TaxTMI 
TaxTMI 
2010 (11) TMI 76
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....of onsite development and offshore development and i t has a branch in USA for which separate accounts were maintained. In its return of income, the assessee being 100% EOU, had claimed deduct ion 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 ofUSAbranch are eligible for double tax relief and furnished a copy of the agreement for avoidance of double taxation of income withUSA. 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 ut i l ized the export proceeds to the tune of Rs. 15,14,20,226 in USA for the purpose of car rying 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 wi thin 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 deduct ion u/s 10B of IT Act . The Assessing Officer also excluded from the export turnover of Rs. 3,33,46,591.81 incur red by the assessee outside India in fore....
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....e wherein the above amount was incur red as expenditure in foreign exchange for onsite development of software and even if applicable, should have been excluded from total turnover also." 7 On the other hand, the revenue is on appeal before us with the following effective grounds of appeal : "2.1 The Ld. CIT(A) er red in directing the Assessing Officer to include the foreign exchange retained by the assessee abroad (in accordance to the RBI guidelines) while computing deduct ion under sect ion 10B of the IT Act . 2.2 It is submitted that the decision relied upon by Ld. CIT(A) in the case of J.B. Boda & Co Pvt Ltd V CBDT (223 ITR 271 (S.C) and the Board's circular No. 731dated 20.12.1995 are not applicable here since the decision of the circular were concerned with sect ion 80-O and in the context of remitting the net insurance premia and not sect ion 10B which is the sect ion applicable here. 2.3 The Ld. CIT(A) failed to note that Explanat ion 2 to sect ion 10B(3) al lows sale proceeds credited to a separate account maintained for the purpose by the assessee with any Bank outside India with the approval of the RBI and there is no such corresponding provision in Sect ion....
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....omputing deduct ion u/s 10B of IT Act . Aggrieved by this order of the Assessing Officer, the assessee moved the matter in appeal before the first appellate authority. 11 Before the Ld. CIT(A) , i t was submitted by the Ld. Counsel for the assessee as under: - The above act ion of the Assessing Officer has resulted in double addition of expenses incur red for the onsite development of computer software for the very purpose of export . 70% of the export turnover amounting to Rs. 15.14 crores was separately excluded by the Assessing Officer from the export turnover for relief u/s 10B of IT Act . Therefore, expenses incurred for onsite development amounting to Rs. 3.33.crores mentioned above excluded by the Assessing Officer from the total export turnover of Rs. 28.61 crores has resulted in double deduct ion. The said expenses represented the utilization of sale proceeds inUSAand hence the same can not again be excluded from export turnover. It could have been reduced either by the amount of Rs. 15.14 crores retained inUSAor Rs. 3.33 crores utilized for onsite development inUSA. Therefore, the above mistake of the Assessing Officer has resulted in double addition in this case. 1....
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....red in foreign exchange in providing technical services outside India, will not be included in "export turnover". The theory of "net foreign exchange" discussed by Chennai Bench of Income Tax Appel late Tribunal in California Software Co. Ltd., is not valid. "Technical services" is contemplated in Explanation 2(3). The assessee is not involved in rendering technical services in foreign country. The assessee has only sent its staf f to the foreign country, namely, New Jersy of USA for development of software. It is only on-site work atUSAdone by the assessee for developing software. "On-site work" would include expenses incur red in foreign soils. Explanat ion 3 to Sect ion 10B of IT Act reads as under: "For the removal of doubts, i t is hereby declared that the profits and gains derived from on-site development of computer software (including services for development of software) outside India, shall be deemed to be profits and gains from export of computer software outside India" From the above Explanation, it can be seen that people are encouraged for on-site development of software. The combined reading of Explanation 2(i i i ) and Explanation 3 as narrated above, would sh....
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....s abroad without prior approval of Reserve Bank ofIndia. Any funds rendered surplus should be repatriated toIndia. i i i The overseas office/branch of software exporter company/ firm, may repatriate to India 100% of the contract value of each 'off -site' contract as also at least 30% of the contract value of each 'on-site' contract and may utilize the balance amount (70%) of the contract value of 'on-site' contract for contract related expenses including off ice/branch expenses abroad. A duly audited yearly statement showing receipts under 'off -site' and 'onsite' contracts undertaken by the overseas office, expenses and repatriation thereon may be sent to the authorized dealer. iv The details of bank account opened in the overseas country should be promptly reported to authorized dealer. 14 Shri Padamchand Khincha appeared as intervener on behal f of M/s Changepond Technologies Pvt Ltd and his submissions are as follows: Expenditure on technical services are to be excluded from export turnover . There is difference between computer Software and technical services. Sec 80 HHE deals with software industries. Sub-sec (1) of the said Sect ion considers two types (i ) computer....
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....ation after sub-sec (1) of the said sec so as to clarify that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. The bi l l also clarifies that export of computer software shall include development of software at the client 's site which would also be eligible for the benefit under these provisions. The development of software can be compared to bridge construct ion where various stages are involved. These are al l well explained in the decision of Bangalore Bench in the case of Infosys Technoligies Ltd (page 21 to 38 of paper book). The list of case laws supporting the assessee's content ions are listed as under: Infosys Technologies Limited V JCIT, ITA No. 50, 732 to 734, 742, 793 to 795 vide order dated 31.3.2005 - ITAT Bangalore Bench Infosys Technologies Limited V JCIT (SR)-6,Bangalore, ITA No. 1922, dated 7.4.2006, Assessment Year 1998-99 Infosys Technologies Limited V JCIT, ITA No. 140 & 149, 108 TTJ 282 ACIT V. Infosys Technologies Limited, ITA No. 653 & 969, Assessme....
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....lso reiterated the contents of the assessment order as his submissions in addition to the above submissions. 17 In reply Shri V.D. Gopal , Ld. Counsel for the assessee submitted that a person cannot provide services to the self. In technical services there is no export contents, therefore, it is excluded from the export turnover whereas in assessee's case no services are rendered to any outsider at a foreign country. 18 Shri Padamchand Kincha, Ld. Counsel for the assessee for the intervener submitted that if on site work is equated to technical services then the work done inIndiaalso would be technical service which would violate the statute. He also submitted that in the decision ofCalifornia Software Co Ltd V. ACIT, there was presumption where in the intervener's case Sec 10A and Sec 10B were given and the fact of STP is not objected. He also submitted that in that case in the case of intervener audit report was also not objected. 19 We have heard the rival submissions and considered the facts and materials on record including contents of the paper book submitted by the Ld. Counsel for the assessee and the intervener and also relevant circulars of CBDT and Reserve Ban....
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....to the delivery of computer software outside India or expenses incurred in foreign exchange in providing technical services outside India. " 22 In this case the assessee pleads that it has not rendered any technical services outsideIndiato third party. Whatever the services were rendered in foreign country and expenses incurred as payroll etc were incur red in connect ion with staff of the foreign branch in foreign country. 23 Now we have to consider what technical services are. Explanation (2) to Sec 9(vi i ) reads as under: "For the purpose of this clause "fees have technical services" means any consideration (including any lump sum consideration) for rendering of any managerial , technical or consultancy services (including the provision of services of technical or software personnel ) but does not include consideration for any const ruction, assembly, mining of like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries". The department has not brought any thing on record to show during the hearing, that the assessee company was involved in rendering any managerial consultancy services at forei....
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....d examined al l the submissions of the appellant on this issue. I am of the considered view that one limb of the Government cannot be al lowed to defeat the operations of the other limb. Sect ion 10B of the Act requires that foreign exchange in lieu of the exports should be brought toIndiawithin the prescribed time. However, the RBI al lows the assessee to retain the said foreign exchange in foreign countries for the specific purposes and due approval is also granted for that purpose. The RBI and FEMA also monitor the utilization of such foreign exchange and the assessees are required to file periodic reports to those authorities. In such situation, the circulars of the RBI al lowing its retention, utilization or capitalization abroad cannot be ignored. This becomes more important when provisions of Sect ion 10B (3) are considered which provide that the sale proceeds of the articles or computer software exported out of India are required to be brought in India in convertible foreign exchange wi thin a period of six months from the end of the previous year or within such further time as the competent authority may al low in this behalf . Explanation (1) to Sect ion 10B prescribes th....