Madras High Court
The Commissioner Of Income Tax vs M/S.Allsec Technologies Ltd on 6 July, 2021
T.C.A.No.119 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATE: 06.07.2021
CORAM:
THE HON'BLE MR. JUSTICE M.DURAISWAMY
AND
THE HON'BLE MRS.JUSTICE R.HEMALATHA
T.C.A.No.119 of 2015
The Commissioner of Income Tax,
Chennai. ... Appellant
Vs.
M/s.Allsec Technologies Ltd.,
7H, Century Plaza,
560-562, Anna Salai,
Chennai – 600 018. ... Respondent
Appeal preferred under Section 260A of the Income Tax Act,
1961, against the order of the Income Tax Appellate Tribunal, Madras,
"A" Bench, dated 07.07.2014 in I.T.A.No.1104/Mds/2014 for the
Assessment Year 2007-08.
For Appellant : Mr.T.Ravikumar,
Senior Standing Counsel
For Respondent : Mr.R.Venkatnarayanan,
for M/s.Subbaraya Aiyar
JUDGMENT
Page 1/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
(Judgment was delivered by M.DURAISWAMY, J.)
Challenging the order passed in I.TA.No.1104/Mds/2014 in
respect of the Assessment Year 2007-08 on the file of the Income Tax
Appellate Tribunal, Chennai, "A" Bench, the Revenue has filed the
above appeal.
2.The assessee is a “Limited” Company, engaged in the business
of data and call center operations. On 31.10.2007, it had filed return,
admitting “NIL” income, after claiming entire receipts of
Rs.24,65,53,064/- as “exempt” under Section 10A. The return was
summarily processed and on 30.11.2010, the Assessing Officer
completed the regular assessment, computing total income of
Rs.2,68,12,244/-. The Assessing Officer relied upon Section 10A(2)(iv)
to observe that the communication expenditure of Rs.13,20,70,025/-
incurred in foreign exchange as well as Indian Rupees had to be excluded
in full sum in former and 50% of the latter instance. Similarly, he also
made disallowance of Rs.19,45,688/- under Section 14A read with 8D
qua dividend income of Rs.3,13,01,555/-. The Assessing Officer had also
Page 2/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
proceeded to set off the assessee's brought forward losses prior to
allowing deduction under Section 10A instead of post facto computation.
Challenging the order of assessment, the assessee preferred an appeal
before the Commissioner of Income Tax (Appeals) and the Appellate
Authority partly allowed the appeal. Challenging the order of
Commissioner of Income Tax (Appeals), the Revenue preferred an
appeal before the Income Tax Appellate Tribunal and the Tribunal
restored the impugned disallowance made by the Assessing Officer and
directed the Assessing Officer to consider the assessee's case under
Section 10A while passing his consequential order. Challenging the order
of the Income Tax Appellate Tribunal, the Revenue has filed the above
appeal.
3.The above Tax Case Appeal was admitted on the following
substantial questions of law:
“(i)Whether on the facts and circumstances of
the case, the Tribunal was right in directing the
Assessing Officer to recompute the income in the
light of the decision of the Special Bench in the case
Page 3/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
of Sak Soft by excluding the freight and insurance
expenses both from the export turnover and also from
the total turnover while computing deduction under
Section 10A of the Income Tax Act?
(ii)Is not the finding of the Tribunal bad,
especially when explanation 2(iv) to Section 10A
defines the word “Export Turnover” whereby it had
been clearly stated that it would not include freight,
telecommunication charges attributable to the
delivery of the articles or things or computer
software outside India or expenses if any incurred in
foreign exchange while computing deduction under
Section 10A of the Income Tax Act?
(iii)Whether on the facts and circumstances of
the case, the Tribunal was right in allowing set off of
benefit of brought forward losses from the total
income after allowing deduction under Section 10A
when as per the amended provisions of the Act in
Section 10A(1) deduction has to be allowed only
after arriving at the total income after giving effect to
brought forward depreciation and losses?”
4.When the appeal is taken up for hearing, Mr.T.Ravi Kumar,
Page 4/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
learned Senior Standing Counsel appearing for the appellant–Revenue
fairly submitted the substantial questions of law that arose for
consideration in the above appeal have already been decided against the
Revenue and in favour of the assessee in the judgment dated 01.07.2021
made in T.C.A.No.559 of 2015 [The Commissioner of Income Tax Vs.
M/s.Allsec Technologies Ltd., No.46-B, Velacherry Main Road,
Velacherry, Chennai – 600 042], wherein this Bench held as follows:
“...
4.Challenging the order passed by the Income Tax
Appellate Tribunal, the Revenue has filed the above appeal.
5.The above appeal was admitted on the following
substantial questions of law :
“1.Whether on the facts and in the circumstances of
the case, the Tribunal was right in directing the Assessing
Officer to recompute the income in the light of the
decision of the Special Bench in the case of Sak Soft by
excluding the freight and insurance expenses both from
the export turnover and also from the total turnover while
computing deduction under Section 10-A of the Income
Tax Act?
2.Is not the finding of the Tribunal bad, especially
when Explanation II(iv) to Section 10A defines the word
Page 5/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
'export turnover' whereby it had been clearly stated that it
would not include freight, telecommunication charges
attributable to the delivery of the articles or things or
computer software outside India or expense if any
incurred in foreign exchange while computing deduction
under Section 10A of the Income Tax Act? and
3.Whether on the facts and circumstances of the
case, the Tribunal was right in allowing set off of benefit
of brought forward losses from the total income after
allowing deduction under Section 10A when as per the
amended provisions of the Act in Section 10A(1)
deduction has to be allowed only after arriving at the total
income after giving effect to brought forward depreciation
and losses?”
6.When the Tax Case Appeal was taken up for
hearing, Mr.T.Ravi Kumar, learned Senior Standing Counsel
appearing for the appellant/Revenue, fairly submitted that
the questions of law 1 and 2 were already decided against the
Revenue by the Hon'ble Supreme Court of India in the
judgment reported in (2018) 404 ITR 0719 (SC)
[Commissioner of Income Tax v. HCL Technologies Ltd.],
wherein, the Hon'ble Supreme Court held as follows :
“8.The whole controversy revolves around the
claim of certain expenses attributable to the delivery of
Page 6/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
software outside India or in providing technical services
from 'total turnover' by the Respondent under Section 10A
of the IT Act. It is an undisputed fact that neither Section
10A nor Section 2 of the IT Act define the term 'total
turnover'. However, the term 'total turnover' is given in
clause (ba) of the Explanation to Section 80 HHC of the
IT Act which defines the meaning of total turnover as
follows:
"(ba) 'total turnover' shall not include freight or
insurance attributable to the transport of the goods or
merchandise beyond the customs stations as defined in
the Customs Act, 1962 (52 of 1962).
Provided that in relation to any assessment year
commencing on or after the 1st day of April, 1991, the
expression "total turnover" shall 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
terminologies which are as under:
"Export Turnover:
Explanation 2(iv) of Section 10A of the IT Act defines
"export turnover" to mean the consideration that has been
received for export of articles/things/computer software.
Normally the consideration will include the
Page 7/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
freight/telecommunication charges/insurance which had
been incurred to deliver the article/things/computer
software outside India. However the Explanation 2(iv)
specifically seeks to exclude these three categories of
expenditure incurred for delivering the export of
articles/things/computer software. It also seeks to exclude
expenses for providing technical service, etc. outside
India. Therefore, where an Indian technician goes abroad
and receives fees for service, the foreign client will
normally be required to reimburse the expenses as well.
Therefore, out of the consideration received, the portion
representing reimbursement of expenditure has to be
excluded.
Export Turnover and Total turnover:
The "total turnover" has been defined in sections 80HHC
and 80HHE only to exclude additional items given under
section 28. But for this additional exclusion, there was no
need to define "total turnover".
Export turnover is a component of total turnover. If the
entire turnover represents export proceeds, then the export
turnover and the total turnover are identical. It is clear that
any exclusion in the export turnover in the numerator will
automatically imply exclusion in the denominator as well
because export turnover is always a component of total
Page 8/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
turnover.
Export Turnover/Total Turnover/Business:
Form 56F prescribes the report under Section 10A for and
Annexure-A thereto refers to "export proceeds" and "sale
proceeds". Both together form the total turnover of the
undertaking."
10.The question arises here that when the particular
term has not been defined in any particular Section, is it
allowed to import the meaning of such term from the other
provisions of the same Act? Section 10A of the IT Act is a
special beneficial provision and the purpose of deduction
under such Section is to encourage and boost the new
business undertakings situated in the free trade zone of
this Nation by providing suitable deductions to such
business entities. Sometimes, while calculating the
deduction, disputes arise regarding the methodology of
deduction which ought to be followed. Undisputedly, it is
a matter of record that the Respondent is engaged in the
activity of trading of generic software and providing
customized software development services for domestic as
well as for foreign clients through its two units situated in
Software Technology Park, Gurgaon (Now Gurugram)
which falls under definition of the Section 10A of the IT
Act. The contention of the Respondent is that it incurred
Page 9/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
expenditure in foreign exchange in sending professionals
abroad as per the agreements with the foreign
constituents.
11.On an analysis of the Respondent's activity taken
from its website, Assessing Officer arrived at a conclusion
that Respondent has been rendering technical services
outside India and, therefore, expenses incurred on such
activity are required to be excluded from the export
turnover while working out the deduction admissible
under Section 10A of the IT Act. The Assessing Officer
estimated 60% of the software development charges
required to be attributed towards expenses incurred for
providing technical services outside India. On appeal,
learned CIT (Appeals) again made a detailed analysis of
the activity of the Respondent and arrived at a conclusion
that the Assessing Officer failed to bring any evidence
which can indicate that Respondent was providing
technical services outside India and it has incurred
expenses towards salary etc. rendering such services.
Inspite that, learned CIT (Appeals), estimated 10% of
software development charge as charges incurred for
technical services provided outside India.
12.It is undisputed fact that the Respondent was
engaged in the business of software development for its
Page 10/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
customers engaged in different activities at software
development centres of the Respondent. However, in the
process of such customized software development, certain
activities were required to be carried out at the sight of
customers on site, located outside India for which the
employees of the branches of the Respondent located in
the country of the customers are deployed. It is true that it
is not defined that which activity will be termed as
providing technical services outside India. Moreover, after
delivery of such softwares as per requirement, in order to
make it fully functional and hassle free functioning
subsequent to the delivery of softwares in many cases,
there can be requirement of technical personnel to visit the
client on site. The Assessing Officer could not bring any
evidence that the Respondent was engaged in providing
simply technical services independent to software
development for the client for which the expenditures
were incurred outside India in foreign currency.
13.The Respondent company has claimed deduction
under Section 10A as per certificates filed on Form No.
56F. The Respondent, while computing the deduction, has
taken the same figure of export turnover as of total
turnover. The Respondent cited various judicial cases but
all these cases pertain to deduction under Section 80HHC.
Page 11/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
Further, the definition of total turnover has been defined
in Section 80HHC and 80HHE of the IT Act. As discussed
earlier, the definition of total turnover has not been
defined under Section 10A of the IT Act.
14.In the above backdrop, we are of the opinion that
the definition of total turnover given under Sections
80HHC and 80HHE cannot be adopted for the purpose of
Section 10A as the technical meaning of total turnover,
which does not envisage the reduction of any expenses
from the total amount, is to be taken into consideration for
computing the deduction under Section 10A. When the
meaning is clear, there is no necessity of importing the
meaning of total turnover from the other provisions. If a
term is defined under Section 2 of the IT Act, then the
definition would be applicable to all the provisions
wherein the same term appears. As the term 'total turnover'
has been defined in the Explanation to Section 80HHC
and 80HHE, wherein it has been clearly stated that "for
the purposes of this Section only", it would be applicable
only for the purposes of that Sections and not for the
purpose of Section 10A. If denominator includes certain
amount of certain type which numerator does not include,
the formula would render undesirable results.
15.A Statute is the intention of the legislature who
Page 12/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
enacts it after having regard to various facts and
circumstances. It is a cardinal principle of law that the
interpretation by the Court shall be done in such a way
that the intention of the legislature shall prevail and no
injustice occurred with the parties. The rule of harmonious
construction is the thumb rule to interpretation of any
statute. An interpretation which makes the enactment a
consistent whole, should be the aim of the Courts and a
construction which avoids inconsistency or repugnancy
between the various sections or parts of the statue should
be adopted.
16.In Commissioner of Income Tax vs. J.H. Gotla,
(1985) 23 Taxman 14J (SC) this Court has held as under:
"46.Where the plain literal interpretation of a
statutory provision produces a manifestly unjust result
which could never have been intended by the
Legislature, the Court might modify the language used
by the Legislature so as to achieve the intention of the
Legislature and produce a rational construction. The
task of interpretation of statutory provision is an
attempt to discover the intention of the Legislature from
the language used....
47..If the purpose of a particular provision is
easily discernible from the whole scheme of the Act
Page 13/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
which, in the present case, was to counteract, the effect
of the transfer of assets so far as computation of income
of the Respondent was concerned, then bearing that
purpose in mind, the intention should be found out from
the language used by the Legislature and if strict literal,
construction leads to an absurd result, i.e. result not
intended to be subserved by the object of the legislation
found out in the manner indicated above, then if other
construction is possible apart from strict literal
construction, then that construction should be preferred
to the strict literal construction. Though equity an
taxation are often strangers, attempt should be made
that these do not remain so always so and if a
construction results in equity rather than in injustice
then such construction should be preferred to the literal
construction. Furthermore, in the instant case, we are
dealing with an artificial liability created for
counteracting the effect only of attempts by the
assessee to reduce tax liability by transfer.."
17.The similar nature of controversy, akin this case,
arose before the Karnataka High Court in CIT vs. Tata
Elxsi Ltd. (2012) 204 Taxman 321/17. The issue before
the Karnataka High Court was whether the Tribunal was
correct in holding that while computing relief under
Page 14/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
Section 10A of the IT Act, the amount of communication
expenses should be excluded from the total turnover if the
same are reduced from the export turnover? While giving
the answer to the issue, the High Court, inter-alia, held
that when a particular word is not defined by the
legislature and an ordinary meaning is to be attributed to
it, the said ordinary meaning is to be in conformity with
the context in which it is used. Hence, what is excluded
from 'export turnover' must also be excluded from 'total
turnover, since one of the components of 'total turnover' is
export turnover. Any other interpretation would run
counter to the legislative intent and would be
impermissible.
18.Accordingly, the formula for computation of the
deduction under Section 10A of the Act would be as
follows:
Export Profit = total Profit of the Business X Export
turnover as defined in Explanation 2 (IV) of Section 10A
of IT Act / Export turnover as defined in Explanation
2(IV) of Section 10A of the IT Act + domestic sale
proceeds.
19.In the instant case, if the deductions on freight,
telecommunication and insurance attributable to the
delivery of computer software under Section 10A of the
Page 15/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
IT Act are allowed only in Export Turnover but not from
the Total Turnover then, it would give rise to inadvertent,
unlawful, meaningless and illogical result which would
cause grave injustice to the Respondent which could have
never been the intention of the legislature.
20.Even in common parlance, when the object of
the formula is to arrive at the profit from export business,
expenses excluded from export 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 the total turnover in same proportion as
well.
21.On the issue of expenses on technical services
provided outside, we have to follow the same principle of
interpretation as followed in the case of expenses of
freight, telecommunication etc., otherwise the formula of
calculation would be futile. Hence, in the same way,
expenses incurred in foreign exchange for providing the
technical services outside shall be allowed to exclude
from the total turnover.
22.In view of above discussion, we are of the
considered view that these instant appeals are devoid of
merits and deserve to be dismissed. Accordingly, all the
Page 16/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
connected matters and interlocutory applications, if any,
are disposed of with no order as to costs.”
7.Further, the learned Senior Standing Counsel
submitted that the 3 rd question of law was decided against
the Revenue by the Division Bench of this Court in
T.C.A.No.375 of 2018 [Commissioner of Income Tax,
Chennai v. M/s.Allsec Technologies Ltd., Chennai] dated
02.09.2020, wherein, the Division Bench held as follows :
“2.This appeal, filed by the Revenue under Section
260A of the Income Tax Act, 1961 (for brevity, the Act),
is directed against the the order dated 29.3.2017 made in
ITA.No.2229/Mds/2016 the file of the Income Tax
Appellate Tribunal, Chennai 'C' Bench (for short, the
Tribunal) for the assessment year 2005-06.
3.The appeal was admitted on 10.7.2018 on the
following substantial question of law :
“?Whether deduction under Section 10A of the
Income Tax Act, 1961 may be allowed without
reducing the brought forward losses pertaining to the
year subsequent to the assessment year and setting the
same off against gains of business in the current
year ??”
4.The issue raised in this appeal is covered by the
decision of this Court in the case of M/s.Comstar
Page 17/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
Automative Technologies Private Ltd., Vs. DCIT
[TCA.No.228 of 2011 dated 18.3.2020] in favour of the
assessee. Further in the decision of this Court in the case
of CIT Vs. M/s.Comstar Automotive Technologies Pvt.
Ltd. [TCA.No.301 of 2019 dated 06.7.2020], to which,
one of us (TSSJ) was a party, the above mentioned
substantial question of law was decided against the
Revenue following the said decision in TCA. No.228 of
2011 dated 18.3.2020, which judgment answered the only
substantial question of law against the Revenue.
5.Following the above decisions, the above tax case
appeal is dismissed and the substantial question of law is
answered against the Revenue. No costs.”
8.The learned Senior Standing Counsel submitted that,
in view of the ratio laid down by the Hon'ble Supreme Court
of India and Division Bench of this Court, the questions of
law may be decided against the Revenue and in favour of the
assessee.
9.Mr.R.Venkata Narayanan for M/s.Subbaraya Aiyar
Padmanabhan, learned counsel for the respondent/assessee,
submitted that, in view of the judgment of the Hon'ble
Supreme Court and the Division Bench of this Court cited
supra, the appeal may be dismissed.
10.Having regard to the submissions made by the
Page 18/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
learned counsel on either side and following the ratio laid
down by the Hon'ble Supreme Court of India, the questions
of law 1 and 2 are decided against the appellant/Revenue.
Similarly, following the ratio laid down by the Division
Bench of this Court in T.C.A.No.375 of 2018 dated
02.09.2020, the 3 rd question of law is also decided against
the appellant/Revenue and in favour in the assessee.
Accordingly, this Tax Case Appeal is dismissed. No
costs.”
5.Mr.R.Venkatnarayanan, learned counsel appearing for the
respondent-assessee submitted that in view of the ratio laid down by this
Hon'ble Bench in the judgment dated 01.07.2021 made in T.C.A.No.559
of 2015, the appeal may be dismissed.
6.Having regard to the submissions made by the learned counsel
on either side, following the ratio laid down in the judgment dated
01.07.2021 made in T.C.A.No.559 of 2015 [The Commissioner of
Income Tax Vs. M/s.Allsec Technologies Ltd., No.46-B, Velacherry
Main Road, Velacherry, Chennai – 600 042], the questions of law are
decided against the Revenue and in favour of the assessee. Accordingly,
Page 19/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
the Tax Case Appeal is dismissed. No costs.
Index : Yes/No [M.D., J.] [R.H., J.]
Internet : Yes 06.07.2021
va
To
1.The Income Tax Appellate Tribunal, Chennai, "A" Bench
Page 20/21
https://www.mhc.tn.gov.in/judis/
T.C.A.No.119 of 2015
M.DURAISWAMY, J.
and
R.HEMALATHA , J.
va
T.C.A.No.119 of 2015
06.07.2021
Page 21/21
https://www.mhc.tn.gov.in/judis/
