TaxTMI 
TaxTMI 
2014 (1) TMI 1177
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....harges of Rs.14,18,339/- and insurance charges of Rs.14,92,475/- should be reduced from the export turnover; - Alternatively, the CIT (A) was not justified in failing to appreciate that the question of deduction of telecommunication charges would arise only if the same has been incurred in forex and if the same has been incurred in Indian rupees, the question of deduction thereof does not arise; (3) That the CIT (A) was not justified in holding that the foreign travel expenditure should be reduced from the export turnover - Alternatively, the CIT (A) was not justified in failing to appreciate that the assessee was engaged in development and export of computer software and not in providing technical services; (4) That the CIT (A) was not justified in holding that the loss from Telecom Division of Rs.5,10,445/- should be reduced from the profits of the eligible undertaking before computing relief u/s 10A of the Act; (5) That the CIT (A) was not justified in upholding the addition on account of bad debts recovered as income during the impugned AY when the provision on ....
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....ware outside India' and had reduced the same from the export turnover. He had, further, relied on the provisions of clause (iv) of Explanation 2 of s. 10A of the Act which provides that the term export turnover was not to include freight, telecommunication charges and insurance attributable to the delivery of articles or things or computer software outside India or expenses, if any, incurred in foreign currency in providing technical services outside India. 4.2.1. After taking into account the assessee's contentions that none of the expenses were attributable to the delivery of software outside India or in relation to providing technical services outside India and also taking cognizance of the findings of the jurisdictional ITAT in a number of cases including in the case of the assessee's own case for the AYs 2003-04 and 2004-05 in ITA Nos.94 & 95/Bang/08 and in 220 & 221/Bang/2008 respectively, the CIT (A) directed the AO to exclude the expenses of courier charges, internet charges and insurance charges incurred by the assessee towards expenditure in foreign currency for providing technical services outside India and international travel expenses from the export turnover and corr....
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....ii), unambiguously prohibits for inclusion of any provision for bad and doubtful debts implying that such provision of bad debts is not allowable. Further in this year, the appellant has received part of the doubtful debt which has to be offered as income of the appellant. Hence, the appellant's plea on this count is treated as dismissed". Notional interest on account of the interest free loan: 4.5. With regard to the addition of Rs.10,54,460/- made by the AO as notional interest on account of the interest free loan given by the assessee to its subsidiary - Subex Technologies Limited, the assessee had contended before the CIT (A) that the loan given to its subsidiary was in the nature of a working capital loan on the premise of commercial expediency. However, the CIT (A) had rejected the assessee's contention on the ground that ''6.1(on page 6)..............the appellant has failed to prove that the loan was granted to the subsidiary on commercial grounds and that it stood to gain any benefit from such loan advanced. Further, the appellant was incurring interest expenses on loans taken from various financial institutions..." 5. Aggrieved with the CIT (A)'s treatment....
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.... Lucent Technologies Hindustan v. ITO 82 TTJ 163 - ITAT, Bang = (2004-TII-04-ITAT-BANG-INTL); > Goodricke Group Ltd v. CIT - 2011-TIOL-262-HC-KOL-IT - that the instant case is not a simplicitor case of purchase and sale of hardware. It is a case where the assessee not only develops the software but also installs the software so developed in to the wound specified hardware device as the assessee sells was an indivisible product consisting of selfdeveloped software embedded into specified hardware device; - that what was delivered to the customer was the distinct product having a separate identity and utility. Such product cannot be identified with either the software or the hardware in isolation as the assessee had manufactured/produced a distinct marketable article or a thing; - that the term 'manufacture' was of wide import which may include various activities and processes and, thus, it cannot be termed as 'manufacture' in the common parlance. The term 'manufacture' is defined in s.2 (29BA) of the Act; - that the concept 'manufacture' has been dealt with in the following cases, namely: (i) Union o....
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....sp; (v) 3G Wireless Communications Pvt. Ltd v. ACIT - 2009-TIOL-619-ITAT-BANG (vi) Saint Gobain Crystals & Detectors India Pvt. Ltd v. DCIT 2009-TIOL-222-ITAT-BANG - that the phrase 'computer programme' is neither defined in s. 10A of the Act nor anywhere else of I.T Rules and, thus, the meaning of the said phrase will have to be understood by applying the common parlance test; - that in the case of Tata Consultancy Services v. State of Andhra Pradesh (2004) 271 ITR 401 (SC), it has been observed that 'in cases of software, the programmes are recorded on floppy drives, CDs or hard drives....Though the floppy disc, the CD-ROM and the hard disc are each tangible commodities that could be bought, sold and resold, the software embedded in these media are intangible and fall into a very different category.' - that the software developed by the assessee loaded on to the hardware (i.e., server) together qualifies to be regarded as 'computer software' for the purpose of s. 10A of the Act; - that disputing the CIT (A)'s stand in upholding the exclusion of Rs.9.53 crores from the export turnover for t....
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....nsurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India. Upon literal interpretation of the aforesaid provision, it is clear that it is permissible for the AO to remove any items other than specifically provided therein. The consideration received in respect of export of so called specified hardware device along with the software in convertible foreign exchange received in India clearly falls within the meaning of 'export turnover' as defined above. If in the perception of the AO, the export of hardware does not form part of export turnover as defined in the aforesaid Explanation, the same cannot also form part of the export turnover as a component of the total turnover; - that the total turnover coming in the formula of s. 10A (4) is nothing but the summation of export turnover and the domestic turnover. It is an undisputed fact that the export of hardware device cannot be treated as domestic turnover. The AO was not inclined to treat the same as part of export turnover also which logically means that the turnover will have to....
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....second case, as freight and insurance form part of sale price, in order to satisfy the aforesaid condition, the same are required to be excluded. In relation to telecommunication charges also, the same principle should apply, therefore, if the telecommunication charges and insurance charges have not formed part of export turnover, the aforesaid condition remains satisfied without calling for any adjustment by way of exclusion of telecommunication charges debited to profit and loss account from the export turnover; - that the assessee had not charged its customers separately in respect of courier charges, internet expenses or insurance charges incurred by it. Also the assessee had neither included the said charges in the export turnover nor recovered from its customers; - that for the above proposition, the following case laws are relied on: (i) R & B Falcon (A) Pvt. Ltd v. CIT (2008) 301 ITR 309 (SC); (ii) M/s. Mahindra Holdings & Finance Ltd v. DCIT - 2008-TIOL-588-ITAT-MUM-TM; (iii) M/s Willis Processing Services (India) Ltd v. ACIT - 2010-TIOL-576-ITAT-MUM; (iv) Patni Telecom P Ltd v. ITO - 120 T....
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....f business and, accordingly, chargeable to tax as the income of the year in which it was recovered only if the deduction has been allowed in respect of a bad debt u/s. 36(1)(vii); and that if no deduction is allowed/claimed u/s 36(1)(vii), recovery of such sum cannot be chargeable to tax. Relies on the judgment of the Rajasthan High Court in CIT v. Hindustan Zinc Ltd (2008) 174 Taxman 436 (Raj). Adding back of Rs.10.54 lakhs being notional interest on interest fee loans: - that the assessee had a domestic wholly owned subsidiary called Subex Technologies Limited [STL] which was granted interest fee loan and Rs.1.00 crore was outstanding as on 31.3.2006; and that STL was incorporated only on 28.3.2005, it was funded by the assessee on its initial days towards its day-to-day operations on the premise of commercial expediency; - that there is no provision in the Income-tax Act for adding notional interest in respect of interest-free advances granted to a subsidiary concern. - Relies on the following case laws, namely: (i) S.A. Builders Ltd v. CIT (2007) 288 ITR 1 (SC); &nbs....
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....emption can be sought. Therefore, it was argued that the CIT (A) had rightly dismissed the assessee's contention and upheld the AO's action on the issue. 5.1.2. Distinguishing the various case-laws relied on by the assessee, the learned DR submitted they are contrary to the decision of the Hon'ble ITAT, Jodhpur Bench in the case of Kwal Pro Export v. ACIT (supra) and, hence, those case laws have no assistance to the assessee. In conclusion, it was pleaded that the findings of the CIT (A) require to be sustained 5.2. We have carefully considered the rival submissions, duly perused the relevant materials on record and also the case laws on which either of the party have placed their strong reliance. 5.3. The disputes raised by the assessee are dealt with issue-wise as under: Exclusion of Rs.9.53 crores from the turnover for relief u/s 10A of the Act: 5.3.1. The first ground raised by the assessee is that the CIT (A) was not justified in upholding the exclusion of Rs.9.53 crores being the sale of hardware components from the export turnover for the purpose of computing the deduction u/s 10A of the Act. 5.3.2. Alternatively, the assessee contended that the CIT (A) was wrong in sus....
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.... 10A of the Act excluding the said communication charges from export turnover as well as from the total turnover. Aggrieved by the findings of the Tribunal, the Revenue had approached the Hon'ble Court for relief. 5.3.5. After duly analyzing the word 'export turnover' used in sub-section (4) as defined in Explanation 2(iv) at the end of s. 10A of the Act, extensively quoting the rulings of the (i) Hon'ble Supreme Court in the case of CIT v. Lakshmi Machine Works (supra), (ii) CIT v. Gem Plus Jewellery India Ltd [(2011) 330 ITR 175 (Bom)]; and (iii) ITO v. Sak Soft Ltd [(2009) 313 ITR (AT) 353 (Chennai) (SB)], the Hon'ble Court had held as under: "The formula for computation of the deduction under s. 10A would be as under: Profits of the business x export turnover Total turnover From the aforesaid judgments, what emerges is that. there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Sec. 10A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of....
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....component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the legislature, they would have expressly stated so. If they have not chosen to expressly define what the total turnover means then, when the total turnover includes export turnover, the meaning assigned by the legislature to the export turnover is to be respected and given effect to, while interpreting the total turnover which is inclusive of the export turnover. Therefore, the formula for computation of the deduction under s. 10 A, would be as under: Profits of the business of the undertaking x Export turnover (Export turnover + domestic turnover) total turnover 11. In that view of the matter, we do not see any error committed by the Tribunal in following the judgments rendered in the context of s. 80HHC in interpreting s. 10A when the principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the Revenue. 12. The other substantial question of law raised....
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....urred in Indian rupees, the question of deduction thereof does not arise. However, during the course of hearing, the learned AR submitted that this alternative ground is not pressed. Accordingly, the alternative ground is dismissed as 'not pressed'. 5.5. The third ground is that the CIT (A) was not justified in holding that the foreign travel expenditure should be reduced from the export turnover. 5.5.1. Alternatively, it was contended that the CIT (A) was not justified in failing to appreciate that the assessee was engaged in development and export of computer software and not in providing technical services. 5.5.2. It is an undisputed fact that the assessee was engaged in development and export of computer software and not in providing technical services. Therefore, the foreign travel expenses incurred could not have been reduced from the export turnover on the basis that the same was incurred in providing the technical services outside India. 5.5.3. At this juncture, we would like to refer to the findings of the earlier Bench of this Tribunal in an identical issue in the assessee's own case for the AY 2006-07 [in revenue's appeal] in ITA No.89 (Bang)/2011 dated 31.10.2011. T....
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....g through the assessment order, we find that these expenses incurred in foreign currency outside India are mainly for the personnel of the assessee deployed abroad for on-site development of the software and not for providing any technical services outside India. This issue has been considered by 'A' Bench of this Tribunal in the assessee's own case for the assessment years 2002- 03 and 2005-06 wherein following the decision of the Special Bench of the Tribunal at Chennai in the case of M/s. Zylog Systems Ltd., in ITA No. 1138(Mds.) 2007 (SB) Tribunal has allowed the assessee's appeal....." 5.5.5. In consonance with the findings of the earlier Bench (supra), this issue is decided in favour of the assessee. It is ordered accordingly. 5.6. The fourth ground is that the CIT (A) was not justified in holding that the loss from Telecom Division of Rs.5,10,445/- should be reduced from the profits of the eligible under-taking before computing relief u/s 10A of the Act. 5.6.1. At the outset, we would like to refer to the judgment of the Hon'ble jurisdictional High Court, in an identical issue, in the case of CIT v. M/s. Tata Elxsi Limited and others & CIT v. M/s. Subex Limited [the prese....
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....nd, accordingly, the same was added by the assessee in the year in which it was credited. It was, therefore, contended that when the provision on account of the same was taxed in the year in which such a provision was created, confirming the addition of Rs.7,36,200/- on account of bad debts recovered during the year under dispute amounts to double taxation. Moreover, as per the provisions of s.41(4) of the Act, if any amount is subsequently recovered, the same shall be deemed to be profit of business and, accordingly, chargeable to tax as the income of the year in which it was recovered only if the deduction has been allowed in respect of a bad debt u/s. 36(1)(vii); and that if no deduction is allowed/claimed u/s 36(1)(vii), recovery of such sum cannot be chargeable to tax. 5.7.3. On a careful consideration of the assessee's submission as well as the perusal of the reasoning of the CIT (A), we have observed that the issue has not been properly dealt with by the CIT (A) with reference to the assessee's contentions. To facilitate the CIT (A) to look into the issue afresh and to take appropriate action in accordance with the provisions of sections 36(1)(vii) and 41(4) of the Act, the....