IN INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER I.T. A. No.1371/Bang/2015 (Assessment Year : 2009-10) Dy. Commissioner of Income Tax, Circle 3(1)(2), Bangalore. . Appellant. Vs. M/s. Hewlett Packard Global Soft Pvt. Ltd., No.39, 40, Electronic City, Phase I, Bangalore. .. Respondent. Appellant By : Shri Deepak R.L., Addl. CIT (D.R) Respondent By : Shri Anur Pai Dhungat, C.A. Date of Hearing : 21.9.2016. Date of Pronouncement : 30.09.2016. ORDER Per Shri Vijay Pal Rao, J.M. : This appeal by revenue is directed against order dt.30.7.2015 of Commissioner of Income Tax (Appeals)-3, Bengaluru for Assessment Year 2009-10. 2. revenue has raised following grounds : 2 ITA No.1371/Bang/2015 3. only issue arises in appeal of revenue is regarding restriction of claim of deduction under Section 10B of Income Tax Act, 1961 (in short 'the Act') by reducing telecommunication expenses incurred in foreign currency from export turnover. 4. We have heard learned Departmental Representative as well as learned Authorised Representative and perused relevant material on record. At outset, we note that this issue is covered by Hon'ble jurisdictional High Court in CIT Vs. Tata Elxsi Ltd. 349 ITR 98 (Kar). similar issue has been raised by revenue regarding exclusion of telecommunication and travel expenses from export turnover which is 3 ITA No.1371/Bang/2015 covered by decision in case of Tata Elxsi Ltd. (supra). Hon'ble High Court while dealing with definition of export turnover as well as total turnover as per provisions of section 10A has held as under : 10. Bombay High Court had occasion to consider meaning of word 'total turnover' in context of Section 10-A, in 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: Profits of Export turnover in respect business of X of articles or things or Profits derived from undertaking computer software export of articles or things = or Computer software Total turnover of business carried on by undertaking "Under sub-section (4) proportion between export turnover in respect of articles or things, or, as case may be, computer software exported, to total turnover of business carried over by under-taking is applied to profits of business of undertaking in computing profits of business of undertaking in computing profits derived from export. In other words, profits of business of undertaking are multiplied by export turnover in respect of articles, things or, as case may be, computer software and divided by total turnover of business carried or by undertaking. formula which is prescribed by sub-section (4) of section 10A is as follows: total turnover of business carried on by undertaking would consist of turnover from export and turnover from local sales. export turnover constitutes numerator in formula prescribed by sub-section (4). Export turnover also forms constituent element of denominator inasmuch as export turnover is part of total turnover. 4 ITA No.1371/Bang/2015 export turnover, in numerator must have same meaning as export turnover which is constituent element of total turnover in denominator. legislature has provided definition of expression "export turnover" in Explanation 2 to section 10A by which expression is defined to mean consideration in respect of export by undertaking of articles, things or computer software received in, or brought into India by assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to delivery of articles things or software outside India. Therefore in computing export turnover Legislature has made specific exclusion of freight and insurance charges. submission which has been urged on behalf of Revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, similar exclusion has not been provided in regard to total turnover. submission of Revenue, however, misses point that expression "total turnover" has not been defined at all by Parliament for purposes of section 10A. However expression "export turnover" has been defined. definition of "export turnover" excludes freight and insurance. Since export turnover has been defined be Parliament and there is specific exclusion of freight and insurance, expression "export turnover" cannot have different meaning when it forms constituent part of total turnover for purposes of application of formula. Undoubtedly, it was open to Parliament to make provision to contrary. However, no such provision having been made, principle which has been enunciated earlier must prevail as matter of correct statutory interpretation. Any other interpretation would lead to absurdity. If contention of Revenue were to be accepted, same expression viz. "export turnover" would have different connotation in application of same formula. submission of Revenue would lead to situation where freight and insurance, though it has been specifically excluded from "export turnover" for purposes of numerator would be brought in as part of "export turnover" when it forms element of total turnover as denominator in formula. construction of statutory provision which would lead to absurdity must be avoided." 5 ITA No.1371/Bang/2015 special bench of Tribunal, in case of ITO v. Sak Soft Ltd. [2009] 313 ITR (AT) 353/ 30 SOT 55 (Chennai) also had occasion to consider meaning of word 'total turnover'. After referring to various judgments of High Court as well as Supreme Court held as under: "53. For above reasons, we hold that for purpose of applying formula under sub-section (4) of Section 10-B, freight telecom charges or insurance attributable to delivery of articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing technical services outside India are to be excluded both from export turnover and from total turnover, which are numerator and denominator respectively in formula." formula for computation of deduction under Section 10-A would be as under: Profits of business X export turnover Total turnover From aforesaid judgments, what emerges is that, there should be uniformity in ingredients of both numerator and denominator of formula, since otherwise it would produce anomalies or absurd results. Section 10-A is beneficial section. It is intended to provide incentives to promote exports. incentive is to exempt profits relatable to exports. In case of combined business of assessee, having export business and domestic business, legislature intended to have formula to ascertain profits from export business by apportioning total profits of business on basis of turnovers. Apportionment of profits on basis of turnover was accepted as method of arriving at export profits. In ease of Section 80HHC, export profit is to be derived from total business income of assessee, whereas in Section 10-A, export profit is to be derived from total business of undertaking. Even in case of business of undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. export turnover would be component or part of denominator, other component being domestic turnover. In other words, to extent of export turnover, there would be commonality between 6 ITA No.1371/Bang/2015 numerator and denominator of formula. In view of commonality, understanding should also be same. In other words, if export turnover in numerator is to be arrived at after excluding certain expenses, same should also be excluded in computing export turnover as component of total turnover in denominator. reason being total turnover includes export turnover. components of export turnover in numerator and denominator cannot be different. Therefore, though there is no definition of term 'total turnover' in Section 10-A, there is nothing in said Section to mandate that, what is excluded from numerator that is export turnover would nevertheless form part of denominator. Though when particular word is not defined by legislature and ordinary meaning is to be attributed to same, said ordinary meaning to be attributed to such word is to be in conformity with context in which it is used. When statute prescribes formula and in said formula, 'export turnover' is defined, and when 'total turnover' includes export turnover, very same meaning given to export turnover by legislature is to be adopted while understanding meaning of total turnover, when total turnover includes export turnover. If what is excluded in computing export turnover is included while arriving at total turnover, when export turnover is component of total turnover, such interpretation would run counter to legislative intent and impermissible. If that were intention of legislature, they would have expressly stated so. If they have not chosen to expressly define what total turnover means, then, when total turnover includes export turnover, meaning assigned by legislature to export turnover is to be respected and given effect to, while interpreting total turnover which is inclusive of export turnover. Therefore, formula for computation of deduction under Section 10-A, would be as under: Export turn over Profits of business of X (Export turnover + domestic turn over) undertaking Total Turn Over 11. In that view of matter, we do not see any error committed by Tribunal in following judgments rendered in context of Section 80HHC in interpreting Section 10- when principle underlying both these provisions is one and same. Therefore, we do not see any merit in these appeals. substantial question of law framed is answered in favour of assessee and against revenue. 7 ITA No.1371/Bang/2015 Following decision of Hon'ble jurisdictional High Court in case of Tata Elxsi Ltd. (supra), ground of revenues appeal stand dismissed. 5. In result, revenue s appeal is dismissed. Order pronounced in open court on 30th day of Sept.,2016. Sd/- Sd/- (S. JAYARAMAN) (VIJAY PAL RAO) Accountant Member 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 Dy. Commissioner of Income-tax, Circle-3(1)(2), Bangalore v. M/s. Hewlett Packard Global Soft Pvt. Ltd