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Issues: (i) Whether sales made to a domestic 100% export-oriented undertaking qualified for deduction under section 10B of the Income-tax Act, 1961 as deemed exports; (ii) Whether foreign exchange expenditure on insurance, travelling and communication was required to be excluded from both export turnover and total turnover for computing deduction under section 10B.
Issue (i): Whether sales made to a domestic 100% export-oriented undertaking qualified for deduction under section 10B of the Income-tax Act, 1961 as deemed exports.
Analysis: Section 10B(3) requires that the sale proceeds of exported articles or software be received in, or brought into, India in convertible foreign exchange within the prescribed time. The benefit under section 10B is therefore linked to receipt of export proceeds in foreign exchange, and the Exim policy could not override the plain statutory condition.
Conclusion: The claim for deduction on such sales was rejected and the issue was decided against the assessee.
Issue (ii): Whether foreign exchange expenditure on insurance, travelling and communication was required to be excluded from both export turnover and total turnover for computing deduction under section 10B.
Analysis: The jurisdictional High Court's ratio was applied to hold that expenses incurred in foreign exchange of this nature must be reduced from export turnover as well as from total turnover so that the computation remains consistent.
Conclusion: The exclusion from both export turnover and total turnover was allowed in favour of the assessee.
Final Conclusion: The assessee succeeded only on the computation of turnover adjustment, while the claim treating domestic sales as eligible export turnover failed.
Ratio Decidendi: Deduction under section 10B is available only where the export proceeds are received in convertible foreign exchange, and amounts excluded from export turnover must also be excluded from total turnover for a consistent computation.
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