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It is after the deduction under Chapter VI-A that the total income of an assessee is arrived at. Chapter VI-A deductions are the last stage of giving effect to all types of deductions permissible under the Act. At the end of this exercise, the total income is arrived at. Total income is thus, a figure arrived at after giving effect to all deductions under the Act. There cannot be any further deduction from the total income as the total income is itself arrived at after all deductions.
Ld. Counsel of the assessee submitted that that even if any freight, telecommunication or insurance expense during the year, are reduced from the export turnover, such sums will also have to be reduced from the total turnover of the company for the purpose of computation of deduction u/s. 10A.
The ground raised by the Revenue relates to exclusion of foreign currency expenses not related to onsite software development from the export turnover for the purpose of computing deduction u/s 10A and 80HHE of the Act. The case of the assessee is that foreign expenditure which has been incurred on on-site software development activity should not be excluded from the export turnover.
Section 10A of the Income-tax Act, 1961, is a provision which is in the nature of a deduction and not an exemption. The deduction under section 10A has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of section 72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in sections 80C to 80U. Section 80B(5) defines for the purposes of Chapter VI-A “gross total income” to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. Therefore, the deduction under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance.
It is a well settled law that when two different views of the different jurisdictional High Courts are available, the decision favourable to the assessee is to b03e followed. The hon’ble Supreme Court of India in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) has held that (page 195) “if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of constructions recognized by this court in several of its decisions”. Therefore, in view of the above, the Tribunal has been following the judgment of the hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) in various cases holding that exemption under section 10B is to be allowed without setting off brought forward unabsorbed loss and depreciation from earlier assessment year or the current assessment year. A similar view has been taken by the Tribunal in the following cases as well :
This issue is covered by the decision of the Hon’ble High Court of Karnataka in the case of Yokogawa India (cited Supra), wherein it has been held that for computing the deduction u/s 10A of the Act, the profit of eligible units have to be deducted at source and do not enter into the computation of income and as a consequence of which, the losses suffered by non eligible units cannot be set off against the profits of eligible units.
Since the assessee’s operations are efficient enough to obtain more profits and since the receipts are at arm’s length and there is no passing of excess profits by the parent company (AE) to the assessee, the Assessing Officer’s action in restricting the profits is not correct. Also there is no reason to restore it to the Assessing Officer since there is nothing else to examine. Accordingly, grounds of the assessee are allowed and the Assessing Officer is directed to treat the profits declared by the assessee as ordinary profits and allow deduction under section 10A, without any further adjustment.
The Indian Software Industry has been the beneficiary of direct tax incentives under the provisions like sections 10A, 10AA & 10B of the Income-tax Act, 1961 in respect of their profits derived from the export of computer software.
Circular No. 01/2013-Income Tax The CBDT has issued a Circular No. 01/2013 dated 17.01.2013 in which it has provided clarifications on various issues relating to the export of computer software and the allowance of deduction under sections 10A, 10AA and 10B of the Income-tax Act, 1961. Circular Covers the following issues :- 1. Whether Onsite development of Computer software qualifies as as export activity for tax benefit under sections 10A, 10AA, & 10B of the Income Tax Act, 1961
On the other hand, the ld. D.R. while agreeing that the interest on fixed deposits pledged with the bank on account of margin money is eligible for deduction u/s 10A of the Act submits that in view of the finding recorded by the A.O. the assessee is not entitled to deduction u/s 10A of the Act in respect of interest on NSC and interest on loan given to its employees. He, therefore, submits that to this extent the order passed by the A.O. be upheld.
