CIT Vs Mphasis Ltd. (Supreme Court of India)
Summary: The Supreme Court dismissed the Revenue’s special leave petition in the matter of CIT v. Mphasis Ltd., leaving undisturbed the Karnataka High Court’s dismissal of the Revenue’s appeals concerning computation of deduction under Section 10B of the Income-tax Act, 1961. The High Court had considered two substantial questions of law relating to expenditure incurred in foreign currency for software development services outside India and the treatment of telecommunication expenses in computing export turnover and total turnover. Both questions were answered in favour of the assessee and against the Revenue.
Read HC Judgment in this case: Foreign Currency Software Export Expenses Cannot Be Excluded from Turnover for 10B Deduction: Karnataka HC
On the first issue, the Karnataka High Court relied upon its earlier decision in ITA No. 776/2007 dated 13 June 2014, distinguishing expenditure incurred for technical services connected with the development or production of software outside India from expenditure relating to testing, installation and monitoring of software exported from India. The earlier ruling recognised that foreign exchange expenditure incurred on services incidental to software exports could not automatically be excluded from export turnover merely because the services were technical in nature. Applying that decision, the High Court answered the first question in favour of Mphasis Ltd.
On the second issue, the High Court followed Commissioner of Income-Tax and Another v. Tata Elxsi Ltd., (2012) 349 ITR 98 (Karn), which held that expenses excluded from export turnover in the numerator of the deduction formula must also be excluded from total turnover in the denominator. This ensures consistency between the two components of the statutory formula and prevents distorted computation of export profits. Consequently, the High Court dismissed both Revenue appeals. The Supreme Court’s supplied order contains only a brief dismissal of the special leave petition and disposal of pending applications; it does not record independent reasoning on the substantive questions.
Cases Discussed
- Earlier Karnataka High Court decision in ITA No. 776/2007, decided on 13 June 2014 — The High Court relied upon this decision to distinguish technical services connected with software exports from technical services rendered outside India for software development or production. The party names and reporter citation are not specified in the supplied judgment.
- Commissioner of Income-Tax and Another v. Tata Elxsi Ltd., (2012) 349 ITR 98 (Karnataka High Court) — Relied upon for the principle that expenses excluded from export turnover must also be excluded from total turnover while applying the statutory deduction formula.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
The special leave petition is dismissed.
Pending application(s), if any, shall also stand disposed of.
