Tribunal Rules On-Site Expenditure Excluded from Export Turnover; Dismisses Revenue's Appeal on ISP, Travel Expenses.

The Tribunal ruled in favor of the assessee, allowing the exclusion of on-site expenditure from the export turnover and rejecting the revenue's grounds. It held that ISP expenses should not be deducted from the export turnover as they are not telecommunication charges. Additionally, travel and allowance expenses were deemed related to software development, not technical services, and thus should not be excluded from the export turnover. The revenue's appeal was dismissed, and the assessee's cross-objection was allowed, emphasizing consistency with legislative intent in Section 10A calculations.

---

---

Issues Involved:
1. Exemption under Section 10A regarding the definition and calculation of "Export Turnover" and "Total Turnover."
2. Exclusion of on-site expenditure incurred in foreign exchange from the export turnover.
3. Inclusion of ISP expenses in the calculation of export turnover.
4. Exclusion of travel and allowance expenses incurred in foreign exchange for providing technical services outside India from the export turnover.

Detailed Analysis:

1. Exemption under Section 10A regarding the definition and calculation of "Export Turnover" and "Total Turnover":
The primary issue revolves around the calculation of "Export Turnover" for the purpose of exemption under Section 10A of the Income-tax Act. The revenue contended that the CIT(A) erred in allowing the claim of exemption under Section 10A by accepting that the export turnover and total turnover are the same. The term "Export Turnover" is defined in Section 10A, while "Total Turnover" is not. The legislative intention in not defining total turnover for the purpose of Section 10A is to avoid the deduction of on-site expenditure incurred in foreign exchange from the total turnover.

2. Exclusion of on-site expenditure incurred in foreign exchange from the export turnover:
The assessee, engaged in the business of developing software and being a 100% EOU, had its on-site expenditure in foreign exchange excluded from the export turnover by the Assessing Officer as per clause (iv) to Explanation 2 of Section 10A. The CIT(A) upheld the exclusion of site expenses from the export turnover but accepted the alternative contention that since the assessee's turnover consists only of exports, the total turnover should also be taken at the same figure. The Tribunal, following the decision in Patni Telecom (P.) Ltd., held that the on-site expenditure incurred for the development of software need not be reduced from convertible foreign exchange received by the assessee for the purpose of calculation of export turnover.

3. Inclusion of ISP expenses in the calculation of export turnover:
The Assessing Officer had deducted ISP expenses from the consideration treating it as communication charges. The Tribunal noted that the ISP expenses do not come within the scope of telecommunication charges as provided in clause (iv) of Explanation 2 to Section 10A. The ISP expenses were for transmitting the data (software developed by the assessee) and not attributable to the delivery of computer software. Therefore, such expenses need not be excluded from the consideration received in foreign exchange. The Tribunal emphasized that if such expenses are not included in the consideration received in convertible foreign exchange, deduction of such expenditures from the consideration does not arise.

4. Exclusion of travel and allowance expenses incurred in foreign exchange for providing technical services outside India from the export turnover:
The Assessing Officer treated travel and allowance expenses as expenditure incurred in foreign exchange for providing technical services outside India and reduced the same from the convertible foreign exchange received by the assessee. The Tribunal found that the expenditure was not in connection with providing technical services but for the development of software. The assessee did not render any independent technical services; it developed software on a contract basis and handed it over to the customer. The expenditure incurred was for the development of software and not for technical services. Therefore, there was no need to exclude these expenditures from the consideration received in convertible foreign exchange for the purpose of calculating export turnover as defined in clause (iv) of Explanation 2 of Section 10A.

Conclusion:
The Tribunal ruled in favor of the assessee, allowing the exclusion of on-site expenditure from the export turnover and rejecting the grounds raised by the revenue. The revenue's appeal was dismissed, and the assessee's cross-objection was allowed. The Tribunal's decision was based on the interpretation of Section 10A and the definitions provided therein, emphasizing that the exclusion of expenses should be consistent with the legislative intent and practical application in the calculation of export turnover.

---