IMPORTANT POINT
Expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover for the purposes of section 10A.

Headnote:Income Tax Act, 1961 – Section 10A – Respondent developing and supplying software to customers abroad – Deploying its personnel to help customer with the software so developed and supplied – Revenue although claiming it to be technical services not adducing any evidence showing that respondent was engaged in providing simply technical services independent to software development – Respondent showing export turnover as total turnover – Definition of total turnover as given in section 80HHC and 80HHE being specific to those sections only, cannot be adopted for section 10A – What is excluded from ‘export turnover’ must also be excluded from ‘total turnover’ – Held, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover. (Para 12, 14, 17, 21)
       (1985) 23 Taxman 14J (SC); (2012) 204 Taxman 321/17 – Relied upon
       Facts of the case:
       The Respondent has shown gross income from business at Rs. 267,01,76,529/- while claiming deductions under Section 10A of the IT Act to the tune of Rs. 273,45,39,379/- showing a net loss of Rs. 6,43,62,850/-. The Respondent filed its return of income for the Assessment Year 2004-05 on 01.11.2004 declaring the undisclosed income at Rs. 91,25,68,114/-. Thereafter, on 31.03.2005, a revised return of income for Rs. 91,16,99,060/- was filed by the Respondent which was selected for scrutiny under Section 143 of the Income Tax Act, 1961.
       The Assessing Officer estimated software development charges at the rate of 40% and remaining 60% for providing technical services by the Respondent in foreign exchange to its offshore clients and re-assessed the taxable income at Rs. 137,20,34,576/- and penalty to the tune of Rs. 21,81,90,239/-.
       The Respondent preferred an appeal. The CIT (Appeals) partly allowed the appeal while estimating 10% as software development charge incurred for technical services provided outside India as against 60% estimated by the Assessing Officer.
       The Respondent as well as the Revenue, preferred cross appeals. The Tribunal dismissed the appeal filed by the Revenue and allowed the appeal of the Respondent.
       The High Court dismissed the appeal of the Revenue.
       Finding of the Court:
       Expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover for the purposes of section 10A.
       Result : Appeals dismissed.

JUDGMENT :

R.K. Agrawal, J.

1. Leave granted.

2. These appeals have been filed against the impugned judgment and order dated 15.12.2009 passed by the High Court of Delhi in ITA Nos. 1244 and 1250 of 2009 whereby the Division Bench of the High Court had dismissed the appeals filed by the Revenue – the appellant herein while upholding the order passed by the Income Tax Appellate Tribunal (in short ‘the Tribunal’) dated 30.03.2007. Since the moot question is same in all the appeals connected with the main matter, the same would stand disposed off vide this common judgment.

Civil Appeal Nos. 8489-8490 of 2013

3. Brief facts:

(a) The Respondent – HCL Technologies Ltd. is a company registered under the Companies Act, 1956 and engaged in the business of development and export of computer softwares and rendering technical services.
(b) The Respondent has shown gross income from business at Rs. 267,01,76,529/- while claiming deductions under Section 10A of the IT Act to the tune of Rs. 273,45,39,379/- showing a net loss of Rs. 6,43,62,850/-. The Respondent filed its return of income for the Assessment Year 2004-05 on 01.11.2004 declaring the undisclosed income at Rs. 91,25,68,114/-. Thereafter, on 31.03.2005, a revised return of income for Rs. 91,16,99,060/- was filed by the Respondent which was selected for scrutiny under Section 143 of the Income Tax Act, 1961 (in short ‘the IT Act’).
(c) The Assessing Officer, vide order dated 28.12.2006, held that the software development charges, as claimed by the Respondent, are nothing but in the nature of expenses incurred for technical services provided outside India. Further, in view of the fact that it is not purely technical services and some element of software development is also involved in it and in the absence of such bifurcation, the Assessing Officer estimated such expense at the rate of 40% and remaining 60% for providing technical services by the Respondent in foreign exchange to its offshore clients and re-assessed the taxable income at Rs. 137,20,34,576/- and penalty to the tune of Rs. 21,81,90,239/-.
(d) Being aggrieved, the Respondent preferred an appeal being No. 331/06-07 before the Commissioner of Income Tax (Appeals). Learned CIT (Appeals), vide order dated 09.05.2007, partly allowed the appeal while estimating 10% as software development charge incurred for technical services provided outside India as against 60% estimated by the Assessing Officer.
(e) Being aggrieved, the Respondent as well as the Revenue, preferred cross appeals being ITAT Nos. 3199 and 3344/Del/2007 before the Tribunal. The Tribunal, vide order dated 23.01.2009, dismissed the appeal filed by the Revenue while allowing the appeal of the Respondent.
(f) Being aggrieved, the Revenue preferred an appeal before the High Court being No. ITA No. 1250 of 2009. The High Court, vide order dated 15.12.2009, dismissed the appeal of the Revenue.
(g) Hence, these appeals have been filed before this Court.

4. Heard learned senior counsel for the parties and perused the factual matrix of the instant case.

Point(s) for consideration:-

5. The only point for consideration before this Court is whether in the facts and circumstances of the case, the software development charges are to be excluded while working out the deduction admissible under Section 10A of the IT Act on the ground that such charges are relatable towards expenses incurred on providing technical services outside India?

Rival contentions:-

6. At the outset, learned senior counsel for the Revenue submitted that when the total turnover is not defined under Section 10A of the IT Act, the ordinary meaning of the words is to be adopted. As it was a technical term, the technical meaning of total turnover, which does not envisage the reduction of any expense from the total amount, was to be taken into consideration for computing deduction under Section 10A of the IT Act. Hence

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2018 Supreme(SC) 560

IMPORTANT POINTExpenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover for the purposes of section 10A.

Cases Referred (2)

IMPORTANT POINT
Expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover for the purposes of section 10A.