M/s iSoft Health Services (I) Pvt. Ltd.,, Bangalore v. ITO, Bangalore

ITA 950/BANG/2010 | 2005-2006
Pronouncement Date: 10-03-2011 | Result: Allowed

Appeal Details

RSA Number 95021114 RSA 2010
Bench Bangalore
Appeal Number ITA 950/BANG/2010
Duration Of Justice 7 month(s) 7 day(s)
Appellant M/s iSoft Health Services (I) Pvt. Ltd.,, Bangalore
Respondent ITO, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 10-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 10-03-2011
Assessment Year 2005-2006
Appeal Filed On 02-08-2010
Judgment Text
PAGE 1 OF 7 ITA NO.950/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K J.M. AND SHRI A MOHAN ALANKAMONY A.M ITA NO.950/BANG/2010 (ASSESSMENT YEAR 2005-06) M/S ISOFT HEALTH SERVICES (I) PVT. LTD. THE INCOME TAX OFFICER WARD-12(2) BANGALORE. - APPELLANT VS THE INCOME TAX OFFICER WARD-11(2) BANGALORE. - RESPONDENT APPELLANT BY : SHRI BALRAM R RAO ADVOCATE RESPONDENT BY : SHRI G V GOPALA RAO CIT-I ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE ARISE OUT OF THE ORDER OF LEARNED CIT(A)-I BANGALORE DATED 21/5/201 0. THE ASST. YEAR CONCERNED IS 2005-06. 2. THE SOLITARY ISSUE THAT IS RAISED IN THE APPEAL READS AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE SUBMISSIO NS OF THE APPELLANT AND HELD THAT THE PROJECT EXPENSES IN CURRED OUTSIDE INDIA HAVING BEEN EXCLUDED FROM THE EXPORT TURNOVER WAS ALSO REQUIRED TO BE EXCLUDED FROM THE TOTAL TURNOVER OF THE APPELLANT WHILE COMPUTING THE RELIE F U/S 10A OF THE ACT. PAGE 2 OF 7 ITA NO.950/BANG/2010 2 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND CONSULTANCY. F OR THE RELEVANT ASST. YEAR RETURN OF INCOME WAS FILED ON 2 7.10.2005 DECLARING AN INCOME OF RS.2 26 400/- AFTER CLAIMING DEDUCTION OF RS.5 33 42 130/- U/S 10A OF THE ACT. THE RETURN WA S SELECTED FOR SCRUTINY AND THE ASSESSMENT U/S 143(3) WAS COMPLETED VIDE ORDER DATED 26.12.2008. THE AO RECOMPUTED THE DEDUCTIO N CLAIMED U/S 10A OF THE ACT. THE AO REDUCED FROM THE EXPORT TUR NOVER THE FOLLOWING AMOUNTS WHILE CALCULATING DEDUCTION U/S 1 0A OF THE ACT:- PROCEEDS RECEIVED BEYOND SIX MONTHS RS.174.53 LAK HS PROJECT EXPENSES INCURRED OUTSIDE INDIA RS.256.38 LAKHS BY REDUCING THE ABOVE AMOUNTS FROM THE EXPORT TURNOV ER THE AO RE-WORKED THE QUANTUM OF DEDUCTION TO RS.337.07 LAK HS INSTEAD OF 533.42 LAKHS CLAIMED BY THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF ASSESSMENT THE ASSESS EE COMPANY PREFERRED APPEAL BEFORE THE CIT(A). 5. IT WAS CONTENDED BY THE ASSESSEE THAT THE PROJEC T EXPENSES INCURRED OUTSIDE INDIA AMOUNTING TO RS.256 .38 LAKHS OUGHT NOT TO BE REDUCED FROM THE EXPORT TURNOVER WHILE CA LCULATING DEDUCTION U/S 10A OF THE ACT. ALTERNATIVELY IT WAS SUBMITTED THAT IF THE SAID EXPENSES OF RS.256.38 LAKHS IS TO BE RE DUCED FROM THE EXPORT TURNOVER THE SAME OUGHT TO BE REDUCED FROM THE TOTAL TURNOVER ALSO FOR THE PURPOSE OF COMPUTATION OF DED UCTION U/S 10A PAGE 3 OF 7 ITA NO.950/BANG/2010 3 OF THE ACT. THE MAIN ARGUMENT OF THE ASSESSEE COMP ANY AS WELL AS THE ALTERNATIVE SUBMISSION WAS REJECTED BY THE CIT(A ) AND HE CONFIRMED THE ACTION OF THE AO ON THIS SCORE. 6. WITH REGARD TO THE ISSUE OF REDUCTION FROM THE EXPORT TURNOVER THE PROCEEDS RECEIVED BEYOND SIX MONTHS PER IOD AMOUNTING TO RS.174.53 LAKHS THE LEARNED CIT(A) AL LOWED THE CLAIM OF THE ASSESSEE AND DIRECTED THE AO NOT TO REDUCE F ROM THE EXPORT TURNOVER THE SUM OF RS.174.53 LAKHS WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. 7. THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEAR NED CIT(A) FOR NOT REDUCING THE PROJECT EXPENSES INCURR ED OUTSIDE INDIA FROM THE TOTAL TURNOVER FOR THE PURPOSE OF CA LCULATING DEDUCTION U/S 10A OF THE ACT PREFERRED APPEAL BEFO RE US. 8. THE LEARNED AR SUBMITTED THAT THE ISSUE IN QUES TION IS SQUARELY COVERED BY THE JUDGEMENT OF THE HONBLE MUMB AI HIGH COURT IN THE CASE OF CIT V GEM PLUS JEWELLERY INDIA LTD. 330 ITR 175 AND THE ORDER OF THE SPECIAL BENCH IN THE CASE OF ITO V M/S SAK SOFT LTD. 313 ITR 353. 9. THE LEARNED DR SUPPORTED THE ORDERS OF THE INCO ME TAX AUTHORITIES. 10. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE HONBLE MUMBAI HIGH COURT IN THE CASE OF PAGE 4 OF 7 ITA NO.950/BANG/2010 4 GEM PLUS JEWELLERY INDIA LTD. (SUPRA) IN IDENTICAL CIRCUMSTANCES HELD THAT SINCE THE EXPORT TURNOVER FORMS PART OF T HE TOTAL TURNOVER IF AN ITEM IS EXCLUDED FROM THE EXPORT TU RNOVER THE SAME SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER TO M AINTAIN PARITY BETWEEN NUMERATOR AND DENOMINATOR WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. THE RELEVANT FINDING OF THE HONBL E MUMBAI HIGH COURT READS AS FOLLOWS:- HELD : 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 IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. THE EXPORT TURNOVER IN THE NUMERATOR MUST HAVE THE SAME MEANING 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 TURNOVER IN EXPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING 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 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 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 PAGE 5 OF 7 ITA NO.950/BANG/2010 5 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 ALL BY PARLIAMENT FOR THE PURPOSES OF S.10A. HOWEVER THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION 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 PROVISION 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 THE 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 THESE HAVE BEEN SPECIFICALLY 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 WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVER A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTAL TURNOVER. FREIGHT AND INSURANCE CHARGES DO NOT HAVE ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRIPTION TO THE CONTRARY CIT V SUDARSHAN CHEMICALS INDUSTRIES PAGE 6 OF 7 ITA NO.950/BANG/2010 6 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 (INDIA) (P) LTD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON 10.1 IN THE CASE OF SAK SOFT LTD. (SUPRA) THE ASS ESSEE WAS ENGAGED IN THE BUSINESS OF EXPORTING COMPUTER SOFTW ARE AND CLAIMED DEDUCTION U/S 10B OF THE ACT. IN COMPLETIN G THE ASSESSMENT U/S 143(3) OF THE ACT THE AO REDUCED TH E EXPENDITURE INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHN ICAL SERVICES OUTSIDE INDIA FROM THE EXPORT TURNOVER WITHOUT COR RESPONDING REDUCTION FROM TOTAL TURNOVER THEREBY REDUCING THE DEDUCTION CLAIMED BY THE ASSESSMENT U/S 10B OF THE ACT. 10.2 IN LIGHT OF THE ABOVE FACTS THE SPECIAL BENC H HELD AS UNDER:- FOR THE ABOVE REASONS WE HOLD THAT FOR THE PURPOSE OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTION 10B 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 EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. THE APPEALS 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 DE CISION APPLIES TO PAGE 7 OF 7 ITA NO.950/BANG/2010 7 SECTION 10A OF THE ACT AS WELL AS THE PROVISIONS O F SECTIONS 10A AND 10B ARE IDENTICAL ON ALL MATERIAL ASPECTS. MOR E PARTICULARLY BOTH THE SECTIONS DEFINE ONLY EXPORT TURNOVER BUT NO T TOTAL TURNOVER AND SUB-SECTION (4) OF BOTH THE SECTIONS P RESCRIBE AN IDENTICAL FORMULA FOR COMPUTING THE EXPORT PROFITS. 10.3 FOLLOWING THE JUDGEMENT BY THE HONBLE MUMBAI HIGH COURT AND THE SPECIAL BENCH DECISION IN THE CASE CI TED SUPRA WE HOLD THAT THE CIT(A) IS NOT JUSTIFIED IN HIS CONCLU SION AND DIRECT THE ASSESSING OFFICER TO EXCLUDE THE PROJECT EXPENSES I NCURRED OUTSIDE INDIA BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. IT IS ORDERED ACCORDINGLY. 11. IN THE RESULT THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. THE ORDER PRONOUNCED ON THURSDAY THE 10 TH DAY OF MARCH 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/1/3. BY ORDER ASST. REGISTRAR ITAT BANGALORE.