The Mumbai bench of Income Tax Appellate Tribunal (ITAT) has recently held that telecommunication charges incurred for delivery of computer software outside India should be excluded from export turnover for computing deduction under Section 10A of Income Tax Act,1961. Therefore, the bench remanded the issue to the file of the Assessing Officer.
The assessee LTIMindtree Limited filed return of income for the Assessment Year 2009-10 under normal provisions of the Income Tax Act which was revised on 29.03.2011. Thereafter, the Assessee’s case was selected for scrutiny and notice under Section 143(2) of the Income Tax Act was issued.
During the assessment proceedings, the Assessing Officer noted that the assessee has entered into the international transactions with its Associated Enterprises (AEs) and he referred the matter to Transfer Pricing Officer (TPO) under Section 92CA(1) of the Income Tax Act .
While computing the deduction under Section 10A of the Income Tax Act, the assessing officer viewed that the following should be excluded from export turnover (a) communication charges, (b) expenditure in foreign currency, (c) interest income, and (d) additional depreciation.Hence he disallowed .
Aggrieved by the order, the assesee filed an appeal before the Commissioner of Income Tax (Appeals), who dismissed the appeal of the assessee. Thus, the assessee filed a second appeal before the tribunal.
When the matter was considered for hearing Percy J Pardiwalla counsel for assessee submitted that assessee was not engaged in export of software and was providing software development services.
Furthrr, the telecommunication charges were not related to the delivery of software outside India and therefore, not be excluded from the “Export Turnover” as defined in Explanation 2(iv) to Section 10A of the Income Tax Act for the purpose of determining the quantum of deduction under Section 10A of the Income Tax Act
It was observed by the tribunal that Explanation 2(iv) to Section 10A Income Tax Act provides for exclusion of, inter alia, telecommunication charges attributable to delivery of computer software outside India, and since the telecommunication expenses are related to provision of software development services and not to delivery of computer software outside India, the same are not required to be excluded from the “Export Turnover”.
Dr. Yogesh Kamat, Counsel for the revenue supported the contentions of the lower authorities .
After considering the facts the two member bench of B.R. Baskaran (Accountant Member) Rahul Chaudhary (Judicial Member) remanded the issue to the file of the Assessing Officer to identify and excluded from “Export Turnover” the expenses incurred in foreign exchange which are connected to providing services of software development outside India for the purpose of computing deduction under Section 10A of the Act
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