TaxTMI 
TaxTMI 
2011 (8) TMI 462
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.... the facts are as follows:- The assessee is a company. It is engaged in the business of development of software for the global research and development needs of the Intel Group as well as providing sales support and warranty support services. For the asst. year 2004-05, return of income was filed on 1.11.2004 declaring a loss of Rs.3,48,802/- after claiming a deduction of Rs.20,05,95,651/- u/s 10A of the Act. 4.1 For the asst. year 2005-06, the assessee company filed its return of income on 31.10.2005 declaring NIL income after set off of brought forward losses. The assessee had also claimed deduction u/s 10A of the Act. For both the asst. years mentioned above, the entire income of the company was from the STPI registered undertakings. The assessments for the above two asst. years were taken up for scrutiny by issuance of notice u/s 143(2) of the Act and assessment was completed for the asst. year 2004-05 on 28.12.2006 and for the asst. year 2005-06 on 18.12.2008. In the assessments completed, the AO by referring to clause (iv) of Explanation 2 to section 10A of the Act, reduced telecommunication expenses/leaselines charges from the export turnover. The AO, however, did not redu....
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.... Total turnover The Company contends that parity should be maintained with regard to items of inclusions and exclusions between numerator and denominator i.e. export turnover and total turnover, in the formula prescribed u/s 10A of the Act. The term total turnover has not been defined in section 10A of the Act. However, for the purpose of determining the deduction u/s 10A in the ratio of export turnover to total turnover, both the said expressions should be read on the same footing as the total turnover represents the sum of export turnover + domestic turnover (non-export). 2.2 The purpose of applying the ratio is to allocate the profits of the business between export and domestic turnover. Therefore, if a factor is not included in the numerator of the ratio, the said factor cannot be included in the denominator also. Inclusion of a particular factor in the denominator, i.e. total turnover only (where the said factor is not included in the numerator) would give rise to a dis....
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....ecent judicial pronouncements on this matter: 2.5.1 In the case of CIT v Gem Plus Jewellery India Ltd. (2010) 330 ITR 175 (Bom HC), the Hon'ble Bombay High Court on the issue of adjustment of freight and insurance expenses from the total turnover while computing deduction u/s 10A of the Act has laid down the principle that since the export turnover forms part of the total turnover, if an item is excluded from the export turnover, the same should also be reduced from the total turnover to maintain parity between numerator and denominator. 2.5.2 Further, in the case of Income-tax Officer v M/s Sak Soft Ltd. (2009) 313 ITR 353 (Chennai Special Bench), the assessee was engaged in the business of exporting computer software and claimed deduction u/s 10B of the Act. In completing the assessment u/s 143(3) of the Act, the AO reduced the expenditure incurred in foreign exchange in providing the technical services outside India, from the export turnover without corresponding reduction from total turnover, thereby reducing the deduction claimed by the assessee u/s 10B of the Act. In light of the above facts, the Special Bench held as under:- "For the above reasons, we hold that for....
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.... of the STP units consists of export, the allocation, effectively, is not required. In absence of a domestic turnover, no profit can be allocated to such non-existent domestic turnover. 2.7 Therefore, we request the Hon'ble Members to give the corresponding effect of reduction of telecommunication expenses from the export turnover by reducing it from the total turnover as well, for uniformity between the two components while computing the deduction u/s 10A of the Act. 2.8 Further, the appellant has relied on the ruling of the Hon'ble Chennai Tribunal in the case of California Software Co. Ltd. v ACIT [(2008) (118 TTJ 842)]. In the said decision, the Hon'ble Chennai Tribunal relied on the decision of the Hon'ble Supreme Court in the case of CIT v K Ravindranathan Nair (295 ITR 228) and held that what is deducted from export turnover, the numerator in the formula need not necessarily be deducted from the total turnover, the denominator in formula. In this regard, we wish to submit that the above mentioned decision of the Chennai Tribunal has been overruled by the Special Bench of the Chennai Tribunal in the case of Sak Soft Ltd. (Supra). The relevant extract from the decision of S....
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....t have the same meaning as the export turnover which is constituent element of the total turnover in the denominator. The legislature has provided a definition of the expression "export turnover" in Expln.2 to s.10A which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore in computing the export turnover the legislature has made a specific exclusion of freight and insurance charges. The submission which has been urged on behalf of the revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the revenue, however, misses the point that the expression "total turnover" has not been defined at all by Parliament for the purposes of s.10A. However, the expression "export turnover" has been defined. The definition of "ex....