TaxTMI 
TaxTMI 
2021 (5) TMI 188
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....that if appellant has admitted the interest income as income from other sources, the net income should have been taxed. 3. The learned CIT(A) erred in directing the Assessing Officer that if software purchase treated as stock in trade or purchase of raw material, such expenses should be treated as revenue expenditure and has allowed a relief of Rs. 84.44 crores. 4. The learned CIT(A) erred in allowing the assessee deduction u/s.10A relying on the CBDT Circular No. 1/2005 which clarifies claims u/s. 10B and not 10A 5. The learned CIT(A) erred in directing the Assessing Officer to re-compute the deduction considering entire profits of software business as a whole as profits and apply the ratio of export turnover to the total turnover including the total turnover of 10A units. 1.3 The grounds urged by assessee reads as under: - 1) Overseas Taxes: The CIT(A) erred in not considering the Appellant's claim for deductibility of overseas taxes not covered / considered for relief under section 90/91 of the Income-tax Act, 1961 ('the Act'). 2) Disallowance of Software Expenditure: The CIT(A) erred in holding that s....
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.... The CIT(A) erred in not enhancing the "Profits of the Business" for the purpose of section 10A/80HHE of the Act, by the relevant overseas bad debts already excluded from the "Export Turnover" in earlier years. However, Ground Nos.1, 2, 6 & 7 of assessee's appeal as well as additional grounds have not been pressed during hearing and therefore, these grounds stand dismissed. In ground No.5, the assessee is seeking certain directions with regard to deduction of foreign local taxes paid by the assessee. 1.4 The learned counsel for Assessee, Ms. Aarti Vissanji, at the outset, submitted that some of the issues in cross-appeals are covered by the earlier orders of the Tribunal as follows: - (i) ITA No.4630 & 4637/Mum/2016 order dated 07/08/2020 for AY 2009-10 (ii) ITA No.3192 & 3508/Mum/2013 order dated 06/11/2019 for AY 2008-09 (iii) ITA No.4978/Mum/2014 10 Taxmann.com 87 23/02/2011 AY 2000-01 (iv) ITA No. 629/Mum/2003 order dated 13/01/2006 for AY 1995-96 Reliance has also been placed on various other decisions including the decision of Hon'ble Bombay High Court in assessee's own case for AY 1996-97, ITA No.410 of 2009 rendered on 20/04....
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....of DIT relief should be restricted to income doubly taxed in India and abroad. The assessee furnished revised working and claimed relief of Rs. 90.51 Crores. The Ld. AO, after examining the relevant clauses of Treaties (DTTA) with respective countries, opined that the assessee would be entitled for relief only to the extent of taxes paid overseas on the income which has been offered to tax abroad and is also taxable in India, so as not to exceed the rate of tax payable in India. Therefore, the assessee's working was not acceptable and the credit would be available only to the extent of taxes paid overseas at the rates applicable on such income and not exceeding the tax liability payable in India. Reworking the same, the relief was restricted to the extent of Rs. 65.07 Crores which has been attached as Annexure 'A' to the assessment order. 3.3 The Ld. CIT(A) directed Ld. AO to rework the disallowance on the basis of Explanation-1 to Sec.40(a)(ii) and grant deduction only if the tax was not eligible for tax relief u/s 90 or 91 of the Act. Similar directions were given with respect to state and local taxes of USA and Canada. Regarding DIT relief u/s 90 / 91, Ld. CIT(A) confirmed....
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....FW Low (211 ITR 213) wherein Hon'ble court referring to the decision of Hon'ble Apex Court in Clive Insurance Company Ltd. (113 ITR 136) held that the gross dividend must be considered. The aforesaid decision of Hon'ble Apex Court, as per Ld. CIT-DR, was not noticed in Ambalal Kilachand (supra). Further this decision did not go into the question of double taxation. 4.5 However, Ld. AR, in the rejoinder, submitted that the case law of Ambalal Kilachand (supra) already considered the said decision of Hon'ble Apex Court and the decision of jurisdictional High Court was binding. Further, the Tribunal in its decision for AY 1995-96 as well as in AY 2000-01 has followed the decision of Ambalal Kilachand (supra) while deciding this issue in assessee's favor. 4.6 After going though the decisions, we find that the facts in this year are quite identical to facts in AY 2000-01. As of now, the issue is squarely covered in assessee's favor by the orders of Tribunal for AY 1995-96 as well as for AY 2000-01. In AY 2000-01, the bench following the decision of Hon'ble Bombay High Court in CIT V/s Ambalal Kilachand (210 ITR 844) decided the issue in assessee's favor. Further, Hon'ble Bombay Hi....
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....s purchased for-resale and it was akin to purchase of raw material for the business. This being the case, no fault could be found in the adjudication of Ld. CIT(A). Ground No. 3 of revenue's appeal stands dismissed. 6. Claim u/s 10A and 80HHE 6.1 The assessee claimed deduction u/s 10A for Rs. 1044.27 Crores and deduction u/s 80HHE for Rs. 16.19 Crores against software exports. In support of claim u/s 10A, the assessee furnished prescribed Form No. 56F and in support of claim u/s 80HHE, it furnished Form No. 10CCAF. As against this, total profits for the year were Rs. 846 Crores. The deduction was claimed in respect of software income of TCS division which was engaged in export of software and developing computer software and rendering services in overseas markets across the world. From the location-wise (20 locations in total) data furnished by the assessee, total export turnover was claimed to be Rs. 4407.91 Crores which yielded profit of Rs. 1163.51 Crores. The total unrealized export income was shown at Rs. 28.32 Crores whereas proceeds received outside India with RBI approval were stated to be Rs. 53.99 Crores. 6.2 It was noted by Ld. AO that till AY 2000-01, ....
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.... after reducing the turnover of Sec.10A units. However, both these pleas were rejected. Finally, deduction u/s 10A was computed at Rs. 605.91 Crores whereas deduction u/s 80HHE was computed at Rs. 186.64 Crores. The aforesaid working has been given on page nos. 30 & 31 of the order. 6.6 It is evident that deduction u/s 10A has been computed against 11 units having total turnover of Rs. 2195.57 Crores. Total Realized export turnover amounts to Rs. 2186.77 Crores after deduction of unrealized debtors for Rs. 3.49 Crores. The attributable profits of Rs. 590.67 Crores has been adjusted after adding back overseas taxes & software expenses disallowed but reduced by the amount of depreciation allowed on software. Finally, eligible deduction has been computed at Rs. 673.23 Crores against which 90% deduction i.e. Rs. 605.91 Crores would be available as deduction u/s 10A to the assessee. 6.7 The deduction u/s 80HHE has been computed against 9 units having total turnover of Rs. 2212.33 Crores. Total Realized export turnover amounts to Rs. 2314.22 Crores after deduction of unrealized debtors for Rs. 25.64 Crores. The applicable profits of Rs. 529.78 Crores has similarly been adjusted aft....
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....deduct turnover of Sec.10A units in the calculation of total turnover for the purposes of deduction u/s 80HHE. Finally, Ld. AO was directed to take the entire profits of software business as a whole as profits and applying the ratio of export turnover (excluding the export turnover of Sec.10A units) to the total turnover including the total turnover of Sec.10A units. 7.4 Aggrieved, the revenue as well as the assessee is in further appeal before us. The assessee, in ground no.3, has pleaded that uncollected debtors were to be excluded from the turnover while computing deduction u/s 10A and 80HHE. The revenue, in ground nos.4 & 5, has assailed the action of Ld. CIT(A) in relying upon CBDT circular No.1/2005. The revenue has also assailed the final directions of Ld. CIT(A) with respect to computation of deduction u/s 80HHE. Our findings and Adjudication 8.1 First we take up the issue as to whether the old units which was earlier claiming deduction u/s 80HHE could claim deduction u/s 10A in this year. We find that this issue is covered in assessee's favor by the decision of Hon'ble Bombay High Court in group concern titled as CIT V/s Tata Consultancy Services (ITA No.1778 of 2....
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....ator, Ld. AR has followed reliance on the decision of Hon'ble Gujarat High Court in Pr.CIT V/s Dishman Pharmaceuticals & Chemicals Ltd. (2019 112 Taxmann.com 91). The Hon'ble Court following the decision of Hon'ble Apex Court in CIT V/s HCL Technologies Ltd. (404 ITR 719) decided the issue in assessee's favor. It was further observed that SLP against similar view taken by Hon'ble Karnataka High Court in Pr. CIT V/s Tesco Hindustan Service Center Private Ltd. (257 Taxman 92) stood dismissed. The Hon'ble Karnataka High Court held that while computing deduction u/s 10A, if the export turnover in numerator is arrived at after excluding certain expenses, the said expenses should also be excluded from total turnover in denominator. The Ld. CIT-DR, on the other hand, maintained that the question in HCL Technologies (supra) was deduction of freight, telecommunication charges and insurance attributable to delivery of computer software outside India. In this context, Hon'ble Court held that the amount excluded from the export turnover must also be reduced from total turnover. However, in the present case, the issue is with respect to export proceeds and foreign exchange not brought back w....
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....ld not assume two different characteristics for two parts of the same formula. Therefore, if export turnover in numerator has excluded the unrealized foreign exchange, than the same figure has to be adopted in denominator. The other decisions has cited by Ld. AR has also taken the same view. Therefore, going by the ratio of these decisions, we direct Ld. AO to reduce the unrealized debtors from total turnover in denominator while computing deduction u/s 10A / 80HHE. Ground No.3 of assessee's appeal stand allowed. 8.3 The last issue under this head is adoption of correct formula to compute deduction u/s 80HHE. The revenue is aggrieved by the action of Ld. CIT(A) in directing Ld. AO to consider entire profits of software business as a whole and apply the ratio of export turnover to total turnover including the total turnover of Sec.10A units. The Ld. AR, drawing attention to letter dated 05/09/2018, submitted that directions may be issued for application of correct formula as per the decision of Hon'ble Karnataka High Court in CIT V/s Sasken Communication Technologies Ltd. (2014 50 Taxmann.com 134) which has held as under: - 7. Therefore, to be eligible for deductio....
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....nd is in the export business neither the profit earned by s. 10A units nor the total turnover of the said s. 10A units is liable to the included in the total turnover. Therefore, neither the profits of s. 10A units nor the turnover of s. 10A units could be added to find out the profit from export of computer software under s. 80HHE. In fact this is also clear from s. 80A which forms part of Chapter VI-A in which s. 80HHE also finds a place. The relevant provision is sub-s. (4) of s. 80A, which reads as under : "(4) Notwithstanding anything to the contrary contained in s. 10A or s. 10AA or s. 10B or s. 10BA or in any provisions of this chapter under the heading 'C- Deductions in respect of certain incomes', where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise....
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....erseas taxes, software etc. 8.5 Ground No.5 of revenue's appeal stand partly allowed in terms of our above directions. 9. Disallowance of interest expenditure of Rs. 264.88 Crores. 9.1 The assessee held substantial investments of Rs. 5501 Crores and had year-end unsecured and secured loans aggregating to Rs. 3284.59 Crores. It claimed interest expenditure of Rs. 264.88 Crores which was charged to Profit & Loss Account on net basis after adjusting interest income of Rs. 40.12 Crores. The Ld. AO concluded that the assessee had increased portfolio substantially by borrowing funds. The major investments were in Tata group of companies. The business of the assessee was to acquire the shares and rendering software consultancy services. The assessee incurred huge expenditure to acquire shares in Tata group of companies. After appreciating the objects of the assessee as well as meaning of business as defined u/s 2(13), Ld. AO held a conviction that holding of investment could not amount to business. Merely because the assessee has the object of dealing in investment in shares would not give it the characteristics of dealers of shares. In the above background, Ld. AO opined that....
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.... income which is assessable and therefore, the interest was to be capitalized. The said expenditure would also be not allowable u/s 57(iii) as held in appellate order for AY 2001-02. 9.4 Before Ld. CIT(A), the assessee drew attention to the fact that the assessee as holding company and the principal investment company of the Tata group of companies, entered into agreement with various Tata group of companies relating to brand equity and business promotion of the Tata group which is managed and controlled by the assessee. The principal objective of the agreement was to protect and promote the image / goodwill / brand equity of Tata group being the Tata name / mark which has an immense goodwill and brand awareness attached to it. The Tata group of companies joining the scheme made contribution in terms of the agreement with the assessee and the assessee, in turn, undertake various obligations of brand promotion / goodwill etc. Since there was income flow on the basis of it being the holding company and therefore, interest expenditure was eligible for deduction u/s 36(1)(iii). The assessee earned Rs. 62.64 Crores as income from subscription from various investee entities under the ....
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....funds. It was difficult for assessee to prove that investments were out of borrowed funds as well as difficult for department to prove that investments were out of surplus funds. Therefore, the interest income was to be allocated in the ratio of borrowed funds to borrowed funds plus net owned funds. The interest expenditure would be allowed to be net-off to that extent. 9.6 The perusal of order giving effect dated 26/04/2007 would show that the gross disallowance of Rs. 264.88 Crores as disallowed earlier by Ld. AO has been reversed. The net-interest has been worked out at Rs. 246.88 Crores out of which an amount of Rs. 80.85 Crores has been allowed under 'business income' whereas remaining interest expenditure of Rs. 166.03 Crores has been allowed from dividend income which has been assessed as 'Income from other sources'. Since dividend income earned during the year amounted to Rs. 126.73 Crores against which interest expenditure of Rs. 166.03 Crores was apportioned, there was no income which remained to be taxable as dividend income. Consequently, deduction u/s 80M has been denied and hence the grievance of the assessee before us by way of ground no. 4. It could be noted t....
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....e been proved beyond doubt in the instant case. The assessee company had earned both taxable income as well as tax free income out of these investments as detailed supra. Hence, there is absolutely no question of disallowance of interest u/s. 36(1)(iii) of the Act. If the borrowed funds have been used for making investment for shares which in turn had yielded exempt income to the assessee, then, the allowability of interest need to be looked into from the angle of Section 14A of the Act r.w.r. 8D(2)(ii) of the Rules. This fact has been correctly dealt, in our considered opinion, by the ld. CIT(A) in his order. We also find that this issue is also covered in favour of the assessee's group company case by the order of this Tribunal in the case of Tata Industries Ltd., vs. ITO in ITA No.4894/Mum/2008 dated 20/07/2016 wherein this Tribunal by placing reliance on various decisions of the Hon'ble High Courts including the Hon'ble Jurisdictional High Court in the case of CIT vs. Phil Corporation Ltd., reported in 202 Taxman 368 had decided the issue in favour of the assessee with regard to allowability of interest. Hence, we do not find any infirmity in the observation made by the ld. CIT....
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....text of Sec.14A. In fact, the said decision has not disturbed the deduction granted u/s 36(1)(iii) by Ld. AO after disallowing expenditure u/s 14A on apportionment basis. No observation or finding has been rendered in the context of relevance of dominant purpose for grant of deduction u/s 36(1)(iii). In the above background, Ld. AR, in support of admissibility of deduction u/s 36(1)(iii), also relied on the decisions of Hon'ble Bombay High Court in CIT V/s v Phil Corporation (202 Taxman 368) & CIT v Srishti Securities Pvt. Ltd. (321 ITR 498); decision of Hon'ble Calcutta High Court in CIT V/s Rajeev Lochan Kanoria (208 ITR 616); Hon'ble Delhi High Court in Eicher Goodearth Ltd. V CIT (378 ITR 28); decision of Hon'ble Madras High Court in CIT vs. RPG Transmission Ltd. (359 ITR 673) 10.4 At the outset, it could be noted that dividend income is not exempt in this year but a deduction is allowed to the assessee u/s 80-M in respect of dividend. We are of the considered opinion that there is clear distinction between 'exemption' and 'deduction' provision. In case of exemption, the income does not, at all, enter into gross total income of the assessee whereas in case of deduction, t....