2021 (7) TMI 311 - HC - Income Tax

High Court rules telecommunication expenses excluded from turnover for Section 10A deductions

The Commissioner of Income Tax, Chennai. Versus M/s. Allsec Technologies Ltd.

The High Court dismissed the Revenue's appeal, ruling against them on all legal issues and in favor of the assessee. The Court upheld the interpretation ... Deduction u/s.10A - Tribunal directing the AO to recompute the income in the case of Sak Soft by excluding the freight and insurance expenses both from the export turnover and also from the total turnover while computing deduction under Section 10-A - HELD THAT:- As fairly submitted that the questions of law 1 and 2 were already decided against the Revenue by judgment reported in Commissioner of Income Tax v. HCL Technologies Ltd. [2018 (5) TMI 357 - SUPREME COURT] Allowing set off of benefit of brought forward losses from the total income after allowing deduction under Section 10A when as per the amended provisions of the Act in Section 10A(1) deduction has to be allowed only after arriving at the total income after giving effect to brought forward depreciation and losses - HELD THAT:- 3rd question of law was decided against the Revenue by the Division Bench of this Court in M/s.Allsec Technologies Ltd., Chennai [2020 (9) TMI 1192 - MADRAS HIGH COURT] - Decided in favour of the assessee. Issues Involved:1. Exclusion of telecommunication expenses from export turnover and total turnover while computing deduction under Section 10A of the Income Tax Act.2. Definition and interpretation of 'export turnover' and 'total turnover' under Section 10A.3. Set off of brought forward losses and unabsorbed depreciation before computing deduction under Section 10A.Detailed Analysis:1. Exclusion of Telecommunication Expenses from Export Turnover and Total Turnover:The Tribunal directed the Assessing Officer to recompute the income by excluding the telecommunication expenses from both the export turnover and the total turnover while computing the deduction under Section 10A. This was challenged by the Revenue. The Supreme Court in the case of Commissioner of Income Tax v. HCL Technologies Ltd. held that the term 'total turnover' should be interpreted in a manner consistent with the exclusion of certain expenses from 'export turnover'. Specifically, the Supreme Court stated that 'expenses excluded from export turnover have to be excluded from total turnover also' to avoid illogical results and ensure the formula for computation of deduction under Section 10A is workable. This interpretation was followed by the High Court, deciding the issue against the Revenue.2. Definition and Interpretation of 'Export Turnover' and 'Total Turnover':The Revenue contended that the Tribunal's interpretation was incorrect, especially in light of Explanation II(iv) to Section 10A, which defines 'export turnover' without including freight, telecommunication charges, and other specified expenses. The Supreme Court clarified that when a term is not defined in a specific section, its meaning should not be imported from other sections unless explicitly stated. The Court emphasized that the definition of 'total turnover' given in Sections 80HHC and 80HHE should not be applied to Section 10A. The Court further stated that 'any exclusion in the export turnover in the numerator will automatically imply exclusion in the denominator as well because export turnover is always a component of total turnover.' This principle was upheld by the High Court, thereby rejecting the Revenue's contention.3. Set Off of Brought Forward Losses and Unabsorbed Depreciation:The third issue was whether the deduction under Section 10A should be computed after setting off brought forward losses and unabsorbed depreciation. The Division Bench of the High Court in T.C.A.No.375 of 2018 held that the deduction under Section 10A should be allowed without reducing the brought forward losses and unabsorbed depreciation. This decision was based on the principle that the purpose of Section 10A is to provide a benefit to businesses in free trade zones, and reducing the deduction by setting off past losses would defeat this purpose. The High Court followed this precedent, deciding the issue against the Revenue.Conclusion:The High Court dismissed the appeal filed by the Revenue, deciding all the substantial questions of law against the appellant/Revenue and in favor of the assessee. The Court upheld the principles laid down by the Supreme Court and the Division Bench of the High Court, ensuring that the interpretation of Section 10A remains consistent with the legislative intent to encourage businesses in free trade zones. The appeal was dismissed with no costs.