REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 8489-8490 OF 2013 Commissioner of Income Tax, Central-III ..Appellant(s) Versus HCL Technologies Ltd. . Respondent(s) WITH CIVIL APPEAL NO. 8535 of 2013 CIVIL APPEAL NO. 8555-8556 of 2013 CIVIL APPEAL NO.7853 of 2012 CIVIL APPEAL NO.8789 of 2012 CIVIL APPEAL NO.8559 of 2013 CIVIL APPEAL NO.8558 of 2013 CIVIL APPEAL NOs.8529-8530 of 2013 CIVIL APPEAL NO.8515 of 2013 CIVIL APPEAL NO.8557 of 2013 CIVIL APPEAL NO.8524 of 2013 CIVIL APPEAL NO.8518 of 2013 CIVIL APPEAL NO.8525 of 2013 CIVIL APPEAL NO.8539 of 2013 CIVIL APPEAL NO. 4392 OF 2018 (Arising out of Special Leave Petition (C) NO. 5345 OF 2014) CIVIL APPEAL NO.8562 of 2013 CIVIL APPEAL NO.8533 of 2013 CIVIL APPEAL NO.7854 of 2012 Signature Not Verified CIVIL APPEAL NO.8560 of 2013 Digitally signed by ASHA SUNDRIYAL CIVIL APPEAL NO. 4393 OF 2018 Date: 2018.05.01 17:52:43 IST Reason: (Arising out of Special Leave Petition (C) NO. 31028 OF 2012) 1 CIVIL APPEAL NO.8537 of 2013 CIVIL APPEAL NO.8543 of 2013 CIVIL APPEAL NO.8492 of 2013 CIVIL APPEAL NOS. 8540-8541 of 2013 CIVIL APPEAL NO. 8542 of 2013 CIVIL APPEAL NO.8551 of 2013 CIVIL APPEAL NO.8494 of 2013 CIVIL APPEAL NO.8527 of 2013 CIVIL APPEAL NO.4543 of 2014 CIVIL APPEAL NO.8536 of 2013 CIVIL APPEAL NO.8500 of 2013 CIVIL APPEAL NO.8506 of 2013 CIVIL APPEAL NO.8553 of 2013 CIVIL APPEAL NO.8499 of 2013 CIVIL APPEAL NO.8526 of 2013 CIVIL APPEAL NO.8501 of 2013 CIVIL APPEAL NO.8538 of 2013 CIVIL APPEAL NO.8491 of 2013 CIVIL APPEAL NO.1098 of 2016 CIVIL APPEAL NO.8505 of 2013 CIVIL APPEAL NO.8510 of 2013 CIVIL APPEAL NO.8513 of 2013 CIVIL APPEAL NO.8507 of 2013 CIVIL APPEAL NO.8504 of 2013 CIVIL APPEAL NO.8503 of 2013 CIVIL APPEAL NO.8519 of 2013 CIVIL APPEAL NO.8927 of 2013 CIVIL APPEAL NO.8791 of 2012 CIVIL APPEAL NO.8528 of 2013 CIVIL APPEAL NO.8523 of 2013 CIVIL APPEAL NO.8554 of 2013 CIVIL APPEAL NO.8509 of 2013 CIVIL APPEAL NOs. 8521-8522 of 2013 CIVIL APPEAL NO.147 of 2013 CIVIL APPEAL NO.8912 of 2012 CIVIL APPEAL NO.6594 of 2015 CIVIL APPEAL NO.8561 of 2013 CIVIL APPEAL NO.8531 of 2013 CIVIL APPEAL NO.8544 of 2013 2 CIVIL APPEAL NO.8550 of 2013 CIVIL APPEAL NO.8545 of 2013 CIVIL APPEAL NO. 4394 OF 2018 (Arising out of Special Leave Petition (C) NO. 35917 OF 2012) CIVIL APPEAL NO. 8929 of 2013 CIVIL APPEAL NO.1099 of 2016 CIVIL APPEAL NO.10830 of 2014 CIVIL APPEAL NO. 4395 OF 2018 (Arising out of Special Leave Petition (C) NO. 3617 OF 2013) CIVIL APPEAL NO. 8552 of 2013 CIVIL APPEAL NO. 8495 of 2013 CIVIL APPEAL NO. 8493 of 2013 CIVIL APPEAL (C) NO. 4557 OF 2018 (Arising out of Special Leave Petition (C) No.11209 OF 2018 @ SLP(Civil) CC NO. 17047 OF 2013) CIVIL APPEAL NO. 4537 OF 2018 (Arising out of Special Leave Petition (C) NO. 32318 OF 2013) CIVIL APPEAL NO. 9202 of 2013 CIVIL APPEAL NO. 4538 OF 2018 (Arising out of Special Leave Petition (C) NO. 36443 OF 2013) CIVIL APPEAL NOS. 4396-4397 OF 2018 (Arising out of Special Leave Petition (C) NOs. 8818-8819 OF 2015) CIVIL APPEAL NO. 4293 of 2014 CIVIL APPEAL NO. 4443 OF 2018 (Arising out of Special Leave Petition (C) NO. 25556 OF 2014) 3 CIVIL APPEAL NO. 4540 OF 2018 (Arising out of Special Leave Petition (C) NO. 23077 OF 2014) CIVIL APPEAL NO. 9167 of 2016 CIVIL APPEAL NO. 4444 OF 2018 (Arising out of Special Leave Petition (C) NO. 28607 OF 2014) CIVIL APPEAL NO. 4445 OF 2018 (Arising out of Special Leave Petition (C) NO. 29978 OF 2014) CIVIL APPEAL NO. 4447 OF 2018 (Arising out of Special Leave Petition (C) NO. 26753 OF 2015) CIVIL APPEAL NOS. 646-647 of 2015 CIVIL APPEAL NO. 4398 OF 2018 (Arising out of Special Leave Petition (C) NO. 34486 OF 2014) CIVIL APPEAL NO. 4399 OF 2018 (Arising out of Special Leave Petition (C) No. 34487 OF 2014) CIVIL APPEAL NO. 77 of 2015 CIVIL APPEAL NO. 4450 OF 2018 (Arising out of Special Leave Petition (C) NO. 1923 OF 2015) CIVIL APPEAL NO. 4452 OF 2018 (Arising out of Special Leave Petition (C) NO. 312 OF 2015) CIVIL APPEAL NO. 4541 OF 2018 (Arising out of Special Leave Petition (C) NO. 1179 OF 2015) CIVIL APPEAL NO. 4455 OF 2018 (Arising out of Special Leave Petition (C) NO. 13074 OF 2015) 4 CIVIL APPEAL NO. 1951 of 2015 CIVIL APPEAL NO. 4544 OF 2018 (Arising out of Special Leave Petition (C) NO. 26474 OF 2015) CIVIL APPEAL NO. 4458 OF 2018 (Arising out of Special Leave Petition (C) NO. 12558 OF 2015) CIVIL APPEAL NO. 4400 OF 2018 (Arising out of Special Leave Petition (C) NO. 21974 OF 2015) CIVIL APPEAL NO. 4542 OF 2018 (Arising out of Special Leave Petition (C) NO. 20515 OF 2015) CIVIL APPEAL NO. 4461 OF 2018 (Arising out of Special Leave Petition (C) NO. 24213 OF 2015) CIVIL APPEAL NO. 9250 of 2015 CIVIL APPEAL NO. 4464 OF 2018 (Arising out of Special Leave Petition (C) NO. 11831 OF 2016) CIVIL APPEAL NO. 4427 of 2016 CIVIL APPEAL NO. 4611 OF 2018 (Arising out of Special Leave Petition (C) NO. 31420 OF 2016) CIVIL APPEAL NO. 9319 of 2016 CIVIL APPEAL NO. 2999 of 2017 CIVIL APPEAL NO.4614 OF 2018 (Arising out of Special Leave Petition (C) NO. 6983 OF 2017) CIVIL APPEAL NO. 2998 of 2017 CIVIL APPEAL NO. 3059 of 2017 CIVIL APPEAL NO. 4612 OF 2018 (Arising out of Special Leave Petition (C) NO. 32723 OF 2016) 5 CIVIL APPEAL NO. 11716 of 2016 CIVIL APPEAL NO. 4613 OF 2018 (Arising out of Special Leave Petition (C) NO. 36154 OF 2016) CIVIL APPEAL NO. 911 of 2017 CIVIL APPEAL NO. 3948 of 2017 CIVIL APPEAL NO. 2419 of 2017 CIVIL APPEAL NO. 1535 of 2017 CIVIL APPEAL NO. 1536 of 2017 CIVIL APPEAL NO. 3797 of 2017 CIVIL APPEAL NO. 2420 of 2017 CIVIL APPEAL NO. 3060 of 2017 CIVIL APPEAL NO. 3275 of 2017 CIVIL APPEAL NO. 3651 of 2017 JUDGMENT R.K. Agrawal, J. 1) Leave granted. 2) These appeals have been filed against impugned judgment and order dated 15.12.2009 passed by High Court of Delhi in ITA Nos. 1244 and 1250 of 2009 whereby Division Bench of High Court had dismissed appeals filed by Revenue appellant herein while upholding order passed by Income Tax Appellate Tribunal (in short Tribunal ) dated 30.03.2007. Since moot question is same in all appeals connected with main matter, same would stand disposed off vide this common judgment. 6 Civil Appeal Nos. 8489-8490 of 2013 3) Brief facts: (a) Respondent HCL Technologies Ltd. is company registered under Companies Act, 1956 and engaged in business of development and export of computer softwares and rendering technical services. (b) Respondent has shown gross income from business at Rs. 267,01,76,529/- while claiming deductions under Section 10A of IT Act to tune of Rs. 273,45,39,379/- showing net loss of Rs. 6,43,62,850/-. Respondent filed its return of income for Assessment Year 2004-05 on 01.11.2004 declaring undisclosed income at Rs. 91,25,68,114/-. Thereafter, on 31.03.2005, revised return of income for Rs. 91,16,99,060/- was filed by Respondent which was selected for scrutiny under Section 143 of Income Tax Act, 1961 (in short IT Act ). (c) Assessing Officer, vide order dated 28.12.2006, held that software development charges, as claimed by Respondent, are nothing but in nature of expenses incurred for technical services provided outside India. Further, in view of 7 fact that it is not purely technical services and some element of software development is also involved in it and in absence of such bifurcation, Assessing Officer estimated such expense at rate of 40% and remaining 60% for providing technical services by Respondent in foreign exchange to its offshore clients and re-assessed taxable income at Rs. 137,20,34,576/- and penalty to tune of Rs. 21,81,90,239/-. (d) Being aggrieved, Respondent preferred appeal being No. 331/06-07 before Commissioner of Income Tax (Appeals). Learned CIT (Appeals), vide order dated 09.05.2007, partly allowed appeal while estimating 10% as software development charge incurred for technical services provided outside India as against 60% estimated by Assessing Officer. (e) Being aggrieved, Respondent as well as Revenue, preferred cross appeals being ITAT Nos. 3199 and 3344/Del/2007 before Tribunal. Tribunal, vide order dated 23.01.2009, dismissed appeal filed by Revenue while allowing appeal of Respondent. 8 (f) Being aggrieved, Revenue preferred appeal before High Court being No. ITA No. 1250 of 2009. High Court, vide order dated 15.12.2009, dismissed appeal of Revenue. (g) Hence, these appeals have been filed before this Court. 4) Heard learned senior counsel for parties and perused factual matrix of instant case. Point(s) for consideration:- 5) only point for consideration before this Court is whether in facts and circumstances of case, software development charges are to be excluded while working out deduction admissible under Section 10A of IT Act on ground that such charges are relatable towards expenses incurred on providing technical services outside India? Rival contentions:- 6) At outset, learned senior counsel for Revenue submitted that when total turnover is not defined under Section 10A of IT Act, ordinary meaning of words is to be adopted. As it was technical term, technical meaning of total turnover, which does not envisage reduction of any 9 expense from total amount, was to be taken into consideration for computing deduction under Section 10A of IT Act. Hence, fact that Respondent has claimed expenses like freight, telecommunication and insurance attributable to delivery of software outside India total turnover also, while calculating deduction under Section 10A of IT Act, despite fact that there is no such provision in Section 10A of IT Act, is not sustainable in eyes of law. Therefore, impugned decision of High Court is liable to be set aside. 7) On other hand, learned senior counsel appearing for Respondent submitted that export turnover is numerator whereas total turnover is denominator in formula for computing profit from exports. export turnover as defined in Section 10A of IT Act would not include freight, telecommunication charges or insurance attributable to delivery of goods outside India and expenses incurred in foreign exchange for providing technical services outside India. same cannot be included in total turnover as if numerator included aforesaid amount, which 10 denominator doesn t include, formula would render undesirable results. Therefore, Respondent is legally entitled to exclude above said expenses from total turnover as well. Hence, these appeals deserve to be dismissed at outset. Discussion:- 8) whole controversy revolves around claim of certain expenses attributable to delivery of software outside India or in providing technical services from total turnover by Respondent under Section 10A of IT Act. It is undisputed fact that neither Section 10A nor Section 2 of IT Act define term total turnover . However, term total turnover is given in clause (ba) of Explanation to Section 80 HHC of IT Act which defines meaning of total turnover as follows: (ba) total turnover shall not include freight or insurance attributable to transport of goods or merchandise beyond customs stations as defined in Customs Act, 1962 (52 of 1962). Provided that in relation to any assessment year commencing on or after 1st day of April, 1991, expression total turnover shall have effect as if it also included any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28; 11 9) It is also pertinent to mention here relevant terminologies which are as under: Export Turnover: Explanation 2(iv) of Section 10A of IT Act defines export turnover to mean consideration that has been received for export of articles/things/computer software. Normally consideration will include freight/telecommunication charges/insurance which had been incurred to deliver article/things/computer software outside India. However Explanation 2(iv) specifically seeks to exclude these three categories of expenditure incurred for delivering export of articles/things/computer software. It also seeks to exclude expenses for providing technical service, etc. outside India. Therefore, where Indian technician goes abroad and receives fees for service, foreign client will normally be required to reimburse expenses as well. Therefore, out of consideration received, portion representing reimbursement of expenditure has to be excluded. Export Turnover and Total turnover: total turnover has been defined in sections 80HHC and 80HHE only to exclude additional items given under section 28. But for this additional exclusion, there was no need to define total turnover . Export turnover is component of total turnover. If entire turnover represents export proceeds, then export turnover and total turnover are identical. It is clear that any exclusion in export turnover in numerator will automatically imply exclusion in denominator as well because export turnover is always component of total turnover. Export Turnover/Total Turnover/Business: Form 56F prescribes report under Section 10A for and Annexure-A thereto refers to export proceeds and sale proceeds . Both together form total turnover of undertaking. 12 10) question arises here that when particular term has not been defined in any particular Section, is it allowed to import meaning of such term from other provisions of same Act? Section 10A of IT Act is special beneficial provision and purpose of deduction under such Section is to encourage and boost new business undertakings situated in free trade zone of this Nation by providing suitable deductions to such business entities. Sometimes, while calculating deduction, disputes arise regarding methodology of deduction which ought to be followed. Undisputedly, it is matter of record that Respondent is engaged in activity of trading of generic software and providing customized software development services for domestic as well as for foreign clients through its two units situated in Software Technology Park, Gurgaon (Now Gurugram) which falls under definition of Section 10A of IT Act. contention of Respondent is that it incurred expenditure in foreign exchange in sending professionals abroad as per agreements with foreign constituents. 13 11) On analysis of Respondent s activity taken from its website, Assessing Officer arrived at conclusion that Respondent has been rendering technical services outside India and, therefore, expenses incurred on such activity are required to be excluded from export turnover while working out deduction admissible under Section 10A of IT Act. Assessing Officer estimated 60% of software development charges required to be attributed towards expenses incurred for providing technical services outside India. On appeal, learned CIT (Appeals) again made detailed analysis of activity of Respondent and arrived at conclusion that Assessing Officer failed to bring any evidence which can indicate that Respondent was providing technical services outside India and it has incurred expenses towards salary etc. on rendering such services. Inspite that, learned CIT (Appeals), estimated 10% of software development charge as charges incurred for technical services provided outside India. 12) It is undisputed fact that Respondent was engaged in business of software development for its customers engaged in different activities at software development centres of 14 Respondent. However, in process of such customized software development, certain activities were required to be carried out at sight of customers on site, located outside India for which employees of branches of Respondent located in country of customers are deployed. It is true that it is not defined that which activity will be termed as providing technical services outside India. Moreover, after delivery of such softwares as per requirement, in order to make it fully functional and hassle free functioning subsequent to delivery of softwares in many cases, there can be requirement of technical personnel to visit client on site. Assessing Officer could not bring any evidence that Respondent was engaged in providing simply technical services independent to software development for client for which expenditures were incurred outside India in foreign currency. 13) Respondent company has claimed deduction under Section 10A as per certificates filed on Form No. 56F. Respondent, while computing deduction, has taken same figure of export turnover as of total turnover. 15 Respondent cited various judicial cases but all these cases pertain to deduction under Section 80HHC. Further, definition of total turnover has been defined in Section 80HHC and 80HHE of IT Act. As discussed earlier, definition of total turnover has not been defined under Section 10A of IT Act. 14) In above backdrop, we are of opinion that definition of total turnover given under Sections 80HHC and 80HHE cannot be adopted for purpose of Section 10A as technical meaning of total turnover, which does not envisage reduction of any expenses from total amount, is to be taken into consideration for computing deduction under Section 10A. When meaning is clear, there is no necessity of importing meaning of total turnover from other provisions. If term is defined under Section 2 of IT Act, then definition would be applicable to all provisions wherein same term appears. As term total turnover has been defined in Explanation to Section 80HHC and 80HHE, wherein it has been clearly stated that for purposes of this Section only , it would be applicable only for purposes of 16 that Sections and not for purpose of Section 10A. If denominator includes certain amount of certain type which numerator does not include, formula would render undesirable results. 15) Statute is intention of legislature who enacts it after having regard to various facts and circumstances. It is cardinal principle of law that interpretation by Court shall be done in such way that intention of legislature shall prevail and no injustice occurred with parties. rule of harmonious construction is thumb rule to interpretation of any statute. interpretation which makes enactment consistent whole, should be aim of Courts and construction which avoids inconsistency or repugnancy between various sections or parts of statue should be adopted. 16) In Commissioner of Income Tax vs. J.H. Gotla, (1985) 23 Taxman 14J (SC) this Court has held as under: 46. Where plain literal interpretation of statutory provision produces manifestly unjust result which could never have been intended by Legislature, Court might modify language used by Legislature so as to achieve intention of Legislature and produce rational construction. task of interpretation of statutory 17 provision is attempt to discover intention of Legislature from language used . 47 .If purpose of particular provision is easily discernible from whole scheme of Act which, in present case, was to counteract, effect of transfer of assets so far as computation of income of Respondent was concerned, then bearing that purpose in mind, intention should be found out from language used by Legislature and if strict literal, construction leads to absurd result, i.e. result not intended to be subserved by object of legislation found out in manner indicated above, then if other construction is possible apart from strict literal construction, then that construction should be preferred to strict literal construction. Though equity taxation are often strangers , attempt should be made that these do not remain so always so and if construction results in equity rather than in injustice , then such construction should be preferred to literal construction. Furthermore, in instant case, we are dealing with artificial liability created for counteracting effect only of attempts by assessee to reduce tax liability by transfer . 17) similar nature of controversy, akin this case, arose before Karnataka High Court in CIT vs. Tata Elxsi Ltd. (2012) 204 Taxman 321/17. issue before Karnataka High Court was whether Tribunal was correct in holding that while computing relief under Section10A of IT Act, amount of communication expenses should be excluded from total turnover if same are reduced from export turnover? While giving answer to issue, High Court, inter-alia, held that when particular word is not defined by 18 legislature and ordinary meaning is to be attributed to it, said ordinary meaning is to be in conformity with context in which it is used. Hence, what is excluded from export turnover must also be excluded from total turnover , since one of components of total turnover is export turnover. Any other interpretation would run counter to legislative intent and would be impermissible. 18) Accordingly, formula for computation of deduction under Section10A of Act would be as follows: Export turnover as defined in Explanation 2 (IV) of Section 10A of IT Act Export Profit = total Profit of Business X _____________________________ Export turnover as defined in Explanation 2(IV) of Section 10A of IT Act + domestic sale proceeds 19) In instant case, if deductions on freight, telecommunication and insurance attributable to delivery of computer software under Section10A of IT Act are allowed only in Export Turnover but not from Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to 19 Respondent which could have never been intention of legislature. 20) Even in common parlance, when object of formula is to arrive at profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from total turnover in same proportion as well. 21) On issue of expenses on technical services provided outside, we have to follow same principle of interpretation as followed in case of expenses of freight, telecommunication etc., otherwise formula of calculation would be futile. Hence, in same way, expenses incurred in foreign exchange for providing technical services outside shall be allowed to exclude from total turnover. 20 22) In view of above discussion, we are of considered view that these instant appeals are devoid of merits and deserve to be dismissed. Accordingly, all connected matters and interlocutory applications, if any, are disposed of with no order as to costs. ..... J. (R.K. AGRAWAL) . . J. (R. BANUMATHI) NEW DELHI; APRIL 24, 2018. 21 Commissioner of Income-tax, Central-III v. HCL Technologies Ltd