Case Note & Summary
The assessee, M/s. Tata Elxsi Limited, a registered Software Technology Park (STP) unit, claimed deduction under Section 10A of the Income Tax Act, 1961, for profits from its STP unit. The Assessing Officer disallowed a portion of the deduction amounting to Rs. 4,49,09,602/- on the ground that sales made to Texas Instruments India Pvt. Ltd. (TIIPL), another STP unit, were domestic sales and not exports. The assessee contended that the software development services provided to TIIPL were ultimately exported out of India by TIIPL, and consideration was received in convertible foreign exchange, thus satisfying the conditions for deduction under Section 10A. The Commissioner of Income Tax (Appeals) allowed the assessee's claim, but the Income Tax Appellate Tribunal (ITAT) reversed the decision, holding that sales to another STP unit do not amount to deemed export. The High Court of Karnataka, in this appeal under Section 260-A of the Act, framed the substantial question of law: whether the Tribunal was correct in holding that the assessee is not entitled to the benefit of Section 10A in respect of sales to other STP units. The court noted that the assessee had provided software services to TIIPL, which was also a registered STP unit, and the software was exported out of India by TIIPL. The consideration for the services was received in convertible foreign exchange within the specified period. The court held that the definition of 'export' under Section 10A includes indirect exports through another STP unit, as long as the software is exported out of India and foreign exchange is received. The court allowed the appeal, set aside the Tribunal's order, and restored the order of the Commissioner of Income Tax (Appeals), thereby granting the deduction under Section 10A.
Headnote
A) Income Tax - Section 10A Deduction - Export of Computer Software - Deemed Export - The issue was whether sales to another STP unit, which subsequently exports the software, constitute export under Section 10A. The court held that such sales qualify as deemed export, as the software is ultimately exported out of India and consideration is received in convertible foreign exchange. (Paras 1-4) B) Income Tax - Section 10A - Software Technology Park - Export Turnover - The court interpreted the definition of 'export' under Section 10A to include indirect exports through another STP unit, provided the software is exported out of India and foreign exchange is received. (Paras 2-4)
Issue of Consideration
Whether sales made by an STP unit to another STP unit, where the software is ultimately exported out of India by the purchaser, qualify as 'export' for the purpose of deduction under Section 10A of the Income Tax Act, 1961.
Final Decision
The High Court allowed the appeal, set aside the order of the Income Tax Appellate Tribunal, and restored the order of the Commissioner of Income Tax (Appeals), thereby granting the deduction under Section 10A of the Income Tax Act, 1961.
Law Points
- Section 10A of Income Tax Act
- 1961
- Deemed Export
- Software Technology Park
- Export of Computer Software
- Convertible Foreign Exchange
