Iii) Whether The Decision Of The Special Benchof The Income Tax Appellate Tribunal In The Case Ofito v. Sak Soft Ltd., Reported In (2009) 313 Itr 353,Is Correct In Law?

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR. JUSTICE R. MAHADEVAN ANDTHE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ Commissioner of Income Tax Chennai. ... Appellant/AppellantVersus M/s. Sanmar Speciality Chemicals Ltd., 9, Cathedral Road, Chennai 600 086 PAN: ... Respondent/Respondent Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Chennai, “A” Bench, dated 18.12.2015 in I.TA.No.1523/Mds/2015.against the order of The Commissioner of Income Tax (Appeals) -15, Chennai-34 vide I.TA.No.326/CIT(A)15/13-14 dated 30/03/2015GIR.No/PAN for the Assessment year 2009/2010, againstthe Assessment order passed by The Assistant Commissioner ofIncome Tax, Company Circle VI - 1, Chennai - 600 034, dated23/12/2011 vide PAN for the Assessment year 2009-10. For Appellant : Mr.J.NarayanasamyFor Respondent: Mr.R.Venkatanarayanan for Mr.Subbaraya Aiyar (Judgment of the Court was delivered by R.MAHADEVAN, J.) This tax case appeal has been filed by the appellant /Revenue, challenging the order dated 18.12.2015 passed by theIncome Tax Appellate Tribunal, 'A' Bench, Chennai, inI.T.A.No.1523/Mds/2015, relating to the assessment year 2009-10. 2. By order dated 05.12.2017, this court admitted theaforesaid tax case appeal on the following substantial questionsof law: “(i) Whether freight and clearing expensesincurred in foreign exchange is to be included whilecomputing deduction under Section 10B of the IncomeTax Act, 1961? (ii) Whether the learned Tribunal erred in law inincluding freight and clearing expenses incurred inforeign exchange for the purpose of computingdeduction under Section 10B of the Income Tax Act,1961? (iii) Whether the decision of the Special Benchof the Income Tax Appellate Tribunal in the case ofITO vs. Sak Soft Ltd., reported in (2009) 313 ITR 353,is correct in law? (iv) Whether Section 14A of the Income Tax Actread with Rule 8D of the Income Tax Rules applies evenwhen the assessee has not received any dividendincome? 3. Today, when the appeal was taken up for consideration,the learned counsel appearing for the appellant fairly submittedthat the substantial questions of law raised herein have beendecided in favour of the assessee, in the decision of the Hon'bleSupreme Court in Commissioner of Income Tax vs. HCL TechnologiesLtd., [(2018) 404 ITR 719 (SC)], the relevant passage of which,is usefully extracted hereunder: “ 17. The similar nature of controversy, akin thiscase, arose before the Karnataka High Court in CITvs. Tata Elxsi Ltd. (2012) 204 Taxman 321/17. Theissue before the Karnataka High Court was whetherthe Tribunal was correct in holding that whilecomputing relief under Section10A of the IT Act,the amount of communication expenses should beexcluded from the total turnover if the same arereduced from the export turnover? While giving theanswer to the issue, the High Court, inter-alia,held that when a particular word is not defined bythe legislature and an ordinary meaning is to beattributed to it, the said ordinary meaning is tobe in conformity with the context in which it isused. Hence, what is excluded from ‘exportturnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘totalturnover’ is export turnover. Any otherinterpretation would run counter to the legislativeintent and would be impermissible. 18. Accordingly, the formula for computationof the deduction under Section10A of the Act wouldbe as follows: Export Profit = total Profit of the BusinessX Export turnover as defined in Explanation 2(IV) of Section 10A of IT Act / Exportturnover as defined in Explanation 2(IV) ofSection 10A of the IT Act + domestic saleproceeds 18. Accordingly, the formula for computationof the deduction under Section10A of the Act wouldbe as follows: Export Profit = total Profit of the BusinessX Export turnover as defined in Explanation 2(IV) of Section 10A of IT Act / Exportturnover as defined in Explanation 2(IV) ofSection 10A of the IT Act + domestic saleproceeds 19. In the instant case, if the deductions onfreight,telecommunicationandinsuranceattributable to the delivery of computer softwareunder Section10A of the IT Act are allowed only inExport Turnover but not from the Total Turnoverthen, it would give rise to inadvertent, unlawful,meaningless and illogical result which would causegrave injustice to the Respondent which could havenever been the intention of the legislature. 20. Even in common parlance, when the objectof the formula is to arrive at the profit fromexport business, expenses excluded from exportturnover have to be excluded from total turnoveralso. Otherwise, any other interpretation makes theformula unworkable and absurd. Hence, we aresatisfied that such deduction shall be allowed fromthe total turnover in same proportion as well. 21. On the issue of expenses on technicalservices provided outside, we have to follow thesame principle of interpretation as followed in thecase of expenses of freight, telecommunicationetc., otherwise the formula of calculation would befutile. Hence, in the same way, expenses incurredin foreign exchange for providing the technicalservices outside shall be allowed to exclude fromthe total turnover. 22. In view of above discussion, we are of theconsidered view that these instant appeals aredevoid of merits and deserve to be dismissed.Accordingly, all the connected matters andinterlocutory applications, if any, are disposed ofwith no order as to costs." 4. Following the aforesaid judgment, which hold the field,the substantial questions of law raised in the tax case appeal will have to be answered in favour of the Assessee and areaccordingly, answered. Ultimately, the Appeal filed by theRevenue stands dismissed. No costs. Sd/-Assistant Registrar(CS IV) //True Copy//Sub Assistant Registrar avTo1. The Income Tax Appellate Tribunal, “A” Bench, Chennai,2. The Deputy Commissioner of Income Tax Corporate Circle 6(1), Aayakar Bhavan, New Block, Chennai - 600 034. 3. The Commissioner of Income Tax (Appeals) - 15, Chennai.4. The Assistant Commissioner of Income Tax, Company Circle VI - 1, Chennai - 600 034. COPY TO The Section Officer, V.R. Section, High Court, Madras-104.T.C.A.No.545 of 2017 AK-I(CO)CT/26/07/2022