The Madras High Court allowed section 10B exemption on export of software and IT enabled service.
The assessee, M/s. TNQ Books & Journals Private Limited is a resident company engaged in the business of export of software and IT-enabled service. For the Assessment Year 2009-2010, the assessee claimed deduction under section 10B in his return of income for an amount of Rs.12,55,03,000/-. During the assessment proceedings, the assessee has presented before the Assessing Officer that if at all the claim under section 10B is not allowed, the same may be considered under section 10A.
The Assessing Officer completed the assessment under section 143(3) and disallowed the claim of the assessee for deduction under section 10B for the amount of Rs.12,55,03,000 for want of rectification accorded by the Board of Approval appointed for this purpose by the Government of India. The Assessing Officer rejected the alternative claim of the assessee for deduction under section 10A.
Aggrieved over the order passed by the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the Commissioner of Income Tax partly allowed the appeal. Challenging the same, the assessee preferred an appeal before the Income Tax Appellate Tribunal, and the Tribunal allowed the appeal by directing the Assessing Officer to verify the condition as per section 10A and allowed the claim of the assessee.
Mr. M. Swaminathan, the counsel for the department contended that Tribunal was right in allowing the appeal of the assessee, who claimed exemption under section 10B but changed its claim to section 10A when it could not produce the Board’s approval in support of its claim.
The division bench of Justice M.Durai Swamy and Justice R. Hemalatha relied on the decision of the Supreme Court in the case of Commissioner of Income-Tax III v. Mphasis Ltd. wherein it was held that there should be uniformity in the ingredients of both the numerator and the denominator of the formula since otherwise, it would produce anomalies or absurd results. Section 10A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have the formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. Though there is no definition of the term ‘total turnover’ in Section 10-A, there is nothing in the said Section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator.
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