2008 (9) TMI 951 - AT - Income Tax

Foreign Currency Expenses for Overseas Software Projects Included in Export Turnover, ITAT Affirms Decision.

The ITAT upheld the CIT(A)'s decision, affirming that expenses incurred in foreign currency for executing software projects or business outside India ... Computation of Export turnover - deduction u/s 10A - business of export of software - incurred expenses in foreign exchange and claimed the same to be included in the total turnover - falls within the definition of computer software u/s 10A or not. HELD THAT:- Ld counsel for the assessee pointed out that this issue is also squarely covered by the decision of this Tribunal in the case of the assessee for AY's 2001-02 and 2002-03 wherein held that; ''expenses in foreign currency were not to be reduced for ascertaining the export turnover. This Bench in the case of M/s. Relq Software Pvt Ltd [2008 (5) TMI 372 - ITAT BANGALORE-A] also held that the on-site expenses for development of computer software is not in the nature of technical services.'' Applying the same, we confirm the order of the ld CIT (A) granting relief to the assessee treating expenses incurred in foreign currency to be taken along with total turnover of the assessee. It is ordered accordingly. In the result, the appeal filed by the revenue is dismissed. Issues:1. Exclusion of expenditure in foreign currency from export turnover for providing technical services outside India.2. Contradictory stand taken by the assessee regarding reduction of expenses in foreign currency.3. Verification of the nature of business carried out by the assessee, specifically related to technical services outside India.Issue 1: Exclusion of Expenditure in Foreign Currency from Export Turnover for Providing Technical Services Outside India:The appeal was directed against the order of the CIT(A) regarding the deduction claimed under section 10A of the Income-tax Act, 1961. The assessee, engaged in software export, incurred expenses in foreign exchange and sought their inclusion in the total turnover. The AO disagreed with the assessee's position, citing decisions related to sec.80HHE. However, the CIT(A) examined the case and concluded that the expenditure in foreign currency for executing software projects or business outside India cannot be excluded from the export turnover. The CIT(A) emphasized that the appellant's activities fell within the definition of computer software u/s 10A, and thus, the exclusion of such expenses was unwarranted. The ITAT upheld this view, referring to previous decisions and circulars, and dismissed the revenue's appeal.Issue 2: Contradictory Stand Taken by the Assessee Regarding Reduction of Expenses in Foreign Currency:The revenue contended that the CIT(A) erred in not considering the contradictory stand taken by the assessee concerning the reduction of expenses in foreign currency from the export turnover. However, the CIT(A) clarified that the core dispute was the exclusion of foreign currency expenses from the export turnover, not the inconsistency in the assessee's submissions. The ITAT, after analyzing various precedents and the definition of computer software, reiterated that the expenses incurred in foreign currency for software projects outside India should be included in the export turnover, thereby upholding the CIT(A)'s decision.Issue 3: Verification of the Nature of Business Carried Out by the Assessee, Specifically Related to Technical Services Outside India:The revenue raised concerns about the CIT(A) not verifying the appellant's claim that it did not provide technical services outside India. However, the CIT(A) clarified that the dispute centered on the exclusion of foreign currency expenses from the export turnover, not the nature of services provided. The ITAT, in alignment with previous rulings, emphasized that the expenditure in foreign currency for executing software projects abroad should not be excluded from the export turnover, as it falls within the ambit of computer software development. Consequently, the ITAT dismissed the revenue's appeal, affirming the CIT(A)'s order.In conclusion, the ITAT, in the case under consideration, upheld the CIT(A)'s decision, emphasizing that expenses incurred in foreign currency for executing software projects or business outside India should be included in the export turnover. The judgment relied on the definition of computer software and relevant precedents to support the inclusion of such expenses, thereby dismissing the revenue's appeal.