TaxTMI 
TaxTMI 
2013 (2) TMI 305
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....In respect of the assessment year 1996-97, the assessee filed return of income on November 29, 1996, declaring an income of Rs. 6,90,06,915. The Assessing Officer took up the matter for scrutiny assessment and found that for the purpose of computation of total turnover and export turnover, the assessee had failed to take into consideration the expenditure incurred in foreign currency when computing deduction under section 80HHE of the Income-tax Act, 1961 (hereinafter called "the Act"). The Assessing Officer has also rejected the claim of the assessee that the expenditure had been incurred for the purpose of marketing only and, therefore, the same cannot be deducted before granting deduction under section 80HHE of the Act. Further, the assessee had taken the premises on lease for a period of six years and he spent a sum of Rs. 15,89,613 for renovation of the building. The Assessing Officer held that the extensive repair works done to the building amounts to capital expenditure and, consequently, depreciation at the rate applicable to building was allowed and the claim that expense should be treated as a revenue expense was disallowed. The assessee had contributed a sum of Rs. 6.93 ....
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....ting the total turnover. Being aggrieved by the said order, the Revenue has preferred I. T. A. No. 2973 of 2005. 4. The other appeals I. T. A. Nos. 2972 of 2005 and 2974 of 2005 are filed by the Revenue being aggrieved by the common order dated March 31, 2005, passed by the Income-tax Appellate Tribunal which is impugned in I.T. A. No. 2973 of 2005. 5. I. T. A. No. 2973 of 2005 has been admitted on June 8, 2006, for consideration of the following substantial questions of law : "(1) Whether the Tribunal was correct in holding that section 80HHE of the Act deduction should be allowed to the assessee without excluding the foreign exchange expenditure incurred by the assessee during the current assessment year ? (2) Whether the Tribunal was correct in holding that the expenses of Rs. 15,89,613 incurred by the assessee towards brick works, cement, plastering, painting walls, ceiling and providing and laying ceramic tiles, providing M. S. grill, internal sanitary fixtures, sewerage works, supply and fixing of water supply pipes on the leased premises would not amount to major repairs as held by the apex court in Ballimal Naval Kishore v. CIT [1997] 224 ITR 414 (SC....
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....s with eligibility and section 80HHC(3) is concerned with computation of quantum of deduction and to claim the deduction under section 80HHC of the Act two conditions are required to be satisfied : (1) the assessee must be in the business of export, and (2) sale proceeds of such export receivable in India is in convertible foreign exchange. Section 80HHC provides for tax incentives if the abovesaid two conditions are satisfied. It is not in dispute that the assessee is engaged in the business of production and export of software from India to foreign countries. It is well settled that to arrive at the deduction, formula to be adopted is :Profits of the business X Export turnover = Total turnover It is well settled that expenses incurred in foreign exchange to provide technical services outside India cannot be included for the export turnover. According to the contention of the assessee, the assessee is not at all involved in providing technical services outside India, it is only producing and exporting software. It is the contention of the assessee that the software is developed at various stages and in some cases, it is also necessary to develop the software ultimately at the s....
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.... be given by the chartered accountant under section 80HHE(4) of the Act read with rule 18BBA(7) of the Income-tax Rules. As per the certificate issued for the abovesaid assessment years, it is clear that the income that is received from export of computer software or its transmission to a place outside India is shown as nil as no figure is mentioned against the said column and under serial No. 3(II) regarding providing technical services outside India in connection with the development or production of computer software, the amount is mentioned and the amount of eligible deduction under section 80HHE is arrived at after including the said expenses and, therefore the said certificate issued by the chartered accountant of the assessee itself would show that for the abovesaid assessment years, the amount was received for providing technical services outside India in connection with the development of computer software and not in connection with export of computer software or its transmission to a place in India, The Tribunal has failed to consider the said relevant documents which would clearly show that the expenses incurred in foreign exchange was towards technical services rendered....
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.... justified as it is well settled that in order to claim deduction under section 37 of the Act, the expenditure should be wholly for the purpose of business of the assessee and it is well settled that it is the duty of the police to regulate the traffic and the amount spent towards regulation of traffic can at the most be considered as donation as rightly held by the Assessing Officer and cannot qualify as deduction under section 37 of the Act. We are also supported by the decision of the Division Bench of this court in CIT v. Neelavathi [2010] 322 ITR 643 (Karn) ; [2010] 47 DTR (Karn) 359 wherein it is held that contribution made to traffic police would not qualify for deduction under section 37 of the Act, Therefore, the said question of law is answered against the assessee and in favour of the Revenue. Substantial question of law (2) and (3) in I. T. A. No. 2973 of 2005 12. These questions involve validity of the order of the Tribunal holding that the expenses of Rs. 15,89,613 incurred by the assessee towards brick works, cement, plastering, painting walls, laying ceramic tiles, MS grill, internal sanitary fixtures, sewerage works, supply and fixing of water sup....
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....ises had been taken on lease. The mere fact that it was taken on lease for six years would not itself render the expenditure capital in nature. The decision of the Supreme Court in Ballimal's referred to supra is not helpful to the Revenue in the present case as in the said case, the premises that was purchased was a ginning factory and the said factory was converted into a cinema theatre by extensive repairs and by expending substantial amount towards machinery, new furniture, replacement of electrical wiring, sanitary fittings, etc., in addition to extensive repairs to the walls, to the hall, to the flooring and roofing, to doors and windows and to the stage sides and having regard to the consideration amount for which the property was purchased and the amount of repairs carried out, the hon'ble Supreme Court has held that expenditure was capital in nature as there was enduring benefit to the property. However, in the present case, the premises has been taken on lease by the assessee and the repairs that are carried out for the purpose of business to create ambience and to carry out repairs to use the premises as the office of the assessee as there was strict competition in the b....