TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 9
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....ords that assessee has claimed deduction u/s. 10A of the Income Tax Act [Act] of Rs. 1,20,67,509/- after adjusting depreciations, accordingly, it filed NIL return of income. AO also notes that assessee had on-site development center at USA with turnover at Rs. 57,27,61,526/-. In the course of assessment proceedings, assessee asked for various details of software purchases and enquired about TDS provisions. He was of the opinion that assessee has not justified the claim of expenditure on purchase of soft ware of Rs. 64,09,69,696/- and accordingly, the amount was disallowed u/s Section 40(a)(ia). In addition, AO also noted that as against the turnover of Rs. 78.07 Crores, assessee has brought in only Rs. 13,41,44,047/- to India and accordingly by re-working out the deduction of export turnover/total turnover, he has allowed the deduction of Rs. 4,05,17,110/- ,as against the claim made by assessee of the entire profit declared as gross total income. AO while working out the deduction u/s. 10A considered the disallowance made u/s. 40(a)(ia) also as profit earned by assessee and accordingly, worked out the deduction at a higher amount than claimed. In addition to the above, the AO also ....
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.... or any right (including the granting of a licence) " in respect of a patent, technology or of copyright, trade mark; - use of technology ; - use or right to use patent, trademark, industrial, commercial or scientific equipment; - imparting of information concerning, for the working of or use of, technology; or 'concerning technical. industrial, commercial or scientific knowledge ; - rendering services in connection with the activities in connection with the above. i.e. the activities of the "use" or "right to use" or "in respect of" patent, trademark, technology or copyright." 4.4. The important feature of the provision is that the payment should be a consideration for " transfer (including the granting of a license)" in respect of" or the "use" or "right to use" a patent, trade mark, technology or copyright. The identification of the consideration of payment is, therefore, necessary to determine whether it is royalty. It should be "in respect of" transfer of all or any right (including the granting of a license). the use or the "right to use" of copyright, patent, trademark etc. 4.4.1 Similarly, article 12(3) of the DTAA between India and US is quoted as under: ....
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....tion of UN Model enables tax on royalty in both countries, subject to agreement that the rate of tax should be fixed at agreed rate in the, borrowing country, from where royalty is payable, by bilateral negotiations." 4.5 I have considered carefully the facts of the case, the law as well as the r various judicial pronouncements made by the various courts. The facts clearly point out that there was no software purchased by the domestic company. All the transactions in question were made by the PE in USA. The sale also took place in USA. There is thus no question of any income being taxable in India with respect to the purchases in question. In this regard the judgement of the Honb'le ITAT Hyderabad in the case of AP Power Generation Corporation Ltd vs Assistant Commissioner of Income Tax circle 14(2)(TDS), Hyderabad is applicable. The gist of that judgement 105 ITD 423 (Hyd) is as below:- . "Section 195, read with section 194C, of the Income-tax Act, 1961 Deduction of tax at source - Payment to on-resident - Assessment years 1999-2000 to 2002-03 - Assessee was a State Government undertaking engaged - generating power - Japan Bank for International Corporation (JBIC) had lent....
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....s Additional director of Income Tax(lnternational Taxation), 98 ITO 259 (Delhi) also applies in the current case. The gist of that decision is as below"* "Section 249 of the Income-tax Act, 1961- Commissioner (Appeals) - Form of appeal and limitation - Assessment years 1994-95to 1996-97- Whether provision limiting time for bringing an appeal must be liberally interpreted so that party pursuing remedy allowed to him, is not deprived of same on mere technicalities - Held, yes - Whether where major part of delay in filing appeal related to period when assessee's business operation came to a grinding halt and assessee had acted bona fide which was not in doubt, reasons for delay, in absence of any material to contrary, should be construed to be reasonable and delay in filing appeal should be condoned - Held, yes Section 195 of the Income-tax Act, 1961, read with article VIII of DTAA betwen India and Federal Republic of Germany - Deduction of tax at source - Payment to non-resident - Assessment years 1994-95 to 1996-97 - Assessee entered into three separate agreements with a foreign company LAG, for taking aircrafts on lease, for servicing of aircrafts and for providing crew to ....
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....llowed all on-site expenses without verifying any details. 6.1. On the other hand the appellant has not even been able to provide the bills and vouchers relating to purchase of software. It has not been able to correlate the purchases with the sales and has not been able to provide any details at all regarding the various expenses. Its claim of exemption under section 10A is also unsubstantiated. Finally, as already quoted above, the appellant has admitted that its books of account are not properly maintained and that they should be rejected; and income estimated at 6% of the turnover. The appellant has also agreed that its claim of exemption under section 10A be denied as it is unable to substantiate the same. 7.0. I have seen carefully the facts and evidence and I find that the books of accounts of the appellant do not provide any worthwhile details of its financial dealings. Neither the turnover nor the expenses are verifiable or properly vouched. It is a settled law that wherever the books of accounts do not provide accurate details of the financial affairs, they can be rejected and income can be estimated. Accordingly. I reject the books of accounts. The appellant has stat....
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....ranted on the facts of the case. He referred to the order of the AO wherein even the disallowance made by him was considered as 'profit' of assessee and proportionate amount was allowed u/s. 10A to an extent of almost Rs. 4 Crores when assessee has claimed only Rs. 1.27 Crores in the computation of income. It was the submission that order of the CIT(A) cannot be considered as correct since assessee has neither admitted for withdrawal of deduction u/s. 10A nor agreed for estimation at 10%. It is also submission that assessee has furnished necessary confirmation letters before the AO with reference to cash credits which should have been enquired by the AO and accepted. 6. In reply, Ld.CIT-DR submitted that the order of CIT(A) is not fully correct. While accepting that income from the overseas business cannot be brought to tax in India, it was submitted that assessee has not furnished necessary details correctly before the AO. Therefore, AO has to resort to disallowance of the amounts. It was further submitted that Ld.CIT(A) erred in rejecting the books of account, when that is not a ground before the CIT(A) in the appeal. Whether any additional ground was raised or not it is not kno....
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..... Assessee has debited Rs. 14,26,60,894/- towards exports from India and Rs. 49,83,08,802/- towards overseas turnover. The overseas branch has earned a profit of Rs. 4,18,05,148/- in its operations, the Indian unit has suffered a loss to an extent of 2,90,08,703/-. One of the major expenditures in Indian operations was of on-site expenses of Rs. 7,38,91,898/- claimed against Indian exports. As seen from the orders of the AO, he has confused himself with various figures and in fact has disallowed more than what assessee has claimed in the P&L A/c. That apart AO has not noted the different turnovers, the turnover of exports undertaking from India and turnover from the overseas branch. In our opinion, the AO has totally misled himself in making the disallowance in the order, including the computations u/s. 10A. Ld.CIT(A) had correctly came to the conclusion that income from overseas operations cannot be brought to tax in India and to that extent, supported by various case law, he has rightly concluded that profits earned by the USA branch cannot be brought to tax in India. We affirm the order to that extent. Consequently, the claim of purchases to an extent of Rs. 49,83,08,802/- made ....
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....as already, rather arbitrarily, fixed the rate at 10%, we are of the opinion that the estimation of income at 10% can be resorted to only on the software exports from India of Rs. 20,80,35,745/-. 11. One issue which AO has considered and CIT(A) has not adjudicated is the amounts brought in to India. With reference to overseas turnover, Ld.CIT-DR was of the opinion that Explanation- 2 to Section 10A that sale proceeds referred to in sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate bank account maintained for the purpose by assessee with any bank outside India with the approval of RBI is applicable. Ld. Counsel submitted that assessee has approved bank accounts and was in business in earlier years also and also in later years. Therefore, the Explanation-2 gets satisfied. It was submitted that assessee has received entire amount into India and accordingly, referring to Form 56F filed during the course of assessment proceedings, it was submitted that restriction made by the AO is not warranted. We are not in a position to give any finding on this issue as those requires factual verification by the AO. Therefore, subject to ....