COMMISSIONER OF INCOME TAX, CENTRAL-III versus HCL TECHNOLOGIES LTD. on 24 April 2018

[2018] 7 S.C.R. 1079

COMMISSIONER OF INCOME TAX, CENTRAL-III

v.

HCL TECHNOLOGIES LTD.

(Civil Appeal Nos. 8489-8490 of 2013)

APRIL 24, 2018

[R. K. AGRAWAL AND R. BANUMATHI, JJ.]

Income Tax Act, 1961 – ss.10A, 80HHC and 80HHE – Claimof certain expenses attributable to the delivery of software outsideIndia or in providing technical services from ‘total turnover’ by theRespondent u/s. 10A of the IT Act – Neither s.10A nor s.2 of the ITAct define the term ‘total turnover’ – However, the term ‘totalturnover’ is given in clause (ba) of the Explanation to s.80 HHC ofthe IT Act – Held: The definition of total turnover given u/ss. 80HHCand 80HHE cannot be adopted for the purpose of s.10A as thetechnical meaning of total turnover, which does not envisage thereduction of any expenses from the total amount, is to be taken intoconsideration for computing the deduction u/s.10A – When themeaning is clear, there is no necessity of importing the meaning oftotal turnover from the other provisions – What is excluded from‘export turnover’ must also be excluded from ‘total turnover’, sinceone of the components of ‘total turnover’ is export turnover – Evenin common parlance, when the object of the formula is to arrive atthe profit from export business, expenses excluded from exportturnover have to be excluded from total turnover also – Otherwise,any other interpretation makes the formula unworkable andabsurd – Hence, such deduction shall be allowed from the totalturnover in same proportion as well – In the same way, expensesincurred in foreign exchange for providing the technical servicesoutside shall be allowed to exclude from the total turnover.

Interpretation of Statutes – Harmonious Construction – Held:The rule of harmonious construction is the thumb rule tointerpretation of any statute – An interpretation which makes theenactment a consistent whole, should be the aim of the Courts anda construction which avoids inconsistency or repugnancy betweenthe various sections or parts of the statue should be adopted.

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ADismissing the appeals, the Court

HELD: 1.1 Section 10A of the Income Tax Act, 1961 is aspecial beneficial provision and the purpose of deduction undersuch Section is to encourage and boost the new businessundertakings situated in the free trade zone of this Nation byBproviding suitable deductions to such business entities.[Para 10] [1087-F]

1.2 The definition of total turnover given under Sections80HHC and 80HHE cannot be adopted for the purpose of Section10A as the technical meaning of total turnover, which does notCenvisage the reduction of any expenses from the total amount, isto be taken into consideration for computing the deduction underSection 10A. When the meaning is clear, there is no necessity ofimporting the meaning of total turnover from the other provisions.If a term is defined under Section 2 of the IT Act, then theDdefinition would be applicable to all the provisions wherein thesame term appears. As the term ‘total turnover’ has been definedin the Explanation to Section 80HHC and 80HHE, wherein it hasbeen clearly stated that “for the purposes of this Section only”, itwould be applicable only for the purposes of that Sections andnot for the purpose of Section 10A. [Para 14] [1089-A-C]E

2. A Statute is the intention of the legislature who enacts itafter having regard to various facts and circumstances. It is acardinal principle of law that the interpretation by the Court shallbe done in such a way that the intention of the legislature shallFprevail and no injustice occurred with the parties. The rule ofharmonious construction is the thumb rule to interpretation ofany statute. An interpretation which makes the enactment aconsistent whole, should be the aim of the Courts and aconstruction which avoids inconsistency or repugnancy betweenthe various sections or parts of the statue should be adopted.G[Para 15] [1089-D-E]

3. Accordingly, the formula for computation of the deductionunder Section10A of the Act would be as follows:

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Export turnover as defined in Explanation 2 (IV) of Section 10A of IT Act Export Profit = total Profit of the Business X _____________________________

Export turnover as defined in Explanation 2(IV) of Section 10A of the IT Act + domestic sale proceeds [Para 18] [1090-F-H]

4. In the instant case, if the deductions on freight,telecommunication and insurance attributable to the delivery ofcomputer software under Section10A of the IT Act are allowedonly in Export Turnover but not from the Total Turnover then, itwould give rise to inadvertent, unlawful, meaningless and illogicalresult which would cause grave injustice to the Respondent whichcould have never been the intention of the legislature. [Para 19][1091-A-B]

5. Even in common parlance, when the object of the formulais to arrive at the profit from export business, expenses excludedfrom export turnover have to be excluded from total turnoveralso. Otherwise, any other interpretation makes the formulaunworkable and absurd. Hence, such deduction shall be allowedfrom the total turnover in same proportion as well. [Para 20][1091-C]

6. On the issue of expenses on technical services providedoutside, the same principle of interpretation as followed in thecase of expenses of freight, telecommunication etc. is to befollowed, otherwise the formula of calculation would be futile.Hence, in the same way, expenses incurred in foreign exchangefor providing the technical services outside shall be allowed toexclude from the total turnover. [Para 21] [1091-D]

Commissioner of Income Tax v. J.H. Gotla (1985) 23 ;Taxman 14J (SC) : CIT v. Tata Elxsi Ltd. (2012) 204Taxman 321/17 – referred to.

Case Law Reference(1985) 23 Taxman 14J (SC) referred toPara 16(2012) 204 Taxman 321/17 referred toPara 17

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ACIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 8489-8490 of 2013.

From the Judgment and Order dated 15.12.2009 of the High Courtof Delhi at New Delhi in ITA Nos. 1244 of 2009 & 1250 of 2009

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BCivil Appeal Nos. 8535 & 8555-8556 of 2013, Civil AppealNos. 7853 & 8789 of 2012, Civil Appeal Nos. 8559, 8558, 8529-8530,8515, 8557, 8524, 8518, 8525 & 8539 of 2013, Civil Appeal No. 4392 of2018, Civil Appeal Nos. 8562 & 8533 of 2013, Civil Appeal No. 7854 of2012, Civil Appeal No. 8560 of 2013, Civil Appeal No. 4393 of 2018,CCivil Appeal Nos. 8537, 8543, 8492, 8540-8541, 8542, 8551, 8494, 8527of 2013, Civil Appeal No. 4543 of 2014, Civil Appeal Nos. 8536, 8500,8506, 8553, 8499, 8526, 8501, 8538, 8491 of 2013, Civil Appeal No. 1098of 2016, Civil Appeal Nos. 8505, 8510, 8513, 8507, 8504, 8503, 8519,8927 of 2013, Civil Appeal No. 8791 of 2012, Civil Appeal Nos. 8528,8523, 8554, 8509, 8521-8522, 147 of 2013, Civil Appeal No. 8912 ofD2012, Civil Appeal No. 6594 of 2015, Civil Appeal Nos. 8561, 8531,8544, 8550, 8545 of 2013, Civil Appeal No. 4394 of 2018, Civil AppealNo. 8929 of 2013, Civil Appeal No. 1099 of 2016, Civil AppealNo. 10830 of 2014, Civil Appeal No. 4395 of 2018, Civil AppealNos. 8552, 8495, 8493 of 2013, Civil Appeal No. 4557 of 2018, CivilAppeal No. 4537 of 2018, Civil Appeal No. 9202 of 2013, Civil AppealENos. 4538 & 4396-4397 of 2018, Civil Appeal No. 4293 of 2014, CivilAppeal Nos. 4443 & 4540 of 2018, Civil Appeal No. 9167 of 2016, CivilAppeal Nos. 4444, 4445, 4447 of 2018, Civil Appeal Nos. 646-647 of2015, Civil Appeal Nos. 4398 & 4399 of 2018, Civil Appeal No. 77 of2015, Civil Appeal Nos. 4450, 4452 4541 & 4455 of 2018, Civil AppealFNo. 1951 of 2015, Civil Appeal Nos. 4544, 4458, 4400, 4542 & 4461 of2018, Civil Appeal No. 9250 of 2015, Civil Appeal No. 4464 of 2018,Civil appeal No. 4427 of 2016, Civil Appeal No. 4611 of 2018, CivilAppeal No. 9319 of 2016, Civil Appeal No. 2999 of 2017, Civil AppealNo. 4614 of 2018, Civil Appeal No. 2998 & 3059 of 2017, Civil AppealNo. 4612 of 2018, Civil Appeal No. 11716 of 2016, Civil AppealGNo. 4613 of 2018, Civil Appeal Nos. 911, 3948, 2419, 1535, 1536, 3797,2420, 3060, 3275 & 3651 of 2017.

S. Ganesh, M.S. Syali, K. Radhakrishnan, Ajay Vohra, ArvindDatar, Percy Pardiwala, Sr. Adv., Pratap Venugopal, Ms. Niharika, AnujSarma, M/s. K J John & Co., Anand Sukumar, S. Sukumaran, Bhupesh H

Kumar Pathak, Mrs. Meera Mathur, S. Wasim A. Qadri, Rupesh Kumar,Arijit Prasad, Mrs. Rekha Pandey, Mrs. N. Annapoorni, Mrs. Anil Katiyar,Ms. Kavita Jha, Udit Naresh, Debmalya Banerjee, Manish Sharma,Kartik Bhatnagar, A.S. Aman, Aviral Kapoor, Adv. M/s. Karanjawala &Co. Mohit Chaudhary, Ms. Puja Sharma, Imran Ali, Balwinder SinghSuri, Kunal Sachdeva, Ms. Garima Sharma, Mayank Nagi, Ms. HusnalNagi, K. V. Mohan, R.K. Raghavan, K.V. Balakrishnan, SenthilJagadeesan, K. K. Chythanya, Kunal Verma, Mrs. Yugandhara PawarJha, Piyush Bhardwaj, T. Suryanaryana, V. Balachandran, K. R.Vasudevan, Siddarth Naidu, M/s. Ksn & Co., Amit Kumar Singh,Mrs. K. Enatoli Sema, Amith J, Yoginder Handoo, Nishant Kumar, PratapVenugopal, Ms. Surekha Raman, Ms. Kanika Kalaiyarasan, Jay Savla,Ms. Renuka Sahu, Avinash Kr. Lakhanpal, T. Suryanarayan, SanjayKunur, R. N. Keswani, Ranjit B. Raut, Ms. Surbhi Kapoor, Mrs. BinaGupta, Tarun Gulati, Sparsh Bhargava, Ms. Ishita Farsaiya, AnupamMishra, Shashi Mathews, Kishore Kunal, Nageswar Rao, PukhrambamRamesh Kumar, Sandeep S. Karhail, Ms. Sherry Goyal, Uday Manaktala,Ambhoj Kumar Sinha, Satyen Sethi, Ms. Arta Trana Panda, Ms. GargiSethee, Rameshwar Prasad Goyal, Ashwin Nayar, Ritunjay Gupta,Dheeraj Nair, Nikhil Nayyar, Sachit Jolly, Ms. B. Vijayalakshmi Menon,Ms. Anuradha Dutt, Sumit Goel, Tanuj Agarwal, Ms. Pavitra Singh,Ms. Swati Bhardwaj, M/s. Parekh & Co., Amar Dave, Pradhuman Gohil,Ms. Taruna Singh Gohil, Himanshu Chaubey, Himanshu Sinha, Ms. VrindaTulshan, Sandeep Devashish Das, Satpal Singh, Vasudevan Raghavan,Mohit Chaudhary, Rustom B. Hathikhanawala, Himanshu Sinha,Ms. Vrinda Tulshan, Syed Jafar Alam, R. Chandrachud, M. Srinivas R.Rao, Arun Devdas, Mrs. Sudha Gupta, Rajesh Mahale, Santosh Paul,Joseph Aristotle S., Mrs. Priya Aristotle, Ashish Yadav, Naveen R. Nath,Advs. for the appearing parties.

The Judgment of the Court was delivered by

R. K. AGRAWAL, J. 1. Leave granted.

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

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1084SUPREME COURT REPORTS

ACivil Appeal Nos. 8489-8490 of 2013

3. Brief facts:

(a) The Respondent – HCL Technologies Ltd. is a companyregistered under the Companies Act, 1956 and engaged in the businessof development and export of computer softwares and rendering technicalBservices.

(b) The Respondent has shown gross income from business atRs. 267,01,76,529/- while claiming deductions under Section 10A of theIT Act to the tune of Rs. 273,45,39,379/- showing a net loss ofRs. 6,43,62,850/-. The Respondent filed its return of income for theAssessment Year 2004-05 on 01.11.2004 declaring the undisclosed incomeat Rs. 91,25,68,114/-. Thereafter, on 31.03.2005, a revised return ofincome for Rs. 91,16,99,060/- was filed by the Respondent which wasselected for scrutiny under Section 143 of the Income Tax Act, 1961(in short ‘the IT Act’).

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(c) The Assessing Officer, vide order dated 28.12.2006, held thatthe software development charges, as claimed by the Respondent, arenothing but in the nature of expenses incurred for technical servicesprovided outside India. Further, in view of the fact that it is not purelytechnical services and some element of software development is alsoEinvolved in it and in the absence of such bifurcation, the Assessing Officerestimated such expense at the rate of 40% and remaining 60% forproviding technical services by the Respondent in foreign exchange toits offshore clients and re-assessed the taxable income atRs. 137,20,34,576/- and penalty to the tune of Rs. 21,81,90,239/-.

(d) Being aggrieved, the Respondent preferred an appeal beingNo. 331/06-07 before the Commissioner of Income Tax (Appeals).Learned CIT (Appeals), vide order dated 09.05.2007, partly allowed theappeal while estimating 10% as software development charge incurredfor technical services provided outside India as against 60% estimatedby the Assessing Officer.

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(e) Being aggrieved, the Respondent as well as the Revenue,preferred cross appeals being ITAT Nos. 3199 and 3344/Del/2007 beforethe Tribunal. The Tribunal, vide order dated 23.01.2009, dismissed theappeal filed by the Revenue while allowing the appeal of theRespondent.H

(f) Being aggrieved, the Revenue preferred an appeal before theHigh Court being No. ITA No. 1250 of 2009. The High Court, vide orderdated 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 thefactual matrix of the instant case.

Point(s) for consideration:-

5. The only point for consideration before this Court is whether inthe facts and circumstances of the case, the software developmentcharges are to be excluded while working out the deduction admissibleunder Section 10A of the IT Act on the ground that such charges arerelatable towards expenses incurred on providing technical servicesoutside India?

Rival contentions:-

6. At the outset, learned senior counsel for the Revenue submittedthat when the total turnover is not defined under Section 10A of the ITAct, the ordinary meaning of the words is to be adopted. As it was atechnical term, the technical meaning of total turnover, which does notenvisage the reduction of any expense from the total amount, was to betaken into consideration for computing deduction under Section 10A ofthe IT Act. Hence, the fact that the Respondent has claimed expenseslike freight, telecommunication and insurance attributable to the deliveryof software outside India total turnover also, while calculating deductionunder Section 10A of the IT Act, despite the fact that there is no suchprovision in Section 10A of the IT Act, is not sustainable in the eyes oflaw. Therefore, the impugned decision of the High Court is liable to beset aside.

7. On the other hand, learned senior counsel appearing for theRespondent submitted that the export turnover is the numerator whereasthe total turnover is the denominator in the formula for computing profitfrom exports. The export turnover as defined in Section 10A of the ITAct would not include freight, telecommunication charges or insuranceattributable to the delivery of goods outside India and the expensesincurred in foreign exchange for providing technical services outsideIndia. The same cannot be included in the total turnover as if numerator A

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Aincluded the aforesaid amount, which the denominator doesn’t include,the formula would render undesirable results. Therefore, the Respondentis legally entitled to exclude the above said expenses from the totalturnover as well. Hence, these appeals deserve to be dismissed at theoutset.

BDiscussion:-

8. The whole controversy revolves around the claim of certainexpenses attributable to the delivery of software outside India or inproviding technical services from ‘total turnover’ by the Respondentunder Section 10A of the IT Act. It is an undisputed fact that neitherCSection 10A nor Section 2 of the IT Act define the term ‘total turnover’.However, the term ‘total turnover’ is given in clause (ba) of theExplanation to Section 80 HHC of the IT Act which defines the meaningof total turnover as follows:

“(ba) ‘total turnover’ shall not include freight or insuranceDattributable to the transport of the goods or merchandise beyondthe customs stations as defined in the Customs Act, 1962 (52 of1962).

Provided that in relation to any assessment year commencing onor after the 1[st] day of April, 1991, the expression “total turnover”Eshall have effect as if it also included any sum referred to in clauses(iiia), (iiib), (iiic), (iiid) and (iiie) of section 28;”

9. It is also pertinent to mention here the relevant terminologieswhich are as under:

“Export Turnover:F

Explanation 2(iv) of Section 10A of the IT Act defines “exportturnover” to mean the consideration that has been received forexport of articles/things/computer software. Normally theconsideration will include the freight/telecommunication charges/insurance which had been incurred to deliver the article/things/Gcomputer software outside India. However the Explanation 2(iv)specifically seeks to exclude these three categories of expenditureincurred for delivering the export of articles/things/computersoftware. It also seeks to exclude expenses for providing technicalservice, etc. outside India. Therefore, where an Indian technician H

goes abroad and receives fees for service, the foreign client willnormally be required to reimburse the expenses as well. Therefore,out of the consideration received, the portion representingreimbursement of expenditure has to be excluded.

Export Turnover and Total turnover:

The “total turnover” has been defined in sections 80HHC and80HHE only to exclude additional items given under section 28.But for this additional exclusion, there was no need to define “totalturnover”.

Export turnover is a component of total turnover. If the entireturnover represents export proceeds, then the export turnover andthe total turnover are identical. It is clear that any exclusion in theexport turnover in the numerator will automatically imply exclusionin the denominator as well because export turnover is always acomponent of total turnover.

Export Turnover/Total Turnover/Business:

Form 56F prescribes the report under Section 10A for andAnnexure-A thereto refers to “export proceeds” and “saleproceeds”. Both together form the total turnover of theundertaking.”

10. The question arises here that when the particular term has notbeen defined in any particular Section, is it allowed to import the meaningof such term from the other provisions of the same Act? Section 10A ofthe IT Act is a special beneficial provision and the purpose of deductionunder such Section is to encourage and boost the new businessundertakings situated in the free trade zone of this Nation by providingsuitable deductions to such business entities. Sometimes, while calculatingthe deduction, disputes arise regarding the methodology of deductionwhich ought to be followed. Undisputedly, it is a matter of record thatthe Respondent is engaged in the activity of trading of generic softwareand providing customized software development services for domesticas well as for foreign clients through its two units situated in SoftwareTechnology Park, Gurgaon (Now Gurugram) which falls under thedefinition of the Section 10A of the IT Act. The contention of theRespondent is that it incurred expenditure in foreign exchange in sendingprofessionals abroad as per the agreements with the foreign constituents.

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A11. On an analysis of the Respondent’s activity taken from itswebsite, Assessing Officer arrived at a conclusion that Respondent hasbeen rendering technical services outside India and, therefore, expensesincurred on such activity are required to be excluded from the exportturnover while working out the deduction admissible under Section 10Aof the IT Act. The Assessing Officer estimated 60% of the softwareBdevelopment charges required to be attributed towards expenses incurredfor providing technical services outside India. On appeal, learned CIT(Appeals) again made a detailed analysis of the activity of the Respondentand arrived at a conclusion that the Assessing Officer failed to bring anyevidence which can indicate that Respondent was providing technicalCservices outside India and it has incurred expenses towards salary etc.on rendering such services. Inspite that, learned CIT (Appeals), estimated10% of software development charge as charges incurred for technicalservices provided outside India.

12. It is undisputed fact that the Respondent was engaged in theDbusiness of software development for its customers engaged in differentactivities at software development centres of the Respondent. However,in the process of such customized software development, certain activitieswere required to be carried out at the sight of customers on site, locatedoutside India for which the employees of the branches of the Respondentlocated in the country of the customers are deployed. It is true that it isEnot defined that which activity will be termed as providing technicalservices outside India. Moreover, after delivery of such softwares asper requirement, in order to make it fully functional and hassle freefunctioning subsequent to the delivery of softwares in many cases, therecan be requirement of technical personnel to visit the client on site. TheFAssessing Officer could not bring any evidence that the Respondentwas engaged in providing simply technical services independent tosoftware development for the client for which the expenditures wereincurred outside India in foreign currency.

13. The Respondent company has claimed deduction under Section10A as per certificates filed on Form No. 56F. The Respondent, whileGcomputing the deduction, has taken the same figure of export turnoveras of total turnover. The Respondent cited various judicial cases but allthese cases pertain to deduction under Section 80HHC. Further, thedefinition of total turnover has been defined in Section 80HHC and80HHE of the IT Act. As discussed earlier, the definition of total turnoverHhas not been defined under Section 10A of the IT Act.

14. In the above backdrop, we are of the opinion that the definitionof total turnover given under Sections 80HHC and 80HHE cannot beadopted for the purpose of Section 10A as the technical meaning of totalturnover, which does not envisage the reduction of any expenses fromthe total amount, is to be taken into consideration for computing thededuction under Section 10A. When the meaning is clear, there is nonecessity of importing the meaning of total turnover from the otherprovisions. If a term is defined under Section 2 of the IT Act, then thedefinition would be applicable to all the provisions wherein the sameterm appears. As the term ‘total turnover’ has been defined in theExplanation to Section 80HHC and 80HHE, wherein it has been clearlystated that “for the purposes of this Section only”, it would be applicableonly for the purposes of that Sections and not for the purpose of Section10A. If denominator includes certain amount of certain type whichnumerator does not include, the formula would render undesirable results.

15. A Statute is the intention of the legislature who enacts it afterhaving regard to various facts and circumstances. It is a cardinal principleof law that the interpretation by the Court shall be done in such a waythat the intention of the legislature shall prevail and no injustice occurredwith the parties. The rule of harmonious construction is the thumb ruleto interpretation of any statute. An interpretation which makes theenactment a consistent whole, should be the aim of the Courts and aconstruction which avoids inconsistency or repugnancy between thevarious sections or parts of the statue should be adopted.

16. In Commissioner of Income Tax vs. J.H. Gotla,(1985) 23Taxman 14J (SC) this Court has held as under:

“46. Where the plain literal interpretation of a statutory provisionproduces a manifestly unjust result which could never have beenintended by the Legislature, the Court might modify the languageused by the Legislature so as to achieve the intention of theLegislature and produce a rational construction. The task ofinterpretation of statutory provision is an attempt to discover theintention of the Legislature from the language used….

47 ….If the purpose of a particular provision is easily discerniblefrom the whole scheme of the Act which, in the present case,was to counteract, the effect of the transfer of assets so far ascomputation of income of the Respondent was concerned, then A

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Abearing that purpose in mind, the intention should be found outfrom the language used by the Legislature and if strict literal,construction leads to an absurd result, i.e. result not intended tobe subserved by the object of the legislation found out in the mannerindicated above, then if other construction is possible apart fromstrict literal construction, then that construction should be preferredBto the strict literal construction. Though equity an taxation areoften strangers , attempt should be made that these do not remainso always so and if a construction results in equity rather than ininjustice , then such construction should be preferred to the literalconstruction. Furthermore, in the instant case, we are dealing withCan artificial liability created for counteracting the effect only ofattempts by the assessee to reduce tax liability by transfer….”

17. The similar nature of controversy, akin this case, arose beforethe Karnataka High Court in CIT vs.Tata Elxsi Ltd.(2012) 204 Taxman321/17. The issue before the Karnataka High Court was whether theDTribunal was correct in holding that while computing relief under Section10A of the IT Act, the amount of communication expenses should beexcluded from the total turnover if the same are reduced from the exportturnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislatureand an ordinary meaning is to be attributed to it, the said ordinary meaningEis to be in conformity with the context in which it is used. Hence, what isexcluded from ‘export turnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘total turnover’ is exportturnover. Any other interpretation would run counter to the legislativeintent and would be impermissible.F18. Accordingly, the formula for computation of the deductionunder Section10A of the Act would be as follows:

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Export turnover as defined in Explanation 2 (IV) of Section 10A of IT Act Export Profit = total Profit of the Business X _____________________________

Export turnover as defined in Explanation 2(IV) of Section 10A of the IT Act + domestic sale proceeds H

10A of

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xplanation IT Act +

19. In the instant case, if the deductions on freight,telecommunication and insurance attributable to the delivery of computersoftware under Section 10A of the IT Act are allowed only in ExportTurnover but not from the Total Turnover then, it would give rise toinadvertent, unlawful, meaningless and illogical result which would causegrave injustice to the Respondent which could have never been theintention of the legislature.

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20. Even in common parlance, when the object of the formula isto arrive at the profit from export business, expenses excluded fromexport turnover have to be excluded from total turnover also. Otherwise,any other interpretation makes the formula unworkable and absurd.Hence, we are satisfied that such deduction shall be allowed from thetotal turnover in same proportion as well.

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21. On the issue of expenses on technical services provided outside,we have to follow the same principle of interpretation as followed in thecase of expenses of freight, telecommunication etc., otherwise theDformula of calculation would be futile. Hence, in the same way, expensesincurred in foreign exchange for providing the technical services outsideshall be allowed to exclude from the total turnover.

22. In view of above discussion, we are of the considered viewthat these instant appeals are devoid of merits and deserve to bedismissed. Accordingly, all the connected matters and interlocutoryEapplications, if any, are disposed of with no order as to costs.

Ankit Gyan

Appeals dismissed.

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