TaxTMI 
TaxTMI 
2010 (11) TMI 549
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.... assessee was to pay service charges to SSL for rendering the following services( extracted from para 4.1 of the assessment order): "(a) Advice and assistance to SITL relating to compliance of various laws, Orders, Regulations and legal requirements of the Central, State, other governmental and local authorities concerning the conduct of the business and affairs of SITL. (b) Training employees of SITL in the above areas; (c) Assist and liaise with various government departments as and when required by SITL. (d) Overseeing the compliance requirements in regard to Companies Act, including matters related to Board of Directors and shareholders, contractual matters, advice and assistance in maintenance of statutory records, filing required returns and form etc. Further, all out of pocket expenses including travel, conveyance etc. were to be billed separately by Sonata Software Ltd. and was to be reimbursed by the assessee. However, it has been observed that the quantum of service charges was determined by adopting the following basis: The expenditure incurred by SSL on account of insurance, salaries, allowances, dire....
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....d in the best interest of the business between two independent corporate entities. It has also been contended that the same has been incurred out of commercial expediency. It has further been submitted that it is prerogative of the businessman as to how to run its business and the Department should not be prescribed the quantum of expenditure etc. These contentions of the assessee would have been acceptable if this agreement was entered into between two independent entities not under the common management and control. In the instant case, the assessee is a 100% subsidiary of SSL. The implication of this agreement is that the taxable profits of the assessee have been reduced and at the same time increasing the nontaxable profits of its holding company - SSL". The Assessing Officer for the reasons as mentioned above and keeping in view the ratio of the decision of the Hon'ble Supreme Court in McDowell and Co. Ltd. vs. CTO (1985) 154 ITR 148(SC) disallowed the payment of service charges of Rs.13,02,42,275/- and added to the income of the assessee and accordingly completed the assessment at an income of Rs.16,16,31,210/- vide order dated 31.12.2008 passed u/s.143(3) of the In....
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....ade by the Assessing Officer for the reasons recorded in para 4.3.3 of the assessment order wherein there is no such finding that the assessee has failed to furnish necessary documentary evidence in respect of services rendered by SSL to the assessee, therefore, the new plea taken by the ld. DR is not maintainable. He further submits that the issue is directly covered in favour of the assessee by the orders of the Tribunal in assessee's own case for the assessment years 2001-02 to 2004-05 and also by the order of the Tribunal in the case of SSL for the Assessment Years 2002-03 and 2003-04. He also placed on record the copy of the said orders of the Tribunal alongwith chart showing the Assessment Year wise reference of the impugned issue, appearing at page 1 to 42 of the assessee's paper book. He, therefore, submits that the order passed by the ld. CIT(A) in deleting the disallowance be upheld. 7. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the payment of Rs.13,02,42,275/- was made by the assessee on account of service charges to M/s. SSL as per agreement dated 28.9.20....
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....ed under two heads - 1) STP units entitled to deduction u/s.10A and non STP which is not entitled for deduction u/s.10A on the basis of turnover ratio. In our considered opinion, the allocation of expenditure contained in the paper book at page 27 to 31 appears to be appropriate. As per details contained in pages 27 to 31, it can be seen that the appellant company has only allocated expenses of Support Service Division between 10A and non 10A activities in the ratio of turnover has been called for by the Assessing Officer by his letter dated 20.01.2000 appearing at page 35 of the paper book. Further, direct expenses relating to 10A and non 10A activity has been directly charged against the profits of these activities and do not call for any interference." The above observations of the Tribunal resolve the controversy before us. Admittedly, prior to incorporation of assessee company, SSL was carrying on two units independently i.e. unit exempted u/s.10A and the unit not exempted. Direct expenses incurred were separately booked to respective units. Only the support services expenses were allocated on the basis of turnover. Such allocation has been found to be proper and rea....