Ita/411/2010 Of Ibs Software Services v. Dy.commissioner Of Income Tax, Tvm

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY, THE 20TH DAY OF JULY 2018 / 29TH ASHADHA, 1940 I.T.A.No.411 of 2010 ----------------------------- AGAINST THE ORDER IN I.T.A.NO.847/COCH/2007 DATED 13.07.2010OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN. --------------------- APPELLANT(S)/ RESPONDENT IN ITA:- -------------------------------------------------------- IBS SOFTWARE SERVICES PRIVATE LIMITED, 521-524, NILA, TECHNOPARK CAMPUS, TRIVANDRUM (PAN.AAACI 6825N). BY ADVS.SRI.E.K.NANDAKUMAR SRI.P.BENNY THOMASSRI.P.GOPINATH SRI.K.JOHN MATHAI RESPONDENT(S)/ APPELLANT IN ITA:- -------------------------------------------------------- DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I(1), THIRUVANANTHAPURAM. BY SENIOR COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.P.K.R.MENON. BY STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES ) SRI.JOSE JOSEPH. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 20-07-2018,ALONG WITH I.T.A.NO.412 OF 2010 & CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:- I.T.A.NO.411 OF 2010 APPENDIX APPELLANT'S ANNEXURES:- ------------------------------------------- ANNEXURE-A TRUE COPY OF THE NOTIFICATION NO.SO.243(E) DATED 22.3.1994. ANNEXURE-B THE TEXT OF THE FOREIGN TRADE DEVELOPMENT AND REGULATIONACT, 1992. ANNEXURE-C TRUE COPY OF THE ASSESSMENT ORDER DATED 27.12.2006. ANNEXURE-D TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) DATED 30.05.2007.(APPEALS) DATED 30.05.2007. ANNEXURE-E TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATETRIBUNAL, COCHIN BENCH DATED 13.7.2010.TRIBUNAL, COCHIN BENCH DATED 13.7.2010. RESPONDENT'S ANNEXURES:- ---------------------------------------------- NIL. vku/- [ true copy ] K. Vinod Chandran & Ashok Menon, JJ. ----------------------------------------------------------- I.T.A.Nos.411, 412, 415, 416 & 418 of 2010 ----------------------------------------------------------- Dated, this the 20[th] day of July, 2018 JUDGMENT Vinod Chandran, J: Four appeals by the assessee [I.T.A.Nos.411, 412, 415 & 418 of 2010] and one by the Revenue [I.T.A.No.416 of 2010].The appeals of the assessee raise a common question insofar asthe exemption applicable to them being a 100% Export OrientedUnit . 2. The question of law raised, in the case of theassessee, is re-framed as follows: Whether the assessee is eligible to exemption underAnnexure-A notification brought out by virtue of Section 3 ofForeign Trade (Development and Regulation) Act, 1992 [forbrevity “FTDR Act”]? 3. The assessee was granted benefits by the Assessing Officer under Section 10A of the Income Tax Act, 1961 [for brevity “IT Act”]. The assessee took up the matter in appeal,asserting that they are entitled to blanket exemption as available under Annexure-A notification [produced in the assessee's appeals]. The first appellate authority allowed the same. TheRevenue filed an appeal before the Tribunal, which held that theassessee can claim exemption only under the IT Act. 4. The question that arose in the Revenue's appeal is as to whether the travel charges, telephone charges andprofessional consultancy charges reimbursed by the foreign clientfor services rendered outside the country are to be excluded fromthe total turnover under Section 10A of the IT Act when the samehas to be excluded from the export turnover. The Tribunal foundthat when the same is excluded from the numerator, it has to benecessarily excluded from the denominator also; numerator beingthe export turnover and denominator being the total turnover. 5. The question of law raised in the Revenue's appealis as follows: appeals]. The first appellate authority allowed the same. TheRevenue filed an appeal before the Tribunal, which held that theassessee can claim exemption only under the IT Act. 4. The question that arose in the Revenue's appeal is as to whether the travel charges, telephone charges andprofessional consultancy charges reimbursed by the foreign clientfor services rendered outside the country are to be excluded fromthe total turnover under Section 10A of the IT Act when the samehas to be excluded from the export turnover. The Tribunal foundthat when the same is excluded from the numerator, it has to benecessarily excluded from the denominator also; numerator beingthe export turnover and denominator being the total turnover. 5. The question of law raised in the Revenue's appealis as follows: Whether the reimbursement of expenses obtained bythe assessee for services rendered outside the country has tobe excluded from the total turnover, since it stands excludedfrom the export turnover? 6. The assessee is a 100% EOU and a softwareexporter, who claimed benefit under the Software Technology Parks (STP) Scheme formulated by the Central Governmentunder Section 3 of the FTDR Act. The notification at Annexure-Awas under Section 3 of the FTDR Act, which granted completeexemption from the income tax payable for five years from thedate of commencement. The Assessing Officer, however, refusedto grant the claim under the notification at Annexure-A, butallowed it under Section 10A of the IT Act. The Tribunal reversedthe order of the CIT and upheld that of the Assessing Officer. Theassessee had contended before the Tribunal that even though theexemption was not specifically provided under the IT Act, theexemption provided under the Unit Trust of India Act, 1963, theInterest on Delayed Payments to Small Scale and AncillaryIndustrial Undertakings Act, 1993 and the Small and MediumEnterprises Development Act, 2006 were granted independent ofthe IT Act. 7. The Tribunal, according to us, rightly found that allthe aforesaid enactments had a non obstante clause, conferringthe provisions there under to have overriding effect over any otherprovision of law; which is absent in the FTDR Act. The STPScheme as floated by the Government of India and thenotification issued under the FTDR Act would enable the assessee to claim the deduction as available under the IT Act isthe finding of the Tribunal. We are in agreement with the findingso entered by the Tribunal. We are informed that the assessee,after the aforesaid order of the Tribunal, has, for the subsequentyears, claimed the benefit under Section 10A of the IT Act. In suchcircumstances, the question of law raised in the appeals of theassessee is answered in favour of the Revenue and against theassessee. The appeals filed by the assessee stand dismissed. 8. As far as the question of law raised in the appeal ofthe Revenue, the issue is no longer res integra and is covered bythe decision of the Hon'ble Supreme Court in CIT v. HCLTechnologies Ltd. [(2018) 404 ITR 719 (SC)]. Suffice it to extractparagraph 19: “19. In the instant case, if the deductions onfreight, telecommunication and insurance attributableto the delivery of computer software under section 10Aof the Income-tax Act are allowed only in exportturnover but not from the total turnover then, it wouldgive rise to inadvertent, unlawful, meaningless andillogical result which would cause grave injustice to therespondent which could have never been the intentionof the Legislature”. The order of the Tribunal to that extent is unassailable. Thequestion of law is answered, following the judgment of the Hon'bleSupreme Court, in favour of the assessee and against theRevenue. The appeal filed by the Revenue stands dismissed.Ordered accordingly. Parties are left to suffer theirrespective costs. Sd/-K.Vinod ChandranJudge vku/- Sd/- Ashok MenonJudge [ true copy ]