TaxTMI 
TaxTMI 
2016 (5) TMI 1014
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.... following grounds: "On the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the Assessing Officer's view that deduction u/s 80HHE is not allowable on the basis of separate books of account maintained by the Appellant for Software Export Division. The deduction under section 80HHE therefore merits to be allowed as claimed by the assessee." 3. The solitary issue raised in its appeal by the assessee is with regard to allowing the deduction claimed by the assessee u/s 80HHE of the Act at Rs. 26,74,856/- instead of Rs. 6,65,03,172/- as was claimed by the assessee in the return of income. It was noted by AO that the assessee had exported income from many business units and one of the unit was engaged in the business of export of software. The assessee maintained separate books of accounts for the unit engaged in the export of software and accordingly claimed deduction on the amount of profit as per its books of accounts of the export unit at Rs. 6,65,03,172/- on the export turnover of Rs. 8,31,02,181/-. On the other hand, the AO was of the view that as per section 80HHE all the businesses of the assessee have to be taken as one, irrespective of the fact w....
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.... different divisions. The Section envisages the carriage of business, which could be of local sales and exports. The Section underlines the indivisibility of business and does not talk of the division of separate divisions as two businesses. In view of the specified, provisions, the concept of the maintenance of separate books of accounts cannot be imported for the purpose of deduction under Section 80HHE of the Income-tax Act. The appellant has relied on certain Tribunal decisions. But these decisions are all regarding the interpretation of Section 80HHC of the Income-tax Act and are not in respect of the provisions of Section 80HHE of the Income-tax Act. Though the two Sections are similar and relate to exports but there is a difference in the two Sections. The assessing officer has therefore correctly held that the decisions of the ITAT under Section 80HHC cannot be applied for Section 80HHE. Considering the discussion above, it has to be held that the deduction under Section 80HHE(3) of the Income-tax Act. Maintenance of separate books of accounts for the software division is of no use or the deduction can only be granted in accordance with section 80HHE(3) of the Income Tax Ac....
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....es which have to be split in the same proportion as the export turnover in the said business bears to the total turnover in the said business. Explanation (d), which defines the expression "profits of the business" refers to the profits of the business as computed under the head Profits and gains of business". Under the Income Tax Act, having regard to the provisions of Chapter IV read with section 70 and section 71, it seems to us that in the case of an assessee carrying on more than one business, each business is considered as a separate source falling under the head "Prof its and gains of business" The net result of the computation in respect of any source of business, if it is a loss, can be adjusted against the income from any other business as provided in section 70(1). Therefore, when Explanation (d) provides that the expression "profits of the business" means the profits of the business as computed under the head "Profits and gains of business", it means the profits of the eligible business as computed under the aforesaid head. In other words, Explanation (d) does not expand the meaning of the expression "profits of the business" to include profits of all the businesses car....
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....ed down. In other words, whether the assessee derives income from any other business or not, is not a cri teria and i t is whol ly extraneous whi le granting deduction under section 80HHE, which is exclusively for computing deduction in respect of prof i t f rom export of computer sof twar e e tc . For the reasons s tated hereinabove, we al low the claim of the assessee on this ground." In coming to the above conclusion the Tribunal has referred to two judgments of the Madras High Court, in the case of CIT vs. Rathore Brothers (2002) 254 ITR 656 (Mad) and in the case of CIT vs. Madras Motors/M M Forgings Ltd. (2002) 257 ITR 60 (Mad). These two judgments were concerned with section 80HHC of the Act. However, there was similarity between section 80HHC and section 80HHE in the sense that while working out the eligible profits on the basis of the ratio between the export turnover and the total turnover, it was held by the Madras High Court that it is only the profits of the export business that have to be so apportioned and the profits of businesses which did not qualify for the deduction, which were also carried on by the assessee, cannot be held eligible for the deduction. The rat....
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....r of such eligible business that would stand to be taken in the denominator figure, with the export turnover having been already defined to be the qualifying export turnover of such business only. The assessee's manner of computation of deduction u/s. 80-HHE, thus, merits approval. We may before parting with the order, also clarify that in arriving at the said decision, we have duly perused and considered all the decisions cited by both the parties, even as a specific reference to some of them may not have found place in our discussion, finding it as being covered by the ratio of other decisions, or as being not directly on the point. No inference as to our having not considered those decisions, thus, may be drawn. We decide accordingly." 3.6. We have gone through the aforesaid judgments and facts of this case, and respectfully following these judgments, we principally uphold the claim of the assessee. Since the assessee has maintained separate books of accounts, in our considered view, there is no need, as per law, to aggregate accounts of all the businesses for computing amount of deduction allowable u/s 80HHE. Since all the amounts required for computing deduction u/s 80HHE i....
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....fits of the business in accordance with clause (d) of the explanation to section 80HHE of the I.T. Act 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O. not to exclude the miscellaneous income from the business profits and not to include the same in the total turnover of the assessee. The Ld. CIT(A) has further erred directing the A.O. to exclude the dividend income from the- total turnover of the business." In addition to the above, the revenue has filed following additional grounds: i) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering the finding of the Assessing Officer with regard to provisions of section 163 of the I.T. Act wherein the assessee was treated as an "agent" of the US company and tax was to be deducted on payments made to it as per the provisions of section 161 of the I.T. Act, 1961. ii) The Ld. CIT(A) ought to have considered the AO's inference that the amount claimed as deduction by the assessee is being disallowed u/s.40(a)(i) due to its failure to deduct and pay tax u/s.195 & 195A of the I.T. Act. In any case, the amount was not allowed....
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.... During the year under consideration, the assessee company was mainly engaged in the business of trading and distribution of telecom equipments. In the assessment order, the AO made disallowance of Rs. 15,92,74,120/-, being the amount of license fee paid for acquiring Logistics Tracking Software (LTS). The facts as noted by the lower authorities with respect to the said disallowance are that the assessee had claimed these expenses as part of its deduction from its total income. During the year under consideration, the assessee had entered into an agreement with M/s GElS International Inc, a U.S. company. According to the agreement, the assessee was a licensee of certain software relating to the logistics tracking of cargo. The U.S. Company had granted the licence to the assessee for a consideration of 4 million U.S. dollars. The licence to use the software was only for use in India. The Assessee had the right to use the software and make further developments, which could be exported out of India, and 50 % of the export proceeds of these softwares were to be given to the U.S. Company. The assessee was debarred from sub- licensing the program code without the written permission of th....
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....g officer also relied on the ratio laid down in the case of Peerless Consultancy Pvt. Ltd. 164 CTR 194 (SC), wherein it was held that processing of data amounts to processing of goods and is manufacturing activity and therefore the assessee was an industrial company. The assessing officer also relied on the decision of the I.T.A.T., Mumbai in the case of Tangerine Exports 49 ITD 386 wherein it was held that the sale of software was hit by the Sale of Goods Act. The assessing officer held that 1/6th of the amount paid by the assessee was allowable but as such a claim had not been made by the assessee, the claim cannot be allowed. The assessing officer further found that in the agreement there was no provision in the agreement for referring the source code to the U.S. Company. The agreement was for perpetuity as no time limit was mentioned in the agreement. According to the assessing officer, the agreement gave an enduring benefit to the assessee and therefore the expenditure was capital in nature. To support this view, the assessing officer relied on the decisions of the ITAT in the cases of Telecom Ind. Co. Pvt. Ltd. 45 ITD 203 (Mad), Comp. Field Services Pvt. Ltd. 159 CTR 220 (Mad....
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.... as defined in Section 9(1)(vi) of the Income-tax Act. He also held that as no tax was deducted under Section 195 of the Income-tax Act, in view of Section 40(a)(i) of the Income Tax Act, the amount cannot be allowed as a deduction. 9.4. Being aggrieved, the assessee filed the appeal before the Ld. CIT(A) wherein detailed submissions were made, challenging that impugned expenses were revenue in nature and that the same did not fall within the definition of royalty u/s 9(1)(vi) of the Act and no tax was required to be deducted at source on the said payment. The Ld. CIT(A) partly accepted the submissions of the assessee and deleting the addition he allowed the appeal. Being aggrieved, the revenue has filed an appeal wherein it has taken ground no.1 as part of main grounds and three more additional grounds. First we take ground No '1' of main grounds: 10. In this ground the revenue has challenged the action of Ld. CIT(A) in deleting the disallowance of the impugned expenses by treating the same as revenue expenses. 10.1. During the course of hearing both the parties were unanimous on this point that the impugned expenses were revenue in nature and not at all capital nature....
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....chase of software is revenue expenditure in the hands of the appellant." 10.2. It is noted by us that Ld. CIT(A) has carefully analysed the facts of this case and applied the judgments of the Supreme Court correctly. Thus, in view of these findings of Ld. CIT(A) as well as submissions of both the sides, we find that there is nothing wrong in the findings of Ld. CIT(A) and the impugned expenses have been rightly held to be revenue expenditure in the hands of the assessee company. Thus, order of the Ld. CIT(A) to this extent on this issue is upheld and ground no.1 (of the main grounds) is dismissed. Now we take up Additional Grounds Nos. (ii), (iii) and (iv) of the Revenue: 11. In these grounds the revenue has contended that the impugned expenditure was in the nature of royalty as defined in section 9(1)(vi) as well as Article 12 of Indo-US DTAA and therefore, assessee was liable to deduct tax at source on the impugned payment made to the non-resident, and since assessee failed to deduct tax at source the impugned expenditure was liable to be disallowed u/s 40(a)(i) of the Act. It has also been alternatively, contended by the Revenue that the impugned expenditure was in the ....
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....7.2006 for creating obligation to deduct tax at source on the amount of royalty. Thus, prior to the said date, a resident in India was not liable to deduct tax at source on the amount of royalty paid by it. Under these circumstances, no discrimination should be done with the non-resident assessee's by creating obligation to deduct tax at source on the amount of royalty, in view of specific provisions of para 3 of Article 26 of the Treaty, and for this purpose reliance has been placed on the judgment of the Delhi Bench of ITAT reported in Herbal Life International India (P) Ltd. vs ACIT 101 ITD 450 and Millennium Infocom Technologies Ltd. Vs. ACIT 117 TTJ 456 (Del.). Further reliance was placed on various judgments wherein it was held that similar kind of payments did not fall within the definition of royalty in the year under consideration and in any case no tax was required to be deducted on such payments. 11.4. We have heard both the parties on this issue. It is noted that impugned order was passed by the Ld. CIT(A) on 28.05.2001. Since, then much water has flown and there are plethora of judgments of the Tribunal on both the sides. In these judgments various contentions have ....
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....(SC). In that case the company had issued debentures at a discount for a period of 12 years and the entire discount was claimed as a deduction in one year. The Supreme Court held that such a claim gives a distorted picture and therefore the discount which was nothing but interest was to be spread over a number of years. According to the assessing officer claiming the entire expenditure in one year would give a distorted picture and therefore in view of the ratio laid down in the case of Madras Industrial Investment Co. Ltd. (supra) the expenditure was allowable on a deferred revenue basis. He therefore disallowed the entire claim of Rs. 3,79,64,689/-. 13.2. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) wherein detailed submissions were made and it was contended that in fact these expenses were purely revenue in nature expenses but in the books of accounts these were claimed as deferred revenue. The Ld. CIT(A) considered the submissions of the assessee and analysed the nature of expenses and held that these expenses were revenue nature and therefore, he deleted the disallowance made by the AO. 13.3. Being aggrieved, the revenue has filed an appeal before ....
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....s were incurred during the year under consideration and pertain to the same year and these have been incurred for the purpose of business of the assessee. Under these circumstances we find no reason to disallow these expenses. Our view finds support from the judgment of Hon'ble Supreme Court in the case of Taparia Tools Ltd. (supra) as well as various other judgments which have been referred to by the Ld. CIT(A) in its order. For the sake of ready reference, relevant portion of the order of the Ld. CIT(A) is reproduced below: "The appellant claimed the entire expenses relying on the ratio laid down in the case of Kedrnath Jute Manufacturing Co. Ltd. 82 ITP 363 (SC), Hindustan Commercial Bank 21 ITR 353 (All), HIMT Ltd. 203 ITR 820 (Kar), India Cements Ltd. 60 ITR 52 (SC), Empire Jute Co.Ltd. 124 ITR 1. It was argued that the ratio laid down in the case of Madras Industrial Investments Co. (supra) was not applicable to the case of the appellant as the said judgment referred only to debentures and not to other expenses. It was therefore argued that the expenditure should be allowed in full. In this case reliance was placed in the case of Madras Auto Service (P) Ltd. 233 ITR 468 (S....
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....s of accounts and in its return of income. In his opinion, the entries in the books of accounts are binding on the assessee. In his view the assessee could have claimed the interest as a deduction if it could prove that the entries in the books of accounts were against the normal legal position. The assessing officer also relied on Section 43(1) of the income-tax Act wherein it has been mentioned that the interest paid on borrowing has to be added to the cost of the assets if the purchase of the assets are from the borrowed funds. In his view, there was no basis to hold that the provisions of Section 36(1)(iii) overrule the provisions of Section 43(1) of the Income-tax Act. He therefore did not accept the claim of the assessee for the deduction of interest. 14.2. Being aggrieved, the assessee filed appeal before the Ld. CIT(A), wherein detailed submissions were made. It was submitted that the assessee had raised a sum of Rs. 167 crores through foreign currency convertible bonds (i.e. FCCB) for the expansion of existing business. It was submitted that borrowed funds were for the purpose of the business and therefore, interest was to be allowed as deduction, even if assessee has c....
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....rom April 1, 2004, will operate prospectively. Held accordingly, that the assessee was entitled to deduction under section 36(1)(iii) prior to its amendment by the Finance Act, 2003, in relation to money borrowed for purchase of machinery even thou h the assessee had not used the machinery in the year of borrowing." 14.5. It is further noted by us that Ld. CIT(A) has also decided this issue after carefully examining the facts of the case. Relevant portion of his order is reproduced below: "I have considered the facts of the case. In the case of Tata Chemicals Ltd. 72 lTD 1, this very issue came up before the I.T.A.T., Mumbai. Tata Chemicals Ltd. had an existing unit at Gujarat. It had borrowed funds for the purpose of setting up another unit at Babrala. The question arises as to whether the interest on the borrowings for the new unit could be allowed against the income of the existing unit. The Tribunal allowed the claim of the appellant after analysing a number of decisions of different High Courts and the Supreme Court. The facts of the appellant are similar to that case. Though the borrowings were for the purpose of the expansion the interest on the borrowing would have....
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....Revenue for A.Y. 1998-99 in ITA No.193 & 194/Mum/2003. The revenue has filed appeal on the following grounds: On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in- 1.deleting the addition made by the Assessing Officer in view of the findings given in the appeal u/s. 163 order dated 22.102002; and 2.holding that the license fee received by GEIS is a business income because it is a transfer of copy righted article rather than the copy right itself as against the view of the Assessing Officer that the amount is taxable in India as 'royalty' under Article 12 of the DTAA between India and USA." 18. In this case, the addition was made in the hands of the assessee on account of payment made for acquiring software from M/s GEIS, USA by treating the assessee as agent of GEIS u/s 163 of the Act. 18.1. It is noted that grounds with regard to taxability of royalty have been sent back to the file of the CIT(A) in ITA No.5018/Mum/2001, therefore, at this stage this appeal cannot be adjudicated, therefore, we remit this issue also back to the file of the CIT(A) to re-adjudicate the same after passing a fresh order in pursuance to our directions ....
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....eduction specifically for export of computer software, and hence appellant is eligible for deduction on the basis of appellant's software export division. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring that provisions of Section 80HHE are incentive provisions, and should be construed liberally. 4. On the facts and circumstances of the case and in law, the CIT (A) has erred in confirming the inclusion of lease and service charges of Rs. 26,02,93,865/- in the total turnover for the purpose of deduction under section 80HHE of the Act. 5. On the facts and circumstances of the case and in law, the CIT (A) has erred in excluding following items of miscellaneous income from business profit while computing deduction U/s 80HHE of the Act:- a. Sale of papers/cartons/scrap Rs. 9,245/- b. Waiver of hire purchase liability on account of premature repayment of the principal amount towards purchase of computer equipment etc. Rs. 18,998,887/- c. Training charges for provision of training facilities in software etc. Rs. 3,29,699/- d. Rent from MTNL for use of space Rs. 37,166/- e. Other items Rs. 2,01,883/- On the facts ....