TaxTMI 
TaxTMI 
2015 (7) TMI 1319
X X X X Extracts X X X X
X X X X Extracts X X X X
....law in holding that the compensation amount of Rs. 1.32 crores received by the assessee is capital in nature and hence not taxable without appreciating the fact that the assessee itself had treated the same as revenue receipt in the return of income filed. (3) On the facts and in the circumstances of the case the learned CIT(A) erred in law in directing the AO to exclude the reimbursement of certain expenses both from the export turnover as well as from total turnover for the purpose of computation of deduction u/s 10A, without appreciating the fact that the statute allows exclusion of such expenditure only from export turnover by way of specific definition of export turnover as envisaged by sub-clause (4) of Explanation 2 below Sub-section (8) of section 10A and the total turnover has not been defined in this Section. (4) On the facts and in the circumstances of the case the learned CIT(A) erred in directing the AO to compute deduction u/s 10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs are p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee are common in respect of the compensation amount of Rs. 1.32 crores received by the assessee on account of termination of contract. Since the assessee has raised an alternative plea in the cross-objection on this issue and claimed that even if the compensation received for termination of contract is treated as revenue income of the assessee, the same will form part of the profits of the business for the purpose of computing deduction u/s 10A of the Income-tax Act. 6. We propose first to take up and adjudicate the issue raised by the assessee in the cross-objections regarding the compensation received by the assessee would be part of profit of the business for the purpose of computing deduction u/s 10A of the Income-tax Act. During the year under consideration, the assessee received an amount of Rs. 1,35,54,600/- from a customer towards compensation for the termination of service contract with the assessee. The assessee has shown this amount separately under Schedule VIII as 'other income'. The assessee claimed deduction u/s 10A in respect of the said amount of compensation received from the customer. The Assessing Officer disallowed the claim of deduction u/s 10A and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ware, therefore, this cannot be said to have been earned from the export of software. 11. He has relied upon the order of the Assessing Officer as well as the decision of Hon'ble Madras High Court in the case of CIT Vs. Pandian Chemicals Ltd., 233 ITR 497. Thus, learned DR has submitted that the income received by the assessee on account of termination of the contract has no connection with the actual conduct of business of industrial undertaking or export of software. Section 10A provides deduction only for the income derived from export of software. The Assessing Officer has treated the said amount of Rs. 1,35,54,600/- as deemed income u/s 40(1) of the Income-tax Act and, therefore, the said income is not eligible for deduction u/s 10A. 12. We have considered the rival submissions as well as material on record. 13. There is no dispute on the fact that a sum of Rs. 1,35,54,600/- was received by the assessee from its client on termination of the contract. The contract in question was stated to be for supply of software to the client and, therefore, the assessee was compensated by the client when the contract was terminated. It is not clear from the record whether the contr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on software in its centre located at Bangalore. As already noted, the said centre at Bangalore was set up for development of product related and application software and the contract undertaken by it in relation to research and development of application software for Sony International (Euro) thus was a part of its main activity carried on at Bangalore centre. The said contract was to be executed as per the terms and conditions of the agreement entered into between the taxpayer company and Sony International (Euro) and Article-6 of the said agreement had explicitly provided for the terms of cancellation of the contract and related compensation that shall be awarded upon such termination. As the work undertaken under the said agreement was in relation to the development of software which is the main business activity of its undertaking eligible for deduction u/s 10B, the compensation received by the taxpayer company on cancellation/termination of the said contract/agreement, in our opinion was integral part of its main business. There was thus a clear and direct nexus between the amount of Rs. 83,06,011/- received by the taxpayer company as compensation for cancellation of the contr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot propose to go into the issue of the nature of the amount whether capital or revenue in nature. Accordingly, the appeal of the revenue relates to the ground No.2 fails and Ground No.1 of the Cross- objection of the assessee is allowed. 17. Ground No.2 of the Revenue's appeal is regarding exclusion of the expenses both from export turnover as well as from the total turnover for the purpose of computing deduction u/s 10A. 18. The Assessing Officer has reduced the expenses towards travel and data communication services amounting to Rs. 28,66,482/- from the export turnover while computing the deduction u/s 10A. On appeal, the CIT(A) has directed the AO to reduce the expenses relating to travel and data communication services from the total turnover also and accordingly calculated the deduction available to the assessee u/s 10A. The CIT(A) has followed the decision of Hon'ble Jurisdictional High Court in the case of Tata Elxsi, 349 ITR 98. 19. At the outset, we note that this issue of exclusion of the expenses incurred in foreign exchange from the export turnover as well as from the total turnover is settled by the judgment of Hon'ble Jurisdictional High Court in the case of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en the statue prescribes a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the Legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the Legislature, they would have expressly sated so. If they have not chosen to expressly define what the total turnover means, then, when the total turnover includes export turnover, the meaning assigned by the Legislature to the export turnover is to be respected and given effect to while interpreting the total turnover which is inclusive of the export turnover. Therefore, the formula for computation of the deduction us 10A, would be as under: Profits of the business Of the undertaking x, Export turnover ---------------------------------------------- (Export tu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....miting provisions like sec. 80A and sec. 80AB which was in Chapter VI-A which do not appear in Chapter III. The fact that even after its recast, the relief has been retained in Chapter III indicates that the intention of parliament it is to be regarded as an exemption and not a deduction. The Act of Parliament in consciously retaining this section in Chapter III indicates its intention that the nature of relief continues to be an exemption. Chapter VII deals with the incomes forming part of the total income on which non income-tax is payable. These are the incomes which are exempted from charge, but are included in the total income of the assesse. Parliament, despite being conversant with the implications of this Chapter, has consciously chosen to retain sec. 10A in Chapter III. 18. If section 10A is to be given effect to a deduction from the total income as defined in section 2(45), it would mean that section 10A is to be considered after Chapter VI-A deductions have been exhausted. The deductions under Chapter VI-A are to be given from out of the gross total income. The term 'gross total income' is defined in sec. 80B(5) to mean the total income computed in accordance wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rnover which relates to the software supply to another STP unit M/s Analog Devices India Pvt. Ltd. The assessee claimed that this amount of Rs. 1,00,43,496/- should be treated as deemed export as per the definition of export turnover u/s 10A as the receipt in question is convertible foreign exchange in India. The AO disallowed the claim of the assessee for deemed export in respect of software supplied to the Analog India Pvt. Ltd., as STP unit. 33. Before us, the learned AR of the assessee has submitted that the CIT(A) has not adjudicated this issue. However, this issue is now covered by the decision of the Hon'ble Jurisdictional High Court dated 20/10/2014 in the case of M/s Tata Elxsi Ltd., in ITA 411/ 2008. 34. On the other hand, the learned DR has submitted that when the issue has not been adjudicated by the CIT(A), then the proper remedy is before the CIT(A) and not in appeal before this Tribunal. 35. We have considered the rival submissions as well as the relevant material on record 36. At the outset, we note that the issue of deemed export in respect of the sale to another STP unit has been considered by the Hon'ble Jurisdictional High Court in the case of Tata E....