TaxTMI 
TaxTMI 
2010 (12) TMI 756
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.... arising on account of export sales made from the Software Technology Park of India ('STPI') Unit and treating the same as separate income. 1(b) That the learned CIT(A) erred in observing that the appellant 'failed to establish that the foreign exchange fluctuation gain is in conjunction with the development of software charges'. 1(c) That the learned CIT(A) erred in not deleting add back of the exchange gain of Rs.27,44,387 even after the AO having held that such gain was not real but notional. 2. That the learned CIT(A) erred in not holding that the appellant is not engaged in the business of rendering technical services outside India and the expenditure on per diem expenses of Rs.37,17,059 towards employees going abroad for training purposes is not required to be reduced from either export turnover or total turnover for computing deduction u/s 10A of the Act. 3. That the appellant craves leave to add to and/or to alter, amend, rescind, modify, the grounds herein above or produce further documents before or at the time of hearing of this appeal." 3. As regards ground No.1, facts of the case are that the assessee is an Indian compa....
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....e case of Pandian Chemicals Ltd. vs. CIT (129 Taxman 539), he held that the assessee has failed to establish that the foreign exchange fluctuation gain is in conjunction with the development of software business. He therefore held that the AO's action in taxing the foreign exchange fluctuation gain amounting to Rs.27,44,387/- as part of taxable income is upheld. Aggrieved, the assessee is in appeal before us. 5. Shri Kaushik Mukherjee, learned counsel for assessee while reiterating the submissions made by the assessee before the authorities below submitted that the foreign exchange gain is only on account of export receipt of the assessee from the export of software and therefore it is part of the export turnover. He placed reliance upon the decisions cited by him before the CIT(A). Smt. Jacinta Zimik Vashai, learned Departmental Representative, on the other hand, supported the orders of the authorities below and submitted that the income to be exempt u/s 10A should have been derived directly from the business of the undertaking and as the foreign exchange gain is not from the business of export of computer software, it is not to be included in the export turnov....
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....of Rs.40,42,696/- for the assessment year 2006-07 in foreign currency on account of per diem expenses in relation to employees sent abroad to the holding company for the purpose of their training. The AO disallowed the same holding it to be expenditure incurred towards providing technical services outside India incurred in foreign exchange and he reduced it from the export turnover. 8. Aggrieved, the assessee preferred an appeal before the CIT(A) submitting that its business comprises of developing software in India on behalf of its holding company abroad and therefore the assessee's employees were required to be trained in the holding company and they were not carrying out any technical services during their visit outside India . Thus, according to him, the expenditure incurred on their training need not be reduced from the export turnover. In support of his contention he placed reliance upon the following decisions: i. Infosys Technologies Ltd . (ITA Nos.50, 793 to 795, 742 and 732 to 734/Bang/2001) ii. Mphasis Ltd. vs. ACIT (ITA No.884/Bang/2007) 9. The CIT(A), however, held that this expenditure is to be reduced from the total turnover al....
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....the foreign company only to undergo advanced training on use of their software and also have discussions with their research and development engineers on the projects that are to be supported in Bangalore. Therefore, it could be said without any doubt that the employees have not rendered any technical services outside India and therefore we are of the opinion that the finding of the AO as well as the CIT(A) on this issue is not correct. Coming to the argument of the assessee that the expenditure on the training of its employees is part of the cost of development of software and therefore it has to be included in the export turnover is concerned, we find that this is the expenditure incurred by the assessee and the assessee being 100% EOU with no indigenous development of software, it could be said that this expenditure is towards the development of software and its export. Such being the case, it has to be included as part of the export turnover provided the assessee is computing the export turnover on the cost + mark up basis. Therefore, we deem it fit and proper to remit this issue to the file of the AO only for the purpose of verifying as to how the assessee is computing export ....