2016 (11) TMI 456

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....led to claim benefit of Section 10A of the Income Tax Act, 1961, as the software is developed by the branch as per the requirement of Head Office and not sold to any third party? 2. The companion appeals i.e. ITA Nos. 1249/2009 and 173/2016 also concern the same questions of law, because the Income Tax Appellate Tribunal (in short 'ITAT') followed the decision rendered by it on 05.01.2007, (which is the subject matter of ITA No. 1108/2007). 3. The assessee is engaged in the business of software development and was accorded approval of the Reserve Bank of India (in short 'RBI') under the then prevailing Foreign Exchange Regulation Act, 1973 to establish a branch office in India: at Noida and New Delhi, for development of software for expor....

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.... permanent establishment (PE) of its foreign office and the profits were attributable to its business carried out in India and were taxable under the several provisions of the Act. The assessee had claimed that by virtue of the existing Double Taxation Avoidance Agreement (in short 'DTAA'), it could seek benefits to the extent that the DTAA's provisions apply. It also relied upon Article 7(1) of the DTAA. The AO's reasoning was premised inter alia on the basis that Section 10A was introduced with the objective of encouraging foreign exchange accruals and earnings in India. It was therefore held that what the assessee received was mere remuneration (on man hour basis) for the development of software and not proceeds of the software when sold....

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....in the form of convertible foreign exchange. The only reason assigned by the Revenue authorities for denying exemption under Section 10-A of the Act is that there has been no export sale by the assessee since the computer software was transmitted to head office and since the assessee and its head office were one entity, there was no sale to any third party. This approach of the Revenue authorities were not correct in view of the provisions of section 10-A(7) of the Act. The legal fiction of treating an assessee as a separate entity vis-a-vis sale by it or transfer by it from an eligible business or to an eligible business has been recognized under section 10-A(7) of the Act....." 9. Arguing for the Revenue, Mr. Rahul Chaudhury, the learne....

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....mport by reference is premised upon the acceptance by the legislature of such transfers or transactions as exports. Therefore, no interpretation which goes contrary to that intent would in fact render the provision i.e. Section 10A(7) as being ineffectual. 11. The decision in Moser Baer (supra) specifically dealt with the ITAT's logic and reasoning in the present case. There the Division Bench of this Court noted that transmission of computer software from an Indian entity to its head office on the basis of an arm's length price determined for export entitled the assessee to exemption under Section 10A. The Court is in agreement with the assessee's contention that mere omission of a provision akin to Section 80HHC Explanation (2) or the om....