IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI C.M. GARG : JUDICIAL MEMBER
ITA No. 2575/Del/2012
Asstt. Yr: 2007-08
ACIT, Circle- 2, Vs. Sun Life India Service Pvt. Ltd.,
Gurgaon Ground Floor Tower-A,
Unitech World Cyber Park,
Sector-39, Gurgaon.
PAN: AAJCS 6520 K
( Appellant ) ( Respondent )
Appellant by : Shri Ramesh Chander CIT (DR)
Respondent by : Shri Salil Kapoor Adv.
Date of hearing : 22-05-2014
Date of order : 20-06-2014.
ORDER
PER S.V. MEHROTRA, A.M::
This appeal, by the department, is directed against the order dated 1-3-
2012 passed by the ld. CIT(A), Faridabad in appeal no. 159/GGN/2010-11
relating to A.Y. 2007-08.
2. The assessee company in the relevant assessment year was engaged in
the business of rendering I.T. enable services including back office
processing for group companies. It had filed return of income declaring
income at Rs. 17,04,510/-. The assessment was completed at an income of
Rs. 7,42,24,760/- as under:
2 ITA 2575/Del/2012
ACIT Vs. Sun Life India Services P. Ltd.
"Thus, the above section provides that deduction allowable u/s
10A(4) shall be computed as under:
Net profit of the business X Export Turnover
of the undertaking Total Turnover
6141401 X 36535607
113655767
Deduction u/s 10A = 19,74,205/-."
2.1. Ld. CIT(A) while partly allowing the assessee's appeal, directed the
assessing officer to allow deduction u/s 10A of Rs. 61,41,401/- as against the
deduction allowed by assessing officer of Rs. 19,74,205/-. Being aggrieved
from the order of ld. CIT(A), the department is in appeal before us and has
taken following grounds of appeal:
"1. On the facts and circumstances of the case, Ld. CIT(A)
has erred on facts and in law in deleting the whole addition of
Rs. 6,83,53,049/- even when Ld. CIT(A) has agreed that the
payments of Rs. 3,36,56,472/- [6,83,53,409 3,46,96,577] was
received by the assessee company in terms of clause 3 of
agreement and the aforesaid amount has nothing to do with
either rendering of services or export of services/ software and
the AO was justified under the provisions of law to treat the
amount to the extent of Rs. 3,36,56,472/- as not forming part of
export turnover. Thus, the aforesaid amount should have
appeared in balance sheet and not in profit & loss account ash
shown by the assessee and accepted by the Ld. CIT(A).
2. On the facts and circumstances of the case, Ld. CIT(A)
has erred on facts and in law in directing the assessing officer
to exclude from the total turnover the expenses of Rs.
38,08,386/- being expenses incurred in foreign currency on
communication charges and expenses of Rs. 3,36,56,472/-
towards providing infrastructure services to its subsidiary, for
the purpose of computing deduction under section 10A of the
Act.
3 ITA 2575/Del/2012
ACIT Vs. Sun Life India Services P. Ltd.
3. On the facts and circumstances of the case, Ld. CIT(A)
has erred on facts and in law in directing the assessing officer
to allow deduction of Rs. 61,41,401/- u/s 10A of the Act, thus
allowing excess deduction to the assessee without considering
the excludible expenses while computing eligible deduction u/s
10A of the Act.
4. That the appellant craves for the permission to add,
delete or amend the grounds of appeal before or at the time of
hearing of appeal."
3. The main issue is regarding allowability of deduction u/s 10A. The
assessee company had taken approval from the STPI Authority, Noida, to
engage in development/ manufacture of computer software/ IT enabled
services. The assessee company had claimed deduction u/s 10A of Rs.
61,41,401/-. In course of assessment proceedings, the assessing officer
required the assessee to furnish details of gross receipts/ sales, along with
bills raised by the assessee company. From the perusal of sales ledger and
bills, the assessing officer noticed that an amount of Rs. 6,83,53,049/- had
been received by the assessee company as corporate subsidy. The assessee
explained that the corporate subsidy was received by it from Sunlife
Information Services Ireland Ltd. as reimbursement of pre-operative
expenses incurred by it. It was clarified that the corporate subsidy of Rs.
3,36,56,472/- pertained to the period April 2006 to October 2006 and the
balance amount of Rs. 3,46,96,577/- pertained to the period from November
01,2006 onwards. The assessee's submissions have been reproduced by the
assessing officer at pages 2 & 3 of his order. The assessing officer concluded
from assessee's submissions as under:
"From the perusal of the assessee's submissions the following
points emerge:
4 ITA 2575/Del/2012
ACIT Vs. Sun Life India Services P. Ltd.
i) The corporate subsidy was provided by Sunlife Ireland
co compensate pre- when the assessee had not
commenced rendering of services. operative expenses
ii) No actual services were rendered during the relevant
period.
iii) Subsidy was provided in anticipation of the services to be
rendered by the assessee.
iv) The payment received cannot be termed as revenue of the
assessee as no service has been provided with regard to
this payment received.
v) As the corporate subsidy in not an account of actual
rendering of services in the nature of software exports,
the amount of Rs. 6,83,53,049/- cannot be held to be
profit and gains derived from the business of software
exports.
vi) The receipt of Rs. 6,83,53,049/- is, therefore, not eligible
for deduction under section 10A of the I.T. Act, 1961."
3.1. The assessing officer computed the export turnover at Rs.
3,65,35,607/- after excluding the non-export turnover of Rs. 6,83,53,049/-
from the total turnover at Rs. 11,36,55,767/-. The assessing officer computed
the allowable deduction u/s 10A(4) as under:
"Thus, the above section provides that deduction allowable u/s
10A(4) shall be computed as under:
Net profit of the business X Export Turnover
of the undertaking Total Turnover
6141401 X 36535607
113655767
Deduction u/s 10A = 19,74,205/-."
5 ITA 2575/Del/2012
ACIT Vs. Sun Life India Services P. Ltd.
3.2. Thus, he included the non-export turnover in the total turnover of
assessee.
4. Before ld. CIT(A) it was, inter alia, submitted that if an item is
reduced from export turnover, the same is also to be reduced from total
turnover.
4.1. Ld. CIT(A) upheld the AO's contention that since the amount received
by the assessee for the period up to October, 2006 in the name of
`corporate subsidy' from Sunlife Ireland is in the nature of reimbursement
of expense, having no nexus with the actual export of software, the same is
clearly outside the purview of section 10A of the Act. Therefore, the
assessing officer was justified under the provisions of law to treat the
amount to the extent of Rs. 3,63,56,472/- as not forming part of export
turnover. However, ld. CIT(A) did not make any observations in regard to
subsidy of Rs. 3,46,96,577/- for the period from November 2006 onwards.
4.2. Ld. CIT(A) further observed that as per copy of sales ledger, total
receipts of Rs. 11,36,55,767/- included the amount of Rs. 6,83,53,049/- as
corporate subsidy and, therefore, assessing officer was not justified in
again including the same as the same resulted into double taxation. He,
accordingly, directed for deletion of Rs. 6,83,53,049/-.
4.3. As regards the exclusion of expenditure of Rs. 87,67,111/- being lease
line charges from the export turnover for the purpose of allowing
deduction u/s 10A of the Act, ld. CIT(A) in principle agreed that in view of
Explanation 2 to clause (4) of sec. 10A, freight, telecommunication
6 ITA 2575/Del/2012
ACIT Vs. Sun Life India Services P. Ltd.
charges or insurance attributable to the delivery of articles or things or
computer software outside India or expenses, if any, incurred in foreign
exchange in providing the technical services outside India, would not form
part of export turnover. Thus, he agreed that the expenditure incurred in
foreign currency on lease lines had to be reduced from export turnover.
However, he agreed with the assessee's contention that while reducing the
expenditure incurred in foreign currency from the export turnover,
identical deduction should be allowed from the total turnover.
4.4. Ld. CIT(A) relied on the decision of the Hon'ble Supreme Court in
the case of CIT Vs. Lakshmi Machine Works 290 ITR 667, wherein
principle of parity has been recognized between export turnover and total
turnover for the purpose of section 80HHC.
4.5. Ld. CIT(A) also relied on the decision of Hon'ble Delhi High Court in
the case of CIT Vs. Genpact India 203 Taxman 632, wherein it has been
held that communication charges are to be excluded from total turnover for
computing eligible deduction u/s 10A.
4.6. Similarly, Hon'ble Bombay High Court in CIT Vs. Gem Plus
Jewellery India Ltd. 330 ITR 175 has held that for the purpose of
application of formula prescribed by sec. 10A(4), export turnover in
numerator must have same meaning as export turnover which is a
constituent element of total turnover in denominator.
4.7. Ld. CIT(A) on this count also relied on the decision of ITAT
Chandigarh Bench in the case of ITO Vs. Saksoft Ltd. 30 SOT 55, wherein
7 ITA 2575/Del/2012
ACIT Vs. Sun Life India Services P. Ltd.
it was held that freight, telecom charges or insurance attributable to
delivery of articles or things or computer software outside India or
expenses, if any, incurred in foreign exchange in providing technical
services outside India are to be excluded, both from export turnover and
total turnover, for purposes of computation of deduction u/s 10B(4).
4.8. Ld. CIT(A) accordingly held that the expenditure of Rs. 38,08,386/-
incurred in foreign currency on lease line charges reduced from the export
turnover is also required to be reduced from the total turnover in the case of
assessee.
4.9. Accordingly, ld. CIT(A) observed as under:
"In the present case, the profits of Rs.61,41,401/- has
been claimed for deduction u/s 10A of the Act.
Considering the fact that the amount of
Rs.33,656,472/- has been held to be not derived from
the actual conduct of business of export but only
reimbursement of expenditure, the same does not
form part of export turnover. The amount of
Rs.38,08,386 / - is further required to be reduced
from the export turnover in terms of clause (iv) of
explanation -2. Hence, the export turnover in the
instant case works out to Rs. 7,61,90,909/-. As
regards total turnover, in addition to the amount of
Rs.38,08,386/- being expenditure incurred in foreign
currency on lease line charges, the amountof
Rs.336,56,472/- being the amount received from Sun
Life Ireland as reimbursement of expenses during the
preoperative period till October 2006 On cost to cost
basis shall also not form part of total turnover as this
receipt does not bore any element of profit; following
the decision of Hon'ble Supreme Court in the case of
CIT vs. Laxmi Machine Works 210 CTR 1 (SC) and
8 ITA 2575/Del/2012
ACIT Vs. Sun Life India Services P. Ltd.
the rationale laid down in the decision by the
Hon'ble Mumbai High Court in CI'T vs. Gem Plus
.Jewellery India Ltd. (supra). Therefore, the total
turnover of the appellant shall be determined at
Rs.76l,90,909/-. Consequently, the claim of deduction
u/s 10A for which the appellant is eligible works out
to Rs.6l,4l,40l/-. The AO is therefore, directed to
allow deduction of Rs. 61,40,401/- u/s 10A of the Act.
5. Ld. DR relied on the order of assessing officer.
6. Ld. Counsel for the assessee submitted that the issue regarding
exclusion of telecommunication charges, both from export turnover and
total turnover, is squarely covered by various decisions, relied upon by ld.
CIT(A) and is no more res integra.
7. We have considered rival submissions and perused the record of the
case. As far as ground no. 1 is concerned, the revenue's contention is that
when ld. CIT(A) had agreed that payments to the tune of Rs. 3,36,56,472/-
were received by the assessee company in terms of clause (3) of agreement
and the aforesaid amount had nothing to do with either rendering of services
or export of services of the software and the assessing officer was justified
under the provisions of law to treat the amount to the extent of Rs.
3,36,56,472/- as not forming part of export turnover, then the said amount
should have appeared in balance-sheet and not in P&L a/c. The contention is
that since the findings of ld. CIT(A) are only with respect to Rs.
3,36,56,472/-, then he was not justified in deleting the whole addition of Rs.
6,83,53,049/-. We do not find any merit in this ground raised by department
because ld. CIT(A) deleted the addition on the ground of double addition
9 ITA 2575/Del/2012
ACIT Vs. Sun Life India Services P. Ltd.
which finding has not been controverted by department. We, therefore,
dismiss ground no. 1 raised by department.
8. As far as ground nos. 2 & 3 are concerned, we do not find any reason
to interfere with the order of ld. CIT(A) because the issue is no more res-
integra as it has been held by Hon'ble Supreme Court in the case of CIT Vs.
Lakshmi Macahine Works 290 ITR 667 that any receipt which does not have
an element of turnover cannot find a place either in the export turnover or
the total turnover. Reimbursement of expenses, accordingly, has to be
excluded from both export turnover and total turnover. Accordingly, ground
nos. 2 & 3 are dismissed.
9. Ground no. 4 is general in nature and requires no adjudication.
10. In the result, department's appeal is dismissed.
Order pronounced in open court on 20-06-2014.
Sd/- Sd/-
( C.M. GARG ) ( S.V. MEHROTRA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 20-06-2014.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
10 ITA 2575/Del/2012
ACIT Vs. Sun Life India Services P. Ltd.
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