Ita/101/2015 Of Commissioner Of Income Tax Faridabad v. M/S Mercer Consulting India Pvt Ltd

IN THE, HIGH COURT OF PUNJAB & HARYANA ATCHANDIGARH. Income Tax Appeal No. 101 of 2015 (O&M) Date of Decision!)[&*]August, 2016 The Commissioner of Income Tax, Faridabad ..Appellant: VeTSUS M/s Mercer Consulting (India) Pvt. Ltd. Gurgaon ..Respondent CORAM:HON'BLE MR. JUSTICE S.J.VAZIFDAR, CHIEF JUSTICEHON BLE MR. JUSTICE DEEPAK SIBAL, JUDGE PresentMr. Tejender K.Joshi, Advocate, for the appellant. Mr. Deepak Chopra, Advocate,Mr. Deepak Aggarwal, Advocate,Ms. Manasvini Bajpai, Advocate, ©Mr. Piyush, Advocate andMr. Ronit Gupta, Advocate, for the respondent. AIS F S.J.VAZIFDAR, CHIEF JUSTICE This is an appeal against the order of the Income Tax AppellateTribunal allowing partly the respondent’s appeal against the order of theDisputes Resolution Panel. The dispute pertains to the assessment year2009-10. 2.This appeal is only in respect of the determination of the‘Arm’s Length Price’ (ALP) of certain international transactions between the assessee and its associated enterprises. 3The appeal is admitted on the following questions of law:- amountoT =0/,02,875/-OT]accountOT|communication|chargesincurred1N)foreigncurrency attributable to delivery of computer)sottware outside India from total turnover in order|to compute deduction under section 1OAA of the'Income Tax Act, 19601? Re: Question No. (1) AThe assessee is a wholly owned subsidiary of Mercer MauritiusLimited, Mauritius. It 1s engaged in rendering to its various associatedenterprises (AEs’) IT and IT enabled services such as in the nature ofapplicant development, quality assurance and application maintenance. Theservices were rendered to the clients of and for and on behalf of the’assessees for which it was compensated on a cost plus basis. 5 |The assessee reported three types of international transactionsin its audit report in Form 3CEB. The Assessing Officer referred the same to’the Transfer Pricing Ofticer (TPO) for the determination of the arm’s lengthprice thereof. Ihe assessee submitted a transfer pricing study. Iwo types oftransactions were accepted by the TPO to be at an arm’s length price. TheTPO by his order under section 92(A)(3) proposed an adjustment of about46.16 crores. The Assessing Officer served upon the assessee a dralitassessment order. The assessee filed objections before the DisputesResolution Panel (DRP). The Assessing Officer was directed to complete theassessment proceedings according to the directions issued by the DisputesResolution Panel (DRP) under section 144(C) of the Income Tax Act, 1961(for short ‘the Act’). The Tribunal on this issue allowed the assessee’sappeal by the order impugned In this appeal. 6.The filters adopted by the assessee and the TPO’s remarks in respect thereof are tabulated below:- an The comparables furnished by the assessee and the JPO’s, response thereto are tabulated below:- 8There is no dispute regarding the filters as suggested by theassessee and as qualified by the IPO. It is the application of the filters thatrequires consideration. Further, there is no dispute regarding thecomparables at Sr. Nos. 1, 3, 4 and 7. The dispute is with regard to thecomparables at Sr. Nos. 2,5,6,8 and 9. We will now deal with each of thecomparables in that order. — QOThe comparables at Sr. Nos. 2, 3 and 5 to 9 were originallyrelied upon by the assessee. Ihe comparables at Sr. Nos. 1 and 4 were profit margin in respect of seven comparables originally relied upon. Theassessee furnished the same but sought to exclude from the original list threecomparables and to rely upon two other comparables. The assessee,therefore, ultimately relied upon six comparables. The TPO, however,analyzed all the nine comparables i.e. the original seven and two additionalcomparables. However, the IPO included only three comparables which therespondent wanted excluded. We will now deal with each of the disputedcomparables. © Re: Alisec Technologies Limited QOThe comparables at Sr. Nos. 2, 3 and 5 to 9 were originallyrelied upon by the assessee. Ihe comparables at Sr. Nos. 1 and 4 were profit margin in respect of seven comparables originally relied upon. Theassessee furnished the same but sought to exclude from the original list threecomparables and to rely upon two other comparables. The assessee,therefore, ultimately relied upon six comparables. The TPO, however,analyzed all the nine comparables i.e. the original seven and two additionalcomparables. However, the IPO included only three comparables which therespondent wanted excluded. We will now deal with each of the disputedcomparables. © Re: Alisec Technologies Limited 10.Filter No.5 was adopted. The TPO’s qualification was that theappropriate threshold limit ought to be 75% as the assessee’s export earningswere more than 90% (infact 100%) of the total income. The qualification isnot in dispute. The TPO also adopted another filter, namely, the exclusion ofcases with diminishing revenues. | 11.Mr. Joshi, the learned counsel appearing on behalf of theappellant-department supported the second reason given by the TPO fordiscarding this comparable, namely, that the export was less than 75% of thetotal turn over. The decision of the Tribunal to include this case is entirelyjustified. Ihe TPO had rejected it merely because the actual ratio of exportrevenue to total turnover was 74.45% and not /5% which was thequalification adopted by the TPO. We are entirely in agreement with theTribunal that the case could not have been rejected merely because there wasa deviation of 0.55%. Mr. Joshi’s submission that there can be no deviationto any extent whatsoever Is erroneous. 1).There is nothing sacrosanct about the figure of 75%. Adeviation that does not affect the result is acceptable. Transfer pricing is not 13.Mr. Joshi’s apprehension is that the acceptance of any deviationnowever insignificant would bring about uncertainty and contusion. Hesubmitted that once a filter is chosen, it must be rigidly followed and therecannot be any deviation at all. He submitted that if deviations werepermissible, the TPO could have relied upon other comparables. He furthercontended that in that case there would be uncertainty as to the extent of thepermissible deviation. | 14.A minuscule difference cannot result in the rejection of the caseif it is otherwise comparable. There is no difficulty in permitting reasonabledeviation so long as the deviation does not render the case incomparable tothe one in question. The extent of deviation that ought to be accepted wouldof necessity vary from case to case. In a given case a minor deviation mayrender the case incomparable. In another case a larger deviation may notaffect the comparison and relevance of the case. The TPO must take all thefactors into consideration and decide whether the deviation renders the case|comparable to the one in question or not. © 15.The submission that by permitting a deviation the IPO isdeprived of the opportunity of relying upon other comparables within thatdeviation is also not well founded. Indeed even the [PO would be entitled torefer to cases which deviate from the filter. ‘he same test would apply evento the cases relied upon by the TPO. The DRP or the CIT (Appeals) as thecase may be, the ITAT and the Courts would apply the same test, namely,whether the deviation ought to be permitted or not. Nothing prevented theTPO from doing so. 16.The appellant’s contention that the case at Sr. No.2 is notcomparable to the international transactions 1s, therefore, rejected. Re: Cosmic Global Limited 17.This was one of the seven cases originally submitted by theassessee but was later sought to be excluded by the assessee itself. The TPO,however, included the same in the list of comparables. The respondentchallenged the inclusion successfully before the Tribunal. 16.The appellant’s contention that the case at Sr. No.2 is notcomparable to the international transactions 1s, therefore, rejected. Re: Cosmic Global Limited 17.This was one of the seven cases originally submitted by theassessee but was later sought to be excluded by the assessee itself. The TPO,however, included the same in the list of comparables. The respondentchallenged the inclusion successfully before the Tribunal. 18.The outsourcing charges of the assessee constitute 57.31% ofits total operating costs. The annual account of Cosmic Global Limitedindicates a total revenue from operations of Rs.7.37 crores of which=990lacs were in respect of medical transcription and consultancy services,=6.99 crores were towards translation charges and onlya27-76 lacs wereon account of the BPO services. Thus the assessee’s outsourcing activitiesconstitute 57% of its total expenses whereas the similar activity of CosmicGlobal Ltd. viz. the BPO segment was only=a27.76 lacs which is but a smallfraction of its total revenue from all its operations. | 19.The Tribunal rightly held that the results of Cosmic GlobalLimited on account of its activities other than those relating to the accountsBPO segment cannot be examined. The financial results of enterprisesinvolved in dissimilar activities cannot be compared. Similarly the financialaspects of dissimilar activities of two enterprises cannot be compared. Onlythe similar activities of the two can be considered provided however they arefinancially comparable. 2().Before dealing with this case further, it is important to note thatthe Tribunal excluded Cosmic Global Ltd. from the list of comparables forthe same reason that it excluded CG-VAK Software & Exports Ltd. from thelist of comparables. The assessee has not challenged the exclusion of CG-VAK Software & Exports Ltd. from the list of comparables by the Tribunal. It is necessary nevertheless for us to consider the correctness of theexclusion for it is on the basis thereof that the Iribunal has also excludedCosmic Global Ltd. from the list of comparables. While dealing with thecase of CG-VAK Software & Exports Ltd. the Tribunal noted that the BPOsegment which is a relevant segment of CG-VAK Software & Exports Ltd.Was only=86.10 lacs. as against the assessee’s revenue in the same segmentat about.499 crores. We are entirely in agreement with the decision of theTribunal in this regard. The Tribunal rightly relied upon the judgment of aDivision Bench of Delhi High Court in case ofCIT v. Agnity IndiaTechnologies Pvt. Ltd. (2013) 219 Taxman 26 (Delhi)where the TPO.included Satyam Computer Services Ltd., L&T Infotech Ltd. and InfosysTechnologies Ltd. in the list of comparables for working out the ALP of theinternational transactions of the assessee’s in that case. The Tribunal upheldthe decision of the DRP on the ground that a giant company cannot becompared with the assessee which was a Captive unit of a parent companyassuming only limited risks. The High Court upheld the decision of theTribunal. 21.This brings us back to the case under consideration of CosmicGlobal Ltd. The total revenue of Cosmic Global Ltd. ofzy7.3/7 crores 1Sdivided into three segments of which only|=2/./6 lacs pertained to theaccounts BPO which is the comparable activity. The other activities weremedical transcription consultancy services and translation charges in respectwhereof the revenues wereLQOQ lakhs andL6.99 crores respectively. The| Tribunal rightly came to the conclusion that the case of Cosmic Global Ltd.is not comparable with that of the assessee for the total revenue of the accounts BPO segment of the former was only|=27.76 lacs whereas that oT| the assessee in the case before us is about|L59 crores. — 22.The Tribunal, therefore, rightly excluded Global Cosmic Ltd.from the list of comparables. Re: Genesys International Corporation Ltd. Tribunal rightly came to the conclusion that the case of Cosmic Global Ltd.is not comparable with that of the assessee for the total revenue of the accounts BPO segment of the former was only|=27.76 lacs whereas that oT| the assessee in the case before us is about|L59 crores. — 22.The Tribunal, therefore, rightly excluded Global Cosmic Ltd.from the list of comparables. Re: Genesys International Corporation Ltd. 23.This case was also initially included in the list of seven casessubmitted by the assessee but was later sought to be excluded. The TPO,nowever, included the same. The assessee challenged the inclusionsuccessiully before the Tribunal. © 24.The assessee provides various services to the customers of its’AEs in relation to human resources which relate to the employees of theprospective clients. Genesys International Corporation Ltd. on the otherhand provides a full range of geospatial services to its clients. Geospatialservices relate to the relative position of things on the earth’s surface. Thisincludes 3D mapping, navigation maps, image processing and cadastralmapping etc. The two services are entirely different and therefore cannot becompared for the purpose of determining the ALP. 25.The TPO relied upon a CBDT circular dated 26.09.2000 whichfurnishes a list of products or services that may be considered as InformationTechnology Enabled Products/Services (ITES) for the purpose of sections10-A and 10-B of the Income Tax Act, 1961. The circular enumerates fifteencategories. As rightly observed by the Tribunal these categories refer toproducts and services which are entirely different in description andfunctions. The manufacture of such products and the provision of suchservicesalsohave.entirely differentfinancialrequirementsandconsequences. The instances cited by the tJribunal are apposite.RAVINDER SHARMA(;eqggraphical Information Systems Services and the assessee’s services ar2016.08.27 10:16I attest to the accuracy andauthenticity of this document included in the circular and therefore, fall within the category of ITES. Itdoes not follow that they are comparable to each other for the purpose ofdetermining the ALP in respect of the assessee’s international transactions.The circular is issued for entirely different reasons viz to enable an assesseeto avail deductions in respect of certain activities. The sections do notcontemplate or even remotely indicate that the activities referred to thereinare comparable to each other. Much less do these provisions indicate that theactivities included therein have any relevance to the transfer pricingmechanism for the purpose of determination of the ALP of internationaltransactions. 26.The ‘Tribunal rightly rejected this case from the list ofcomparables. Re: R.Systems International Limited. 2/.The TPO excluded the case of R. Systems International Limitedfrom the list of comparables. The ITAT included the same. The [TPOexcluded the case of R.Systems International Limited on the ground that itfollows the calendar year i.e. Ist January to 31[St]December for maintainingits annual account whereas the accounting year of the assessee is 1[St]April to64 March. The TPO followed an order passed by the Mumbai Bench of theTribunal in|ACIT v. Hapag Lloyd Global Services Ltd. 2013-TII-68-ITAT-MUM-TPin which it had been held that a company with a different financialyear ending cannot be compared. > 28.We are unable to agree with the decision of the TPO and of theDRP that affirmed it. The view taken by the Tribunal commends itself to us. ©It is not the financial year per se that is relevant. Even if the financial yearsof the assessee and of another enterprise are different, it would make nodifference. If it is possible to determine the value of the transactions duringRAVINDER SHARMA2016.08.27 10:16I attest to the accuracy andauthenticity of this document 28.We are unable to agree with the decision of the TPO and of theDRP that affirmed it. The view taken by the Tribunal commends itself to us. ©It is not the financial year per se that is relevant. Even if the financial yearsof the assessee and of another enterprise are different, it would make nodifference. If it is possible to determine the value of the transactions duringRAVINDER SHARMA2016.08.27 10:16I attest to the accuracy andauthenticity of this document the corresponding periods, the purpose of comparables would be served. Thequestion in each case is whether despite the financial years of the assesseeand of the other enterprise being different, the financials of thecorresponding period of each of them are available. If they are, the TPOmust refer to the corresponding period of both the entities in determiningwhether the two are comparable or not for the purpose of determining theALP. 29.As noted by the Tribunal, the audit accounts of R SystemInternational Ltd. for the year ending 31.12.2008 had been given under onecolumn and the data for the quarter ending 31.03.2009 and 31.03.2008 (bothaudited) had been given in two other columns. Thus, as rightly held by theTribunal, if from the yearly data ending 31.12.2008, the results of the quarterending 31.03.2008 are excluded and if the results for the quarter ending31.03.2009 are included, it is possible to obtain the data for the financialyear 01.04.2008 to 31.03.2009. 30).This view is not contrary to Rule 10(B)(4) which reads asunder:- “1OB(4) The data to be used in analysing the|comparability of an uncontrolled transaction with an|international transaction shall be the data relating to|the financialyear inwhichthe internationaltransaction has been entered into”. 31.The Rule does not exclude from consideration the data of an entity merely because its financial year is different from the financial year ofthe assessee. What the Rule requires is that the data to be used in analyzingthe financial results of an uncontrolled transaction with an internationaltransaction shall be the data relating to the financial year in which theRAVINDER SHARMAlaternational transaction has been entered into. Thus so long as the data2016.08.27 10:16I attest to the accuracy andauthenticity of this document relating to the financial year is available, it matters not, if the financial yearfollowed is different. In the case before us the data relating to the relevantfinancial year of R.Systems International Limited is available. 3).We are, therefore, entirely in agreement with the decision of theTribunal that if the data relating to the financial year in which theinternational transaction has been entered into is directly available from theannual accounts of that comparable, then it cannot be held as not passing thetest of sub-rule(4) of rule LOB. — Re: Coral Hub Ltd. 33.Coral Hub Ltd. was earlier known as Vishal Information|Technology Limited and was so referred to in the order of the Tribunal. Wewill, therefore, continue to refer to the name-Coral Hub Limited. 34.Coral Hub Limited was included by the assessee in the list ofthe comparables. The TPO required it to furnish the data of Coral HubLimited for the then current year alone. The assessee thereafter requested theTPO to exclude the case from the list of comparables. ‘The TPO refused todo so. The Tribunal, however, rightly excluded the Coral Hub Limited fromthe list of comparables. 35.Mr. Joshi firstly contended that once an assessee seeks theinclusion of a case in the list of comparables, it cannot subsequently insistthe same on being excluded. | 36.There is nothing to support this view either in law or inprinciple. The aim is to determine the ALP. The exercise requires theassessment of the relevant data. If the data furnished is not relevant orcomparable it cannot possibly be considered merely because the assessee hasrelied upon it. If the TPO finds the data to be irrelevant he is not onlyRAVINDER SHARMA2016.08.27 10:16I attest to the accuracy andauthenticity of this document 35.Mr. Joshi firstly contended that once an assessee seeks theinclusion of a case in the list of comparables, it cannot subsequently insistthe same on being excluded. | 36.There is nothing to support this view either in law or inprinciple. The aim is to determine the ALP. The exercise requires theassessment of the relevant data. If the data furnished is not relevant orcomparable it cannot possibly be considered merely because the assessee hasrelied upon it. If the TPO finds the data to be irrelevant he is not onlyRAVINDER SHARMA2016.08.27 10:16I attest to the accuracy andauthenticity of this document entitled Dut Dound to exclude it from consideration. [here is no reason thenwhy the TPO cannot do so on the application of the assessee. Indeed if thecase 1S comparable the TPO is not bound to reject it merely because theassessee applies to have it excluded. Whether or not to exclude the case fromthe list of comparables depends upon the relevance of the case and not thedesire of the parties. 3/.The next question is whether Coral Hub Limited ought to beincluded in the list of comparables. The ground on which the assesseecontends that Coral Hub Limited ought to be excluded from the list ofcomparables is also well founded. Coral Hub Limited outsources asignificant portion of its work. The finding is that the outsourcing chargesconstitute 90% of the total operating costs. It is admitted by the departmentthat the assessee on the other hand conducts its activities itself without|outsourcing any part of it. There can be no comparison between anenterprise that conducts its business activities itself with one that outsourcesits activities although the activities pertain to the same field. The entireadministrative set up of such enterprises would be different. An entity thatoutsources most of its work is not required to maintain a large establishment.For instance, it would be necessary for such an enterprise to have largepremises and a large number of employees. Even the material it uses and theequipment that it installs from minor items such as stationery and telephonesto electrical fittings and even machinery are bound to be far less than thematerial and equipment that an enterprise which conducts its activities itselfwould of necessity be required to maintain. 38This in turn would also have consequences upon the legalrequirements to be fulfilled by the two enterprises. There are severalenactments that bring within its ambit, establishments or undertakings thatRAVINDER SHARMA2016.08.27 10:16I attest to the accuracy andauthenticity of this document employ a certain number of persons. There are enactments that also bringWithin their ambit enterprises that use power. This in turn would require anenterprise carrying on its own activities to maintain staff alongwith attendantfacilities to ensure compliance with such legislation. The financial differencebetween such enterprises is bound to be enormous. 39.We are in respectiul agreement with the following observationsof the Division Bench of Delhi High Court inRampgreen Solutions Pvt. Ltd.v. Commissioner ofIncome Tax (2015) 377 ITR 533:- 639.In our view, even Vishal could not beconsidered aS a comparable, as admittedly, its'business model was completely different. Admittedly,|Vishal's expenditure on employment cost during the|relevantperiodWaSasmallfractionoT theproportionateCOSTincurredby|theAssessee,apparently, for the reason that most of its work was|outsourced to other vendors/service providers. The|DRP and the Tribunal erred in brushing aside this|vital difference by observing that outsourcing was/common in ITeS industry and the same would not'have a bearing on profitability. Plainly, a business|model where services are rendered by employing own|employees and using one's own infrastructure would|have a different cost structure as compared to a|business model where services are outsourced. There|was no material for the Tribunal to conclude that the|outsourcing of services by Vishal would have no|bearing on the profitability of the said entity.” A().The Tribunal’s decision not to consider this case is, therefore,Correct. Re: Question No. (11) Al.The issue pertains to the reduction in the amount of deductionssought by the assessee under section 10AA of the Act. The issue had two components. We are not concerned with the first, namely, the denial of adeduction on interest income of aboutL8.84 lacs. This appeal is only inrespect of the other component, namely, reduction of communicationexpenses incurred in foreign currency for the purposes of computing theexport turmmover. A).As recorded in the order of the Jribunal, on behalf of theassessee the action of the Assessing Officer in reducing the amount oftelecommunication charges from the export turn over was not challenged.However, it was contended that the amount ought to be reduced from thetotal turnover as well. The submission was accepted in view of the judgmentof a Division Bench of Delhi High Court (wrongly referred to in the order ofTribunal as the jurisdictional High Court) in the case ofCommissioner ofIncome Tax v. Genpact India 2011(203) Taxman 632 (Deinhi).TheDelhiHigh Court followed the judgment of the Bombay High Court inCIT v. Gem.Plus Jewellery India Ltd. (2011) 330 ITR 175and of the Karnataka HighCourt in the case of CIT v. Tata Elxsi Ltd. (2012) 349 ITR 98 (Karnataka)|which had also followed the judgment of Bombay High Court. As the Delhiand the Karnataka High Courts followed the judgment of Bombay HighCourt in the case ofCIT v. Gem Plus Jewellery India Ltd. (supra)we willrefer to the judgment of Bombay High Court. The Bombay High Court heldas under:- “7. The export turnover, in the numerator must have the|same meaning as the export turnover which is a|constituent element of the total turnover in the!denominator. The legislature has provided a definition ofthe expression "export turnover" in Explanation (2)|ToSection l1Oby which the expression is defined to.mean the consideration in respect of export by the|undertaking of articles, things or computer software|received in or brought into India by the assessee in|convertible foreign exchange but so as not to include inter|alia freight, telecommunication charges or insurance|attributable to the delivery of the articles, things or'software outside India. Therefore in computing the export|same meaning as the export turnover which is a|constituent element of the total turnover in the!denominator. The legislature has provided a definition ofthe expression "export turnover" in Explanation (2)|ToSection l1Oby which the expression is defined to.mean the consideration in respect of export by the|undertaking of articles, things or computer software|received in or brought into India by the assessee in|convertible foreign exchange but so as not to include inter|alia freight, telecommunication charges or insurance|attributable to the delivery of the articles, things or'software outside India. Therefore in computing the export| turnover the legislature has made a specific exclusion offreight and insurance charges. turnover the legislature has made a specific exclusion offreight and insurance charges. 8. The submission which has been urged on behalf of|the Revenue is that while freight and insurance charges|are liable to be excluded in computing export turnover, a|similar exclusion has not been provided in regard to total|turnover. The submission of the Revenue, however,misses the point that the expression "total turnover" has.not been defined at all by Parliament for the purposes|ot Section 1OA. However, the expression "export turnover"has been defined. The definition of "export turnover"excludes freight and insurance. Since export turnover hasbeen defined by Parliament and there is a _ specifiexclusion of freight and insurance, the expression "export|turnover" cannot have a different meaning when it forms|a constituent part of the total turnover for the purposes ofthe application of the ftormula.Undoubtedly, it was opento Parliament to make a provision to the contrary.|However, no such provision having been made, the|principle which has been enunciated earlier must prevail|as a matter of correct statutory interpretation. Any other|interpretation would lead to an absurdity. If the|contention of the Revenue were to be accepted, the same|expression viz. ‘export turnover’ would have a different.connotation in the application of the same formula. The.Submission ot the Revenue would lead to a situation|where freight and insurance, though it has. beenspecifically excluded from "export turnover" for the|purposes of the numerator would be brought in as part ofthe "export turnover" when it forms an element of the|total turnover as a denominator in the formula. A|construction of a statutory provision which would lead toan absurdity must be avoided.” | 43.We are in respectiul agreement with the judgment of BombayHigh Court. Although the judgment is under section 10A of the Act, the ratio.applies equally to the issue under consideration under section 10AA of theAct. | (A)Section 10A(1) and (4) and Explanation 2(iv) read as under:-“Special provision in respect of newly established|undertakings in free trade zone, etc. 10A.(1) Subject to the provisions of this section, a deductionof such profits and gains as are derived by an undertakingfrom the export of articles or things or computer software fora period of ten consecutive assessment years beginning withthe assessment year relevant to the previous year in whichthe undertaking begins to manutacture or produce such articles or things or computer software, as the case may be,shall be allowed from the total income of the assessee: (4) For the purposes of sub-sections (1) and (1A), the profitsderived from export of articles or things or computersoftware shall be the amount which bears to the profits ofthe business of the undertaking, the same proportion as theexport turnover in respect of such articles or things orcomputer soitware bears to the total turnover of the businesscarried on by the undertaking. Explanation 2.-For the purposes of this section,— (i) to (111)MxM KM KX 2Ww) "export turnover" means the consideration in respect ofexport by the undertaking of articles or things or computersoftware received in, or brought into, India by the assesseein convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunicationcharges or insurance attributable to the delivery of thearticles or things or computer software outside India orexpenses, if any, incurred in foreign exchange in providingthe technical services outside India; | ....emphasis supplied.” (B)|Section L[OAA which falls for consideration before us, in so faras it is relevant, reads as under:-| “Special provisions in respect of newly established Units|in Special Economic Zones. (i) to (111)MxM KM KX 2Ww) "export turnover" means the consideration in respect ofexport by the undertaking of articles or things or computersoftware received in, or brought into, India by the assesseein convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunicationcharges or insurance attributable to the delivery of thearticles or things or computer software outside India orexpenses, if any, incurred in foreign exchange in providingthe technical services outside India; | ....emphasis supplied.” (B)|Section L[OAA which falls for consideration before us, in so faras it is relevant, reads as under:-| “Special provisions in respect of newly established Units|in Special Economic Zones. 1OAA.(1) Subject to the provisions of this section, in|computing the total income of an assessee, being anentrepreneur as referred to in clause (J) of section 2 of theSpecial Economic Zones Act, 2005, from his Unit, whobegins to manufacture or produce articles or things orprovide any services during the previous year relevant to anyassessment year commencing on or after the lst day of*April, 2006, a deduction of+ (7) For the purposes of sub-section (1), the profits derivedfrom the export of articles or things or services (includingcomputer software) shall be the amount which bears to the profits of the business of the undertaking, being the Unit,the same proportion as the export turnover in respect ofsuch articles or things or services bears to the total turnoverof the business carried on by the undertaking: Explanation 1.—For the purposes of this section,— 21) "export turnover" means the consideration in|respect of export by the undertaking, being the Unit ofarticles or things or services received in, or brought into,India by the assessee but does not include freight,telecommunication charges or insurance attributable to thedelivery of the articles or things outside India or expenses, ifany, incurred in foreign exchange in rendering of services(including computer software) outside India;” A4.For all practical purposes relevant to the case before us thedefinition of export turn over in sections 10A and 10AA are similar. Theformula for computation under section LOAA(7) is also the same, namely:- As in the case of section 10A, so also in the case of section10AA of the Act, the expression total turnover has not been defined. Theexport turnover is a part of the total turnover. There is nothing in the sectionor any other provision of the Act that warrants the exclusion of exportturnover from the numerator but not from the denominator j.e. from the totalturnover. The plain language certainly militates against such a construction. A5. In the circumstances, both the questions are answered in favour of the assessee 1.e. question No.1 is answered in the affirmative and question No.2 is answered in the negative. | Ao.The appeal is accordingly dismissed. (S.J.VAZIFDAR) CHIEF JUSTICE (DEEPAK SIBAL) JUDGE 24[th]August, 2016'ravinder' Whether speaking/reasoned √Yes/No Whether reportable √Yes/No