Section 10A turnover computation requires matching exclusions from export and total turnover, while arm's length income remains eligible for deduction.

For section 10A computation, 80 per cent of uplinking charges was treated as attributable to software delivery outside India and was excluded from export turnover; the same charges were also required to be excluded from total turnover to maintain a consistent formula. The loss-set-off issue for one STP unit was not finally resolved because the record did not clearly show whether that unit was a separate undertaking or part of an integrated composite unit, so the matter required factual verification. Deduction under section 10A was allowed on income computed at arm's length price where the Assessing Officer had not enhanced income under section 92C(4).

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Issues: (i) Whether 80 per cent of uplinking charges were to be excluded from export turnover while computing deduction under section 10A. (ii) Whether the same uplinking charges, once excluded from export turnover, were also to be excluded from total turnover for section 10A computation. (iii) Whether the loss of one STP unit was to be set off against the profits of other STP units for section 10A purposes. (iv) Whether deduction under section 10A was allowable on the income computed on arm's length price basis.

Issue (i): Whether 80 per cent of uplinking charges were to be excluded from export turnover while computing deduction under section 10A.

Analysis: The assessee did not furnish the exact details of outward transmission expenses though such details were available from the service provider. The first appellate authority estimated the attributable portion of data-link charges on a factual assessment of software development operations and held that 80 per cent of the uplinking charges related to delivery of software outside India. The factual findings were not shown to be perverse.

Conclusion: The exclusion of 80 per cent of uplinking charges from export turnover was upheld, against the assessee.

Issue (ii): Whether the same uplinking charges, once excluded from export turnover, were also to be excluded from total turnover for section 10A computation.

Analysis: The computation under section 10A proceeds on a formula where export turnover forms part of the total turnover base. Consistency requires that what is excluded from export turnover cannot be retained in total turnover, as the denominator must reflect the same components as the numerator. The reasoning adopted in earlier Tribunal decisions and the principle that one should compare like with like supported this approach.

Conclusion: The uplinking charges excluded from export turnover were also required to be excluded from total turnover, in favour of the assessee.

Issue (iii): Whether the loss of one STP unit was to be set off against the profits of other STP units for section 10A purposes.

Analysis: The material did not clearly establish whether the loss-making Pune unit was an independent undertaking or part of the same integrated undertaking as the Bangalore and Chennai units. That factual characterisation was crucial because the treatment of loss depended on whether the unit stood alone or formed part of a composite undertaking. The matter therefore required factual verification at the assessment stage.

Conclusion: The issue was remitted to the Assessing Officer for fresh examination, with the result that the question of set-off remained open pending factual determination.

Issue (iv): Whether deduction under section 10A was allowable on the income computed on arm's length price basis.

Analysis: The restriction in section 92C(4) applies where the Assessing Officer enhances income after determining arm's length price. Here, the assessee itself had computed income on an arm's length price basis and no enhancement over returned income had occurred. The proviso therefore did not bar the deduction in respect of the income so returned.

Conclusion: Deduction under section 10A was allowable on the returned income computed on arm's length price basis, in favour of the assessee.

Final Conclusion: The appeal succeeded on the turnover-computation and arm's length price issues, while the unit-loss issue was restored for factual verification, leaving the assessee with partial relief.

Ratio Decidendi: For section 10A, the components excluded from export turnover must also be excluded from total turnover, and section 92C(4) does not deny deduction where the income has not been enhanced by the Assessing Officer after arm's length price computation.

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