COMMISSIONER OF INCOME TAX vs. HCL TECHNOLOGIES LTD

commissioner of income tax vs HCL technologies

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COMMISSIONER OF INCOME TAX vs. HCL TECHNOLOGIES LTD.

SUPREME COURT OF INDIA

  1. K. AGRAWAL & R. BANUMATHI, JJ.

Apr 24, 2018

(2018) 101 CCH 0193 ISCC

(2018) 165 DTR 0305 (SC), (2018) 302 CTR 0191 (SC)

Legislation Referred to

Section 10A, 80HHC and 80HHE

Case pertains to

Asst. Year-

Decision in favour of:

Assessee

Exemption—New industrial undertakings in free trade zones—Computation of—Exclusion of software development charges—Assessee was company engaged in business of development and export of computer softwares and rendering technical services—Assessee had shown gross income from business while claiming deductions u/s 10A showing net loss—AO held that software development charges as claimed by assessee were nothing but in nature of expenses incurred for technical services provided outside India—AO held that assessee was rendering technical services outside India therefore, expenses incurred on such activity were required to be excluded from export turnover while working out deduction admissible u/s 10A—In view of fact that it was not purely technical services and some element of software development was also involved in it, AO estimated such expense at rate of 40% and re-assessed taxable income and penalty—CIT (A) partly allowed appeal while estimating 10% as software development charge incurred for technical services provided outside India as against 60% estimated by AO—Tribunal as well as High Court dismissed appeal of Revenue—Whether or not software development charges were to be excluded while working out deduction admissible u/s 10A on ground that such charges were relatable towards expenses incurred on providing technical services outside India—Held, assessee was engaged in activity of trading of generic software and providing customized software development services for domestic as well as for foreign clients through its two units which fell under definition of section 10A—Assessee was engaged in business of software development for its customers engaged in different activities at software development centres of assessee—However, in process of such customized software development, certain activities were required to be carried out at sight of customers on site, located outside India for which employees of branches of assessee located in country of customers were deployed—AO could not bring any evidence that assessee was engaged in providing simply technical services independent to software development for client for which expenditures were incurred outside India in foreign currency—Definition of total turnover given u/s 80HHC and 80HHE could not be adopted for purpose of section 10A as technical meaning of total turnover, which did not envisage reduction of any expenses from total amount, was to be taken into consideration for computing deduction u/s 10A—When meaning was clear, there was no necessity of importing meaning of total turnover from other provisions—As term ‘total turnover’ was defined in Explanation to section 80HHC and 80HHE, wherein it was clearly stated that “for purposes of this Section only”, it would be applicable only for purposes of that Sections and not for purpose of Section 10A—If deductions on freight, telecommunication and insurance attributable to delivery of computer software u/s 10A were allowed only in Export Turnover but not from Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to assessee which could have never been intention of legislature—Revenue’s appeals dismissed.

Held

Sometimes, while calculating the deduction, disputes arise regarding the methodology of deduction which ought to be followed. Undisputedly, it is a matter of record that the Respondent is engaged in the activity of trading of generic software and providing customized software development services for domestic as well as for foreign clients through its two units situated in Software Technology Park, Gurgaon (Now Gurugram) which falls under the definition of the Section 10A of the IT Act.

(Para 10)

On an analysis of the Respondent’s activity taken from its website, Assessing Officer arrived at a conclusion that Respondent has been rendering technical services outside India and, therefore, expenses incurred on such activity are required to be excluded from the export turnover while working out the deduction admissible under Section 10A of the IT Act.

(Para 11) 

Moreover, after delivery of such softwares as per requirement, in order to make it fully functional and hassle free functioning subsequent to the delivery of softwares in many cases, there can be requirement of technical personnel to visit the client on site. The Assessing Officer could not bring any evidence that the Respondent was engaged in providing simply technical services independent to software development for the client for which the expenditures were incurred outside India in foreign currency.

(Para 12) 

In the above backdrop, we are of the opinion that 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)

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) 

Conclusion

Definition of total turnover given u/s 80HHC and 80HHE could not be adopted for purpose of section 10A.

In favour of

Assessee

Cases Referred to

Commissioner of Income Tax vs. J.H. Gotla, (1985) 23 Taxman 14J (SC)
CIT vs. Tata Elxsi Ltd. (2012) 204 Taxman 321/17


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