Holding

The Supreme Court held that the definition of ‘total turnover’ in Sections 80HHC/80HHE does not apply to Section 10A, but expenses excluded from export turnover must also be excluded from total turnover, and the deduction under Section 10A should be computed using the prescribed export‑profit formula.

Summary

HCL Technologies Ltd. claimed deductions under Section 10A of the Income Tax Act, 1961 for freight, telecommunication, insurance and software development expenses incurred in exporting software and providing technical services abroad. The Assessing Officer excluded these expenses from the total turnover, leading to a higher tax liability, which was contested through multiple appeals up to the Supreme Court. The key issue was whether the term “total turnover” in Section 10A should be interpreted using the definition found in Sections 80HHC/80HHE or by its ordinary technical meaning, and whether the same expenses excluded from export turnover must also be excluded from total turnover. The Court held that the definition in Sections 80HHC/80HHE applies only to those sections and cannot be imported into Section 10A, but to avoid an absurd result the expenses excluded from export turnover must likewise be excluded from total turnover when computing the deduction. Consequently, the deduction under Section 10A is to be calculated using the formula where export profit equals total profit multiplied by the ratio of export turnover to the sum of export turnover and domestic sales, allowing the expenses to be excluded proportionately. All the appeals were dismissed, confirming the respondent’s right to the deduction.

Issues considered

The term ‘total turnover’ is not defined in Section 10A; can the definition in Sections 80HHC/80HHE be imported for the purpose of Section 10A?
Whether freight, telecommunication, insurance and software development expenses attributable to export of software or technical services outside India should be excluded from total turnover while computing deduction under Section 10A.
Whether the formula for computing export profit under Section 10A requires that expenses excluded from export turnover be similarly excluded from total turnover to avoid absurd or illogical results.

Legislation cited

Customs Act, 1962
Income Tax Act, 1961s. 10A, s. 2, s. 28, s. 80HHC, s. 80HHE

Subjects

Income TaxSection 10A deductiontotal turnoverexport turnoverstatutory interpretationharmonious constructiontechnical servicessoftware exportexpense exclusion

Judgment

[2018] 7 S.C.R. 1079 1079

COMMISSIONER OF INCOME TAX, CENTRAL-III A
v.
HCL TECHNOLOGIES LTD.
(Civil Appeal Nos. 8489-8490 of 2013)
APRIL 24, 2018 B
[R. K. AGRAWAL AND R. BANUMATHI, JJ.]
Income Tax Act, 1961 – ss.10A, 80HHC and 80HHE – Claim
of certain expenses attributable to the delivery of software outside
India or in providing technical services from ‘total turnover’ by the
C
Respondent u/s. 10A of the IT Act – Neither s.10A nor s.2 of the IT
Act define the term ‘total turnover’ – However, the term ‘total
turnover’ is given in clause (ba) of the Explanation to s.80 HHC of
the IT Act – Held: The definition of total turnover given u/ss. 80HHC
and 80HHE cannot be adopted for the purpose of s.10A as the
technical meaning of total turnover, which does not envisage the D
reduction of any expenses from the total amount, is to be taken into
consideration for computing the deduction u/s.10A – When the
meaning is clear, there is no necessity of importing the meaning of
total turnover from the other provisions – What is excluded from
‘export turnover’ must also be excluded from ‘total turnover’, since
E
one of the components of ‘total turnover’ is export turnover – Even
in common parlance, when the object of the formula is to arrive at
the profit from export business, expenses excluded from export
turnover have to be excluded from total turnover also – Otherwise,
any other interpretation makes the formula unworkable and
absurd – Hence, such deduction shall be allowed from the total F
turnover in same proportion as well – In the same way, expenses
incurred in foreign exchange for providing the technical services
outside shall be allowed to exclude from the total turnover.
Interpretation of Statutes – Harmonious Construction – Held:
The rule of harmonious construction is the thumb rule to G
interpretation of any statute – An interpretation which makes the
enactment a consistent whole, should be the aim of the Courts and
a construction which avoids inconsistency or repugnancy between
the various sections or parts of the statue should be adopted.
H
1079
1080 SUPREME COURT REPORTS [2018] 7 S.C.R.

A Dismissing the appeals, the Court

HELD: 1.1 Section 10A of the Income Tax Act, 1961 is a
special beneficial provision and the purpose of deduction under
such Section is to encourage and boost the new business
undertakings situated in the free trade zone of this Nation by
B providing suitable deductions to such business entities.
[Para 10] [1087-F]

1.2 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
C
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
D 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] [1089-A-C]
E
2. A Statute is the intention of the legislature who enacts it
after having regard to various facts and circumstances. It is a
cardinal principle of law that the interpretation by the Court shall
be done in such a way that the intention of the legislature shall
F prevail and no injustice occurred with the parties. The rule of
harmonious construction is the thumb rule to interpretation of
any statute. An interpretation which makes the enactment a
consistent whole, should be the aim of the Courts and a
construction which avoids inconsistency or repugnancy between
the various sections or parts of the statue should be adopted.
G [Para 15] [1089-D-E]

3. Accordingly, the formula for computation of the deduction
under Section10A of the Act would be as follows:

H
COMMR. OF INCOME TAX CENTRAL-III v. HCL 1081
TECHNOLOGIES LTD.

A
Export turnover as defined
in Explanation 2 (IV) of Section 10A of
IT Act
Export Profit = total Profit of the Business X _____________________________
Export turnover as defined in Explanation
2(IV) of Section 10A of the IT Act +
domestic sale proceeds B
[Para 18] [1090-F-H]
4. 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
C
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]
[1091-A-B]
D
5. Even in common parlance, when the object of the formula
is to arrive at the profit from export business, expenses excluded
from export turnover have to be excluded from total turnover
also. Otherwise, any other interpretation makes the formula
unworkable and absurd. Hence, such deduction shall be allowed
from the total turnover in same proportion as well. [Para 20] E
[1091-C]
6. On the issue of expenses on technical services provided
outside, the same principle of interpretation as followed in the
case of expenses of freight, telecommunication etc. is to be
followed, otherwise the formula of calculation would be futile. F
Hence, in the same way, expenses incurred in foreign exchange
for providing the technical services outside shall be allowed to
exclude from the total turnover. [Para 21] [1091-D]
Commissioner of Income Tax v. J.H. Gotla (1985) 23 ;
Taxman 14J (SC) : CIT v. Tata Elxsi Ltd. (2012) 204 G
Taxman 321/17 – referred to.
Case Law Reference
(1985) 23 Taxman 14J (SC) referred to Para 16
(2012) 204 Taxman 321/17 referred to Para 17
H
1082 SUPREME COURT REPORTS [2018] 7 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 8489-
8490 of 2013.
From the Judgment and Order dated 15.12.2009 of the High Court
of Delhi at New Delhi in ITA Nos. 1244 of 2009 & 1250 of 2009
WITH
B Civil Appeal Nos. 8535 & 8555-8556 of 2013, Civil Appeal
Nos. 7853 & 8789 of 2012, Civil Appeal Nos. 8559, 8558, 8529-8530,
8515, 8557, 8524, 8518, 8525 & 8539 of 2013, Civil Appeal No. 4392 of
2018, Civil Appeal Nos. 8562 & 8533 of 2013, Civil Appeal No. 7854 of
2012, Civil Appeal No. 8560 of 2013, Civil Appeal No. 4393 of 2018,
C Civil Appeal Nos. 8537, 8543, 8492, 8540-8541, 8542, 8551, 8494, 8527
of 2013, Civil Appeal No. 4543 of 2014, Civil Appeal Nos. 8536, 8500,
8506, 8553, 8499, 8526, 8501, 8538, 8491 of 2013, Civil Appeal No. 1098
of 2016, Civil Appeal Nos. 8505, 8510, 8513, 8507, 8504, 8503, 8519,
8927 of 2013, Civil Appeal No. 8791 of 2012, Civil Appeal Nos. 8528,
8523, 8554, 8509, 8521-8522, 147 of 2013, Civil Appeal No. 8912 of
D 2012, Civil Appeal No. 6594 of 2015, Civil Appeal Nos. 8561, 8531,
8544, 8550, 8545 of 2013, Civil Appeal No. 4394 of 2018, Civil Appeal
No. 8929 of 2013, Civil Appeal No. 1099 of 2016, Civil Appeal
No. 10830 of 2014, Civil Appeal No. 4395 of 2018, Civil Appeal
Nos. 8552, 8495, 8493 of 2013, Civil Appeal No. 4557 of 2018, Civil
E Appeal No. 4537 of 2018, Civil Appeal No. 9202 of 2013, Civil Appeal
Nos. 4538 & 4396-4397 of 2018, Civil Appeal No. 4293 of 2014, Civil
Appeal Nos. 4443 & 4540 of 2018, Civil Appeal No. 9167 of 2016, Civil
Appeal Nos. 4444, 4445, 4447 of 2018, Civil Appeal Nos. 646-647 of
2015, Civil Appeal Nos. 4398 & 4399 of 2018, Civil Appeal No. 77 of
2015, Civil Appeal Nos. 4450, 4452 4541 & 4455 of 2018, Civil Appeal
F No. 1951 of 2015, Civil Appeal Nos. 4544, 4458, 4400, 4542 & 4461 of
2018, Civil Appeal No. 9250 of 2015, Civil Appeal No. 4464 of 2018,
Civil appeal No. 4427 of 2016, Civil Appeal No. 4611 of 2018, Civil
Appeal No. 9319 of 2016, Civil Appeal No. 2999 of 2017, Civil Appeal
No. 4614 of 2018, Civil Appeal No. 2998 & 3059 of 2017, Civil Appeal
No. 4612 of 2018, Civil Appeal No. 11716 of 2016, Civil Appeal
G
No. 4613 of 2018, Civil Appeal Nos. 911, 3948, 2419, 1535, 1536, 3797,
2420, 3060, 3275 & 3651 of 2017.
S. Ganesh, M.S. Syali, K. Radhakrishnan, Ajay Vohra, Arvind
Datar, Percy Pardiwala, Sr. Adv., Pratap Venugopal, Ms. Niharika, Anuj
Sarma, M/s. K J John & Co., Anand Sukumar, S. Sukumaran, Bhupesh
H
COMMR. OF INCOME TAX CENTRAL-III v. HCL 1083
TECHNOLOGIES LTD.

Kumar Pathak, Mrs. Meera Mathur, S. Wasim A. Qadri, Rupesh Kumar, A
Arijit Prasad, Mrs. Rekha Pandey, Mrs. N. Annapoorni, Mrs. Anil Katiyar,
Ms. Kavita Jha, Udit Naresh, Debmalya Banerjee, Manish Sharma,
Kartik Bhatnagar, A.S. Aman, Aviral Kapoor, Adv. M/s. Karanjawala &
Co. Mohit Chaudhary, Ms. Puja Sharma, Imran Ali, Balwinder Singh
Suri, Kunal Sachdeva, Ms. Garima Sharma, Mayank Nagi, Ms. Husnal
B
Nagi, K. V. Mohan, R.K. Raghavan, K.V. Balakrishnan, Senthil
Jagadeesan, K. K. Chythanya, Kunal Verma, Mrs. Yugandhara Pawar
Jha, Piyush Bhardwaj, T. Suryanaryana, V. Balachandran, K. R.
Vasudevan, Siddarth Naidu, M/s. Ksn & Co., Amit Kumar Singh,
Mrs. K. Enatoli Sema, Amith J, Yoginder Handoo, Nishant Kumar, Pratap
Venugopal, Ms. Surekha Raman, Ms. Kanika Kalaiyarasan, Jay Savla, C
Ms. Renuka Sahu, Avinash Kr. Lakhanpal, T. Suryanarayan, Sanjay
Kunur, R. N. Keswani, Ranjit B. Raut, Ms. Surbhi Kapoor, Mrs. Bina
Gupta, Tarun Gulati, Sparsh Bhargava, Ms. Ishita Farsaiya, Anupam
Mishra, Shashi Mathews, Kishore Kunal, Nageswar Rao, Pukhrambam
Ramesh Kumar, Sandeep S. Karhail, Ms. Sherry Goyal, Uday Manaktala,
D
Ambhoj Kumar Sinha, Satyen Sethi, Ms. Arta Trana Panda, Ms. Gargi
Sethee, Rameshwar Prasad Goyal, Ashwin Nayar, Ritunjay Gupta,
Dheeraj Nair, Nikhil Nayyar, Sachit Jolly, Ms. B. Vijayalakshmi Menon,
Ms. Anuradha Dutt, Sumit Goel, Tanuj Agarwal, Ms. Pavitra Singh,
Ms. Swati Bhardwaj, M/s. Parekh & Co., Amar Dave, Pradhuman Gohil,
Ms. Taruna Singh Gohil, Himanshu Chaubey, Himanshu Sinha, Ms. Vrinda E
Tulshan, Sandeep Devashish Das, Satpal Singh, Vasudevan Raghavan,
Mohit Chaudhary, Rustom B. Hathikhanawala, Himanshu Sinha,
Ms. Vrinda Tulshan, Syed Jafar Alam, R. Chandrachud, M. Srinivas R.
Rao, Arun Devdas, Mrs. Sudha Gupta, Rajesh Mahale, Santosh Paul,
Joseph Aristotle S., Mrs. Priya Aristotle, Ashish Yadav, Naveen R. Nath,
F
Advs. for the appearing parties.
The Judgment of the Court was delivered by
R. K. AGRAWAL, J. 1. Leave granted.
2. These appeals have been filed against the impugned judgment
and order dated 15.12.2009 passed by the High Court of Delhi in ITA
G
Nos. 1244 and 1250 of 2009 whereby the Division Bench of the High
Court had dismissed the appeals filed by the Revenue – the appellant
herein while upholding the order passed by the Income Tax Appellate
Tribunal (in short ‘the Tribunal’) dated 30.03.2007. Since the moot
question is same in all the appeals connected with the main matter, the
same would stand disposed off vide this common judgment. H
1084 SUPREME COURT REPORTS [2018] 7 S.C.R.

A Civil Appeal Nos. 8489-8490 of 2013
3. Brief facts:
(a) The Respondent – HCL Technologies Ltd. is a company
registered under the Companies Act, 1956 and engaged in the business
of development and export of computer softwares and rendering technical
B services.
(b) The Respondent has shown gross income from business at
Rs. 267,01,76,529/- while claiming deductions under Section 10A of the
IT Act to the tune of Rs. 273,45,39,379/- showing a net loss of
Rs. 6,43,62,850/-. The Respondent filed its return of income for the
C Assessment Year 2004-05 on 01.11.2004 declaring the undisclosed income
at Rs. 91,25,68,114/-. Thereafter, on 31.03.2005, a revised return of
income for Rs. 91,16,99,060/- was filed by the Respondent which was
selected for scrutiny under Section 143 of the Income Tax Act, 1961
(in short ‘the IT Act’).
D (c) The Assessing Officer, vide order dated 28.12.2006, held that
the software development charges, as claimed by the Respondent, are
nothing but in the nature of expenses incurred for technical services
provided outside India. Further, in view of the fact that it is not purely
technical services and some element of software development is also
E involved in it and in the absence of such bifurcation, the Assessing Officer
estimated such expense at the rate of 40% and remaining 60% for
providing technical services by the Respondent in foreign exchange to
its offshore clients and re-assessed the taxable income at
Rs. 137,20,34,576/- and penalty to the tune of Rs. 21,81,90,239/-.

F (d) Being aggrieved, the Respondent preferred an appeal being
No. 331/06-07 before the Commissioner of Income Tax (Appeals).
Learned CIT (Appeals), vide order dated 09.05.2007, partly allowed the
appeal while estimating 10% as software development charge incurred
for technical services provided outside India as against 60% estimated
by the Assessing Officer.
G
(e) Being aggrieved, the Respondent as well as the Revenue,
preferred cross appeals being ITAT Nos. 3199 and 3344/Del/2007 before
the Tribunal. The Tribunal, vide order dated 23.01.2009, dismissed the
appeal filed by the Revenue while allowing the appeal of the
Respondent.
H
COMMR. OF INCOME TAX CENTRAL-III v. HCL 1085
TECHNOLOGIES LTD. [R. K. AGRAWAL, J.]

(f) Being aggrieved, the Revenue preferred an appeal before the A
High Court being No. ITA No. 1250 of 2009. The High Court, vide order
dated 15.12.2009, dismissed the appeal of the Revenue.
(g) Hence, these appeals have been filed before this Court.
4. Heard learned senior counsel for the parties and perused the
factual matrix of the instant case. B

Point(s) for consideration:-
5. The only point for consideration before this Court is whether in
the facts and circumstances of the case, the software development
charges are to be excluded while working out the deduction admissible C
under Section 10A of the IT Act on the ground that such charges are
relatable towards expenses incurred on providing technical services
outside India?
Rival contentions:-
6. At the outset, learned senior counsel for the Revenue submitted D
that when the total turnover is not defined under Section 10A of the IT
Act, the ordinary meaning of the words is to be adopted. As it was a
technical term, the technical meaning of total turnover, which does not
envisage the reduction of any expense from the total amount, was to be
taken into consideration for computing deduction under Section 10A of
E
the IT Act. Hence, the fact that the Respondent has claimed expenses
like freight, telecommunication and insurance attributable to the delivery
of software outside India total turnover also, while calculating deduction
under Section 10A of the IT Act, despite the fact that there is no such
provision in Section 10A of the IT Act, is not sustainable in the eyes of
law. Therefore, the impugned decision of the High Court is liable to be F
set aside.
7. On the other hand, learned senior counsel appearing for the
Respondent submitted that the export turnover is the numerator whereas
the total turnover is the denominator in the formula for computing profit
from exports. The export turnover as defined in Section 10A of the IT G
Act would not include freight, telecommunication charges or insurance
attributable to the delivery of goods outside India and the expenses
incurred in foreign exchange for providing technical services outside
India. The same cannot be included in the total turnover as if numerator
H
1086 SUPREME COURT REPORTS [2018] 7 S.C.R.

A included the aforesaid amount, which the denominator doesn’t include,
the formula would render undesirable results. Therefore, the Respondent
is legally entitled to exclude the above said expenses from the total
turnover as well. Hence, these appeals deserve to be dismissed at the
outset.
B Discussion:-
8. The whole controversy revolves around the claim of certain
expenses attributable to the delivery of software outside India or in
providing technical services from ‘total turnover’ by the Respondent
under Section 10A of the IT Act. It is an undisputed fact that neither
C Section 10A nor Section 2 of the IT Act define the term ‘total turnover’.
However, the term ‘total turnover’ is given in clause (ba) of the
Explanation to Section 80 HHC of the IT Act which defines the meaning
of total turnover as follows:
“(ba) ‘total turnover’ shall not include freight or insurance
D attributable to the transport of the goods or merchandise beyond
the customs stations as defined in the Customs Act, 1962 (52 of
1962).
Provided that in relation to any assessment year commencing on
or after the 1st day of April, 1991, the expression “total turnover”
E shall have effect as if it also included any sum referred to in clauses
(iiia), (iiib), (iiic), (iiid) and (iiie) of section 28;”
9. It is also pertinent to mention here the relevant terminologies
which are as under:
“Export Turnover:
F
Explanation 2(iv) of Section 10A of the IT Act defines “export
turnover” to mean the consideration that has been received for
export of articles/things/computer software. Normally the
consideration will include the freight/telecommunication charges/
insurance which had been incurred to deliver the article/things/
G computer software outside India. However the Explanation 2(iv)
specifically seeks to exclude these three categories of expenditure
incurred for delivering the export of articles/things/computer
software. It also seeks to exclude expenses for providing technical
service, etc. outside India. Therefore, where an Indian technician
H
COMMR. OF INCOME TAX CENTRAL-III v. HCL 1087
TECHNOLOGIES LTD. [R. K. AGRAWAL, J.]

goes abroad and receives fees for service, the foreign client will A
normally be required to reimburse the expenses as well. Therefore,
out of the consideration received, the portion representing
reimbursement of expenditure has to be excluded.
Export Turnover and Total turnover:
The “total turnover” has been defined in sections 80HHC and B
80HHE only to exclude additional items given under section 28.
But for this additional exclusion, there was no need to define “total
turnover”.
Export turnover is a component of total turnover. If the entire
turnover represents export proceeds, then the export turnover and C
the total turnover are identical. It is clear that any exclusion in the
export turnover in the numerator will automatically imply exclusion
in the denominator as well because export turnover is always a
component of total turnover.
Export Turnover/Total Turnover/Business: D
Form 56F prescribes the report under Section 10A for and
Annexure-A thereto refers to “export proceeds” and “sale
proceeds”. Both together form the total turnover of the
undertaking.”
E
10. The question arises here that when the particular term has not
been defined in any particular Section, is it allowed to import the meaning
of such term from the other provisions of the same Act? Section 10A of
the IT Act is a special beneficial provision and the purpose of deduction
under such Section is to encourage and boost the new business
undertakings situated in the free trade zone of this Nation by providing F
suitable deductions to such business entities. 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
G
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. The contention of the
Respondent is that it incurred expenditure in foreign exchange in sending
professionals abroad as per the agreements with the foreign constituents.
H
1088 SUPREME COURT REPORTS [2018] 7 S.C.R.

A 11. 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. The Assessing Officer estimated 60% of the software
B
development charges required to be attributed towards expenses incurred
for providing technical services outside India. On appeal, learned CIT
(Appeals) again made a detailed analysis of the activity of the Respondent
and arrived at a conclusion that the Assessing Officer failed to bring any
evidence which can indicate that Respondent was providing technical
C services outside India and it has incurred expenses towards salary etc.
on rendering such services. Inspite that, learned CIT (Appeals), estimated
10% of software development charge as charges incurred for technical
services provided outside India.
12. It is undisputed fact that the Respondent was engaged in the
D business of software development for its customers engaged in different
activities at software development centres of the Respondent. However,
in the process of such customized software development, certain activities
were required to be carried out at the sight of customers on site, located
outside India for which the employees of the branches of the Respondent
located in the country of the customers are deployed. It is true that it is
E not defined that which activity will be termed as providing technical
services outside India. 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
F 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.
13. The Respondent company has claimed deduction under Section
10A as per certificates filed on Form No. 56F. The Respondent, while
G
computing the deduction, has taken the same figure of export turnover
as of total turnover. The Respondent cited various judicial cases but all
these cases pertain to deduction under Section 80HHC. Further, the
definition of total turnover has been defined in Section 80HHC and
80HHE of the IT Act. As discussed earlier, the definition of total turnover
H has not been defined under Section 10A of the IT Act.
COMMR. OF INCOME TAX CENTRAL-III v. HCL 1089
TECHNOLOGIES LTD. [R. K. AGRAWAL, J.]

14. In the above backdrop, we are of the opinion that the definition A
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
B
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 C
only for the purposes of that Sections and not for the purpose of Section
10A. If denominator includes certain amount of certain type which
numerator does not include, the formula would render undesirable results.
15. A Statute is the intention of the legislature who enacts it after
having regard to various facts and circumstances. It is a cardinal principle D
of law that the interpretation by the Court shall be done in such a way
that the intention of the legislature shall prevail and no injustice occurred
with the parties. The rule of harmonious construction is the thumb rule
to interpretation of any statute. An interpretation which makes the
enactment a consistent whole, should be the aim of the Courts and a
construction which avoids inconsistency or repugnancy between the E
various sections or parts of the statue should be adopted.
16. In Commissioner of Income Tax vs. J.H. Gotla,(1985) 23
Taxman 14J (SC) this Court has held as under:
“46. Where the plain literal interpretation of a statutory provision F
produces a manifestly unjust result which could never have been
intended by the Legislature, the Court might modify the language
used by the Legislature so as to achieve the intention of the
Legislature and produce a rational construction. The task of
interpretation of statutory provision is an attempt to discover the
intention of the Legislature from the language used…. G
47 ….If the purpose of a particular provision is easily discernible
from the whole scheme of the Act which, in the present case,
was to counteract, the effect of the transfer of assets so far as
computation of income of the Respondent was concerned, then
H
1090 SUPREME COURT REPORTS [2018] 7 S.C.R.

A bearing that purpose in mind, the intention should be found out
from the language used by the Legislature and if strict literal,
construction leads to an absurd result, i.e. result not intended to
be subserved by the object of the legislation found out in the manner
indicated above, then if other construction is possible apart from
strict literal construction, then that construction should be preferred
B
to the strict literal construction. Though equity an taxation are
often strangers , attempt should be made that these do not remain
so always so and if a construction results in equity rather than in
injustice , then such construction should be preferred to the literal
construction. Furthermore, in the instant case, we are dealing with
C an artificial liability created for counteracting the effect only of
attempts by the assessee to reduce tax liability by transfer….”
17. The similar nature of controversy, akin this case, arose before
the Karnataka High Court in CIT vs.Tata Elxsi Ltd.(2012) 204 Taxman
321/17. The issue before the Karnataka High Court was whether the
D Tribunal was correct in holding that while computing relief under Section
10A of the IT Act, the amount of communication expenses should be
excluded from the total turnover if the same are reduced from the export
turnover? While giving the answer to the issue, the High Court, inter-
alia, held that when a particular word is not defined by the legislature
and an ordinary meaning is to be attributed to it, the said ordinary meaning
E is to be in conformity with the context in which it is used. Hence, what is
excluded from ‘export turnover’ must also be excluded from ‘total
turnover’, since one of the components of ‘total turnover’ is export
turnover. Any other interpretation would run counter to the legislative
intent and would be impermissible.
F 18. Accordingly, the formula for computation of the deduction
under Section10A of the Act would be as follows:

Export turnover as defined
in Explanation 2 (IV) of Section 10A of
G IT Act
Export Profit = total Profit of the Business X _____________________________
Export turnover as defined in Explanation
2(IV) of Section 10A of the IT Act +
domestic sale proceeds

H
COMMR. OF INCOME TAX CENTRAL-III v. HCL 1091
TECHNOLOGIES LTD. [R. K. AGRAWAL, J.]

19. In the instant case, if the deductions on freight, A
telecommunication and insurance attributable to the delivery of computer
software under Section 10A 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
B
intention of the legislature.
20. Even in common parlance, when the object of the formula is
to arrive at the profit from export business, expenses excluded from
export turnover have to be excluded from total turnover also. Otherwise,
any other interpretation makes the formula unworkable and absurd.
Hence, we are satisfied that such deduction shall be allowed from the C
total turnover in same proportion as well.
21. On the issue of expenses on technical services provided outside,
we have to follow the same principle of interpretation as followed in the
case of expenses of freight, telecommunication etc., otherwise the
formula of calculation would be futile. Hence, in the same way, expenses D
incurred in foreign exchange for providing the technical services outside
shall be allowed to exclude from the total turnover.
22. In view of above discussion, we are of the considered view
that these instant appeals are devoid of merits and deserve to be
dismissed. Accordingly, all the connected matters and interlocutory E
applications, if any, are disposed of with no order as to costs.

Ankit Gyan Appeals dismissed.

F

10A of
G
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xplanation
IT Act +

H