Income Tax Appellate Tribunal Chennai Zylog Systems Limited, Chennai vs Assessee on 13 October, 2009 IN THE INCOME TAX APPELLATE TRIBUNAL BENCH 'C' CHENNAI BEFORE SHRI PRADEEP PARIKH, VICE PRESIDENT SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER (SPECIAL BENCH CASE) ITA No. 1138/Mds/2007 Assessment Year: 200304 M/s Zylog S ystems Limited V The Income Tax Officer, 82/40, I Main Road Compan y Ward III CIT Nagar, Nandanam Chennai 600034 Chennai 600035 ITA No. 1141/Mds/2007 Assessment Year: 200304 The Income Tax Officer V M/s Zylog S ystems Limited Compan y Circle III(3) 82/40, I Main Road Chennai 600034 CIT Nagar, Nandanam Chennai 600034 (Appellant) (Respondent) Assessee By : Shri V.D. Gopal Revenue By: Shri Tapas Kumar Dutta Intervener: Shri H. Padamchand Khincha For M/s Changepond Technologies ORDER 2 M.A. No.283/Mds/08 No.283/Mds/08 PER N. BARATHVAJA SANKAR, VICE PRESIDENT The Hon'ble President, Income Tax Appellate Tribunal, vide orders dated 13.10.2009 constituted the present Special Bench to dispose of the captioned appeals as well as to adjudicate the following question of law: "Whether the expenses incurred in foreign currency on computer software development onsite at the client's place outside India is to be excluded from export turnover?" 2 Both the appeals filed b y the assessee and the revenue revolve around the above mentioned question of law. 3 The brief facts of the case are that the assessee is a compan y engaged in the business of development of software both b y way of onsite development and offshore development and it has a branch in USA for which separate accounts were maintained. In its return of income, the assessee being 100% EOU, had claimed deduction u/s 10B of IT Act in respect of the exports of software made. Before the Assessing Officer, the assessee pointed out that the profits of USA branch are eligible for double tax relief and furnished a cop y of the agreement for avoidance of double taxation of income with USA. During the assessment proceedings, the Assessing Officer had observed that the assessee had total export turnover of Rs. 28,61,13,408 and out of this amount, the assessee had utilized the export proceeds to the tune of Rs. 15,14,20,226 3 M.A. No.283/Mds/08 No.283/Mds/08 in USA for the purpose of carrying on export activities. The Assessing Officer was of the view that since the said amount had not been received in convertible foreign exchange in India within the prescribed time u/s 10B(3) of IT Act, the said amount utilized in USA can not be treated as a part of export turnover for computing deduction u/s 10B of IT Act. The Assessing Officer also excluded from the export turnover of Rs. 3,33,46,591.81 incurred b y the assessee outside India in foreign exchange in providing technical services, while computing deduction u/s 10B of IT Act. Aggrieved b y this order of the Assessing Officer, the assessee moved the matter in appeal before the first appellate authorit y . 4 The first appellate authorit y allowed the assessee's appeal in respect of inclusion of Rs. 15,14,20,226 in export turnover for computing deduction u/s 10B of IT Act whereas he has rejected the claim of the assessee in respect of inclusion of Rs. 3,33,46,591.81 incurred b y the assessee outside India in providing technical services to the export turn over while computing deduction u/s 10B of IT Act. 5 Now the assessee is on second appeal before us with respect to exclusion of Rs. 3,33,46,591.81 from the export turn over for computing deduction u/s 10B of IT Act whereas the Revenue is on appeal before us against the Ld. C IT(A)'s direction to include the foreign exchange of Rs. 15,14,20,226 utilised b y the assessee in foreign country while computing deduction u/s 10B of IT Act. 4 M.A. No.283/Mds/08 No.283/Mds/08 6 The assessee is on second appeal before u