Summary
The Supreme Court held that expenditure excluded from export turnover in computing the section 10A deduction must also be excluded from total turnover. Keeping freight, telecommunication and insurance exclusions only in the numerator would distort the export-profit formula. The same treatment applied to foreign-exchange expenditure on technical services outside India. The Revenue’s appeals failed; the judgment also noted the absence of evidence establishing independent technical services apart from software development in this case.
Issues
- Whether amounts excluded from export turnover also required exclusion from total turnover under section 10A.
- Whether foreign-exchange expenditure for technical services outside India required corresponding treatment.
- Whether definitions confined to sections 80HHC and 80HHE automatically governed section 10A.
Held
- Total turnover was not defined in section 10A or the Act’s general definitions. Definitions expressly confined to sections 80HHC and 80HHE could not simply be imported into section 10A; its formula had to be construed coherently in context. (¶¶ 8, 9, 13, 14, 15, 17)
- Export turnover forms part of total turnover. Amounts excluded from the former must also be excluded from the latter to preserve consistency between numerator and denominator. The formula expressed export profit as business profit multiplied by adjusted export turnover divided by adjusted export turnover plus domestic sale proceeds. (¶¶ 9, 17, 18, 19, 20)
- Freight, telecommunication and insurance attributable to delivery of computer software could not be removed only from export turnover while remaining in total turnover. Corresponding exclusion was necessary to avoid an illogical and unworkable computation. (¶¶ 19, 20)
- The same principle required corresponding exclusion from total turnover of foreign-exchange expenses for technical services outside India. The Court separately observed that the assessing officer had not established provision of simply technical services independent of the software-development work in this case. (¶¶ 11, 12, 21)
Result
Revenue’s appeals dismissed; connected matters and interlocutory applications disposed of without costs.