Income Tax Act, 1961 – ss.10A, 80HHC and 80HHE – Claim of certain expenses attributable to the delivery of software outside India or in providing technical services from ‘total turnover’ by the Respondent u/s. 10A of the IT Act – Neither s.10A nor s.2 of the IT Act define the term ‘total turnover’ – However, the term ‘total turnover’ is given in clause (ba) of the Explanation to s.80 HHC of the IT Act – Held: The definition of total turnover given u/ss. 80HHC and 80HHE cannot be adopted for the purpose of s.10A as the technical meaning of total turnover, which does not envisage the reduction of any expenses from the total amount, is to be taken into consideration for computing the deduction u/s.10A – When the meaning is clear, there is no necessity of importing the meaning of total turnover from the other provisions – What is excluded from ‘export turnover’ must also be excluded from ‘total turnover’, since one of the components of ‘total turnover’ is export turnover – Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also – Otherwise, any other interpretation makes the formula unworkable and absurd – Hence, such deduction shall be allowed from the total turnover in same proportion as well – In the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover. Interpretation of Statutes – Harmonious Construction – Held: The rule of harmonious construction is the thumb rule to interpretation of any statute – An interpretation which makes the enactment a consistent whole, should be the aim of the Courts and a construction which avoids inconsistency or repugnancy between the various sections or parts of the statue should be adopted. Dismissing the appeals, the Court
HELD: 1.1 Section 10A of the Income Tax Act, 1961 is a special beneficial provision and the purpose of deduction under such Section is to encourage and boost the new business undertakings situated in the free trade zone of this Nation by providing suitable deductions to such business entities. [Para 10] [1087-F]
1.2 The definition of total turnover given under Sections 80HHC and 80HHE cannot be adopted for the purpose of Section 10A as the technical meaning of total turnover, which does not envisage the reduction of any expenses from the total amount, is to be taken into consideration for computing the deduction under Section 10A. When the meaning is clear, there is no necessity of importing the meaning of total turnover from the other provisions. If a term is defined under Section 2 of the IT Act, then the definition would be applicable to all the provisions wherein the same term appears. As the term ‘total turnover’ has been defined in the Explanation to Section 80HHC and 80HHE, wherein it has been clearly stated that “for the purposes of this Section only”, it would be applicable only for the purposes of that Sections and not for the purpose of Section 10A. [Para 14] [1089-A-C]
2. A Statute is the intention of the legislature who enacts it after having regard to various facts and circumstances. It is a cardinal principle of law that the interpretation by the Court shall be done in such a way that the intention of the legislature shall prevail and no injustice occurred with the parties. The rule of harmonious construction is the thumb rule to interpretation of any statute. An interpretation which makes the enactment a consistent whole, should be the aim of the Courts and a construction which avoids inconsistency or repugnancy between the various sections or parts of the statue should be adopted. [Para 15] [1089-D-E]
3. Accordingly, the formula for computation of the deduction under Section10A of the Act would be as follows: Export turnover as defined
in Explanation 2 (IV) of Section 10A of
IT Act
Export Profit = total Profit of the Business X _____________________________ Export turnover as defined in Explanation
2(IV) of Section 10A of the IT Act +
domestic sale proceeds
[Para 18] [1090-F-H]
4. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature. [Para 19] [1091-A-B]
5. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, such deduction shall be allowed from the total turnover in same proportion as well. [Para 20] [1091-C]
6. On the issue of expenses on technical services provided outside, the same principle of interpretation as followed in the case of expenses of freight, telecommunication etc. is to be followed, otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover. [Para 21] [1091-D]
Commissioner of Income Tax v. J.H. Gotla (1985) 23 ; Taxman 14J (SC) : CIT v. Tata Elxsi Ltd. (2012) 204 Taxman 321/17 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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