The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) has held that the software insurance charges are excludable from export turnover under Section 10AA of the Income Tax Act 1961.
The assessee, Mindtree Limited is a company engaged in the business of software development, consultancy services, etc. The AO, while recomputing the deduction under Section 10AA of the Act had excluded insurance charges from the export turnover. For excluding the insurance charges, the AO placed reliance on Explanation to Section 10AA of the Act.
The view taken by the AO was confirmed by the CIT(A). However, the CIT(A) directed the AO to exclude from export turnover as well as from the total turnover, the insurance charges while computing deduction under Section 10AA of the Act.
Tata Krishna,appeared on behalf of the assessee and Neera Malhotra,appeared on behalf of the revenue.
The Division Bench of George George K. (Judicial Member) and Padmavathy S.(Accountant Member) allowed assessee’s claim and observed that,
“From reading of the above Explanation 1(i) to Section 10AA of the Act, we are of the view that the use of the term ‘attributable’ makes it clear that only so much of insurance charges as would relate to delivery of computer software outside India should be excluded. In the instant case the insurance charge is accounted for under ‘other expenses’ in Schedule 3.7 of the P&L Account.”
The Bench held that the AO and CIT(A) had failed to appreciate that the assessee was engaged in export of computer software which were developed by the assessee in India. The said software was exported through electronic media, i.e. internet/ digital media with click of a button and the same were not physically exported to get it insured.Thus the question of insuring the software exported by assessee would not arise.
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