Section 10A export turnover adjustment and MAT book profit computation treated as separate, internally consistent exercises

Telecommunication and similar delivery expenses attributable to software exports had to be reduced from both export turnover and total turnover for section 10A computation, because the adjustment must remain internally consistent; the article notes that 80 per cent of such expenses were directed to be excluded from both figures. For book profit under section 115JB, the section 10A restriction applicable to normal income computation could not be imported, because MAT operates under its own self-contained computation mechanism based on the profit and loss account; the restriction was therefore held inapplicable to book profit.

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Issues: (i) Whether 80 per cent of telecommunication and similar delivery expenses were to be reduced from export turnover and correspondingly from total turnover while computing deduction under section 10A; (ii) whether the restriction of deduction under section 10A for the assessment year 2003-04 could be imported into computation of book profit under section 115JB.

Issue (i): Whether 80 per cent of telecommunication and similar delivery expenses were to be reduced from export turnover and correspondingly from total turnover while computing deduction under section 10A.

Analysis: The expenses attributable to delivery of software outside India could not be precisely identified on the record, and the Revenue's estimation of a higher reduction was not accepted. Following the consistent view taken in earlier Tribunal decisions on identical facts, the amount reduced from export turnover for section 10A purposes had also to be matched by a corresponding reduction from total turnover, so that the computation remained internally consistent.

Conclusion: The issue was decided partly in favour of the assessee; 80 per cent of the communication and delivery expenses were directed to be reduced from both export turnover and total turnover.

Issue (ii): Whether the restriction of deduction under section 10A for the assessment year 2003-04 could be imported into computation of book profit under section 115JB.

Analysis: Book profit under section 115JB is governed by its own special computation mechanism and the non obstante clause. The adjustment contemplated in the Explanation had to be worked out with reference to the profit and loss account and not by importing the 90 per cent restriction applicable to section 10A for normal computation of total income. The statutory MAT computation was treated as a complete code, and no basis was found for making the proposed hypothetical adjustment to book profit.

Conclusion: The issue was decided in favour of the assessee; the section 10A restriction was not to be applied while computing book profit under section 115JB.

Final Conclusion: The assessee obtained relief on both issues, with the first issue allowed only to the extent indicated and the second issue decided fully in its favour.

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