CONTRACT AND PARTICULARLY ON TERMINATION OF THE CONTRACT HAS A D IRECT NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. IN THE CASE OF SONY INDIA PVT. LTD. (SUPRA) THE DELHI BENCH OF THE TRIBUNAL HAD THE OC CASION TO CONSIDER THE IDENTICAL ISSUE OF CLAIM OF DEDUCTION U/S 10A/1 0B IN RESPECT OF THE COMPENSATION RECEIVED BY THE ASSESSEE ON CANCELLATI ON OF CONTRACT FOR ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 11 RESEARCH DEVELOPMENT AND RELATING TO APPLICATION OF SOFTWARE AND THE TRIBUNAL AS UNDER: AS REGARDS THAT OTHER AMOUNT OF RS.83 06 011/- FORM ING PART OF MISCELLANEOUS INCOME IT IS OBSERVED THAT T HE SAID AMOUNT WAS RECEIVED BY THE TAXPAYER COMPANY FROM SO NY INTERNATIONAL (EURO) GERMANY ON ACCOUNT OF CANCELLATION OF A CONTRACT. THE SAID CONTRACT WAS AWARDED BY SONY INTERNATIONAL (EURO) TO THE TAXPAYE R COMPANY IN RELATION TO RESEARCH AND DEVELOPMENT OF APPLICATION SOFTWARE IN ITS CENTRE LOCATED AT BANGA LORE. AS ALREADY NOTED THE SAID CENTRE AT BANGALORE WAS SET UP FOR DEVELOPMENT OF PRODUCT RELATED AND APPLICATION SOFTWARE AND THE CONTRACT UNDERTAKEN BY IT IN RELAT ION TO RESEARCH AND DEVELOPMENT OF APPLICATION SOFTWARE FO R SONY INTERNATIONAL (EURO) THUS WAS A PART OF ITS MA IN ACTIVITY CARRIED ON AT BANGALORE CENTRE. THE SAID CONTRACT WAS TO BE EXECUTED AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT ENTERED INTO BETWEEN TH E TAXPAYER COMPANY AND SONY INTERNATIONAL (EURO) AND ARTICLE-6 OF THE SAID AGREEMENT HAD EXPLICITLY PROV IDED FOR THE TERMS OF CANCELLATION OF THE CONTRACT AND R ELATED COMPENSATION THAT SHALL BE AWARDED UPON SUCH TERMINATION. AS THE WORK UNDERTAKEN UNDER THE SAID AGREEMENT WAS IN RELATION TO THE DEVELOPMENT OF SOF TWARE WHICH IS THE MAIN BUSINESS ACTIVITY OF ITS UNDERTAK ING ELIGIBLE FOR DEDUCTION U/S 10B THE COMPENSATION RE CEIVED ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 12 BY THE TAXPAYER COMPANY ON CANCELLATION/TERMINATION OF THE SAID CONTRACT/AGREEMENT IN OUR OPINION WAS INT EGRAL PART OF ITS MAIN BUSINESS. THERE WAS THUS A CLEAR AND DIRECT NEXUS BETWEEN THE AMOUNT OF RS.83 06 011/- RECEIVED BY THE TAXPAYER COMPANY AS COMPENSATION FO R CANCELLATION OF THE CONTRACT AND THE MAIN BUSINESS OF SOFTWARE DEVELOPMENT OF ITS UNDERTAKING AT BANGALOR E AND THE SAID INCOME FORMING PART OF THE SAID MAIN BUSINESS OF THE UNDERTAKING WAS ELIGIBLE FOR DEDUCT ION U/S 10B BEING DERIVED FROM THE SAID UNDERTAKING. FOR T HE APPLICATION OF WORDS DERIVED FROM THERE SHOULD B E A DIRECT NEXUS BETWEEN THE INCOME AND THE INDUSTRIAL UNDERTAKING AND ONCE SUCH NEXUS IS ESTABLISHED THE SAID INCOME CERTAINLY CONSTITUTES THE INCOME DERIVED FRO M SUCH UNDERTAKING. AS SUCH CONSIDERING ALL THE FAC TS OF THE CASE WE ARE OF THE VIEW THAT THE AMOUNT OF RS.83 06 011/- RECEIVED BY THE TAXPAYER COMPANY ON ACCOUNT OF CANCELLATION OF CONTRACT ENTRUSTED TO IT IN RELATION TO DEVELOPMENT OF SOFTWARE CONSTITUTED ITS PROFIT DERIVED FROM THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 10B AND THE DEDUCTION UNDER THAT SECTION WAS RIGHTL Y CLAIMED BY IT IN RESPECT OF THE SAID INCOME. IN TH AT VIEW OF THE MATTER WE SET ASIDE THE IMPUGNED ORDER OF T HE LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE AO TO A LLOW THE DEDUCTION U/S 10A/10B IN RESPECT OF COMPENSATIO N AMOUNTING TO RS.83 06 011/- AS CLAIMED BY THE TAXPA YER COMPANY. GROUND NO.2 OF THE TAXPAYERS APPEAL IS T HUS PARTLY ALLOWED. ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 13 15. THE TRIBUNAL HAS TAKEN A VIEW THAT WHEN THE ASS ESSEE RECEIVED THE COMPENSATION FOR CANCELLATION OF CONTRACT WHICH PERTAINS TO THE MAIN BUSINESS OF SOFTWARE DEVELOPMENT OF ITS UNDERT AKING THEN THE SAID INCOME FORMING PART OF THE MAIN BUSINESS OF UN DERTAKING WAS ELIGIBLE FOR DEDUCTION U/S 10B. IN THE CASE IN HAND THE ASSESSEE IS 100% EXPORT ORIENTED UNIT (EOU) AND PARTICULARLY T HE EXPORT OF SOFTWARE. THE CONTRACT IN QUESTION WAS FOR SUPPLY/E XPORT OF SOFTWARE AND ON CANCELLATION OF THAT CONTRACT FOR SUPPLY OF SOFTWARE THE ASSESSEE RECEIVED THE COMPENSATION WHICH IS NOTHING BUT INCOME DERIVED FROM THE SAID UNDERTAKING FROM THE MAIN BUS INESS ACTIVITY OF THE SUPPLY/EXPORT OF SOFTWARE. THEREFORE FOLLOWIN G THE DECISION OF THE DELHI BENCH IN THE CASE SONY INDIA PVT. (SUPRA) WE ARE OF THE VIEWI THAT THE AMOUNT RECEIVED BY THE ASSESSEE AS C OMPENSATION ON ACCOUNT OF CANCELLATION OF THE CONTRACT IN RELATION TO EXPORT OF SOFTWARE WOULD CONSTITUTE AS ITS BUSINESS INCOME AND WILL BE PART OF PROFITS OF BUSINESS OF THE UNDERTAKING AND THEREFORE ELIGIBL E FOR DEDUCTION U/S 10A. 16. SINCE THE ALTERNATE ISSUE RAISED IN THE CROSS O BJECTION HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE THEREFORE WE DO NOT PROPOSE TO GO INTO THE ISSUE OF THE NATURE OF THE AMOUNT WHETHER CAPITAL OR REVENUE ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 14 IN NATURE. ACCORDINGLY THE APPEAL OF THE REVENUE RELATES TO THE GROUND NO.2 FAILS AND GROUND NO.1 OF THE CROSS- OBJECTION OF THE ASSESSEE IS ALLOWED. 17. GROUND NO.2 OF THE REVENUES APPEAL IS REGARDI NG EXCLUSION OF THE EXPENSES BOTH FROM EXPORT TURNOVER AS WELL AS F ROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A. 18. THE ASSESSING OFFICER HAS REDUCED THE EXPENSES TOWARDS TRAVEL AND DATA COMMUNICATION SERVICES AMOUNTING TO RS.28 66 482/- FROM THE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION U /S 10A. ON APPEAL THE CIT(A) HAS DIRECTED THE AO TO REDUCE TH E EXPENSES RELATING TO TRAVEL AND DATA COMMUNICATION SERVICES FROM THE TOTAL TURNOVER ALSO AND ACCORDINGLY CALCULATED THE DEDUCT ION AVAILABLE TO THE ASSESSEE U/S 10A. THE CIT(A) HAS FOLLOWED THE DEC ISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI 349 ITR 98. 19. AT THE OUTSET WE NOTE THAT THIS ISSUE OF EXCLU SION OF THE EXPENSES INCURRED IN FOREIGN EXCHANGE FROM THE EXPO RT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER IS SETTLED BY THE JUDGMENT OF HONBLE ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 15 JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI (SUPRA) WHERE IN THE HONBLE HIGH COURT HAS HELD IN PARA 17 AND 18 A S UNDER : 17. FROM THE AFORESAID JUDGMENTS WHAT EMERGES IS THAT THERE SHOULD BE UNIFORMITY IN THE INGREDIE NTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10A IS A BENEFICIAL SEC TION. IT IS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATA BLE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS THE LEGISLATURE INTENDED TO HAVE A FORMUL A TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON T HE BASIS OF TURNOVERS. APPORTIONMENT ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE CASE OF SECTION 80HHC THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSIN ESS INCOME OF THE ASSESSEE WHEREAS IN SECTION 10A THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSIN ESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS O F AN UNDERTAKING IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS IN OTHER WORDS EXPORT TURNOVER AND DOMESTIC TURNOVER. THE EXPORT TURNOVER WOULD B E A COMPONENT OR PART OF A DENOMINATOR THE OTHER COMPONENT BEING THE DOMESTIC TURNOVER. IN OTHER ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 16 WORDS TO THE EXTENT OF EXPORT TURNOVER THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IN VIEW OF THE COMMONALITY THE UNDERSTANDING SHOULD ALSO BE THE SAME. IN OTHER WORDS IF THE EXPORT TURNOVER IN TH E NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTA IN EXPENSES THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER N THE DENOMINATOR. THE REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFOR E THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN SECTION 10A THERE IS NOTHING IN THE S AID SECTION TO MANDATE THAT WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELES S FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISLATURE A ND AN ORDINARY MEANING IS TO BE ATTRIBUTED TO THE SAME THE SAID ORDINARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHI CH IT IS USED. WHEN THE STATUE PRESCRIBES A FORMULA A ND IN THE SAID FORMULA EXPORT TURNOVER IS DEFINED AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 17 WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER S UCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLAT IVE INTENT AND IMPERMISSIBLE. IF THAT WERE THE INTENTI ON OF THE LEGISLATURE THEY WOULD HAVE EXPRESSLY SATED SO . IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHAT TH E TOTAL TURNOVER MEANS THEN WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER THE MEANING ASSIGNED BY T HE LEGISLATURE TO THE EXPORT TURNOVER IS TO BE RESPECT ED AND GIVEN EFFECT TO WHILE INTERPRETING THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFORE THE FORMULA FOR COMPUTATION OF THE DEDUCTION US 10A WOULD BE AS UNDER: PROFITS OF THE BUSINESS EXPORT TURNOVER OF THE UNDERTAKING X --------------------------- ------------------- (EXPORT TURNOVE R + DOMESTIC TURNOVER) TOTAL TURNOVER IN THAT VIEW OF THE MATTER WE DO NOT SEE ANY ERRO R COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENT S RENDERED I THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAM E. THEREFORE WE DO NOT SEE ANY MERIT IN THESE APPEALS . THE SUBSTANTIAL QUESTION OF LAW FRAMED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 18 20. FOLLOWING THE JUDGMENT OF HONBLE JURISDICTIONA L HIGH COURT (SUPRA) WE DO NOT FIND ANY ERROR OR LEGALITY IN TH E ORDER OF CIT(A) QUA THIS ISSUE. 21. GROUND NO.4 IS REGARDING SETTING OFF OF BROUG HT FORWARD LOSSES. 22. IN THE ASSESSMENT THE AO DISALLOWED THE SET OF F OF BROUGHT FORWARD LOSS OF PRIOR YEAR. ON APPEAL THE CIT(A) H AS SET ASIDE THE ISSUE WITH THE DIRECTION THAT THE AO TO ALLOW SET O FF OF BROUGHT FORWARD LOSSES AS PER LAW. 23. FOR THE ASSESSMENT YEAR 2006-07 THE CIT(A) HAS DECIDED THIS ISSUE ON MERIT AND ALLOWED THE CLAIM OF THE ASSESSE E ACCORDINGLY THE DEDUCTION U/S 10A WAS ALLOWED ON CURRENT YEARS PROF IT ON ELIGIBLE UNIT WITHOUT BROUGHT FORWARD LOSSES AND UNABSORBED DEPRE CIATION BEING SET OFF. 24. WE HAVE HEARD LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 19 25. AT THE OUT SET WE NOTE THAT THE ISSUE ON THE S ETTING OFF OF BROUGHT FORWARD LOSSES AFTER ALLOWING THE DEDUCTION U/S 10A IS NOW COVERED BY THE JUDGMENT OF HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT(A) VS. YOKOGOWA (SUPRA) WHEREIN HONBL E HIGH COURT HAS HELD THAT THE DEDUCTION U/S 10A IS ALLOWABLE ON THE RELEVANT YEARS PROFITS OF THE ELIGIBLE UNIT WITHOUT BROUGHT FORWA RD LOSSES AND UNABSORBED DEPRECIATION BEING SET OFF IN PARA 17 TO 19 READ AS UNDER: 17. THE SUBSTITUTED SECTION 10A CONTINUES TO REMAIN IN CHAPTER III. IT IS TITLED AS INCOMES WH ICH DO NOT FORM PART OF TOTAL INCOME. IT MAY BE NOTED TH AT WHEN SECTION 10A WAS RECAST BY THE FINANCE ACT 200 1 PARLIAMENT WAS AWARE OF THE CHARACTER OF RELIEF GIV EN IN CHAPTER III. CHAPTER III DEALS WITH INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME. IF PARLIAMENT INTEN DED THAT THE RELIEF U/S 10A SHOULD BE BY WAY OF DEDUCTI ON IN THE NORMAL COURSE OF COMPUTATION OF TOTAL INCOME I T COULD HAVE PLACED THE SAME IN CHAPTER VI-A WHICH HOUSES THE SECTIONS LIKE 80HHC 80-IA ETC. PARLIAM ENT WAS AWARE OF THE VARIOUS RESTRICTING AND LIMITING PROVISIONS LIKE SEC. 80A AND SEC. 80AB WHICH WAS IN CHAPTER VI-A WHICH DO NOT APPEAR IN CHAPTER III. T HE FACT THAT EVEN AFTER ITS RECAST THE RELIEF HAS BEE N RETAINED IN CHAPTER III INDICATES THAT THE INTENTIO N OF PARLIAMENT IT IS TO BE REGARDED AS AN EXEMPTION AND NOT ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 20 A DEDUCTION. THE ACT OF PARLIAMENT IN CONSCIOUSLY RETAINING THIS SECTION IN CHAPTER III INDICATES ITS INTENTION THAT THE NATURE OF RELIEF CONTINUES TO BE AN EXEMPTION. CHAPTER VII DEALS WITH THE INCOMES FORM ING PART OF THE TOTAL INCOME ON WHICH NON INCOME-TAX IS PAYABLE. THESE ARE THE INCOMES WHICH ARE EXEMPTED FROM CHARGE BUT ARE INCLUDED IN THE TOTAL INCOME O F THE ASSESSE. PARLIAMENT DESPITE BEING CONVERSANT WITH THE IMPLICATIONS OF THIS CHAPTER HAS CONSCIOUSLY CHOS EN TO RETAIN SEC. 10A IN CHAPTER III. 18. IF SECTION 10A IS TO BE GIVEN EFFECT TO A DEDUCTION FROM THE TOTAL INCOME AS DEFINED IN SECT ION 2(45) IT WOULD MEAN THAT SECTION 10A IS TO BE CONSIDERED AFTER CHAPTER VI-A DEDUCTIONS HAVE BEEN EXHAUSTED. THE DEDUCTIONS UNDER CHAPTER VI-A ARE T O BE GIVEN FROM OUT OF THE GROSS TOTAL INCOME. THE T ERM GROSS TOTAL INCOME IS DEFINED IN SEC. 80B(5) TO M EAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER. AS PER THE DEFINITION OF GROSS TOTAL INCME THE OTHER PROVISIONS OF THE ACT WILL HAVE TO BE FIRST GIVEN EFFECT TO. THERE IS NO REASON WHY REFE RENCE TO THE PROVISIONS OF THE ACT SHOULD NOT INCLUDE SECTIO N 10A. IN OTHER WORDS THE GROSS TOTAL INCOME WOULD BE ARR IVED AT AFTER CONSIDERING SECTION 10A DEDUCTION ALSO. THEREFORE IT WOULD BE INAPPROPRIATE TO CONCLUDE TH AT ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 21 SECTION 10A DEDUCTION IS TO BE GIVEN EFFECT TO AFTE R CHAPTER VI-A DEDUCTION ARE EXHAUSTED. 19. IT IS AFTER THE DEDUCTION UNDER CHAPTER VI-A THAT THE TOTAL INCOME OF AN ASSESSEE AS ARRIVED AT CHAPTER VI-A DEDUCTIONS ARE THE LAST STAGE OF GIVIN G EFFECT TO ALL TYPES OF DEDUCTIONS PERMISSIBLE UNDER THE ACT. AT THE END OF THIS EXERCISE THE TOTAL INCOME IS ARRIVED AT. TOTAL INCOME IS THUS A FIGURE ARRIVED AT AFTER GIVING EFFECT TO ALL DEDUCTIONS UNDER THE ACT . THERE CANNOT BE ANY FURTHER DEDUCTION FROM THE TOTAL INCO ME AS THE TOTAL INCOME IS ITSELF ARRIVED AT AFTER ALL DEDUCTIONS. 26. IN VIEW OF THE BINDING JUDGMENT OF HONBLE JURI SDICTIONAL HIGH COURT WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE FOR BOTH THE ASSESSMENT YEARS. 27. NOW WE WILL TAKE UP GROUND NO.2 OF THE CROSS-OB JECTION FOR THE ASSESSMENT YEAR 2005-06 RELATING TO RE-IMBURSEMENT OF TRAVELLING EXPENSES AMOUNTING TO RS.2.27 325/- TO BE INCLUDED IN THE PROFIT OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S 10A OF THE A CT. ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 22 28. WE HAVE HEARD THE LEARNED DR AND LEARNED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD 29. THE LEARNED AR HAS POINTED THAT THIS ISSUE HAS NOT BEEN ADJUDICATED BY THE CIT(A). HE HAS FURTHER CONTENTE D THAT THE AMOUNT RECEIVED BY THE ASSESSEE BEING REIMBURSEMENT OF TRA VELING EXPENSES EITHER TO BE INCLUDED IN THAT EXPORT TURNOVER AS WE LL AS TOTAL TURNOVER OR THE NET AMOUNT SHOULD BE INCLUDED IN THE PROFITS OF BUSINESS. 30. SINCE THIS ISSUE HAS NOT BEEN ADJUDICATED BY TH E CIT(A) THEREFORE WE REMIT THIS ISSUE TO THE RECORD OF THE CIT(A) FOR ADJUDICATION OF THE SAME ON MERIT AFTER GIVING AN O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. 31. THE GROUND NO.3 OF CROSS-OBJECTION IS REGARDING DISALLOWANCE OF DEDUCTION U/S 10A IN RESPECT OF DEEMED EXPORT O N ACCOUNT OF SALE TO ANOTHER STP UNIT. 32. THE ASSESSEE CLAIMED DEDUCTION U/S 10A BY INCLU DING AN AMOUNT OF RS.1 00 43 496/- IN THE EXPORT TURNOVER W HICH RELATES TO THE SOFTWARE SUPPLY TO ANOTHER STP UNIT M/S ANALOG DEV ICES INDIA PVT. ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 23 LTD. THE ASSESSEE CLAIMED THAT THIS AMOUNT OF RS.1 00 43 496/- SHOULD BE TREATED AS DEEMED EXPORT AS PER THE DEFIN ITION OF EXPORT TURNOVER U/S 10A AS THE RECEIPT IN QUESTION IS CONV ERTIBLE FOREIGN EXCHANGE IN INDIA. THE AO DISALLOWED THE CLAIM OF T HE ASSESSEE FOR DEEMED EXPORT IN RESPECT OF SOFTWARE SUPPLIED TO TH E ANALOG INDIA PVT. LTD. AS STP UNIT. 33. BEFORE US THE LEARNED AR OF THE ASSESSEE HAS S UBMITTED THAT THE CIT(A) HAS NOT ADJUDICATED THIS ISSUE. HOWEVER TH IS ISSUE IS NOW COVERED BY THE DECISION OF THE HONBLE JURISDICTION AL HIGH COURT DATED 20/10/2014 IN THE CASE OF M/S TATA ELXSI LTD. IN ITA 411/ 2008. 34. ON THE OTHER HAND THE LEARNED DR HAS SUBMITTED THAT WHEN THE ISSUE HAS NOT BEEN ADJUDICATED BY THE CIT(A) THEN THE PROPER REMEDY IS BEFORE THE CIT(A) AND NOT IN APPEAL BEFORE THI S TRIBUNAL. 35. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 24 36. AT THE OUTSET WE NOTE THAT THE ISSUE OF DEEMED EXPORT IN RESPECT OF THE SALE TO ANOTHER STP UNIT HAS BEEN CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD. VIDE JUDGMENT DATED 20/10/2014 (SUPRA) IN PARA 20 AND 21 AS UND ER :- FROM THE AFORESAID PROVISIONS IT IS CLEAR THAT I F A ASSESSEE WANTS TO CLAIM THE BENEFIT OF SECTION 10 A FIRSTLY HE MUST EXPORT ARTICLES OR THINGS OR COMPUT ER SOFTWARE. SECONDLY THE SAID EXPORT MAY BE DONE DIRECTLY BY HIM OR THROUGH OTHER EXPORTER AFTER FUL FILLING THE CONDITIONS MENTIONED THEREIN. THIRDLY SUCH AN EXPORT SHOULD YIELD FOREIGN EXCHANGE WHICH SHOULD B E BROUGHT INTO THE COUNTRY. IF ALL THESE THREE CONDI TIONS ARE FULFILLED THEN THE OBJECT OF ENACTING SEC. 10A IS FULFILLED AND THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF EXEMPTION FROM PAYMENT OF INCOME TAX ACT ON THE PROFITS AND GAINS DERIVED BY THE UNDERTAKING FROM T HE EXPORT. CLAUSE 6.11 OF EXIM POLICY DEALING WITH ENTITLEMENT FOR SUPPLIES FROM THE DTA STATES THAT SUPPLIES FROM THE DTA TO EOU/EHTP/STP/BTP UNIT WILL BE REGARDED AS DEEMED EXPORT BESIDES BEING ELIGI BLE FOR RELEVANT ENTITLEMENT UNDER PARAGRAPH 6.12 OF TH E POLICY. THEY WILL ALSO BE ELIGIBLE FOR THE ADDITIO NAL ENTITLEMENTS MENTIONED THEREIN. WHAT IS OF IMPORTA NCE ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 25 IS WHEN A SUPPLY IS MADE FROM DTA TO STP IT DOES N OT SATISFY THE REQUIREMENTS OF EXPORT AS DEFINED UNDER THE CUSTOMS ACT. HOWEVER FOR THE PURPOSE OF EXIM POLI CY IT IS TREATED AS DEEMED EXPORT. THEREFORE WHEN SECTION 10A OF THE ACT WAS INTRODUCED TO GIVEN EFFE CT TO THE EXIM POLICY THE SUPPLIES MADE FROM ONE STP TO ANOTHER STP HAS TO BE TREATED AS DEEMED EXPORT BECAUSE CLAUSE 6.19 SPECIFICALLY PROVIDES FOR EXPOR T THROUGH STATUS HOLDER. IT PROVIDES THAT AN EOU/EHP/STP/BTP UNIT MY EXPORT GOODS MANUFACTURED/SOFTWARE DEVELOPED BY IT THROUGH OTHER EXPORTER OR STATUS HOLDER RECOGNIZED UNDER THIS POL ICY OR ANY OTHER EOU/EHTP/STP/SEZ/BTP UNIT. WHAT FOLLOWS FROM THIS PROVISION IS THAT TO BE ELIGIBLE FOR EXEM PTION FROM PAYMENT OF INCOME TAX EXPORT SHOULD EARN FOREI GN EXCHANGE. IT DOES NOT MEAN THAT THE UNDERTAKING SH OULD PERSONALLY EXPORT GOODS MANUFACTURED/SOFTWARE DEVELOPED BY IT OUTSIDE THE COUNTRY. IT MAY EXPORT OUT OF INDIA BY ITSELF OR EXPORT OUT OF INDIA THOUGH ANY O THER STP UNIT. ONCE THE GOODS MANUFACTURED BY THE ASSES SEE IS SHOWN TO HAVE BEEN EXPORTED OUT OF INDIA EITHER BY THE ASSESSEE OR BY ANOTHER STP UNIT AND FOREIGN EXCHANG E IS DIRECTLY ATTRIBUTABLE TO SUCH EXPORT THEN SECTION 1 0A OF THE ACT IS ATTRACTED AND SUCH EXPORTER IS ENTITLED TO BENEFIT OF DEDUCTION OF SUCH PROFITS AND GAINS DERI VED FROM SUCH EXPORT FROM PAYMENT OF INCOME-TAX. THEREFORE THE FINDING OF THE AUTHORITIES THAT THE ASSESSEE HAS NOT DIRECTLY EXPORTED THE COMPUTER SOFTWARE OUT SIDE ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 26 COUNTRY AND BECAUSE IT SUPPLIED THE SOFTWARE TO ANO THER STP UNIT WHICH THOUGH EXPORTED AND FOREIGN EXCHAN GE RECEIVED WAS NOT TREATED AS AN EXPORT AND WAS HELD TO BE NOT ENTITLED TO THE BENEFIT IS UNSUSTAINABLE IN LAW . THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. THE APPEAL IS ALLOWED. THE IMPUGNED ORDERS ARE SET ASIDE. THE ASSESSEE IS HELD TO BE ENTITLED TO DEDUCTION OF SUC H PROFITS AND GAINS DERIVED FROM THE EXPORT OF THE COMPUTER SOFTWARE. NO COSTS. 37. THEREFORE AS FAR AS THE ALLOWABILITY OF DEDUCT ION U/S 10A IN RESPECT OF THE SALE TO ANOTHER STP UNIT IN CONVER TIBLE FOREIGN EXCHANGE THIS ISSUE IS NOW COVERED BY THE ABOVE D ECISION OF HONBLE JURISDICTIONAL HIGH COURT. HOWEVER THIS ISSUE HAS NOT BEEN EXAMINED BY THE CIT(A) THEREFORE ONLY FOR THE LIMITED PURP OSE OF GIVING A FINDING THAT THE SALE IN QUESTION IS TO THE ANOTHER STP UNIT THE ISSUE IS REMITTED TO THE RECORD OF THE AO FOR VERIFICATION A ND THEN ALLOWING THE CLAIM OF THE ASSESSEE IF SALE IN QUESTION IS TO TH E ANOTHER STP UNIT. 38. FOR THE ASSESSMENT YEAR 2006-07 THE REVENUE RA ISED THE IDENTICAL ISSUES AS RAISED FOR THE ASSESSMENT YEAR 2005-06. ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 27 39. IN VIEW OF OUR FINDING FOR THE ASSESSMENT YEAR 2005-06 THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2006- 07 STANDS DISPOSED OFF IN SAME TERMS. + 40. IN THE CROSS OBJECTION NO.33/BANG/20015 FOR THE ASSESSMENT YEAR 2006-07 THE ASSESSEE HAS RAISED ONLY ONE GROU ND WHICH IS AN ADDITIONAL GROUND AND READS AS UNDER:- THE LEARNED AO AND THE LEARNED CIT(A) HAS ERRED IN NOT INCLUDING DEEMED EXPORTS OF RS.12 75 596/- A S PART OF EXPORT TURNOVER IN COMPUTING DEDUCTION U/S 10A . 41. SINCE THIS ISSUE HAS BEEN CONSIDERED WHILE DECI DING THE CROSS OBJECTION NO.32/BANG/2015. ACCORDINGLY THE SAME IS SET ASIDE TO THE RECORD OF AO FOR THE LIMITED PURPOSE OF VERIFYING O N THE SAME TERMS. 42. IN THE RESULT THE APPEALS FILED BY THE REVENU E ARE DISMISSED AND THE CROSS-OBJECTIONS FILED BY THE ASSESSEE ARE ALLO WED IN PART. ITA NOS.1253 & 1 254/B/14 CO NOS.32 & 33/B/15 28 ORDER PRONOUNCED IN THE OPEN COURT ON 31 JUL 2015. SD/- SD/- (JASON P BOAZ) (VIJAYPAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 31/7/2015 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR I TAT BANGALORE.