The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that the expenditures required to be reduced from export turnover under section 10A should also be reduced from the total turnover.
The assessee-company, Tata Consultancy Services Ltd. is engaged in the business of computer software and management consultancy, filed its return of income for the assessment year 2007-08 declaring total income.
The issues raised was that the CIT(A) has erred in not upholding the order of the AO on the method of computation of deduction under section 10A of the Income Tax Act.
The assessee further contended that the CIT(A) has erred in not appreciating the fact that 30% of the expenses incurred in foreign currency on account of software development expenditure incurred abroad is in the nature of providing technical services and hence it is rightly reduced from export turnover computed under section 10A.
The assessee also submitted that the CIT(A) erred in disallowing deduction of Rs.13,22,52,218 being “State Taxes” paid overseas on the ground that the payment of “State Taxes” cannot be allowed under the provisions of section 40(a)(ii) of the Act.
The assessee further said that CIT(A) failed to consider “State Taxes” paid in the USA and Canada, as eligible for the double taxation relief under the provisions of section 90 or 91 of the Act if it is held that the payment of State Taxes is not allowable as a deduction.
The two-member bench of Vikas Awasthy and N.K. Pradhan while dismissing the appeal held that the expenditures which are required to be reduced from the export turnover as per the provisions of section 10A of the Act should also be reduced from the total turnover.
The ITAT directed the AO to verify whether the State taxes paid by the assessee overseas are eligible for any relief under section 90 of the Act and if it is not found to be so, the assessee’s claim of deduction should be allowed.
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