Tata Elxsi Ltd. v. Assistant Commissioner of Income-tax, Circle 12(3)
[Citation -2007-LL-1016-1]

Citation 2007-LL-1016-1
Appellant Name Tata Elxsi Ltd.
Respondent Name Assistant Commissioner of Income-tax, Circle 12(3)
Court ITAT-Bangalore
Relevant Act Income-tax
Date of Order 16/10/2007
Judgment View Judgment
Keyword Tags services rendered outside india • convertible foreign exchange • domestic turnover • technical service • foreign currency • export turnover • total turnover • excise duty • export sale • sales tax
Bot Summary: Itappears only during the course of assessment proceedings, t h e assessee made aclaim that it was not involved in rendering of technical services and evenexpenditure which was reduced from the export turn over by the assessee shouldnot have been done. We therefore direct that in computing the figures of export turnoverand total turnover relevant for the application of the formula in sub-section 3of sec 80HHE, no exclusion be made of any expenditure incurred in foreigncurrency other than those already done by the assessee company... A cursory perusal of thesame would indicate that in the case relied on by the assessee, cited supra,assessee did not involve in the business of providing technical servicesoutside India in connection with development of computer software but onlycompleted export obligation. The aforesaid threeaspects clearly reveal that the expenditure incurred by the assessee in foreigncurrency do not relate to any of the export obligation done by the assessee. The formula for computation of the deduction under section 10A, when re-statedin the above manner, would be as under: Export turnover Profits of the The term export turnover would then be a component or part of the denominator; the other component beingthe domestic turnover. In the case ofSudarshan Chemicals Industries Ltd. the Hon ble BombayHigh Court held as under: Further, the meaningof export turnover in clause of Explanation to section 80HHC clearlyshows that export turnover did not include excise duty and sales tax. M/s. Texas Instruments India Ltd., is a registered STP unit and sale tosuch company should be regarded as exports for the purpose of section 10A.Section 10A has been introduced by the Government to encourage export sales forwhich Export and Import policy has been formulated. Whenthis being consciously omitted in the Policy, we do not find any force in thestand taken by the learned counsel for assessee to treat the sales effected toother STP by the assessee as deemed export.


This appeal is by assessee directed against order of learnedCIT(A)-III, Bangalore, dated 24-2-2006. 2. We have heard both sidesand perused records. assessee is limited company engaged in business of distribution of computer systems, designs and development of computer software. assessee filed return of income for presentassessment year returning income at Rs. 9,11,36,889. return was processedunder section 143(1) of Income-tax Act, 1961. Subsequently notice undersection 143(2) was issued and assessment has been completed on 24-3-2005.The assessee claimed benefits under section 10A of Act. While re-computingdeduction under section 10A, Assessing Officer had made certain adjustmentsas under: "(a)Inthe return or income sum of Rs. 9,88,87,066 was deducted by appellant while arriving at figure of export turnover. In addition, assessee has deducted further sum of Rs. 4,13,33,000 in computing export turnover. Inthe written submissions appellant had submitted that even deducting sumof Rs. 9,88,87,066 was not correct and appropriate relief be given. (b)Theexpenditure incurred in foreign currency has been excluded only from exportturnover and not from total turnover. (c)Asum of Rs. 1,38,40,813 has been excluded from export turnover on groundthat export proceeds have not been brought into India within stipulatedtime. (d )Asum of Rs. 350-51 lakhs has been excluded from export turnover being moneyreceived from M/s. Texas Instruments Pvt. Ltd., on around that sale isnot export sale." Aggrieved with this,assessee carried matter before ld. CIT(A) w h e r e action of theAssessing Officer was confirmed. Still aggrieved assessee is now before thisTribunal. 3. Learned counsel forassessee submitted that action of Assessing Officer in deductingexpenditure in foreign currency while arriving at figure of export turnoveris incorrect. Assuming without admitting that foreign currency expenditureis to be reduced from figure of export turnover, on parity of reasoning,it should be reduced from figure of total turnover. lower authoritieshave erred in not appreciating fact that assessee is not involved inrendering of technical services. Therefore, question of reducingexpenditure in foreign currency from figure of export turnover should notarise. Alternatively, it was contended by learned counsel for assessee thatin case if first limb of argument is not accepted, then foreign currencyexpenditure has to be reduced from figure of total turnover. learnedcounsel for assessee also filed brief summary of contentions. 4. On other hand, thelearned DR contended that for detailed reasons given in impugnedassessment order Assessing Officer had excluded expenditure incurred inforeign currency from export turnover is in addition to amounts alreadyexcluded by assessee. Expenses claimed will not fall under definitionof export turnover provided in Explanation 2 to section 10A. Theassessee, under this head, had paid salaries to staff, lease rentals andadvertisement expenses only towards earning receipts from technical servicesprovided to overseas customers. Therefore, assessee is not correct inclaiming that they are deductible from export turnover. assessee has noother operations apart from providing software technical services. learnedDR also relied on order of ld. CIT(A). Further, he contended that theorders of Assessing Officer as well as ld. CIT(A) need not to beinterfered with. To counter alternative argument advanced by learnedcounsel for assessee, learned DR. fully relied on orders of theauthorities below. 5. We have heard rivalsubmissions and perused records. Out of total expenditure of Rs. 1372.02lakhs in foreign currency pertaining to STP unit, assessee itself hadexcluded Rs. 958.87 lakhs from export turnover in return of income. Itappears only during course of assessment proceedings, t h e assessee made aclaim that it was not involved in rendering of technical services and evenexpenditure which was reduced from export turn over by assessee shouldnot have been done. Exclusion of part of expenditure incurred in foreigncurrency from export turnover was obviously under incurred in foreigncurrency from export turnover was obviously under presumption that theassessee was involved in rendering technical services outside India. From theassessment order it transpires that assessee was engaged in renderingtechnical services outside India. Assessing Officer, in his order at page 4had noted down services rendered by assessee outside India: (a)Theassessee company s business profile indicates that it is high- technologydriven company. Where overseas foreign companies are not in position tomaintain their own R&D units, they outsource activity to theassessee-company. Thus, assessee company designs and develops softwaresolutions specific to requirements of customers. This clearly is in thenature of providing technical solutions and not as export of software. (b)Theinvoices raised by assessee for all sales clearly describes work aseither for providing technical services or for providing software services .No invoice is raised for sale of software. (c)Theagreements entered by assessee with its customers also show that it is notmerely sale of software but comprehensive technical service & supportthat is being provided. (d )Further,all these years assessee has had same business and has been claimingonly as providing of technical services. 6. ld. CIT(A), whileconsidering decision rendered by this Tribunal i n case of InfosysTechnologies Ltd. v. Joint CIT [2008] (Bang. - URO) reached afinding that facts in assessee s case are not akin to facts of thecase relied on. In this context, learned counsel for assessee relied on thedecision of this Tribunal in case of I n f o s y s Technologies Ltd. (supra)wherein this Tribunal had specifically held as under: "...We accordinglyhold that appellant company was not involved in business of providingtechnical services outside India in connection with development of computersoftware. We therefore direct that in computing figures of export turnoverand total turnover relevant for application of formula in sub-section 3of sec 80HHE, no exclusion be made of any expenditure incurred in foreigncurrency other than those already done by assessee company..." cursory perusal of thesame would indicate that in case relied on by assessee, cited supra,assessee did not involve in business of providing technical servicesoutside India in connection with development of computer software but onlycompleted export obligation. ld. CIT(A), considering this aspect rightlyrejected contention of assessee. In present case there werematerials to show that expenditure in foreign currency was related totechnical services rendered outside India by assessee in connection withdevelopment of computer software to customers outside India. 7. aforesaid threeaspects clearly reveal that expenditure incurred by assessee in foreigncurrency do not relate to any of export obligation done by assessee.When once expenditure so incurred in foreign currency is not purpose of exportobligation, there is no substance in assessee s claim to deduct samefrom export turnover. Considering this aspect, we do not find any infirmityin order of ld. CIT(A) in confirming action of AssessingOfficer. It is ordered accordingly. 8. Alternatively, learnedcounsel for assessee had insisted for reduction of expenditure in foreigncurrency from total turn-over in case expenditure has to be educed fromexport turnover. In our view, alternative relief sought for by assesseeappeared to be sound and proper. 9. formula prescribedfor computing deduction under section 10A is same as prescribed insection 80HHE. formula provides for deduction of profits from thebusiness in ratio of export turnover as compared to total turnover.Section 10A has incorporated in entirety philosophy of section 80HHE. Thedefinition of terms computer software and convertible foreign exchange in section 10A are same as in section 80HHE. However, from out of threeterms relevant for applying formula, section 10A defines only one termnamely export turnover . other two terms profits of business and total turnover are not defined. Since section proceeds broadly on lines similarto section 80HHE in absence of definition of any term in section 10A,one could refer to definition of similar term in section 80HHE. Thus, theterm total turnover for section 10A purposes, should be same asunderstood for purposes of section 80HHE. 10. term total turnover no doubt is not defined in section 10A. However, term total turnover would be enlargement of term export turnover . In other words, sumtotal export turnover and domestic turnover would constitute total turnover .The formula for computation of deduction under section 10A, when re-statedin above manner, would be as under: Export turnover Profits of (Export business X turnover + domestic turnover) term export turnover would then be component or part of denominator; other component beingthe domestic turnover. In other words, t o extent of export turnover therewould be commonality between numerator and denominator of formula. Inview of commonality, understanding should also be same. In otherwords, if export turnover in numerator is to be arrived at afterexcluding certain expenses, same should also be excluded in computing total turnover in denominator. Though there is no definition of term total turnover in section 10A, there is also nothing in said section tomandate that what is excluded from numerator (export turnover) wouldnevertheless form part of denominator. One would have to apply consistentstandards in understanding and applying term, particularly when, such term, viz.export turnover has independent function and at same time part of alarger term viz., total turnover. Thus, if some expenses, for any reasonare excluded in arriving at export turnover same should be reducedfrom total turnover also. 11. Even otherwise, in thecontext of section 80HHC where under similar formula is applicable, it hasbeen held that components entering into export turnover and totalturnover should be same. In other words, one should compare apples withapples and not apples with oranges. Various High Courts have held so in thefollowing cases: (i ) CIT v. Sudarshan ChemicalsIndustries Ltd. [2000] 245 ITR 709 (Bom.), (ii ) CIT v. Chloride India Ltd.[2002] (Cal.), (iii ) CIT v. Bharat Earth MoversLtd. [2004] (Kar.), (iv ) CIT v. Lakshmi MachineWorks [2007] (SC), (v ) CIT v. Trans Lotus Travel(P.) Ltd. [2007] (Delhi). 11. (a) In case ofSudarshan Chemicals Industries Ltd. (supra) Hon ble BombayHigh Court held as under: "Further, meaningof export turnover in clause (b ) of Explanation to section 80HHC, therefore, clearlyshows that export turnover did not include excise duty and sales tax. Theexport turnover is numerator in above formula whereas totalturnover is denominator. above formula has been prescribed to arrive atthe profits from exports. In circumstances, above two items, namely,sales tax and excise duty cannot form part of total turnover. In fact, ifthe denominator was to include above two items and if numeratorexcluded above two items then formula would become unworkable."[Emphasis supplied] 11. (b) In case ofChloride India Ltd. (supra) Hon ble Calcutta High Court heldas under: "We find no reason todiffer from view of Division Bench of Bombay High Court expressedin above noted case (CIT v. Sudarshan Chemicals Industries Ltd.)In our view, octroi, excise duty and sales tax cannot have any element ofprofit and as such those items cannot be included in total turnover. Ifcontrary view is taken that will make object sought to be achieved by theLegislature nugatory." (Emphasis supplied) 11. (c) In case ofBharat Earth Movers Ltd. (supra) Hon ble Kamataka High Courtheld as under: "Consequently, itfollows that if export turnover does not have elements of sales tax orexcise duty, total turnover should also not have said inputs. In thecircumstances, to include excise duty and sales tax for arriving at totalturnover, when sales tax and excise duty not form part of export turnover,would be illogical and arbitrary." (Emphasis supplied) Therefore, from theaforesaid discussions and decisions rendered by various High Courts we areof view that assessee should succeed in alternative submission made. Accordingly, we direct Assessing Officer to exclude expenditure incurred in foreign currency by assessee from total turnover. It isordered accordingly. 12. In next ground, theassessee agitated against exclusion of sum of Rs. 1,38,40,813 from exportturnover. This amount was excluded by Assessing Officer on ground thatforeign exchange in respect of same was not received in time. At timeof hearing, learned counsel for assessee pointed not that, Canara Bank issued aletter dated 13-2-2003 by which banker, being authorized dealer, wasauthorized to permit extension as bills raised during relevant year bythe assessee are less than USD 10000 value. Considering this, we direct theAssessing Officer to verify and allow claim of assessee. It is ordered accordingly. 13. next issue arisesunder section 10A of Income-tax Act. assessee is STP (softwareTechnology Park) unit. During relevant assessment year, assessee hadmade certain sales to M/s. Texas Instruments India Ltd., which is registeredSTP. This transaction, assessee had claimed, as export for purposes ofsection 10A. This was not accepted by Assessing Officer and subsequentlyconfirmed by learned CIT(A). 13. (a) learnedcounsel for assessee submitted that this sale should be treated as deemedexport. M/s. Texas Instruments India Ltd., is registered STP unit and sale tosuch company should be regarded as exports for purpose of section 10A.Section 10A has been introduced by Government to encourage export sales forwhich Export and Import policy has been formulated. As sale by assessee toM/s. Texas Instruments India Ltd., is regarded as export sale under EximPolicy, same meaning should be attached to understand term exportturnover for purpose of section 10A also Learned counsel for assessee alsorelied on decision of Hon ble Supreme Court in case of (i ) SunriseBiscuits Co Ltd. v. State of Assam 148 STC 58, Hon ble Calcutta HighCourt in case of Bourne & Shepherd v. Collector of Customs [1989] 2 CALLT 47, ITAT, Pune Bench in case of Kinetic Honda Motor Ltd. v. Jt. CIT [2001] . learned counsel for assessee further submittedthat as per clarification given by Ministry of Commerce & Industry,Department of Commerce, sales by one STP to another STP within India is adeemed export. Learned counsel for assessee also referred to circular No. 6dated 6-7-1968. Besides that learned counsel for assessee has filed copy ofExim Policy 2002- 2007 relating to paras 6 & 8. 13. (b) On otherhand, learned DR contended that in Exim Policy relied on by learnedcounsel for assessee, deemed export is to give benefit to such people to theextent stated under clause 8.3 of Chapter 8 and not beyond that. learned DRfurther pointed out that assessee has been provided with certain benefit incase beyond 25 per cent of products of assessee sold to similar STPwithin India. Learned DR further pointed out that Assessing Officer hadalso taken note of this fact and concluded issue against assessee. Thelearned CIT(A) also took into consideration entire details and confirmed theorder of Assessing Officer. learned DR therefore, submitted that theorders of authorities below need not be interfered with at this stage. 14. We have heard rival submissions and perused records. Chapter 8 of Exim Policy issued by Ministry of Commerce & Industry defines deemed export as under: "8.1 Deemed Exports refers to those transactions in which goods supplied do not leave country andpayment for such supplies is received either in Indian rupees or in freeforeign exchange." Under clause 8.3 benefitfor deemed exports are as under: "8.3 Deemed exportsshall be eligible for any/all of following benefits in respect of manufactureand supply of goods qualifying as deemed exports subject to terms and conditions as in HBP vl. (a)Supply of goods against Advance Authorization/Advance Authorization for annualrequirement/DF1A. (b)Deemed Export Drawback. (c)Exemption from terminal excise duty where supplies are made against ICB. In other cases,refund of terminal excise duty will be given." cursory perusal wouldindicate that sale of such software by one STP to another STP within thecountry would be treated as deemed export only for purpose of duty drawback and exempt from terminal excise duty. As rightly contended by learnedDR., section 10A, with relevant proviso, stood during relevant time itselfprovides that when domestic sales of STP unit do not exceed 25 per cent, suchsale should be deemed to be profits and gains derived from export ofsuch articles or things or computer software. Thus provisions of section10A as it stood specifically provide how much benefit to be given to theassessee if sales to another STP when not exceeded 25 per cent of totalproducts. Exim Policy 2002-07(Chapter 6, clause 6.12) also clarifies other entitlements as under: "6.12 Otherentitlements of EOU/EHTP/STP/BTP units are as under: (a)Exemptionfrom Income-tax as per section 10A and 10B of Income-tax Act." Further, from perusalof Exim Policy (Chapter 6) extracted above, it is seen that whateverbenefit given should be as per provisions of sections 10A and 10B of theincome tax Act. Apart from benefit conferred under aforesaid Chapter,nothing has been indicated in respect of any deemed export when issueconsidered under Income-tax Act. Exim Policy extracted above (Chapter8.1 and 8.3) obviously does not include in respect of benefit to be given underIncome-tax Act other than one referred to under Chapter 6.12(a). Whenthis being consciously omitted in Policy, we do not find any force in thestand taken by learned counsel for assessee to treat sales effected toother STP by assessee as deemed export. This ground fails. In result, appealfiled by assessee is partly allowed to extent indicated above. *** Tata Elxsi Ltd. v. Assistant Commissioner of Income-tax, Circle 12(3)
Report Error