The Karnataka High Court held that the Foreign currency expenditure incurred for providing software development services outside India cannot be excluded from export turnover for the purpose of computing deduction under Section 10B of the Income Tax Act.
The assessee, M/s Mindtree Ltd is a company engaged in software development and filed its return of income for Assessment year 2008-09 by declaring a total income of Rs.17,71,91,200/-. The return was processed under Section 143(1) of the Act and was selected for scrutiny assessment under Section 143(3) of the Act.
Thereupon, a notice under Section 143(2) of the Act was issued. The Assessing Officer by an order held that deductions as claimed by the assessee under Section 10B and Section 10AA are required to be recomputed and the return of income after re- computation of the deduction was assessed along with interest and penalty.
The assessee filed an appeal before the Commissioner of Income Tax (Appeals), which partly allowed the appeal. The assessee as well as the revenue filed appeals before the Income Tax Appellate Tribunal, wherein the appeal was dismissed.
In view of Explanation 2(iii) to Section 10B of the Act, the expression ‘export turnover’ does not include any expenses incurred in foreign exchange in providing technical services outside India.
The division bench of Justice Alok Aradhe and Justice H.T. Nagendra Prasad held that the telecommunication charges attributable to delivery of computer software outside India could not have been excluded from the export turnover in view of Explanation 1(i) to Section 10AA of the Act.
It was further noted by the court that Explanation 2 to Section 10AA provides that profits and gains derived from; on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.Subscribe Taxscan AdFree to view the Judgment