ITO, Bangalore v. M/s Manhattan Associates India Development Centre Pvt. Ltd.,, Bangalore

ITA 85/BANG/2011 | 2005-2006
Pronouncement Date: 22-11-2011 | Result: Dismissed

Appeal Details

RSA Number 8521114 RSA 2011
Assessee PAN AADCM0727A
Bench Bangalore
Appeal Number ITA 85/BANG/2011
Duration Of Justice 9 month(s) 21 day(s)
Appellant ITO, Bangalore
Respondent M/s Manhattan Associates India Development Centre Pvt. Ltd.,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 22-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 22-11-2011
Assessment Year 2005-2006
Appeal Filed On 31-01-2011
Judgment Text
PAGE 1 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N BARATHVAJA SANKAR VICE PRESIDENT AND SHRI GEORGE GEORGE K J.M ITA NOS.114 & 115/BANG/2011 (ASST. YEARS 2004-05 & 2005-06) M/S MANHATTAN ASSOCIATES (INDIA) DEVELOPMENT CENTRE PRIVATE LIMITED 170 171 & 172 EPIP ZONE PHASE II WHITEFIELD BANGALORE-560 066. - APPELLANT PA NO.AADCM0727A VS THE INCOME TAX OFFICER WARD-12(1) BANGALORE. - RESPONDENT ITA NOS.84 & 85/BANG/2011 (ASST. YEARS 2004-05 & 2005-06) (BY REVENUE) DATE OF HEARING : 22/11/2011 DATE OF PRONOUNCEMENT : 22/11/2011 APPELLANT BY : SHRI R VIJAYA RAGHAVAN C.A. RESPONDENT BY : SMT. SUSAN THOMAS JOSE JCIT O R D E R PER GEORGE GEORGE K : THESE APPEALS INSTITUTED BY BOTH THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST SEPARATE ORDERS OF THE CIT(A)-III BANGALORE. THE RELEVANT ASST. YEARS ARE 2004-05 AND 2005-06. PAGE 2 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 2 2. SINCE THERE ARE CERTAIN COMMON ISSUE INVOLVED I N THESE APPEALS AND PERTAIN TO THE SAME ASSESSEE THEY ARE DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. IN REVENUES APPEAL THE FOLLOWING EFFECTIVE GR OUND IS RAISED:- ITA NO.84/BANG/2011 THE CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE TELECOMMUNICATION EXPENSES OF RS.46 22 836/- ATTRIB UTABLE TO DELIVERY OF SOFTWARE FROM TOTAL TURNOVER ALSO FOR PU RPOSES OF COMPUTATION OF DEDUCTION U/S 10A OF THE I T ACT 19 61. ITA NO.85/BANG/2011 THE CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE TELECOMMUNICATION EXPENSES OF RS.49 40 250/- TRAVE L AND ONSITE EXPENSES AMOUNTING TO RS.15 79 925/- WHICH A RE INCURRED FOR DELIVERY OF SOFTWARE FROM TOTAL TURNOVER ALSO FO R PURPOSES OF COMPUTATION OF DEDUCTION U/S 10A OF THE I T ACT 1961. 4. BRIEFLY STATED THE FACTS IN RELATION TO REVENUE S APPEALS ARE AS FOLLOWS:- FOR THE ASST. YEAR 2004-05 THE ASSESSEE HAD FILED THE RETURN OF INCOME ON 29.10.2004 DECLARING AN INCOME OF RS.2 89 077/-. THE ASSESSEE HAD CLAIMED DEDUCTION U/S 10A OF THE ACT AMOUNTING TO RS.4 83 37 786/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD INCURRED TELECOMMUNICATION CHARGES OF RS.46 22 836/-. THE AO HELD THAT THE ABOVE SAID EXPENSES OF RS.46 22 83 6/- WERE EXPENSES ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OU TSIDE INDIA AND THEREFORE IN ACCORDANCE WITH CLAUSE (IV) OF EXPLAN ATION 2 APPEARING BELOW PAGE 3 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 3 SUB-SECTION 8 OF SECTION 10A OF THE ACT THE AO RED UCED THE SAID EXPENSES FROM EXPORT TURNOVER IN COMPUTING DEDUCTION U/S 10A OF THE ACT. WHILE REDUCING THE ABOVE SAID EXPENSES FROM THE EXPORT TU RNOVER THE AO DID NOT REDUCE THE SAME FROM THE TOTAL TURNOVER WHILE CALCU LATING DEDUCTION U/S 10A OF THE ACT. 4.1 FOR THE ASST. YEAR 2005-06 THE ASSESSEE HAD FI LED RETURN OF INCOME ON 29.10.2005 DECLARING AN INCOME OF RS.2 25 440/-. THE ASSESSEE HAD CLAIMED DEDUCTION U/S 10A AMOUNTING TO RS.10 07 36 379/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THA T THE ASSESSEE HAD INCURRED TELECOMMUNICATION CHARGES OF RS.49 40 250/ -. THE AO HELD THAT THE ABOVE SAID EXPENDITURE OF RS.49 40 250/- WERE E XPENSES ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA AND THEREFORE IN ACCORDANCE WITH CLAUSE (IV) OF EXPLANATION 2 APPEAR ING BELOW SUB-SECTION 8 OF SECTION 10A OF THE ACT THE AO REDUCED THE SAID EXP ENSES FROM EXPORT TURNOVER IN COMPUTING DEDUCTION U/S 10A OF THE ACT. FURTHER THE AO ALSO HELD THAT 50% OF THE TRAVEL EXPENSES INCURRED IN FO REIGN CURRENCY AMOUNTING TO RS.15 79 925/- ARE INCURRED FOR PROVIDING TECHNI CAL SERVICES OUTSIDE INDIA AND HENCE REDUCED THE SAID TRAVEL EXPENSES FROM THE EXPORT TURNOVER IN COMPUTING THE ELIGIBLE DEDUCTION U/S 10A OF THE ACT . 4.2 THE ASSESSMENTS COMPLETED FOR AYS 2004-05 & 20 05-06 WERE CARRIED IN APPEALS BEFORE THE FIRST APPELLATE AUTHO RITY. 4.3 BEFORE THE FIRST APPELLATE AUTHORITY IT WAS SU BMITTED THAT THE ABOVE SAID TELECOMMUNICATION EXPENSES AND TRAVELLIN G EXPENSES SHOULD NOT BE REDUCED FROM THE EXPORT TURNOVER WHILE COMPUTING EL IGIBLE DEDUCTION U/S PAGE 4 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 4 10A OF THE ACT. ALTERNATIVELY IT WAS URGED THAT IF THE EXPENSES IN QUESTION ARE SO EXCLUDED FROM THE EXPORT TURNOVER THE SAME SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER IN COMPUTING THE DEDUCTION U/S 10A OF THE ACT. 4.4 THE CIT(A) RELYING ON THE JUDGEMENT OF HONBL E HIGH COURT OF BOMBAY IN THE CASE OF M/S GEM PLUS JEWELLERY INDIA LT D. AND THE SPECIAL BENCH DECISION IN THE CASE OF M/S SAK SOFT LTD. AC CEPTED THE ALTERNATIVE CONTENTION OF THE ASSESSEE AND DIRECTED THE AO TO E XCLUDE THE EXPENSES WHICH ARE EXCLUDED FROM EXPORT TURNOVER ALSO FROM THE TOTAL TURNOVER IN COMPUTING DEDUCTION U/S 10A OF THE ACT. 4.5 REVENUE BEING AGGRIEVED IS IN APPEALS BEFORE US. 4.6 THE LEARNED DR SUPPORTED THE ORDERS OF THE ASS ESSING OFFICER. 4.7 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 353. 4.8. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUS ED 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 IN COMPUTING THE EXPORT PAGE 5 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 5 TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DE NOMINATOR. THE RELEVANT FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT RE ADS 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 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 PAGE 6 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 6 DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSXCESSEE WHEREAS IN SECTION 10-A THE EXPORT PRO FIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERT AKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS IN O THER WORDS EXPORT TURNOVER AND DOMESTIC TURNOVER. TO T HE EXTENT OF EXPORT TURNOVER THERE WOULD BE A COMMONA LITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IF THE EXPORT TURNOVER IN THE NUMERATOR I S TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TUR NOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR . THE 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 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. PAGE 7 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 7 4.9 THE HONBLE MUMBAI HIGH COURT IN THE CASE OF G EM 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 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 PAGE 8 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 8 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. (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 4.10. 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 PAGE 9 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 9 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. 4.11. 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. ALTHOUGH THE ORDER OF SPECIAL BENCH IS IN THE CONTE XT OF SECTION 10B OF THE ACT THE RATIO LAID DOWN IN THE ABOVE DECISION APPL IES TO SECTION 10A OF THE ACT AS WELL AS THE PROVISIONS OF SECTIONS 10A AND 10B ARE IDENTICAL ON ALL MATERIAL ASPECTS. MORE PARTICULARLY BOTH THE SECTI ONS DEFINE ONLY EXPORT TURNOVER BUT NOT TOTAL TURNOVER AND SUB-SECTION (4) OF BOTH THE SECTIONS PRESCRIBE AN IDENTICAL FORMULA FOR COMPUTING THE EX PORT PROFITS. 4.12 IN THE LIGHT OF THE ABOVE REASONING WE UPHOL D THE ORDERS OF THE CIT(A) AND DIRECT THE AO TO EXCLUDE THE ABOVE MENTI ONED EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. 4.13 IN THE RESULT THE APPEALS FILED BY THE REVENU E ARE DISMISSED. PAGE 10 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 10 5. IN ASSESSEES APPEALS (ITA NOS.114 & 115/BANG/1 1) IDENTICAL GROUNDS ARE RAISED WHICH READS AS FOLLOWS:- 2) THE CIT(A) ERRED IN CONFIRMING THAT THE BROUGHT FOR WARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF THE COMPANY FROM THE EARLIER YEARS SHOULD BE SET OFF AGAI NST THE BUSINESS PROFITS BEFORE COMPUTING THE DEDUCTION U/S 10A OF THE ACT. 3) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE RELIE F U/S 10A IS ON THE PROFITS OF THE ELIGIBLE UNDERTAKING F OR THE YEAR COMPUTED AS PER UNDER SECTIONS 28 TO 43 AND HEN CE SHOULD BE COMPUTED BEFORE SETTING OFF OF CARRIED FORWARDED BUSINESS LOSS AND UNABSORBED DEPRECIATION U/S 72. 4) THE APPELLANT RELIED ON THE RATIO OF DECISION OF TH E SPECIAL BENCH CHENNAI ITAT IN THE CASE OF SCIENTIF IC ATLANTA INDIA TECHNOLOGY (P) LTD. V ACIT 129 TTJ 2 73. 5) THE CIT(A) ERRED IN LAW AND IN FACT THAT THE TELECOMMUNICATION EXPENSES ATTRIBUTABLE TO THE DELI VERY OF COMPUTER SOFTWARE OUTSIDE INDIA SHOULD BE REDUCE D FROM EXPORT TURNOVER WHILE COMPUTING THE ELIGIBLE DEDUCTION U/S 10A OF THE ACT. 6) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THESE EXPENSES WHICH DO NOT FORM PART OF THE EXPORT TURNO VER CANNOT BE EXCLUDED THEREFROM. 7) THE APPELLANT RELIED ON THE RATIO OF THE DECISION O F THE SPECIAL BENCH CHENNAI ITAT IN THE CASE OF ZYLOG SYSTEMS LIMITED V ITO (2011 ITR 7 (TRIB) 348 (CHENNAI) (SB). 5.1 BRIEFLY STATED THE FACTS IN RELATION TO GROUND NOS.2 TO 4 ARE AS FOLLOWS:- FOR THE ASST. YEAR 2004-05 THE ASSESSEE COMPANY HA D CLAIMED DEDUCTION U/S 10A ON THE PROFITS OF THE BUSINESS OF THE PREVIOUS YEAR. THE PAGE 11 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 11 ASSESSEE HAD CARRIED FORWARD LOSS FROM EARLIER YEARS AMOUNTING TO RS.1 81 064/- AND UNABSORBED DEPRECIATION AMOUNTING TO RS.91 50 706/-. THE AO WHILE COMPLETING ASSESSMENT RECOMPUTED THE DEDUCTION U/S 10A AFTER SETTING OFF OF CARRIED FORWARD LOSS AND UNABS ORBED DEPRECIATION RESTRICTING THE DEDUCTION U/S 10A OF THE ACT. 5.2 ON APPEAL THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE RELYING ON THE ORDER OF THE TRIBUNAL IN THE CASE OF INTELLINET TECHNOLOGIES INDIA (P) LTD. V ITO (ITA NO.1021/BANG/2009) WHICH IN TURN RELIED ON THE JURISDICTIONAL HIGH COURT IN THE CASE OF HIMATSINGI KA SEIDE LTD. 286 ITR 255. 5.3 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFO RE US. 5.4 AT THE OUTSET IT WAS POINTED OUT BY THE ASSESS EE THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE JUDGEMENT OF T HE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V M/S AXA BUSINESS SERVICE S PVT. LTD. & OTHERS (2011-TIOL-711-HC-KAR-II). 5.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE HONBLE JURISDICATIONAL HIGH COURT IN THE CASE OF CIT V M/S AXA BUSINESS SERVICES PVT. LTD. (SUPRA) CATEGORICAL LY HELD THAT DEDUCTION U/S 10A IS ALLOWABLE WITHOUT SETTING OFF OF THE BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION OF OTHER UNITS. THE RELEV ANT FINDINGS OF THE HONBLE HIGH COURT AT PARAS 19 29 TO 31 READS AS F OLLOWS:- 19. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVI NG AT PAGE 12 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 12 THE GROSS TOTAL INCOME OF THE ASSESSEE. THE INCOM E OF 10A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NO T AFTER COMPUTING THE GROSS TOTAL INCOME. THE TOTAL INCOME USED IN THE PROVISIONS OF SECTION 10A IN THIS CONTE XT MEANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN SECTION 2(45). HENCE T HE INCOME ELIGIBLE FOR EXEMPTION U/S 10A WOULD NOT ENT ER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCTED AT SOURCE LEVEL. 29. AFTER MAKING ALL SUCH COMPUTATION THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARR Y FORWARD OF LOSS AS PROVIDED U/S 72 OF THE ACT. TH AT IS THE BENEFIT WHICH IS GIVEN TO THE ASSESSEE UNDER TH E ACT IRRESPECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CARRYING ON. THE SAID BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS U/S 10B OF THE ACT. THE EXPRESSION DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY A N UNDERTAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE HAS TO BE UNDERSTOOD IN THE CONTEXT WITH WHICH THE SAID PROVISION IS INSERTED IN CHAPTER III OF THE ACT. SUB-SECTION (4) OF SECTION 10A CLARIFIES THIS POSITION. IT PROVIDES THAT THE PROFITS DERIVED FRO M EXPORT OF ARTICLES OR THINGS FROM COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF T HE BUSINESS OF THE UNDERTAKING THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THIN GS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF TH E BUSINESS CARRIED ON BY THE UNDERTAKING. THEREFORE IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE TH AN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10A IT I S THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FROM THE BUSINESS OF THE UNDERTAK ING ALONE THAT HAS TO BE TAKEN INTO CONSIDERATION AND S UCH PROFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY AFTER THE DEDUCTION OF THE SAI D PROFITS AND GAINS THE INCOME OF THE ASSESSEE HAS T O BE COMPUTED. PAGE 13 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 13 30. THE PROVISIONS OF THIS SUB-SECTION WILL APPLY E VEN IN THE CASE WHERE AN ASSESSEE HAS OPTED OUT OF SECTION 10A BY EXERCISING HIS OPTION UNDER SUB-SECTION (8). AS DISCUSSED IT IS PERMISSIBLE FOR AN ASSESSEE TO OPT IN AND OPT OUT OF SECTION 10A. IN THE YEAR WHEN THE ASSESS EE HAS OPTED OUT THE NORMAL PROVISIONS OF THE ACT WOU LD APPLY. THE PROFITS DERIVED BY HIM FROM THE STP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE SUBJECT TO VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CHAPTER VI-A. IF IN SUCH A YEAR THE ASSESSEE H AS SUFFERED LOSSES SUCH LOSSES WOULD BE SUBJECT TO IN TER SOURCE AND INTER HEAD SET OFF. THE BALANCE IF ANY THEREAFTER CAN BE CARRIED FORWARD FOR BEING SET OF F AGAINST PROFITS OF THE SUBSEQUENT ASSESSMENT YEARS I N THE NORMAL COURSE. UNABSORBED DEPRECIATION ALSO ME RITS A SIMILAR TREATMENT. 31. AS THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED A T SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL IN COME THE LOSS OF NON 10-A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10-A UNIT U/S 72. THE LOSS INCURRED BY TH E ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS OR PROFESSION HAS TO BE SET OFF AGAINST THE PROFITS AN D GAINS IF ANY OF ANY BUSINESS OR PROFESSION CARRIED ON BY SU CH ASSESSEE. THEREFORE AS THE PROFITS AND GAINS UNDER SECTION 10-A IS NOT BE INCLUDED IN THE INCOME OF TH E ASSESSEE AT ALL THE QUESTION OF SETTING OFF THE LO SS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AG AINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY AS PER SECTION 72(2) UNABSORBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION U /S 32(2) IS TO BE SET OFF. AS DEDUCTION U/S 10A HAS T O BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WO ULD NOT ARISE. IN THAT VIEW OF THE MATTER THE APPROAC H OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO THE PAGE 14 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 14 AFORESAID STATUTORY PROVISIONS AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUST IFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRAN TING THE BENEFIT OF SECTION 10A TO BE ASSESSEE. HENCE THE MAIN SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAV OUR OF THE ASSESSEES AND AGAINST THE REVENUE. 5.6 THE FACTS BEING IDENTICAL RESPECTFULLY FOLLOW ING THE DICTUM LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT WE DI RECT THE AO TO CALCULATE DEDUCTION U/S 10A OF THE ACT WITHOUT SETTING OFF OF THE CARRIED FORWARD BUSINESS LOSS AND DEPRECIATION. IT IS ORDERED ACCO RDINGLY. IN THE RESULT GROUNDS NO.2 TO 4 ARE ALLOWED. 6. GROUND NOS.5 TO 7 DOES NOT REQUIRE ADJUDICATI ON SINCE THE ALTERNATIVE PLEA OF THE ASSESSEE WAS ACCEPTED BY THE CIT(A) AND THE ORDER OF THE CIT(A) WAS AFFIRMED BY US IN ITA NOS.84 & 85/ BANG/2011. MOREOVER ON THE ISSUE WHETHER TELECOMMUNICATION EX PENSES ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA SHOU LD BE REDUCED FROM EXPORT TURNOVER WHILE COMPUTING THE ELIGIBLE DEDUCT ION U/S 10A OF THE ACT HAD NOT BEEN ADJUDICATED BY THE FIRST APPELLATE AUTH ORITY. HENCE WE FEEL GROUND NOS. 5 TO 7 DOES NOT REQUIRE ANY ADJUDIC ATION AND THE SAME ARE DISMISSED. 7. IN THE RESULT THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DAY OF NOVEMBER 2011 SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER PAGE 15 OF 15 ITA NOS.114 & 115 & 84 & 85/BANG/2011 15 COPY TO:- 1.THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCE RNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR ITAT BANGALORE.