At, High Court of Karnataka
By, THE HONOURABLE MR. JUSTICE N. KUMAR & THE HONOURABLE MR. JUSTICE B. MANOHAR
For the Appellant: K.V. Arvind, Advocate. For the Respondent: S. Parthasarathi, Advocate.
N. Kumar, J.
1. This appeal is directed against the order dated 16-05-2008 passed by the Income Tax Appellate Tribunal, Bangalore Bench 'A' (hereinafter referred to as 'the Tribunal' for short) in ITA No.767(Bang)/2007 wherein the Tribunal has partly allowed the appeal filed by the assessee.
2. The appeal was admitted to consider the following substantial questions of law:
"1. Whether the Tribunal was correct in holding that carried forward business loss are unabsorbed deprecation of non STPI units cannot be set off against income of the STRI unit for the purpose of computation of deduction u/s. 10A of the Act?
2. Whether the Tribunal was correct in holding that the amount of Rs.4,86,63,187/- paid to engineers on site for technical services should be added to the export turnover when computing deduction u/s. 10A of the Act?
3. Whether the Tribunal was correct in holding that a sum of Rs. 17,73,906/- communication charges incurred for technical services rendered was directed to be added to the export turnover for purpose of computation of deduction u/s. 10A of the Act?"
3. Insofar as the first substantial question of law is concerned, this court had an occasion to consider the same in the case of CIT v. Yokogawa India Ltd. [IT Appeal No.356/2010] and other connected appeals, whereby this court had answered the said substantial question of law in favour of the assessee and against the Revenue. However, it is submitted that the judgment of this court in the aforesaid case is the subject matter of the appeal before the Apex Court. In the event of the Revenue succeeding in the said appeal, the Assessing Authority shall pass consequential order under Section 260(1A) of the Income Tax Act, 1961 in terms of the order passed by the Hon'ble Supreme Court. Accordingly, we answer the said substantial question of law.
4. Insofar as the substantial questions of law 2 and 3 are concerned, the Tribunal following its earlier order in the case of Asstt. CIT v. Infosys Technologies Ltd.  172 Taxman 134 (Chennai - Mag.) held that when the expenditure is in respect of payments made on site development, the same cannot be excluded from the export turnover by holding it as technical services. When the export of services only is not entitled to deduction under Section 10A then the legislature made clear that foreign exchange relating to the technical services will be excluded. If there is export of goods as well as services, then only that portion will be eligible for deduction which relates to goods and therefore, the Tribunal held that the Assessing Officer is not justified in excluding Rs.4,86,63,187/- from the export turnover. The said judgment in INFORSYS was the subject matter of the appeal before this court. This court by its order dated 2nd June 2014 in ITA Nos.422/2008 and other connected matters held that the technical services rendered in post-sale services would stand on a different footing when compared to pre-sale services. If any technical service is rendered in the course of export of computer software then the expenditure incurred in that regard cannot be excluded. What has to be excluded is only technical services rendered which is independent of export of computer software. In that case, the matter was remanded to the Assessing Authority to decide whether the said technical services rendered was in connection with the computer software business, export of computer software or it is the case of exclusively rendering technical services. Based on that factual finding, the liability to tax or exemption would arise. The said exercise has not been done in the instant case also. Therefore, we pass the following:
(1) The finding of the Tribunal, First Appellate Authority as well as the Assessing Authority are hereby set aside
(2) The matter is remitted back to the Assessing Authority to determine on the basis of the materials to be produced by the assessee as to whether the technical services rendered was in connection with the export of computer software or is it
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a case of rendering technical services exclusively and then decide in the light of two statutory provisions and various decisions on the point whether the assessee is entitled to exclusion of the expenditure incurred towards technical services. Therefore the said substantial questions of law are not answered. Hence the matter is remitted to the Assessing Authority for fresh consideration on these two questions. Accordingly, the appeal is allowed in part.