TaxTMI 
TaxTMI 
2012 (8) TMI 736
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....ming that the turnover of overseas branches is required to be reduced only from the export turnover and not from the total turnover for the purpose of computing deduction u/s 80HHE. 2. In respect of interest u/s 234B, in confirming that while calculating interest u/s 234B, the amount of tax payable is required to be considered without the credit available under DTAA for taxes paid in the USA." 3. In so far as Ground No. 1a is concerned, the same was not pressed by the learned Counsel for the assessee at the time of hearing, and, therefore, the said Ground stands dismissed, as not pressed. 4. In so far as Ground No. 1b is concerned, the same relates to the manner of computation of deduction under section 80HHE of the Act. Before us, it was a common point between the parties that similar issue came up for consideration before our co-ordinate Bench in assessee's own case in ITA Nos 426 &1131/PN/06 for the assessment years 2002-03 and 2003-04 and vide its order dated 30.6.2011 the Tribunal has decided the issue in favour of the assessee. 5. In the above light, we have perused the precedent and find that the Tribunal has decided the issue in favour of the assessee vide para ....
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....essee that though credit for taxes paid in USA was already given while computing the tax liability of the company, it was not considered as eligible as taxes paid for computing interest paid under section 234B of the Act. According to the assessee, if as per the stand of the Revenue credit under DTAA was not to be considered against payment of advance-tax instalments, then assessee would be required to pay the entire assessed tax as advance tax, which would result in excess tax payment to be refunded after claim of DTAA credit. The learned Counsel for the assessee submitted that the issue now stands covered in favour of the assessee by the judgment of the Hon'ble Bombay High Court in assessee's own case vide Income-tax Appeal No. 4278 of 2009, order dated 11.1.2011. The learned Departmental Representative, on the other hand, supported the orders of the authorities below. 7. We have carefully considered the rival submissions. We find that the issue now raised before us stands fully covered in favour of the assessee by the judgment of the Hon'ble Bombay High Court in assessee's own case dated 11.1.2011 (supra). The issue before the Hon'ble High Court was whether the Tribunal wa....
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....he Act. The learned Counsel submitted that the issue stands fully covered by the aforesaid decision of the Tribunal. The learned Departmental Representative, on the other hand, supported the order of the Assessing Officer. 12. We have carefully considered the rival submissions. We find that the issue stands fully covered in favour of the assessee and against the Revenue by the decision of our co-ordinate Bench in assessee's own case for the assessment years 2002-03 and 2003-04. For the sake of brevity, we extract the relevant portion of the order of the Tribunal hereinbelow: "34 In this appeal of the Revenue, Ground No. 1 relates to the action of the Commissioner of Income-tax (Appeals) in holding that the three units at Chinchwad, Akruti and Millennium Business Park were new Units and not expansion of the existing units and, therefore, the period of eligibility of deduction under section 10A of the Act is liable to be considered from the year of setting up of such units and not from the point of time when the original unit were set up. 35. Briefly stated the facts are that during the course of assessment proceedings, the Assessing Officer held that the three section 10A e....
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....e assessee that the three units in question are independent and distinct units liable for an independent claim of deduction under section 10A, since all the prescribed conditions have been fulfilled. The following discussion of the Commissioner of Income-tax (Appeals) in para 3.2 of the order is worthy of notice: "3.2 (c) Section 10A(2) requires the appellant to fulfill three conditions. The conditions contained under sub-clause (i) & (ia) of section 10A(2) are positive relating to manufacturing or production of article or thing and sub-clause (ii) & (iii) of section 10A(2) say that such undertaking is not formed by splitting up or reconstruction of a business already in existence or it is not formed by the transfer to a new business or machinery or plant previously used for any purpose. As is clear from the details submitted by the appellant, the three units which are subject matter of appeal, are not formed by the transfer of machinery or plant previously used for any purpose. In fact all the three units are having their own plant and machinery having substantial investment and substantial turnover and are located in different premises, as is clear from the material on record.....
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....Revenue. As per the learned Departmental Representative, the approval for setting up of the three units clearly bring out the fact that the new units are mere expansion of the existing units and they cannot be treated as independent units. In this manner, the order of the Commissioner of Income-tax (Appeals) is sought to be assailed. 38. On the other hand, the learned Counsel for the assessee has vehemently pointed out that the Commissioner of Income-tax (Appeals) has factually appreciated that all the three units are physically located at different locations and that they are independent with substantial investments. It has also been pointed out that merely because the Government approval refers to the new units as an expansion of the existing units cannot be construed as non-fulfillment of the conditions prescribed under section 10A(2) of the Act. It is pointed out that it is not a case of expansion of an existing unit, but certainly a case of expansion of the business of the company and the same cannot lead to denial of deduction under section 10A, especially when the three units otherwise fulfill the conditions prescribed under section 10A of the Act. The learned Counsel has....
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....10 have been noticed by the Commissioner of Income-tax (Appeals), namely, that the undertaking has to begin manufacture or produce computer software during the previous year relevant to the assessment year commencing on or after the first day of April, 1994 in any software technology park; and that the undertaking is not formed by splitting up or reconstruction of the business already in existence; and, that the undertaking is not formed by transfer to a new business of machinery or plant previously used for any purpose. We have carefully perused the relevant conditions and find that the Commissioner of Income-tax (Appeals) has rightly concluded that all the three aspects are fulfilled by the three units in question. The Commissioner of Income-tax (Appeals) has discussed the physical location of each unit, the investment in fixed assets of each unit as well as the turnover of each unit and on such factual analysis, it has been concluded that the three units are separate and distinct from the existing units referred by the Assessing Officer. On these factual aspects, we find that there is no cogent material brought out by the Revenue to negate the findings of the Commissioner of Inc....
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....vernment by way of amending the original permission letter does not affect the eligibility for deduction u/s 10B in any manner." 42. From the aforesaid, it is quite clear that the manner in which the approval has been granted is not relevant to examine the assessee's case for claim of deduction under section 10A of the Act with respect to the three units. What is really to be examined is as to whether the three units are independent units and that they fulfill the conditions prescribed under section 10A(2) of the Act. There is no prohibition that an expansion in the same line of business achieved by setting up a new independent unit would lead to denial of deduction under section 10A of the Act. In this background, in the earlier part of this order we have already noted with approval the factual findings of the Commissioner of Income-tax (Appeals) that the three units are separate and independent production units and the same cannot be treated as mere expansions of the existing undertakings. Therefore, the mere fact that the requisite permissions from STPI refer them as expansions of the existing units, would not dis-entitle the assessee from the claim of deduction under section....
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.... The Assessing Officer, while computing the income did not allow the claim for the loss suffered in the units which were otherwise eligible for benefits of section 10A of the Act. The Assessing officer proceeded on the assumption that section 10A provided for an exemption from taxation and, therefore, the loss of such an entity could not be set off against the normal business income of the assessee. The Hon'ble High Court in the case of Hindustan Unilever Ltd. (supra) was examining a similar proposition, though in the context of section 10B of the Act. The provisions of section 10B of the Act are pari materia to those of section 10A which is the subject matter of controversy before us. It has been noted that subsequent to the amendment with effect from 1.4.2001, the provision provides for a deduction of such profits and gains as are derived by an undertaking from the export of articles or thing or computer software duly established in free trade zones, etc. Consequently, it has to be understood that the provision, as applicable for the assessment year under consideration, is not in the nature of an exemption. Therefore, the assessee was entitled to set-off of losses sustained by....
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....ince the two cross-Grounds relate to the same issue, they are being dealt with together. 7. In brief, the facts are that the assessee is engaged in the business of providing software services for various entities abroad and such services are provided off-shore as well as on-site. The Assessing Officer noted international transactions with Associated Enterprises on account of software development services provided by the assessee and consultancy services availed, etc. Accordingly, a reference under section 92CA(1) of the Act was made to the Transfer Pricing Officer (in short "the TPO") to determine the arm's length price (ALP) of the international transactions. In determining the ALP certain adjustments were made by the TPO and the specific adjustment which is in dispute before us is on account of interest chargeable on excess period of credit allowed by the assessee to the Associated Enterprises. As per the Revenue, considering the significant cost incurred by the assessee the extension of the credit to the Associated Enterprises beyond the period of credit contracted for, could not be regarded as an action at arm's length. On this score, Revenue contends that a sum of Rs 3.99 C....
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....ssee was obliged to recover from the Associated Enterprises as cost of funds, on an arm's length principle. As a result, out of the total addition of Rs 3.99,00,000/- made by the Assessing Officer, an addition of Rs 64,14,387/- has been sustained and the balance of Rs 3,34,85,613/- has been deleted by the Commissioner of Income-tax (Appeals) 9. In this background, the rival submissions have been heard. As per the learned Counsel for the assessee, the lower authorities have mis-directed themselves in considering the terms of credit as an "international transaction" within the meaning of section 92B(1) of the Act. It has been pointed out that non-charging of interest on balances outstanding for services provided cannot constitute an international transaction and in this regard, reliance was placed on the decision of the Mumbai Bench of the Tribunal in the case of Nimbus Communications Ltd. v. ACIT. ITA No 6597/Mum/09 for assessment year 2004-05 dated 5.1.2011, a copy of which has been placed on record. It has also been submitted that element of interest comes in only with respect to an indebtedness created out of a loan transaction and in the instant case the indebtedness in qu....
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.... factually in order; and, there is no interest cost relatable to the credit period other than that identified by the Commissioner of Income-tax (Appeals). It was reiterated that this aspect of the matter would be relevant only in case, the action of allowing extended credit period to the Associated Enterprises is considered as falling within the meaning of the expression "international transaction" as contained in section 92B(1) of the Act. 12. We have carefully considered the rival submissions. As the aforesaid discussion would show the dispute before us is limited to the determination of arm's length price with respect to a single element, i.e. the interest relatable to the extended credit period allowed to the Associated Enterprises. Notably during the year under consideration, assessee had international transactions with Associated Enterprises and on this count, the Associated Enterprises had some outstandings due to the assessee. Such outstandings were overdue and no interest was charged by the assessee on such amounts. The TPO has considered non-charging of interest as a transaction requiring adjustment to determine the arm's length price, because according to him, the nor....
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....ments can be made. The factum of payment has to be considered vis-à-vis terms of payment set out in the transaction arrangement, and not in isolation with the commercial terms on which transaction in respect of which payment is, according to the revenue authorities, delayed. In any event, even when an ALP is made in respect excessive credit period allowed under the CUP method, stated by the TPO, the comparable has to be dues recoverable from a debtor and not a borrower. It appears that the TPO has adopted interest @ 2.19% LIBOR on balances which exceed 30 days, but LIBOR rate is relevant only in the case of lending or borrowing of funds, and not in the case of commercial overdues. Even assuming that the continuing debit balances of associated enterprises can be treated as 'international transactions' under section 92B, the right course of applying the CUP method, in the case of non charging of interest on overdue balances, would have been by comparing this not charging of interest with other cases in which he assessee has charged interest on overuse with independent enterprises (internal CUP) or with the cases in which other enterprises have charged interest, in respect of o....