TaxTMI 
TaxTMI 
2011 (8) TMI 782
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....munication expenses. The assessee claimed exemption under Section 10-A of the Income Tax Act, 1961 (hereinafter referred to as "the Act" for short) for the profits and gains derived from STP unit. In support of such claim, it has filed Form 56F and Annexure A thereto. In this Annexure, the details of profits derived by the undertaking, export turnover and total turnover of the undertaking are given. They are as under: Total profits of the undertaking Rs. 22,72,48,503/ Export's proceeds of the undertaking Rs. 154,58,88,049/- Total turnover of the undertaking Rs. 154,58,88,049/- 4. In arriving at the total turnover, the assessee did not include Rs. 10,44,31,606/- incurred by it towards communication expenses. In this context, the assessee was asked to substantiate the non-inclusion of Rs. 10,44,31,606/-, being expenditure incurred in foreign currency for the purpose of computation of exemption of income claimed under Section 10-A of the Act. The assessee justified its action. On consideration of the reply, the assessing authority held, Section 10-A defines only export turnover. The fact that only export turnover is defined and total turnover is not defined clearly manife....
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....xport turnover and the total turnover and then the said formula looses significance and certainly the legislature did not enact the aforesaid formula without any purpose. He further contended, in the absence of a specific definition of 'total turnover', it has to be understood in common parlance. So understood, what is excluded from the definition of export turnover has to be necessarily included while computing the total turnover as it forms part of the total turnover and therefore, he submits, the order passed by the Tribunal is erroneous as the judgments on which reliance is placed have no application while interpreting Section 10-A of the Act. 6. Per contra, the learned senior counsel appearing for the assessee submitted, it is true that the legislature has not defined the word 'total turnover' as in the case of Section 80HHC. But the total turnover under Section 10-A includes export turnover. What is expressly excluded from the export turnover has to be excluded while computing the total turnover for the reason that one of the components of total turnover is export turnover, as defined under Section 10-A. If the export turnover does not include what is expressly included unde....
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....uter software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried en by the undertaking". 8. The word 'export turnover' used in sub-Section (4) is defined in Explanation 2(iv) at the end of Section 10-A, it reads as under: "export turnover" means, the consideration in respect of export by the undertaking of articles or things or computer software received in or brought into, India by the assessee in convertible foreign exchange in, accordance with sub-Section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses if any, incurred in foreign exchange in providing the technical services outside India." Therefore, while computing the consideration received from such export turnover, the expenses incurred towards freight, telecommunication charges, or insurance attributable to the delivery of the articles or things or computer software outside India, or expenses if any incurred in f....
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....ould be understood in normal and proper sense. However, subject to special requirements of the income-tax, profits have got to be assessed provided they are real profits. Such profits have to be got to be ascertained on ordinary principles of commercial trading and accounting. However, the income-tax has laid down certain rules to be applied in deciding how the tax should be assessed and even if the result is to tax as profits what cannot be construed as profits, still the requirements of the income-tax must be complied with. Where a deduction is necessary in order to ascertain the profits and gains, such deductions should be allowed. Profits should be computed after deducting the expenses incurred for business though such expenses may not be admissible expressly under the Act, unless such expenses are expressly disallowed by the Act [see page 455 of "The Law and Practice of Income-tax by Kanga and Palkhivalal. Therefore, schematic interpretation for making the formula in section 80HHC workable cannot be ruled out. Similarly, purposeful interpretation of section 80HHC which has undergone so many changes cannot be ruled out, particularly, when those legislative changes indicate that....
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....ction. It was intended to provide incentives to promote exports. The incentive was to exempt profits relatable to exports. In the case of combined business of an assessee having export business and domestic business the Legislature intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under Excess Profits-tax Act. it existed in the Business Profits-tax Act. Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of "turnover", excise duty and sales tax also cannot form part of the "turnover". Similarly, "interest" emanates from exports and yet "interest" does not involve an element of turnover. The object of the Legislature in enacting section 80HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, "turnover" was the requirement. Commission, rent, interest etc. did not involve any turnover. Therefore, 90 per cent of such commission, interest etc. was excluded from the profits deriv....
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....over by the under-taking is applied to the profits of the business of the undertaking in computing the profits of the business of the undertaking in computing the profits derived from export. In other words, the profits of the business of the undertaking are multiplied by the export turnover in respect of the articles, things or, as the case may be, computer software and divided by the total turnover of the business carried or by the undertaking. The formula which is prescribed by sub-section (4) of section 10A is as follows: Profits derived from export of articles or things or Computer software = Profits of the business of the undertaking x Export turnover in respect of the articles or things or computer software Total turnover of the business carried on by the undertaking The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator inasmuch as the export turnover is a part of the total turnover. The export turnover, in the numera....
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....surdity must be avoided." The special bench of the Tribunal, in the case of ITO v. Sak Soft Ltd. [2009] 313 ITR (AT) 353/30 SOT 55 (Chennai) also had an occasion to consider the meaning of the word 'total turnover'. After referring to the various judgments of the High Court as well as the Supreme Court held as under: "53. For the above reasons, we hold that for the purpose of applying the formula under sub-section (4) of Section 10-B, the freight telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula....." The formula for computation of the deduction under Section 10-A would be as under: Profits of the business x export turnover Total turnover From the aforesaid judgments, what emerges is that, there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce a....