TaxTMI 
TaxTMI 
2016 (11) TMI 290
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....Rs. 63,18,643/- ii. The Commissioner of Income Tax(Appeals) has erred in ignoring the findings of the Assessing Officer that the services rendered by the assessee were that of making telephone calls for debt and mortgage collection and thus not eligible for deduction u/s 10A of the IT Act. iii. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in directing the work out the deduction u/s 10A without excluding telecommunication and insurance expenses from the export turnover. iv. The appellant crave leave to add, alter or amend any ground of appeal raised above at time of hearing. 3. The facts in brief of the case are that during relevant period, the assessee was engaged in providing outsourcing services to its Group Company M/s. Chex Systems Inc, USA from its unit at Mumbai which is registered under the Software Technology Parks of India (STPI) Scheme, formulated by the Government of India. In the return of income filed on 28/09/2008, the assessee declared income of Rs. 10,125/-. This return was revised subsequently. In the return of income filed, the assessee claimed deduction amounting to Rs. 63,18,643/- under....
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....uld be restricted on the amount of export turnover calculated after excluding the communication and insurance expenses. Aggrieved, the assessee filed appeal before the learned Commissioner of Income Tax(Appeals) and submitted that the assessee was rendering services related to accounts receivable and recovery management, i.e., providing commercial collection and debt recovery services to its customers located outside India from its STP unit located at Mumbai and the said activity of the assessee i.e. call Centre was specifically covered under the definition of computer software in terms of clause(b) of item (i) of Explanation-2 to section 10A of the Act read with notification number SO 890 (E) dated 26/09/2000 issued by the Central Board of Direct Taxes(CBDT). The assessee further submitted that circular/notifications issued by the CBDT are binding on the Departmental Officers. The assessee in its submissions provided details of services rendered by it and why the same fall in the definition of the computer services before the learned Commissioner of Income-tax (Appeals), who reproduced the same in the impugned order as under: "2.1 It is submitted that the Appellant is a service....
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....ollector who would be able to view the particulars of the relevant debtor to whom call is connected by the Predictive Dialler Software on his computer screen. • The collector uses 'computer systems ' on which details of the relevant debtor are viewed and recovery call is undertaken. It is a known fact that the Computer system includes a complete unit along with the hardware, software and other peripheral devices that are necessary to make the computer function. It may be noted that computer software is required so that the computer performs the desired functions in the desired manner. Without computer software, the hardware cannot function on its own. A common example would be Microsoft Windows software which is used for running Personnel Computers without which the computer hardware which is a CPU, monitor, keyboard, etc. is not able to function. • After the call, the collector inputs the relevant information obtained from the debtor in the real-time system which is transmitted to the customer outside India electronically using the internet system. Also, after the recovery is made, the system is updated based on the collections and the said information is....
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....e, number of garment shops in the locality, the economic strata to which the population residing in that locality belongs, the spending habits of the people residing in the locality etc. All these activities will have to be carried out manually and once the data is collected, it may be collated and analyzed and may be stored in an electronic device. This becomes the IT enabled customized electronic date. If this date is exported outside India, the consulting firm will be eligible for deduction under Section 10A." 3.1 Further the assessee submitted that it was registered under the Software Technology Parks of India (STPI) Scheme formulated by the Government of India for the development of computer software/IT enabled services and, therefore, its activity have been duly examined by the STPI Authorities. The relevant submissions of the assessee reproduced by the learned Commissioner of Income-tax (Appeals) in the impugned order are as under: "2.3 It is further submitted that the undertaking of the Appellant in Mumbai is registered under the Software Technology Parks of India ('STPI') scheme formulated by the Government of India for the development of computer software/IT enabled....
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.... is "computer including networking equipments " which amounts to Rs. 54,63,611 out of the total gross bock of assets of Rs. 1,07,70,525 as on 31 March 2008 (i.e. more than 50% of the total assets of the asses see company). The same is corroborated from the Schedule 4 of fixed assets appended to the audited financial statements (please refer Annexure 5 of the Paper book). It is further submitted that the assessee company operates and makes calls via a dedicated internet data lines (Computerized) and does not have any ISD call facility (Manual) which is evident from the details of telecommunication expenses (please refer Annexure 6 of the Paper book) wherein it is self-evident that out of the total communication expenditure of 14,38,863 an amount of Rs. 14,24,413 was incurred on account of expenditure incurred on leased data lines (approximately 99% of the total communication expenditure) and there is no expenditure on ISD/manual facility for operations." 3.2 The assessee also submitted before the learned Commissioner of Income-tax (Appeals) why its activity are in the nature of call centers, as under: "2.5 The Ld. AO disregarded the submissions made by the Appellant and held t....
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....in the case of Radhaswami Satsang, 193 ITR 321 (SC). Further, the assessee also explained and reconciled that the services differently worded at different places by the assessee. The learned Commissioner of Income-tax (Appeals) after considering the submission of the assessee allowed relief to the assessee on the issue of deduction under section 10A of the Act. He also allowed relief on the alternative issue of restricting the deduction under section 10A of the Act on the amount of export turnover calculated after excluding the communication and insurance expenses following the earlier orders of the Commissioner of Income-tax (Appeals) on the issue in dispute Aggrieved, the Revenue are in appeals before the Tribunal, raising the grounds as reproduced above. 4. Grounds No. 1 and 2 of the appeal are related to the issue of eligibility of the assessee for deduction under section 10A of the Act. 4.1 Before us, the learned Senior Departmental Representative relying on the order of the Assessing Officer submitted that the activities of the assessee were not in the nature of call centre and, therefore, the assessee was not entitled for deduction under section 10A of the Act and acco....
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....owing facts are observed: a. The activities of the Appellant though have been described in different words at the places identified i.e. Form 3CEB, 3CD and submission dated 21 October, 2010, however, the nature of business is the same. In nut-shell, the customers of Chex Systems Inc., SA ("CSI") who are Financial Institutions in USA require debt collection services for their US clients and the appellant provides said services. The appellant has reconciled the nature of activities candidly in its submission dated 21 February 2012. Therefore, in my view there is no inconsistency in nature of services provided by the appellant. The services rendered by the appellant are in the nature of outbound call centre activities for managing accounts receivables and recovery for the international customers, of CSI (who is the customer of the Appellant). Further, the ASSESSING OFFICER in his assessment order on Page 8 has himself stated that Appellant is engaged in the provision of services in the sphere of managing accounts receivable and recovery. The ASSHSSING OFFICER further admits that the Appellant is making calls to CSI's International customers, however the ASSESSING OFFICER disp....
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....ich is a CPU, monitor, keyboard, etc. will not be able to function. It is a matter of record that computers including networking equipments comprise of more than 50% of the total assets of the appellant. It is also an undisputed fact that the appellant does not have any ISD facility and the details of telecommunication expenses are on record. All the calls are made using the Predictive Dialer Software using the internet facility. Thus, the contention of the ASSESSING OFFICER that no software is used by the Appellant is not based on the proper appreciation of the working of outbond call centers. Hence I do not agree with the findings of the ASSESSING OFFICER. c. The ASSESSING OFFICER has also mentioned that there is no customized electronic lata which is being prepared and sent to the customer and thus, it cannot be said that the Appellant is using computer software for his business activities to make him eligible to deduction u/s 10A. To this also I do not agree with the contention of the ASSESSING OFFICER. Since the Appellant has been using sophisticated software in carrying out its business activities and the same is discussed in detail above. It has been observed that a....
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....se (b) of item (i) of Explanation 2 to section 10A of the I.T. Act, 1961 read with Notification No. SO 890(E) dated 26 September 2000 issued by the Central Board of Direct Taxes. Considering the business module of the appellant. It is seen that appellant is eligible for deduction u/s 10A of the IT Act. It is also seen that the claim of deduction u/s 10A of the Appellant was accepted in the earlier Assessment Year(s) 2006-07 and 2007-08 and no adverse inference drawn about the deduction claimed u/s 10A of the Income-tax Act, 1961 (hereinafter referred to as "the Act") in those year. The only disallowance in those two earlier years was in respect of restricting the deduction u/s 10A on the amount of export turnover calculated after excluding communication and insurance expenses. The said disallowance has also been deleted by the learned CIT(A) in both the assessment years and the appeal order passed in both the earlier years allowing the claim of the Appellant has been placed on record before me. It is also seen that the nature of business activities of the Appellant remains the same in the year under appeal as well as in the earlier assessment years i.e. 2006-07 and 2007-08....
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....there is no change in the business activity of the assessee, thus, in our view, the principle of consistency also demand that this deduction should be allowed to the assessee. In view of above discussion, we find the order of learned Commissioner of Income-tax(Appeals) on the issue in dispute, is well reasoned and no interference on our part is required. Accordingly, we uphold the same. The grounds No. 1 and 2 of the appeal are dismissed. 5. In ground No. 3, the Revenue has raised the issue that if the deduction under section 10A of the Act is allowed to the assessee, then the export turnover for computation of deduction under section 10A should be reduced by the communication and insurance expenses. 5.1 We have heard representatives of both the parties and perused the material on record. 5.2 Before the learned Commissioner of Income-tax(Appeals), the assessee filed a detailed submission, which is reproduced in the impugned order as under: "7.2 Submission of the appellant "During the year under consideration, the Appellant incurred telecommunication and insurance expenses amounting to Rs. 14,38,863 and Rs. 20,632 respectively. The break-up of the telecommunication ex....
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.... the export turnover where the said expenses are included in the turnover and have been recovered from the customer/client. Where the export turnover is only towards consideration for goods/services and there no recovery of expenses which included in the turnover, deduction of expenses is required to be made from the export turnover. In the instant case the Appellant is charging its customer the service fee for its services. The copy of invoices raised to the customer which were also submitted before the Id. AO during the course of assessment proceedings are enclosed herewith as Annexure From of the said invoices it is evident that the Appellant had not charged and received reimbursement of any expenses from its customers. The Appellant had only received consideration for services rendered to the customer. Thus, since the Appellant had only received sales consideration for services and no expenses had been charged by the Appellant to customers, the Ld. AO has erred in deducting the telecommunication which are attributable to data line and connectivity and insurance charges from the export turnover while computing deduction under section 10A of the Act. The contention of th....
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....or and the numerator. We therefore find that the Assessing Officer was not correct in excluding Rs. 40,93,493 from consideration received in convertible foreign exchange while calculating export turnover for the purpose of section 10A of the Income-tax Act." (emphasis supplied) 3.2 It may further be submitted the insurance expenses has been incurred on the insurance of the assets of the Appellant and they are in no way attributable to the delivery of services outside India. The details of insurance expenses are enclosed as Annexure 13 for your ready reference. From a perusal of the said details and the copy of invoices raised by the Appellant (referred to above), it is evident that insurance expenses being related to insurance of fixed assets being neither attributable to the delivery outside India nor these expenses are charged to the customer and they do not form part of the export receipts. Thus, the same are not required to be deducted from the export turnover while computing deduction under section 10A of the Act. 3.3 Without prejudice to the above contention, it is also submitted the expenses, if deducted from the export turnover, are also liable to be deducted from the....
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.... excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula. " d) In the case of ACIT Vs. IGATE Global Solutions Ltd ITA No. 624 & 625/Bang/2009, the Bangalore Tribunal held that the expenditure in foreign currency on travel and telecommunication expenses should also be reduced not only from export turnover but also from the total turnover for the purpose of deduction 10A of the Act. The relevant text of the above mentioned decision is as under: "i) Whether the CIT(A)is justified holding that the expenditure incurred in foreign currency on travel and telecommunication expenses is to be reduced from the total turnover when the same is reduced from the export turnover for the purpose of computation of deduction under section 10A of the Act. 3.1 At the very outset, it is submitted by both the parties that first issue mentioned above is covered by the order of the Tribunal in assessee's own case (ITA Nos. 248 & 249/Bang/2007 dated 27th November, 2007) as well as the decision of the Special Bench of the Tribunal in the case of ITO v M/s Sak Soft Ltd. (2009) 313 ITR (AT) 353 (Chennai)(S.B.....
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....y towards telecom connectivity for providing technical services are deducted from export turnover then such expenses are required be deducted from total turnover. i) The Bangalore Tribunal in the case of M/s Mphasis Ltd. vs. Asst. Commissioner of Income Tax ITA No. 524 and 619 (Bang)/2008 held that telecommunication expenses are to be excluded from export turnover and also total turnover. j) Further, in the case of M/s. ANZ Operations & Technology Pvt. Ltd. vs. Commissioner of Income Tax ITA No. 30/Bang/2008 the Bangalore Tribunal held that " ....The term export turnover and total turnover be interpreted in the same manner. Hence, the amounts reduced while calculating export turnover would also need to be reduced while calculating value of Total turnover for the purposes of allowing exemption u/s 10A of the IT " k) In the case of the Asst. Commissioner of Income tax vs. M/s Khoday India Ltd ITA No 89/Bang/08, Bangalore Tribunal held that: " .............we hold that whatever is not included in the export turnover cannot be included in the total turnover as total turnover is the sum of export turnover + domestic turnover. The above-referred issue has been considere....
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....he Hon'ble Delhi High Court, being the jurisdictional Court, in the case of Jaypee Hotels Ltd. Thus, the interpretation of Hon'ble Bombay High Court regarding contextual meaning, excluding the commonplace meaning, have to be taken into account while computing the numerator and the denominator. The definition of the "export turnover", in s. 10A excludes from its ambit any expenses incurred in foreign exchange in providing technical services outside India. In view decision in the case of Sudarshan Chemicals Industries, such expenses will have to be included (sicexcluded) from the total turnover also. Therefore, we are of the view that the learned CIT(A) right holding that the total turnover shall not include expenses incurred in foreign exchange in providing technical services outside India." (emphasis supplied) m) M/s Goodrich Aerospace Services Private Limited vs. DCIT, ITA No. 58/(Bang.)/2008, wherein the Bangalore Tribunal held as under: "......we hold that the expenses reduced from the export turnover are to be reduced from the total turnover for the purpose of computing eligible profit for deduction u/s 10A of the Income-tax Act, 1961 (hereinafter referred t....
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....e issue in dispute has been decided in favour of the assessee by the learned Commissioner of Income-tax(Appeals) with following observations: "7.3 Decision I have considered the observation of the ASSESSING OFFICER, submission of the appellant, judicial pronouncements relied upon by the appellant and CIT (Appeal) order for A.Y. 2006-07 and 2007-08 in appellant's own case. It is seen that while deciding the issue the ASSESSING OFFICER has relied upon the assessment order passed by ASSESSING OFFICER for A.Y. 2006-07 and A.Y. 2007-08 wherein telecommunication and insurance expenses have been excluded from the export turnover for the purpose of computing the deduction under section 10A of the I.T. Act. It is seen that the Appellant had appealed against the assessment order for the AY 2006-07 and AY 2007-08 before the CIT(A)-VIII, New Delhi and the CIT(A)- V, New Delhi respectively and the said appeals have been decided in favour of the Appellant. The relevant extract of the decision of the CIT (Appeal) for A.Y. 2007-08 is reproduced hereunder:- "The assessment order passed by the AO for the year under consideration relies on the asst, order the case of the Appellant in t....