2017 (5) TMI 1223 - HC - Income Tax

Court upholds ITAT decisions on deductions for Amadeus India Pvt. Ltd. and Inter Globe Technology Quotient Pvt. Ltd.

The Court affirmed the decisions of the ITAT allowing deductions under Section 10A for Amadeus India Pvt. Ltd. (AIPL) and under Section 10AA for Inter ... Eligibility for deduction u/s 10AA - SEZ unit - nature of distribution fee received from Amadeus Spain - DRP observed that amount received under the Distribution Agreement was not on account of any export of software or data processing for which deduction could be claimed u/s 10A - Revenue contended that, a parallel could not be drawn between the decisions in the Assessee’s own case for AY 1996-97 and the AY under consideration because the deduction that was claimed for AY 1996-97 deduction was under Section 80HHE whereas here it is under Section 10A of the Act. Held that:- There is no merit in the above contention for the simple reason that the Revenue has not been able to show that the activity of the Assessee, which was examined then and the activity now is any different. The essence of both Section 80 HHE and Section 10A in terms of the conditions of eligibility are not very different. - Decided against the revenue. Eligibility of the Assessee to deduction under Section 10AA - The basis for the AO to deny the deduction under Section 10AA of the Act for AY 2010-11 was that a majority of the invoices were addressed to the Assessee at the addresses in Mumbai, Gurgaon etc. Very few of those invoices bore the Noida SEZ address. The AO observed that the source of the data processing export had to be unit established at SEZ area Held that:- The claim under Section 10AA of the Act was supported by a certificate of a Chartered Accountant in Form 56F. It was noticed that Article 9 read with Schedule-I of the Distribution Agreement between the Assessee (Inter Globe) and Galileo showed that Galileo was entitled to a fee based on the number of segments completed by the Assessee. ‘Segment’ was defined under Article 2 to mean a booking, either of a direct flight or consisting of various legs of journeys, which is concluded and not cancelled at any stage. The more the number of segments booked by travel agent, the higher would be the revenues of the Assessee. Therefore, it was critical for the Assessee to ensure that the bookings were converted into segments. In terms of Article 8 of the Agreement, the Assessee was required to provide any kind of technical help, support or assistance as may be required by the subscribers in connection with use of Galileo GDS server located in Denver, USA. Revenue generated on creation of segment and finalisation of PNRs required the Assessee to undertake the said data processing services from its units located in Noida SEZ. The concurrent factual findings of both the CIT (A) and the ITAT as regards the Assessee/Inter Globe fulfilling the conditions of eligibility for deduction under Section 10AA of the Act have not been shown to be perverse. - Decided in favour of assessee. Issues Involved:1. Deduction under Section 10A of the Income Tax Act, 1961 for Amadeus India Pvt. Ltd. (AIPL).2. Deduction under Section 10AA of the Income Tax Act, 1961 for Inter Globe Technology Quotient Pvt. Ltd. (Inter Globe).Detailed Analysis:Issue 1: Deduction under Section 10A for AIPLFacts and Background:AIPL was incorporated on 8th March 1994 and granted approval for setting up a 100% export-oriented unit under the Software Technology Park Scheme (STPS). Initially, AIPL claimed exemption under Sections 10A/10B until AY 2004-05. For AY 2009-10, the claim under Section 10A was made solely for Unit II.Proceedings and Findings:- Order of the TPO: The TPO recommended an upward transfer pricing adjustment, which was later deleted by the ITAT.- DRP Proceedings: The DRP observed that the main income of AIPL was not in conformity with Section 10A and restricted the deduction to Rs. 1,58,97,121, disallowing Rs. 18,43,84,578.- ITAT's Decision: The ITAT followed its earlier decision for AY 1996-97, where it had examined AIPL's activities and concluded that AIPL was involved in data processing activities, qualifying for deduction under Section 10A. The ITAT emphasized consistency, noting no change in modus operandi since 1996-97.Contentions of the Revenue:- The Revenue argued that the activities in AY 1996-97 were different as the deduction was claimed under Section 80HHE, not Section 10A.- The Revenue also questioned whether AIPL's activities constituted an export of services.Court's Analysis and Conclusion:- The Court found no merit in the Revenue's contentions, noting that the activities examined in AY 1996-97 were similar to those in AY 2009-10.- The ITAT's findings were based on consistent interpretations and supported by certifications from STPI and ESC.- The Court concluded that the ITAT's order allowing the deduction under Section 10A for AIPL was legally sound and did not frame any question of law on this issue.Issue 2: Deduction under Section 10AA for Inter GlobeFacts and Background:Inter Globe was engaged in software development and IT services, exporting these services from its SEZ unit in Noida. The AO denied the deduction under Section 10AA for AY 2010-11, questioning the location of data processing activities and the number of employees.Proceedings and Findings:- AO's Order: The AO observed that most invoices were not addressed to the Noida SEZ and doubted the source of data processing exports.- CIT(A)'s Decision: The CIT(A) allowed the deduction, noting that data processing and transmission occurred at the SEZ unit. The CIT(A) relied on the ITAT's decision in AIPL's case for AY 1996-97.- ITAT's Decision: The ITAT upheld the CIT(A)'s findings, emphasizing the technical services provided under the Agreement with Galileo and the certification by the Development Commissioner, Noida SEZ. The ITAT noted that the activities were consistent with those described in similar cases and supported by relevant documentation.Contentions of the Revenue:- The Revenue argued that the activities of Inter Globe were different from those of AIPL and did not qualify as export services.Court's Analysis and Conclusion:- The Court found that the concurrent factual findings of the CIT(A) and ITAT were not perverse.- The Court noted that the decision in Director of Income Tax v. Galileo (2011) was not relevant to the eligibility for deduction under Section 10AA.- The Court concluded that no substantial question of law arose from the ITAT's order and dismissed the Revenue's appeal.Conclusion:Both appeals by the Revenue were dismissed, with the Court affirming the ITAT's decisions allowing deductions under Section 10A for AIPL and under Section 10AA for Inter Globe. The Court found no legal infirmity in the ITAT's analysis and conclusions.