Cerner Healthcare Solutions Private Limited, Bangalore v. ITO, Bangalore

ITA 626/BANG/2011 | 2005-2006
Pronouncement Date: 27-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 62621114 RSA 2011
Assessee PAN AACCC3795R
Bench Bangalore
Appeal Number ITA 626/BANG/2011
Duration Of Justice 8 month(s) 27 day(s)
Appellant Cerner Healthcare Solutions Private Limited, Bangalore
Respondent ITO, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 27-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 27-02-2012
Assessment Year 2005-2006
Appeal Filed On 30-05-2011
Judgment Text
PAGE 1 OF 9 ITA NO.62 6/BANG/2011 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N K SAINI ACCOUNANT MEMBER AND SHRI GEORGE GEORGE K JUDICIAL MEMBER ITA NO.626/BANG/2011 (ASST. YEAR 2005-06) M/S CERNER HEALTHCARE SOLUTIONS (P) LTD. LEVEL- III PRESTIGE OBELISK NO.3 KASTURBA ROAD BANGALORE. PA NO.AACCC3795R VS THE INCOME TAX OFFICER WARD-11(1) BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING 27.02.2012 DATE OF PRONOUNCEMENT 27.02.2012 APPELLANT BY : SHRI CHAVALI NARAYAN C.A. RESPONDENT BY : SMT. SUSAN THOMAS JOSE JCIT O R D E R PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-I BANGALORE DATED 16.03.20 11. THE RELEVANT ASSESSMENT YEAR IS 2005-06. 2. THE ASSESSEE HAS RAISED 9 GROUNDS OF APPEAL. G ROUND NUMBERS 1 TO 5 ARE GENERAL IN NATURE AND NO SPECIFIC ADJUDI CATION IS CALLED FOR. HENCE THESE GROUNDS ARE DISMISSED. 3. GROUND NO.9 RELATES TO THE ISSUE OF LEVY OF INTE REST UNDER SECTION 234B OF THE ACT. THE LEVY OF INTEREST UNDER SECTION 234B OF THE PAGE 2 OF 9 ITA NO.62 6/BANG/2011 2 ACT IS MANDATORY AND CONSEQUENTIAL IN NATURE. HENCE THIS GROUND IS REJECTED. 4. IN THE COURSE OF HEARING GROUND NO.6 WAS NOT P RESSED BY THE LEARNED AR AND HENCE THIS GROUND IS DISMISSED AS N OT PRESSED. 5. THE SURVIVING GROUNDS NAMELY GROUND NO.7 AND 8 READ AS FOLLOWS:- 7) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND IN FACTS BY NOT CONSIDERING THE ALTERNATIVE PLEA OF THE APPELLANT THAT IF THE INTERNET CHARGES ARE ATTRIBUT ABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA ARE REDUCED FROM EXPORT TURNOVER AN EQUAL AMOUNT SHO ULD ALSO BE REDUCED FROM TOTAL TURNOVER IN COMPUTING THE ELIGIBLE DEDUCTION UNDER SECTION 10A OF THE ACT. 8) THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND IN FACTS IN RESTRICTING THE DEDUCTION AVAILABLE UNDER SECTION 10A OF THE ACT TO RS.29 58 197/-. 6. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IN THE RETURN OF INCOME THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 17 40 717/- U NDER SECTION 10A OF THE ACT. THE SCRUTINY ASSESSMENT WAS COMPLETED UNDER SE CTION 143(3) OF THE ACT VIDE ORDER DATED 14/11/2008 WHEREIN DEDUCTION U NDER SECTION 10A WAS RECOMPUTED. THE ASSESSING OFFICER REDUCED THE ENTI RE INTERNET CHARGES AMOUNTING TO RS.5 60 469/- FROM THE EXPORT TURNOVER AS BEING ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. THE ASSESSING OFFICER HOWEVER DID NOT MAKE ANY CORRESPONDING ADJUSTMENT T O THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION UNDER SECTION 10A OF TH E ACT. PAGE 3 OF 9 ITA NO.62 6/BANG/2011 3 7. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 8. BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESS EE CONTENDED THAT THE INTERNET CHARGES OF RS.5 60 649/- OUGHT NO T TO BE REDUCED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. ALTERNATIVELY IT WAS CONTENDED THAT IF THE ABO VE SAID EXPENSES ARE REDUCED FROM THE EXPORT TURNOVER THE SAME SHOULD A LSO BE REDUCED FROM THE TOTAL TURNOVER TO ARRIVE AT THE CLAIM UNDER SEC TION 10A OF THE ACT. 9. THE CIT(A) REJECTED BOTH THE CONTENTIONS OF THE ASSESSEE. HE FOLLOWED HIS ORDER IN ASSESSEES OWN CASE FOR THE A SSESSMENT YEAR 2006-07 AND DISMISSED THE APPEAL OF THE ASSESSEE. 10. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFO RE US. 11. THE LEARNED AR SUBMITTED THAT THE ISSUE IN QUE STION IS SQUARELY COVERED BY THE JUDGEMENT OF THE HONBLE KARNATAKA HI GH COURT IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OTHERS (2011-TIOL-68 4-HC-KAR-II) HONBLE MUMBAI HIGH COURT IN THE CASE OF CIT V GEM PLUS JEW ELLERY INDIA LTD. 330 ITR 175 AND THE ORDER OF THE SPECIAL BENCH IN THE C ASE OF ITO V M/S SAK SOFT LTD. 313 ITR (AT) 353. IT WAS ALSO POINTED OU T THAT THE TRIBUNAL HAS REVERSED THE ORDER OF THE CIT(A) IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 (ITA NO.627/BANG/2011 DATED 16/12/2011) AND DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE. A COPY OF THE ORD ER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 WAS PLACED ON RECORD. PAGE 4 OF 9 ITA NO.62 6/BANG/2011 4 12. THE LEARNED DR WAS UNABLE TO CONTROVERT THE SU BMISSIONS OF THE LEARNED AR. 13. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSE D THE MATERIAL ON RECORD. THE HONBLE KARNATAKA HIGH COURT IN THE C ASE OF CIT V M/S TATA ELXSI LTD. & OTHERS HAD HELD THAT WHILE COMPUTING T HE EXEMPTION U/S 10A IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIV ED AT AFTER EXCLUDING CERTAIN EXPENSES THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER IN THE DENOMINATOR. THE RELEVANT FINDING OF THE HON BLE JURISDICTIONAL HIGH COURT READS AS FOLLOWS:- ..SECTION 10A IS ENACTED AS AN INCENTIVE TO EXP ORTERS TO ENABLE THEIR PRODUCTS TO BE COMPETITIVE IN THE G LOBAL MARKET AND CONSEQUENTLY EARN PRECIOUS FOREIGN EXCHAN GE FOR THE COUNTRY. THIS ASPECT HAS TO BE BORNE IN MIN D. WHILE COMPUTING THE CONSIDERATION RECEIVED FROM SUC H EXPORT TURNOVER THE EXPENSES INCURRED TOWARDS FREI GHT TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABL E 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 SERVIC ES OUTSIDE INDIA SHOULD NOT BE INCLUDED. HOWEVER THE WORD TOTAL TURNOVER IS NOT DEFINED FOR THE PURPOSE OF TH IS SECTION. IT IS BECAUSE OF THIS OMISSION TO DEFINE TOTAL TURNOVER THE WORD TOTAL TURNOVER FALLS FOR INTERPRETATION BY THIS COURT; ..IN SECTION 10A NOT ONLY THE WORD TOTAL TURNOVE R IS NOT DEFINED THERE IS NO CLUE REGARDING WHAT IS TO BE EXCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER. HOW EVER WHILE INTERPRETING THE PROVISIONS OF SECTION 80HHC THE COURTS HAVE LAID DOWN VARIOUS PRINCIPLES WHICH ARE INDEPENDENT OF THE STATUTORY PROVISIONS. THERE SHOU LD BE PAGE 5 OF 9 ITA NO.62 6/BANG/2011 5 UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10A I S A BENEFICIAL SECTION WHICH INTENDS TO PROVIDE INCENTI VES TO PROMOTE EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSIN ESS THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCER TAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNO VERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER W AS 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 BUSINESS INCOME OF THE ASSES SEE 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 UNDERTAKING IT MAY IN CLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS IN OTHER WOR DS EXPORT TURNOVER AND DOMESTIC TURNOVER. TO THE EXTE NT OF EXPORT TURNOVER THERE WOULD BE A COMMONALITY BETWEE N THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIV ED AT AFTER EXCLUDING CERTAIN EXPENSES THE SAME SHOULD A LSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. TH E REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TUR NOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERA TOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TU RNOVER IN SECTION 10A THERE IS NOTHING IN THE SAID SECTIO N TO MANDATE THAT WHAT IS EXCLUDED FROM THE NUMERATOR T HAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. WHEN THE STATUTE PRESCRIBED 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 TH E MEANING OF THE TOTAL TURNOVER WHEN THE TOTAL TURNO VER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN PAGE 6 OF 9 ITA NO.62 6/BANG/2011 6 COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARR IVING AT THE TOTAL TURNOVER WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. THUS THERE IS NO ERROR COMMITTED B Y THE TRIBUNAL IN FOLLOWING THE JUDGEMENTS RENDERED IN TH E CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10 A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME. 13.1 THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA) IN IDENTICAL CIRCUMSTA NCES HELD THAT SINCE THE EXPORT TURNOVER FORMS PART OF THE TOTAL TURNOVER I F AN ITEM IS EXCLUDED FROM THE EXPORT TURNOVER THE SAME SHOULD ALSO BE R EDUCED FROM THE TOTAL TURNOVER TO MAINTAIN PARITY BETWEEN NUMERATOR AND DE NOMINATOR WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. THE RELE VANT FINDING OF THE HONBLE MUMBAI HIGH COURT READS AS FOLLOWS:- THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPO RT 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 CONS TITUENT ELEMENT OF THE DENOMINATOR IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. THE EXPO RT TURNOVER IN THE NUMERATOR MUST HAVE THE SAME MEANI NG AS THE EXPORT TURNOVER WHICH IS CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION EXPORT TUR NOVER IN EXPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERT AKING OF ARTICLES THINGS OR COMPUTER SOFTWARE RECEIVED I N OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FO REIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGH T TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE PAGE 7 OF 9 ITA NO.62 6/BANG/2011 7 DELIVERY OF THE ARTICLES THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGI SLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURA NCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BE HALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHA RGES 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 D EFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF S.10A. HOW EVER THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGHT AN D INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FRE IGHT 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 PROVISION WHICH HAS BEEN ENUNCIATED EARLIER MUST PR EVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OT HER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE C ONTENTION OF THE REVENUE WERE TO BE ACCEPTED THE SAME EXPRES SION VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNO TATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSIO N OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE THOUGH THESE HAVE BEEN SPECIFICALLY EXCLU DED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUME RATOR WOULD BE BROUGHT IN AS PART OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMIN ATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISIO N WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVE R A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NO T HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTA L TURNOVER. FREIGHT AND INSURANCE CHARGES DO NOT HAV E ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURN OVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRI PTION TO THE CONTRARY CIT V SUDARSHAN CHEMICALS INDUSTRIES LTD. PAGE 8 OF 9 ITA NO.62 6/BANG/2011 8 (2000) 163 CTR (BOM) 596: (2000) 245 ITR 769 (BOM) APPLIED; CIT V LAKSHMI MACHINE WORKS (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) AND CIT V CATAPHARMA (IN DIA) (P) LTD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON 13.2. IN THE CASE OF SAK SOFT LTD. (SUPRA) THE AS SESSEE WAS ENGAGED IN THE BUSINESS OF EXPORTING COMPUTER SOFTWARE AND CLAIMED DEDUCTION U/S 10B OF THE ACT. IN COMPLETING THE ASSESSMENT U/S 1 43(3) OF THE ACT THE AO REDUCED THE EXPENDITURE INCURRED IN FOREIGN EXCH ANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA FROM THE EXPORT T URNOVER WITHOUT CORRESPONDING REDUCTION FROM TOTAL TURNOVER THEREB Y REDUCING THE DEDUCTION CLAIMED BY THE ASSESSMENT U/S 10B OF THE A CT. 13.3. IN LIGHT OF THE ABOVE FACTS THE SPECIAL BEN CH HELD AS UNDER:- FOR THE ABOVE REASONS WE HOLD THAT FOR THE PURPOS E OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTIO N 10B THE FREIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTA BLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE OUTSIDE INDIA OR THE EXPENSES IF ANY INCURRED IN F OREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSID E INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AN D FROM THE TOTAL TURNOVER WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. THE APPEAL S FILED BY THE DEPARTMENT ARE THUS DISMISSED. 13.4 IN THE LIGHT OF THE ABOVE JUDGEMENTS OF THE H IGH COURTS AND THE ORDER OF THE SPECIAL BENCH WE DIRECT THE ASSES SING OFFICER TO EXCLUDE THE ABOVE EXPENSES OF INTERNET CHARGES AMOUNTING TO RS.5 60 469/- BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE COMPUTING PAGE 9 OF 9 ITA NO.62 6/BANG/2011 9 DEDUCTION UNDER SECTION 10A OF THE ACT. HENCE GRO UND NOS.7 AND 8 IS ALLOWED. 14. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY OF FEBRUARY 2012 SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. T HE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR ITAT BANGALORE.