DCIT, Bangalore v. M/s Hewlett Packard Global Soft Pvt. Ltd.,, Bangalore

ITA 1371/BANG/2015 | 2009-2010
Pronouncement Date: 30-09-2016 | Result: Dismissed

Appeal Details

RSA Number 137121114 RSA 2015
Bench Bangalore
Appeal Number ITA 1371/BANG/2015
Duration Of Justice 10 month(s) 17 day(s)
Appellant DCIT, Bangalore
Respondent M/s Hewlett Packard Global Soft Pvt. Ltd.,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 30-09-2016
Date Of Final Hearing 21-09-2016
Next Hearing Date 21-09-2016
Assessment Year 2009-2010
Appeal Filed On 12-11-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE S HRI VIJAY PAL RAO JUDICIAL MEMBER AND SHRI S. JAYARAMAN ACCOUNTANT MEMBER I.T . A. NO. 1371 /BANG/20 15 (ASSESSMENT YEAR : 20 09 - 10 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 3(1)(2) BANG ALORE. . APPELLANT. VS. M/S. HEWLETT PACKARD GLOBAL SOFT PVT. LTD. NO.39 40 ELECTRONIC CITY PHASE I BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI D EEPAK R.L. ADDL. CIT (D.R) R E SPONDENT BY : SHRI ANUR PAI DHUNGAT C.A. DATE OF H EARING : 21.9.2016. DATE OF P RONOUNCEMENT : 30. 09 .201 6 . O R D E R PER SHRI VIJAY P AL RAO J .M . : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DT.30.7.2015 OF COMMISSIONER OF INCOME TAX (APPEALS) - 3 BENGALURU FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 2 IT A NO. 1371 /BANG/201 5 3. THE ONLY ISSUE ARISES IN THE APPEAL OF THE REVENUE IS REGARDING RESTRICTION OF CLAIM OF DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT 1961 (IN SHORT 'THE ACT') BY REDUCING THE TELECOMMUNICATION EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER. 4. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL AS LEARNED AUTHORISED REPRESENTATIVE AND PERUSED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE IS COVERED BY HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS. TATA ELXSI LTD. 349 ITR 98 (KAR) . A SIMILAR ISSU E HAS BEEN RAISED BY THE REVENUE REGARDING EXCLUSION OF TELECOMMUNICATION AND TRAVEL EXPENSES FROM EXPORT TURNOVER WHICH IS 3 IT A NO. 1371 /BANG/201 5 COVERED BY THE DECISION IN THE CASE OF TATA ELXSI LTD. (SUPRA). THE HON'BLE H IGH COURT WHILE DEALING WITH THE DEFINITION OF EXPORT TURNOVER AS WELL AS TOTAL TURNOVER AS PER THE PROVISIONS OF SECTION 10A HAS HELD AS UNDER : 10. THE BOMBAY HIGH COURT HAD AN OCCASION TO CONSIDER THE MEANING OF THE WORD 'TOTAL TURNOVER' IN T HE CONTEXT OF SECTION 10 - A IN THE CASE OF CIT V. GEM PLUS JEWELLERY INDIA LTD. [2011] 330 ITR 175 [2010] 194 TAXMAN 192 ( BOM.). INTERPRETING SUB - SECTION (4) OF SECTION 10 - A IT IS HELD AS UNDER: 'UNDER SUB - SECTION (4) THE PROPORTION BETWEEN THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES OR THINGS OR AS THE CASE MAY BE COMPUTER SOFTWARE EXPORTED TO THE TOTAL TURNOVER OF THE BUS INESS CARRIED OVER BY THE UNDER - TAKING IS APPLIED TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN COMPUTING THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN COMPUTING THE PROFITS DERIVED FROM EXPORT. IN OTHER WORDS THE PROFITS OF THE BUSINESS OF THE UNDERTAKING ARE MULTIPLIED BY THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES THINGS OR AS THE CASE MAY BE COMPUTER SOFTWARE AND DIVIDED BY THE TOTAL TURNOVER OF THE BUSINESS CARRIED OR BY THE UNDERTAKING. THE FORMULA WHICH IS PRESCRIBED BY SUB - SECTION (4) OF SECTION 10A IS 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 INASMUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE = PROFITS OF THE BUSINESS OF THE UND ERTAKING X EXPORT TURNOVER IN RESPECT OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING 4 IT A NO. 1371 /BANG/201 5 THE EXPORT TURNOVER IN THE NUMERATOR MUST HAVE THE SAME MEANING AS THE EXPORT TURNOVER WHICH IS A CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION 'EXPORT TURNOVER' IN EXPLANATION 2 TO SECTION 10A BY WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERT AKING OF ARTICLES THINGS OR COMPUTER SOFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGHT TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICL ES THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGISLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE HOWEVER MISSES THE POINT THAT THE EXPRESSION 'TOTAL TURNOVER' HAS NOT BEEN DEFINED AT AL L BY PARLIAMENT FOR THE PURPOSES OF SECTION 10A. HOWEVER THE EXPRESSION 'EXPORT TURNOVER' HAS BEEN DEFINED. THE DEFINITION OF 'EXPORT TURNOVER' EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BE PARLIAMENT AND THERE IS A SPECIFIC EXC LUSION OF FREIGHT AND INSURANCE THE EXPRESSION 'EXPORT TURNOVER' CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY IT WAS OPEN TO PARLIAMENT TO MAKE A PR OVISION TO THE CONTRARY. HOWEVER NO SUCH PROVISION HAVING BEEN MADE THE PRINCIPLE WHICH HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF TH E REVENUE WERE TO BE ACCEPTED THE SAME EXPRESSION VIZ. 'EXPORT TURNOVER' WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE THOUGH IT HAS BEEN SPE CIFICALLY EXCLUDED FROM 'EXPORT TURNOVER' FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PART OF THE 'EXPORT TURNOVER' WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISION WHICH W OULD LEAD TO AN ABSURDITY MUST BE AVOIDED.' 5 IT A NO. 1371 /BANG/201 5 THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO V. SAK SOFT LTD. [2009] 313 ITR (AT) 353/ 30 SOT 55 (CHENNAI) ALSO HAD AN OCCASION TO CONSIDE R THE MEANING OF THE WORD 'TOTAL TURNOVER'. AFTER REFERRING TO THE VARIOUS JUDGMENTS OF THE HIGH COURT AS WELL AS THE SUPREME COURT HELD AS UNDER: '53. FOR THE ABOVE REASONS WE HOLD THAT FOR THE PURPOSE OF APPLYING THE FORMULA UNDER SUB - SECTION (4) OF SEC TION 10 - B THE FREIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA ARE TO BE EXCL UDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA.' THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 10 - A WOULD BE AS UNDER: PROFITS OF THE BUSINESS X EXPORT TU RNOVER TOTAL TURNOVER FROM THE AFORESAID JUDGMENTS WHAT EMERGES IS THAT THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10 - A IS A BENEFICIAL SECTION. IT IS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS THE LEGISLATURE INTEND ED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE EASE OF SECTION 80HHC THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSESSEE WHEREAS IN SECTION 10 - A THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKIN G IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS IN OTHER WORDS EXPORT TURNOVER AND DOMESTIC TURNOVER. THE EXPORT TURNOVER WOULD BE A COMPONENT OR PART OF A DENOMINATOR THE OTHER COMPONENT BEING THE DOMESTIC TURNOVER. IN OTHER WORDS TO THE EXTEN T OF EXPORT TURNOVER THERE WOULD BE A COMMONALITY BETWEEN THE 6 IT A NO. 1371 /BANG/201 5 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 THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN 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. THEREFORE THOUGH THERE IS NO DEFINITION OF THE TERM 'TOTAL TURNOVER' IN SECTION 10 - A THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISLATURE AND 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 TH E CONTEXT IN WHICH IT IS USED. WHEN THE STATUTE PRESCRIBES A FORMULA AND 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 WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER WHEN THE EXPORT TURNOVER IS A COMPONE NT OF TOTAL TURNOVER SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. IF THAT WERE THE INTENTION OF THE LEGISLATURE THEY WOULD HAVE EXPRESSLY STATED SO. IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHAT THE TOTAL TURNO VER MEANS THEN WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER THE MEANING ASSIGNED BY THE LEGISLATURE TO THE EXPORT TURNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO WHILE INTERPRETING THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THERE FORE THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 10 - A WOULD BE AS UNDER: PROFITS OF THE BUSINESS OF THE UNDERTAKING X EXPORT TURN OVER (EXPORT TURNOVER + DOMESTIC TURN OVER) TOTAL TURN OVER 11. IN THAT VIEW OF THE MATTER WE DO NOT SEE ANY ERROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENTS RENDERED IN THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10 - A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME. THEREFORE WE DO NOT SEE ANY MERIT IN THESE A PPEALS. THE SUBSTANTIAL QUESTION OF LAW FRAMED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7 IT A NO. 1371 /BANG/201 5 FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD. (SUPRA) THE GROUND OF THE REVENUE S APPEAL STAND DIS MISSED. 5. IN THE RESULT THE REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH DAY OF SEPT. 201 6 . SD/ - ( S. JAYARAMAN ) ACCOUNTANT MEMBER SD/ - ( VIJAY PAL RAO ) JUDICIAL MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE. BY ORDER ASST. REGISTRAR ITAT BANGALORE