TaxTMI 
TaxTMI 
2023 (2) TMI 566
X X X X Extracts X X X X
X X X X Extracts X X X X
....r not deducting TDS - 4 Disallowance of software expenses as capital expenditure 4 5 Disallowance of Brand Building expenditure 5 6 Disallowance of commission paid to non residents for not deducting tax at source u/s. 195 6 7 Deduction u/s. 10A, 10AA in respect of onsite activities 7 8 Deduction u/s. 80JJAA 8 9 Disallowance of payments made to overseas subsidiaries viz., Infosys China, Infosys Mexico, Infosys BPO Poland and Infosys BPO Czech Republic u/s. 40(a)(i) [AY 2014-15] viz., Infosys China, Infosys Mexico, Infosys BPO Poland and Infosys BPO Czech Republic, Future 9 - Focus Infotech, UAE AND Pt Maya International, Indonesia u/s. 40(a)(i) [AY 2015-16] - 10 Disallowance of payments made to US authorities 10 - Disallowance of deduction claimed u/s. 32AC 11 11 Partial disallowance u/s. 35(2AB) 12 - Relief/deduction for foreign tax credit, state tax paid outside India as per Karnataka HC decision in Wipro Ltd. 13 (Assessee's appeal) 3 (Revenue's appeal) 12 (Assessee's appeal) 3 (Revenue's appeal) Deduction u/s. 10AA in interest income etc. 2 (Revenue'sappeal) 2 (Revenue's appeal) Deduction u/s. 80G in respect of CSR expen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat since no dividend was received from Infosys BPO Ltd and since Infosys BPO Ltd is a subsidiary of the Assessee, investment made in the shares of the said Company should not be considered for computing the disallowance under section 14A. 7. The learned AO relied on the decision of the Delhi High Court in the case of Maxopp Investments Ltd v CIT [2011] 15 taxmann.com 390 in support of the view that disallowance under section 14A is attracted even in cases where assessee company has made strategic investments in the group companies as well as subsidiary companies. The AO then relied on the decision of the Calcutta High court in the case of Dhanuka & Sons v CIT 339 ITR 319 wherein it was held that when the assessee is not able to show that the investment in shares is out of internal accounts or non-interest bearing funds, disallowance u/s 14A can be made. The AO also relied on the decision in Cheminvest Ltd v ITO ITAT DEL SB 121 ITD 318 and Pradeep Kar v ACIT 319 ITR 416 (Kar) in support of the contention that disallowance under section 14A should be made even when no exempt income is earned during the year. After noting the above, the AO has directly concluded that the Assessee's ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the Assessee voluntarily disallowed a sum of Rs. 81,38,976 under section 14A. The said disallowance was computed on the basis of 5% of salary cost of CFO, 50% of salary cost of employees handling treasury functions and 10% of salary cost of CFC. However, the learned AO has invoked rule 8D for the purpose of making disallowance under section 14A(2) without recording any satisfaction as to how the voluntary disallowance made by the Assessee under section 14A is not correct having regard to the accounts of the Assessee. 3.11. The ld AR also submitted that the Supreme Court in Maxopp Investment Ltd v CIT [2018] 91 taxmann.com 154 held that before invoking rule 8D, the assessing officer needs to record requisite satisfaction with regard to correctness of the claim of the assessee regarding the amount disallowed under section 14A. The ld AR also submitted that the AO in the assessment order has discussed only the provisions relating to section 14A and has directly proceeded to conclude that the computation of disallowance by the assessee is not satisfactory which is not correct as per the ratio laid down by the Hon'ble Apex Court. The ld AR drew our attention to the decision of the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :] Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.] Rule 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n nature reads as under:- "(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed if the Assessing Officer, having regard to the accounts of the taxpayer, is not satisfied with the correctness of the claim of the taxpayer in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provision of sub-section (2) shall also apply in relation to a case where an taxpayer claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act." 3.2.3 On plain reading of the aforesaid provisions, It is evident that the following conditions are required to be satisfied before invoking the provisions of section 14A of the Act: * The taxpayer should have incurred the expenditure. * Such expenditure should be in relation to income: and * Such income does not form part of the total income under this Act. 3.2.4 Based on the above, it can be said that the provisions of section 14A of the Act woul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ished the same vide letter dated 12/01/2016. On verification of the details filed by the company, the disallowance u/s 14A is computed as below: Investments Opening Balance Closing Balance Average 0.5% of Average Mutual Funds 18,661,870,484 7,488,578,61 13,075224,551 65,376,123 Tax Free Bonds 12,350,069,926 1234,46,60,0 12,347364,976 61,736,825 Edgeverve 10,000,000 461,84,00,000 2,314,200,000 11,571,000 Infosys BPO 6,594,243,797 6,594,243,79 6,594,243,797 171,655,167 Total Total amount to be disallowed 171,655,167 Less: amount already disallowed in Return 8,130,976 Balance amount to be disallowed 163,516,190 15. Further it is noticed from the perusal of the records that the AO has also not called for any details from the assessee or analysed the workings of the disallowance. In this regard we notice that the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [2018] 91 taxmann.com 154 (SC) has held as follows:- "41. Having regard to the language of Section 14A(2) of the Act, re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The ld AR submitted that a similar issue is considered by the coordinate bench in assessee's own case where the issue has been remitted back to the AO to verify the claim as per the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT reported in (2021) 432 ITR 471. The ld AR prayed for a similar direction for the year under consideration also. The ld DR did not raise objections to the same. 20. We notice that the coordinate bench of the Tribunal while considering the same issue for AY 2012-13 in assessee's own case has held that - 9.1. It was submitted that these expenditure were disallowed by the Ld.AO for non-deduction of TDS u/s.195 of the Act. The Ld.AO followed the decision of Hon'ble Karnataka High Court in case of CIT vs. Samsung Electronics Co. Ltd. reported in (2011) 203 Taxman 477. It is submitted that Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT reported in (2021) 432 ITR 471 as distinguished decision of Hon'ble Karnataka High Court. In our opinion, as the decision of Hon'ble Supreme Court was not available to the revenue authorities in the interest of justice....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... remanded to the ld. AO to verify the claim as per the decision of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd (supra) in assessee's own case for AY 2012-13 (supra). Respectfully following the decision of the coordinate bench we remit the issue for the year under consideration also with a similar direction. Accordingly, these grounds of appeal are allowed for statistical purposes. Ground No. 5 - Disallowance of software expenses as capital expenditure 25. The Assessee is engaged in the business of development and export of computer software. During the year, the Assessee incurred a sum of Rs. 797,19,52,409 towards software expenses representing the license fees for usage of licensed software/services for maintenance of licensed software. The assessee submitted before the AO a detailed note on allowability of expenditure on purchase of computer software as revenue expenditure along with statement showing in detail the type of computer software and useful life along with purchase order copies for the same vide letter filed on 22.12.2017 [Page 1064 to 1347 of Paper book 3]. 26. After considering the submissions of the assessee the AO not....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the nature of the software is application software or if the duration of software license is less than 2 years. 30. We heard the DR. We notice that in case of IBM India Ltd (supra) the Hon`ble Karnataka High Court has considered the issue of allowability of expenses incurred towards software expenses and held that - "The amount is paid for application of software WO not system software, The application software enables the assessee to carry out his business operation efficiently and smoothly. However, such software itself does not work on standalone boats. The same has to be fitted to a computer system to work. Such software enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself Thus for payment of such application software, though there is enduring benefit, it does not result into acquisition; of any capital asset. The same merely enhances the productivity or efficiency and hence can be treated as revenue expenditure. In fact, this court had an occasion to consider whether the software expenses are allowable as revenue expenses or not and held when the life, of a computer or software is less than two years and as such, the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ning four fifth of the expenditure amounting to Rs. 73,28,35,264 is allowable as amortization over the next four years. On further appeal the CIT(A) upheld the action of the AO for the reason that the Assessee advanced generic statements and arguments rather than producing the details regarding the nature of the expenditure. 34. The ld AR submitted that the coordinate bench of the Tribunal in assessee's own case for AY 2012-13 in ITA No. 718/B/2017 dated 28.11.2022 has allowed the issue in favour of the Assessee by following the decision of Coordinate Bench of this Tribunal in case of Infosys BPO Ltd v DCIT in ITA No. 1367/Bang/2014 by order dated 27.09.2019. The ld AR submitted that the facts are identical for the year under consideration also and accordingly contended that the issue is covered by the above decision. 35. We have heard the rival submissions and perused the materials available on record. This issue came for consideration before this Tribunal in assessee's own case in earlier assessment year in ITA No.718/Bang/2017 dated 28.11.2022 for the assessment year 2012-13 wherein it was held as under: 12.8 We have perused the submissions advanced by both sides in the ligh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ced reliance on the decision of the Karnataka High Court in Samsung Electronics Co. Ltd and others [2010] 320 ITR 209 in this regard. 40. Aggrieved the assessee preferred an appeal before the CIT(A). The CIT(A), relying on the appellate orders passed for AY 2007-08 to 2009-10 in Assessee's case, concluded that the impugned payments made by the Assessee constitute 'fees for technical services' and therefore the Assessee was required to deduct tax at source on the same. Accordingly the CIT(A) confirmed the disallowance made by the AO. 41. The ld AR submitted that the coordinate bench in assessee's own case has considered the same issue for AY 2012-13 and facts being identical for the year under consideration also, the issue is covered by the said decision. The ld AR relied inter alia on the decision of the Delhi High Court in DIT(IT) v Panalfa Autoelektrik Ltd (2014) 49 taxmann.com 412 and submitted that, commission paid to foreign agent for arranging export sales cannot be regarded as 'fees for technical services' under section 9(1)(vii). Additionally, it was argued that the position under the treaty law would prevail over the Act and accordingly a table giving country-wise break-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n License sale Crown Commercial Services United Kingdom 93,379 Commission Enterprise Business System Japan 9,34,650 Sales commission 50,87,88,787 1.2. Payment of commission to non-resident BAP(s) does not constitute 'fees for technical services' under section 9(1)(vii) of the Act: Income by way of 'fee for technical services' payable by a resident is deemed to accrue or arise in India by virtue of section 9(1)(vii)(b). The expression 'fees for technical services' is defined in Explanation 2 to section 9(1)(vii). The said definition refers to rendering of managerial, technical or consultancy services. 1.3. The terms 'technical', 'consultancy' and 'managerial' are not defined both under the Act. Therefore, these terms have to be understood in their natural or popular sense. 1.4. The Shorter Oxford English Dictionary defines these terms as follows: Technical= 1. having knowledge of or expertise in a particular art, science, or other subject, 2. Pertaining to, involving or characteristic of a particular art, science, profession or occupation or the applied arts and science generally; 3. using or d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case law compilation d) DIT v Credit Lyonnais [2016] 67 taxmann.com 199 (Bombay) - Page 3899-3905 of case law compilation e) DIT v PanalfaAutoelektrik Ltd [2014] 49 taxmann.com 412 (Delhi) - Page 3906-3918 of case law compilation f) CIT v Grup Ism (P) Ltd [2015] 57 taxmann.com 450 (Delhi) - Page 3919-3929 of case law compilation Provisions of DTAA overrides the provisions of the Act: 1.7. In respect of persons to whom the Double Taxation Avoidance Agreements are applicable, the provisions of the Income Tax Act, 1961 would apply only to the extent they are beneficial to the assessee. This is provided in subsection 2 to section 90 of the Income Tax Act, 1961. 1.8. The list of recipients of commission and their respective countries are given under para 7.8 (supra). India has entered into DTAA with the countries mentioned earlier except Nigeria. The position of taxability of commission paid to BAP(s) under the Act and DTAA is depicted in the table below followed by detailed submissions. Vendor name Country Taxability under the Act Taxability under the Treaty Computer Warehouse Ltd Nigeria Payment is not in the nature of Managerial, consultancy or technical i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... applicable from 1.4.2016. As per old treaty applicable for the year, there is no FTS clause in the Treaty. No PE in India; further, other income taxable only in Philippines and not in India; hence payment not taxable under the Treaty CELER CONSULTING S.A. de Mexico Same as above Definition of FTS is similar to s. 9(1)(vii); Payment not in the nature of managerial, technical or consultancy; no PE in India; hence not taxable under the treaty SegmentistYazi limveDanisman lik L Turkey Same as above Definition of FTS is similar to s. 9(1)(vii); Payment not in the nature of managerial, technical or consultancy; further services were not rendered in India; no PE in India; hence not taxable under the treaty Trevally Financial Software South Africa Same as above Definition of FTS is similar to s. 9(1)(vii); Payment not in the nature of managerial, technical or consultancy; further services were not rendered in India; no PE in India; hence not taxable under the treaty KUWAIT COMPUTER SERVICES Kuwait Same as above No FTS clause under the Treaty; No PE in India; further, other income taxable only in Philippines and not in India; hence payment not taxable under the Treaty ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ocesses, or consist of the development and transfer of a technical plan or technical design. 1.11. In the present case, payment of commission to BAP in UK did not 'make available' technology, knowledge, skills, process etc. Hence, the said payment was not chargeable to tax under the Treaty with UK.As a result, commission paid to BAP of UK was not liable for TDS under section 195 and consequently the said payments cannot be disallowed under section 40(a)(i). 1.12. India-Israel Treaty: The definition of 'Fees for technical services' as per Article 13 of India - Israel Treaty is as under. The term "fees for technical services" as used in this Article means payments of any kind received as a consideration for services of a managerial, technical or consultancy nature, including the provision of services by technical or other personnel, but does not include payments for services mentioned in Article 16 of this Convention. 1.13. Para 2 of Protocol between India - Israel Treaty is as under.[omitted by Notification No. SO 441(E) [No.10/2017 (F.No.500/14/2004-FTD-II)], dated 14-2-2017, w.e.f. 14-2-2017] 2. The competent authorities of the Contracting States shall initiate the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for services would not be regarded 'fees for technical services' unless the payment would make available technical knowledge, experience, skill, know how etc., and the payee acquiring the services is enabled to apply the technology contained therein. 2.3. In the present case, payment of commission to BAP in Israel did not 'make available' technology, knowledge, skills, process etc. Hence, the said payment was not chargeable to tax under the Treaty with Isreel. As a result, commission paid to BAP of Israel was not liable for TDS under section 195 and consequently the said payments cannot be disallowed under section 40(a)(i). 2.4. DTAA with Saudi Arabia, Egypt, Nepal, Philippines, Indonesia, Kuwait, UAE, Vietnam, Lebanon These treaties do not have an Article relating to 'Fees for technical services'. In the absence of the article dealing with 'fees for technical services' clause, the payment would constitute 'business profit' under Article 7 of the above Treaties. The Bangalore ITAT in JCIT v WiFi Networks P Ltd ITA Nos. 189 & 190/Bang/2012 and CO Nos. 60 & 61/Bang/2012 decision dated 8.3.2013, Exotic Fruits P Ltd v ACIT ITA Nos. 1008 to 2013/B/12 decision dated 40.10.2013, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the light of records placed before us. The above arguments/submissions by the Ld.AR has not been verified by the Ld.AO. We accordingly remand this issue to the Ld.AO to verify the above submissions. There is no quarrel that the benefit available to assessee as per DTAA must be granted as per the ratio of Hon'ble Supreme Court in case of Engineering Analysis (supra). The Ld.AO shall verify and consider the claim in accordance with law. Needless to say that proper opportunity of being heard mist be granted to the assessee. 44. Considering that the facts are identical, respectfully following the decision of the coordinate bench in assessee's own case (supra), we remit the issue back to the AO with similar directions. This ground is allowed for statistical purposes. Ground No. 8 - Deduction under section 10AA in respect of onsite activities 45. The assessee had claimed expenses which is incurred in respect of onsite activities as deduction for the purpose of section 10AA. The assessee filed the details of revenue along with onsite percentage relatable to exempt units before the AO during the course of assessment. [Page 736-738 of paper book 2]. The assessee also furnished state....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... additions were made in the earlier years and accordingly made the same for current year also. The ld AR also submitted that the lower authorities have not followed the decision of the jurisdictional High Court in the case of Mphasis (supra), where the it is held that - A mere reading of subsection (2) would not be sufficient. The entire section has to be read in conjunction with Explanation 3, which clarifies that profits and gains derived from 'on-site' development of software outside India shall also be deemed to be profits and gains derived from the export of software outside India, and same would also be entitled to such benefit. If the interpretation, as contended by the revenue is accepted, the very purpose of inserting Explanation 3 to section 10A of the Act would be lost. 51. The ld AR in respect of the revenue's argument that there is no nexus between 'offshore' production by the assessee in India and 'onsite' production by the AE outside India, further submitted that the Karnataka High Court held that the MSA provides for onsite work to be carried out under the supervision and control of the assessee and as per the specifications given by the assessee and in view of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "Similarly, for the purpose of s.10A or 10B, as long as a unit in the EPZ/EOU/STP itself produces computer programmes and exports them, it should not matter whether the programme is actually written within the premises of the unit. It is, accordingly, clarified that, where a unit in the EPZ/EOU/STP develops software sur place, that is, at the client's site abroad, such unit should not be denied the tax holiday under s.10A or 10B on the ground that it was prepared on site, as long as the software is a product of the unit, i.e., it is produced by the unit." 22. In our view, the said Circular is in favour of the assessee and not against it. Learned counsel for Revenue has laid much stress on the wordings that the assessee unit should have produced the computer programme by itself or that it should be produced by the unit of the assessee itself. There is no denial of the fact that even the 'on-site' work of computer software development has been done under the direct supervision and control of the assessee through the AE, which would be nothing but on behalf of the assessee 'itself'. As indicated in the said Circular, 'itself' would not mean that personn....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shall also be deemed to be profits and gains derived from the export of software outside India, and same would also be entitled to such benefit. If the interpretation, as contended by the Revenue is accepted, the very purpose of inserting Explanation 3 to Section 10A of the Act would be lost or frustrated. 25. Lastly, learned counsel for the Revenue has contended that there is no nexus between 'off-shore' production by the assessee in India and 'onsite' production by the AE outside India. He relies on the finding of the Assessing Officer given in this regard, which is as under: "Hence the profits and gains derived from Model No.2 cannot be deemed to be the profits and gains of the assessee company w.r. to export of computer software outside India. To be precise, the deduction is available only if the on-site development of computer software is executed by the assessee itself through its own personnel. The subcontracting of "On site" part of the software development to other entity and the resultant profit is not covered in Explanation 3 to Section 10A of IT Act and such profits and gains would not qualify for deduction under section 10A of IT Act. ** ** ** ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es for the AE to work under total supervision and control of the assessee. The software to be produced by the assessee during its 'on-site' development has to be as per the specifications given by the assessee. The AE has no concern or direct dealing with the end customer. The assessee provides all relevant information and inputs to the AE on behalf of the end customer. The AE is admittedly answerable to the assessee and not the end customer. In such nature of the work which is carried on by the AE on behalf of the assessee, it cannot be said that there is no nexus between 'off-shore' development and 'on-site' development. 28. In view of the above discussion, we are of the opinion that in the facts of the present case, the income earned by the assessee through 'onsite' development of software by the AE on behalf of the assessee, would be eligible for deduction under Section 10A of the Act. 54. The various grounds on which revenue has denied the benefit of section 10AA in earlier year is absence of nexus with the Indian undertaking, to which STPI Unit the revenue belongs, detailed summary of works / projects that have been executed from assessee'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....O has disallowed the deduction claimed under section 80JJAA amounting to Rs. 86,97,65,436 stating that the Assessee is not eligible for deduction under section 80JJAA for the following reasons: (a) The Assessee is a service provider and not a manufacturer. (b) The Assessee does not produce any articles or things. (c) The Parliament never intended to extend such benefits to white collared job creation. 58. The AO also held that since there is a decrease in the number of employees as on 31.03.2013 (1,13,694) as compared to the number of employees as on 31.03.2012 (1,13,879) at the entire company level, the Assessee is not eligible for a deduction under section 80JJAA. 59. The learned AO has also relied on the decision in the case of LG Electronics India P Limited v ACIT (2013) 33 taxmann.com 465 (Del - Trib) and ACIT v Texas Instruments (India) P Limited [ITA Nos. 273 & 274/Bang/2005] dt.29.12.2016 to state that deduction will be available only if the new workmen is employed for a period of 300 days in the previous year. 60. Aggrieved the assessee filed appeal before the CIT(A). The CIT(A) noted that the claim of the Assessee under section 80JJAA had been rejected in the fir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he arguments and written submissions taken on record is left open with regard to whether the assessee is an industrial undertaking engaged in manufacture of an article or thing and accordingly whether eligible for the deduction u/s.80JJAA. 63. We heard the rival submissions and perused the material on record. We notice that the similar issue has been considered by the coordinate bench in the case of SAP Labs India Pvt Ltd [IT(TP)A Nos. 623, 566/Bang/2016 dated 29.11.2021]. In the case of SAP Labs case (supra), the following issues concerning section 80JJAA were considered and adjudged i) Whether the deduction under section 80JJAA is applicable to the assessee as a whole or unit wise? ii) Whether application of 80A(4) in the context of section 80JJAA for 10A units is correct or not? iii) Whether employees engaged in software industry could be regarded as workmen for the purposes of section 80JJAA? 64. The ld AR during the course of hearing submitted that the issue in (ii) above is not a matter of dispute in the present case and there is no ground before the Hon'ble ITAT on this aspect by the revenue and by the Assessee. Therefore the ld AR submitted the order of the coordina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of fulfillment of conditions enumerated above as per working given in Form 10DA. In a sense, the assessee has considered total number of employees/workmen working in all the units put together as basis in order to reckon 10% increase in workforce during the year under reference, inclusion of only 100 employees in respect of all the units for the purpose of quantifying the additional wages paid instead of considering 100 employees for inclusion in each and every unit. 7.6 In view of the above, I am of the opinion that in the absence of furnishing unit wise certificate in respect of fulfillment of conditions stipulated u/s 80JJAA, the assessee is rot eligible to claim deduction u/s 80JJAA. On this specific ground itself, I have no hesitation to deny the deduction u/s 80JJAA for the current year also." 15. **** 16. As far as ground No.6.3 is concerned, the issue has been decided in Assessment Year 2007-08 in the order referred to above and this Tribunal held that the employees engaged in software industry cannot be regarded as workmen for the purpose of section 80JJAA of the Act. The following were the relevant observations of the Tribunal: "24. We have perused the orders an....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... yr. 2001-02. Similarly, for asst. yr. 2002-03 the Assessee has claimed deduction of Rs. 4,78,05,176 being 30 per cent of the wages of Rs. 1,59,30,588 which also included the wages of Rs. 4,38,68,182 pertaining to the new workers employed in the previous year 1999- 2000. For the reasons mentioned above the Assessee is not entitled for relief under s. 80JJAA in respect of the wages pertaining to the workers employed in the previous year 1999-2000. As such the Assessee would be eligible for relief of Rs. 3,46,44,722 being 30 per cent of the additional wages of Rs.11,54,82,406 (Rs.15,93,50,588 Rs.4,38,68,182) in respect of the workmen employed in previous years 2000-01 and 2001-02. The learned Authorised Representatives of the Assessee vide order-sheet noting dt. 24th Aug., 2004 agreed that the relief under s. 80JJAA in respect of the employees who joined in the previous year relevant to the asst. yr. 2001-02 onwards only may be considered and in respect of the employees who joined in earlier years the Assessee is not pressing for relief under s. 80JJAA. In the circumstances, the AO is directed to allow the relief under s. 80JJAA of Rs. 1,09,52,012 and Rs. 3,46,44,722 for asst. yrs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ght of the directions given above by the AO afresh after affording opportunity of being heard to the assessee." 65. We notice that the coordinate bench of the Tribunal in assessee's own case for AY 2012-13 and AY 2013-14 has followed the decision of Sap Labs (supra) and has remitted the issue back to the AO to consider the claim in accordance with the observations and principles laid down by the Hon'ble Tribunal in the said decision. Respectfully following the decision in assessee's own case, we remit the issue for the year under consideration also back to the AO to examine the issue afresh keeping in mind the ratios laid down by the coordinate bench in Sap Labs (supra) and in assessee's own case (supra). Needless to say that the assessee be given a reasonable opportunity of being heard. This ground is allowed for statistical purposes. Ground No. 10 - Disallowance of payments made to overseas subsidiaries 66. During the previous year 2014-15 relevant to AY 2015-16, the Assessee made various payments totaling to Rs. 167,11,32,938 to its associated enterprises and two other vendors which are non-associated enterprises outside India. These payments were made without deduction of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....419-1423 of paper book 3] and the same was not considered by the AO. 72. On further appeal the CIT(A) upheld the action of the AO with regard to disallowance of Rs. 167,11,32,938 for the reason that the appeal against the order passed under section 201(1)/201(1A) for AY 2015-16 is pending for adjudication before the CIT(A) - 12,Bangalore and that if the Assessee succeeds in the said appeal, consequential relief in the assessment order would follow subsequently. With regard to the claim of Rs. 269,31,41,150, the CIT(A) held that the assessee cannot make any fresh claim before the AO which is not done through a revised return and the CIT(A) relied on the decision of the Supreme Court in the case of Goetz (India) Ltd vs CIT (2006) 284 ITR 323 (SC). 73. Aggrieved the assessee is in appeal before the Tribunal. During the course of hearing the ld AR submitted that out the payments made to subsidiaries as given in the table above, the similar payments made to Infosys China in earlier years has been a subject matter of appeal before the coordinate bench of the Tribunal where the it was held that - 18.1. The Ld.AR very fairly submitted that an order u/s. 201(1)&(1A) dated 28.2.2014 was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ical services is absent in a Tax Treaty, such a payment is classifiable as "Business Profit" under Article 7 of the relevant Tax Treaty. If the payee does not have a Permanent Establishment in India in terms of Article 5 of the Tax Treaty, the same will not be liable to tax in India. * The Bangalore ITAT in JCIT v WiFi Networks P Ltd ITA Nos. 189 & 190/Bang/2012 and CO Nos. 60 & 61/Bang/2012 decision dated 8.3.2013, Exotic Fruits P Ltd v ACIT ITA Nos. 1008 to 2013/B/12 decision dated 40.10.2013, IBM India P Ltd v DDIT (IT) ITA Nos. 489 to 498/B/13 decision dated 24.1.2014 and the Madras High Court in Bangkok Glass Industry Co Ltd v ACIT [2013] 257 CTR 326 held that in the absence of FTS clause in the treaty, payment for services rendered by the non-resident in the course of his business would be regarded as 'business profits' under Article 7 and in the absence of a PE in India, such payments would not be taxable in India. * In the absence of article for taxability of FTS in the tax treaties between India and the aforesaid countries (i.e., Brazil, UAE, and Indonesia), such payments are taxable as business income of the respective overseas entities in the absence of a PE in Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the angle Business Profits and the taxability accordingly as per the said treaties and the Act. We therefore remit the issue of the payments made to Infosys Technologia do BrasilLtda; Future Focus Infotech, UAE and Pt Maya International, Indonesia, back to the AO for a fresh consideration. 79. With regard to the claim of Rs. 269,31,41,150, we will first look at the proviso to section 40(a)(i) which reads as follows - Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid: 80. We notice that the CIT(A) has acknowledged the fact that the assessee has made the payment of TDS into the Government account on 20.02.2015 but has denied the claim for the reason that the deduction is not claimed through a revised return. Therefore there is no dispute that the assessee is entitled to claim the deduction towards the expenditure disallowed u/s.40(a)(i) for the reason that tax was not deducted at source in the particular ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st. proceedings. WIPRO Ltd., Vs. DCIT (2015) 62 taxmann.com 26 (Kar) has held in this context that "71 It was contended on behalf of the revenue that, no revised return was filed by the assessee under section 139 (5) of the Act claiming the relief under Section 90 of the Act read with Double Taxation Avoidance Agreement. Only a letter claiming the said relief was filed before assessment and the same cannot be taken into consideration. 72. Section 139(5) of the Act provides that, if any person, having furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of Section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. The said provision refers to a return under subsection (1). Sub-section (1) of Section 139 provides for filing of a return of income on or before the due date, furnishing a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion in the return filed under Section 139 (1) of the Act is not about non-disclosing of income. Income is disclosed. The omission is claiming tax relief out of the income which the assessee is entitled to under Section 1OA of the Act. Realizing this mistake before the assessment proceedings concluded, the assessee has filed a letter pitting forth such claim. Therefore, the assessing authority is legally bound to take into consideration the said letter where the assessee is claiming tax credit/relief and decide whether the assessee is entitled to such relief out of the tax liability on the total income in respect of which he has filed the return under Section 139(1) of the Act. As the tax liability is fastened on the assessee on the basis of the statutory provisions, if any statutory provision gives the assessee the tax benefit, the assessing authority is legally bound to consider the same and grant him relief. In the course of assessment the said claim cannot be rejected on the ground that the same is not made in the return filed under Section 139(1) and on the ground that no revised return is filed under Section 139(5) of the Act. What the assessee is claiming by way of a letter ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid state taxes paid to local authorities of Japan are not covered in Article 2 of the DTAA entered with Japan and thus are not eligible for relief under section 90 of the Act. Therefore, since the said expenditure related to the business of the Assessee, a claim under section 37 was made. In the said note, an alternate contention was raised to allow the same under section 91 of the Act following the decision of the Karnataka High Court in Wipro Ltd v CIT (2016) 382 ITR 179 (Kar). The list of states/cities in which the taxes were paid to local authorities in Japan was submitted vide letter filed on 28.12.2017 [Page 1389 to 1393 of Paper book 3]. 87. The AO has protectively restricted the aforesaid deduction to NIL in the assessment order for the reason that the favourable decision of the Karnataka High Court in the case of Wipro Ltd v DCIT [2015] 62 taxmann.com 26 is appealed before the Supreme Court and the SLP is pending. In the assessment order the allowability of the claim under section 37 of the Act as was claimed by the Assessee has not been considered nor commented upon by the AO. 88. The CIT(A) rejected the claim of the Assessee under section 37 of the Act by relying on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i Bench * Virmati Software & Telecommunication Ltd. v. DCIT [IT Appeal No. 1135 (Ahd.) of 2017, dated 15-3-2020] - ITAT, Ahmedabad Bench 91. Accordingly the ld AR prayed that deduction for state taxes paid outside India should be fully allowed as claimed. 92. The ld DR relied on the orders of the lower authorities. 93. We heard the rival submissions and perused the material on record. We notice that the coordinate bench of the Tribunal in the case of Onmobile Global Ltd (supra) has considered a similar issue and held that - 48. We heard the ld DR. We notice that the Hon'ble Bombay High Court in the case of Reliance Infrastructure Ltd (supra) has considered a similar issue and held that - (h) Before dealing with the rival contentions, it would be useful to reproduce the statutory provision arising for our consideration to decide this issue. "Definitions 2. In this Act, unless the context otherwise requires, - (1) to (42)** ** ** 43. "tax" in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income tax chargeable under the provisions of this Act, and in relation to any other assessment year incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not available in its entirety. Therefore, it would not be safe to rely upon it as all facts and on what consideration of law, it was rendered is not known. Similarly, the decision of this Court in Tata Sons (supra) being Income Tax Appeal No.209 of 2001 produced before us, dismissed the appeal of the Revenue by order dated 2nd April, 2004 by merely following its order dated 23rd March, 1993 rejecting the Revenue's application for Reference under Section 256(2) of the Act. Thus, it also cannot be relied upon to decide the controversy. Moreover, the order of this Court in Tata Sons Ltd. (supra) as produced before us for Assessment Year 1985-86 had not noticed the decision of this Court in S. Inder Singh Gill (supra) on a Reference. Therefore, it is rendered per incuriam. (j) This Court in S. Inder Singh Gill (supra) was required to answer the question whether for the purpose of computing total world income of the assessee as defined in Section 2(15) of the I. T. Act, the income accruing in Uganda has to be reduced by the tax paid to the Uganda Government in respect of such income? The Court while answering the question in the negative observed that it is not aware of any comme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Gill (supra) would be unexceptionable. However, the ratio of the aforesaid decision in S. Inder Singh Gill (supra) cannot be applied to the present facts in view of the fact that the Act defines "tax" as income tax chargeable under the provisions of this Act. Thus, by definition, the tax which is payable under the Act alone on the profits and gains of business are not allowed to be deducted notwithstanding Sections 30 to 38 of the Act. (m) It therefore, follows that the tax which has been paid abroad would not be covered within the meaning of Section 40(a) (ii) of the Act in view of the definition of the word 'tax' in Section 2(43) of the Act. To be covered by Section 40(a)(ii) of the Act, it has to be payable under the Act. We are conscious of the fact that Section 2 of the Act, while defining the various terms used in the Act, qualifies it by preceding the definition with the word "In this Act, unless the context otherwise requires" the meaning of the word 'tax' as found in Section 2(43) of the Act would apply wherever it occurs in the Act. It is not even urged by the Revenue that the context of Section 40(a)(ii) of the Act would require it to mean tax paid ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re us that some part of the income on which the tax has been paid abroad is on the income accrued or arisen in India. Therefore, to the extent, the tax is paid abroad on income which has accrued and/or arisen in India, the benefit of Section 91 of the Act is not available. In such a case, an Assessee such as the applicant assessee is entitled to a deduction under Section 40(a)(ii) of the Act. This is so as it is a tax which has been paid abroad for the purpose of arriving global income on which the tax payable in India. Therefore, to the extent the payment of tax in Saudi Arabia on income which has arisen/accrued in India has to be considered in the nature of expenditure incurred or arisen to earn income and not hit by the provisions of Section 40(a)(ii) of the Act. (q) The Explanation to Section 40(a)(ii) of the Act was inserted into the Act by Finance Act, 2006. However, the use of the words "for removal of doubts" it is hereby declared "...." in the Explanation inserted in Section 40(a)(ii) of the Act, makes it clear that it is declaratory in nature and would have retrospective effect. This is not even disputed by the Revenue before us as the issue of the nature of such decla....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... decision of the coordinate bench in the case of Onmobile (supra). The assessee is directed to provide necessary information to the AO and cooperate with the proceedings. It is ordered accordingly. This ground is allowed in favour of the assessee for statistical purposes. Ground No. 13 - Deduction under section in respect of donation made under Corporate Social Responsibility (CSR) 95. During the year, the Assessee made a donation to Infosys Foundation amounting to Rs. 235,94,00,000 and accordingly claimed a deduction under section 80G of Rs. 1,17,97,00,000 (50% of Rs. 235,94,00,000) in respect of the said donation. The said donation to Infosys Foundation also constituted CSR expenditure under the provisions of the Companies Act, 2013. In response to a specific query, the Assessee justified the claim of deduction under section 80G in respect of donation made as part of CSR expenditure [Page 627-629 of Paper book 2]. It was submitted that CSR expenditure was promptly disallowed under section 37 of the Act in the return of income. A deduction under section 80G was thereafter made after satisfying the eligibility criteria provided under the said section. 96. The AO has disallowed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther contributions made u/s. 135(5) of the Companies Act are also eligible for deduction u/s. 80G of Income Tax Act subject to assessee satisfying the requisite conditions prescribed for deduction u/s.80G of the Act. In the present case the A.O. has not dealt on these aspects, prima facie, considered the contributions as not voluntary but a legal obligation and has accepted the genuineness of the contributions. We are of the opinion, that the matter has to be considered for examination and verification of facts subject to the assessee satisfying the requirements of claim u/s.80G of the Act. 100. It is also noticed that a similar view has been taken in the case of Allegis Services (India) (P.) Ltd. v. ACIT [IT Appeal No. 1693 (Bang.) of 2019, dated 29-4-2020] where it is held that - For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments(keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, "Income form Business and Profession". The effect of such disallowance would ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he above donations which were not forming part of CSR expenditure. The CIT(A) upheld the action of the AO without appreciating the fact that donations made to Akanksha Foundation and Crafts Council of India did not constitute CSR expenditure. 104. The ld AR submitted that the lower authorities have erred in disallowing the deduction under section 80G in respect of donations made to Akanksha Foundation and Crafts Council of India, for the incorrect reason that such donations constituted CSR expenditure. The ld AR further submitted that the lower authorities have erred in not appreciating the fact that the aforesaid donations did not form part of CSR expenditure and that the claim of the Assessee in respect of donations made to Akanksha Foundation and Crafts Council of India satisfies the conditions prescribed under section 80G. 105. We heard the parties. We notice that the donations made to the above organisations by the assessee are not part of CSR expenditure and the lower authorities have not verified the details pertaining to these donations separately. We also noticed that the lower authorities have considered these donations along with CSR spend while disallowing deduction u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evenue is in appeal before the Tribunal. 112. The ld AR presented the below arguments for our consideration with regard to the impugned issue - Under section 10AA(1), profits and gains derived from the export of, inter alia, computer software is eligible for deduction under section 10AA. Subsection (7) to section 10AA provides the mechanism for computation of deduction provided under subsection (1). It begins with the expression 'for the purposes of subsection (1)'. Thus, the deduction enshrined in subsection (1) with regard to profits and gains derived from the export of, inter alia, computer software should be computed in accordance with the provisions of subsection (7). Section 10AA(7) uses the expression 'Profits of the business of the undertaking'. There is a distinction between the two terms "Profits derived from industrial undertaking" and "Profits derived from the business of industrial undertaking". In the former case, there has to be a direct nexus between the profits and gains and the industrial undertaking. In the latter case the profits include not only those having a direct nexus with the industrial undertaking but also include incidental and ancillary activitie....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... received, interest income and gain on exchange rate fluctuation are eligible for deduction u/s 10A/10B. Relevant extracts from the decision are as under. Substantial Question No.16: "Whether the Appellate Authorities were correct in holding that income earned from sale of scrap export incentive, rent received, interest income and gain on exchange rate fluctuation should be treated as profits and gains derived from export and exempted u/s.10A of the Act contrary to the judgment of the Apex Court in Sterling Sea Foods 237 ITR 579?" [Question of law No.21 in ITA Nos.907 & 909/2008; Question of law No.17 in ITA Nos.904 & 905/2008; Question of law Nos.4, 5, 6, 7 in ITA Nos.210 & 211/2009 - (Department's Appeal)]. 166. This Court had an occasion to consider the substantial question of law in assessee's case itself in ITA 507/2002 decided on 25.8.2010 while dealing with the income earned from sale of scrap, export incentive & rent received, answered the question in favour of the assessee and against the revenue. 167. In so far as gain on exchange rate fluctuation is concerned, it was subject matter of ITA 3202/05 which was decided on 28.2.2012 in the assessee's....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the bank deposits etc., and is therefore eligible for 100 per cent deduction. (Emphasis supplied) A reading of the above would make it amply clear that all the incomes arising from the business of the undertaking - whether primary or incidental, should be considered for computing the deduction under section 10AA. The Hon'ble ITAT, Bangalore Bench in Assessee's own case for AY 2005-06 [IT(TP)A No. 102/B/13 dated 10.11.2017] and AY 2006-07 [IT(TP)A No. 799/B/15 dated 10.11.2017] has held that rental income is eligible for deduction u/s 10A. Following this decision, the ITAT Bangalore bench in Assessee's own case for AY 2007-08 to AY 2011- 12, vide common order in IT(TP)A Nos. 449, 509/Bang/2015, 613 & 532/Bang/2016 & ITA Nos. 1530 to 1532, 1557, 1848 & 1849/Bang/2017 dated 30.11.2022 internal page 26 to 29, para 8.1 to 8.3 allowed deduction under section 10A in respect of rental income. The aforesaid decisions, especially the ratio of the decision of the jurisdictional High Court in the case of CIT v Hewlett Packard (supra) have not been considered by the Hon'ble ITAT in Assessee's own case for AY 2012-13 (supra), even though relied upon by the Assessee. 113. We heard the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rried on by the undertaking : Provided that the provisions of this sub-section [as amended by section 6 of the Finance (No. 2) Act, 2009 (33 of 2009)] shall have effect for the assessment year beginning on the 1st day of April, 2006 and subsequent assessment years. (8) **** (9) **** (10) **** 114. From the plain reading of the section it is clear that the profits "derived" from export of article or thing is eligible for a deduction u/s.10AA. It is the contention of the revenue that the impugned income which have considered for the purpose of deduction are not derived from the export of article or thing but are one incidental to the business of the assessee. The Hon'ble Supreme Court in the case of CIT Sterling Foods, [1999] 237 ITR 579/104 Taxman 204 (SC) which is relied on by the revenue has held in the context of section 80IA/80IB deduction that income earned should not be incidental to the business, but should be derived from the business and that there should be a direct nexus between the income earned and the business. Therefore it is the contention of the revenue that it is important to test whether profits and gains emanate directly from the business itself and....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... etc. makes them a special category of assessees entitled to the incentive in the form of 100% Deduction under Section 10-A or 10-B of the Act, rather than it being a special character of income entitled to Deduction from Gross Total Income under Chapter VI-A under Section 80-HH, etc. The computation of income entitled to exemption under Section 10-A or 10-B of the Act is done at the prior stage of computation of Income from Profits and Gains of Business as per Sections 28 to 44 under Part-D of Chapter IV before 'Gross Total Income' as defined under Section 80- B(5) is computed and after which the consideration of various Deductions under Chapter VI-A in Section 80HH etc. comes into picture. Therefore analogy of Chapter VI Deductions cannot be telescoped or imported in Section 10-A or 10-B of the Act. The words 'derived by an Undertaking' in Section 10-A or 10-B are different from 'derived from' employed in Section 80-HH etc. Therefore all Profits and Gains of the Undertaking including the incidental income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10-A and 10-B of the Act. Such interes....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has been considered by Coordinate Bench of this Tribunal for A.Y. 2005-06 in assessee's own case in IT(TP)A No. 102/Bang/2013. This Tribunal vide order dated 10/11/2017 considered the issue by observing as under: "30. Ground No.9. 30.1 In this ground (supra), Revenue assails the order of the learned CIT (Appeals) in allowing the assessee's claim for inclusion of rental income from Infosys BPO Ltd. and BSNL, Chennai as profits of the business in computing deduction under Section 10A of the Act, when these incomes were not derived from the export of computer software. 30.2 In the order of assessment, the Assessing Officer held that the aforesaid rental income from Infosys BPO Limited and BSNL, Chennai cannot be regarded as income derived from the business of export of software. On appeal, before the learned CIT (Appeals), it was submitted by the assessee that inter alia, the rental income received from its subsidiary, Infosys BPO Limited, was incidental to the business carried on by the assessee as it facilitated operations, transactions, policies and procedures. In respect of the letting out of space to BSNL, in Chennai, it was for the purpose of setting up of Mini Exc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....relevant period. Assessee is not the owner of the said premises. Assessee is carrying on the business of development of Software in Canada. The said premises was taken for the aforesaid business purpose. As a portion of the said premises was not used for business purpose, instead of keeping it vacant and suffering loss, it was rented out. Therefore, the said income derived from lease of the said premises constitutes "income from business". Neither it would be 'income from house property' nor 'income from other sources'. In view of the explanation used in sub Section (4) of Section 10A of the Act for the purpose of Sub section 1, the profit derived from export of articles or things or computer software shall be the amount which bears to the profits of business of the undertaking. Though the said profits are not derived from export of articles or things or computer software, by virtue of sub Section (4) it is deemed to be the profits of the business of the undertaking for the purpose of extending the benefit of exemption of payment of tax under Section 10A of the Act to a newly established undertaking in a free trade zone. 30.3.2 Similarly, the Hon'ble High Court of Karnataka ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....business or profession'. Assessee gets actuarial valuation done on quarterly basis to know its liability toward un-encashed leave credits of its employees. Assessee makes the provision for the same based on actuarial valuation. An amount equivalent to the liability is kept as a deposit with LIC of India under GLES policy to fund this liability. Whenever there is encashment of leave credits by employees on account of retirement etc. Assessee makes the payment to its employees and withdraws an equal amount from the deposit with LIC on a regular basis. This deposit is not generic in nature. Funding to this deposit happens based upon actuarial valuation and withdrawals are permitted only for payment of leave encashment. LIC of India credits interest on such GLES deposit which is accounted as income in the profit and loss account. The LIC gives interest on such GLES deposit/premium and the same has been offered to tax under business income head as there is a nexus of GLES deposit with the business liability towards accumulated unused leave credits. Interest on employee loans: During the year under consideration, the Assessee earned Rs. 4,07,40,415 as interest from employee loans. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he aforesaid claim to NIL in the assessment order for the reason that the favourable decision of the Karnataka High Court in the case of Wipro Ltd v DCIT [2015] 62 taxmann.com 26 is appealed before the Supreme Court and the SLP is pending. 121. The CIT(A) followed the order passed by his predecessor in Assessee's own case for AY 2007-08 to AY 2009-10. In the order passed by the CIT(A) for AY 2007-08 to AY 2009-10, the CIT(A) directed the AO to ascertain the correct amount of onsite revenue and income taxed abroad on the basis of the tax returns filed by the Assessee in the respective foreign jurisdictions and then compute the relief considering the DTAA with respective countries. It was held that this decision of the CIT(A) would apply to the year under consideration. 122. The AO passed the order giving effect to CIT(A) order on 13.12.2019. During the course of proceedings, the Assessee submitted that with respect to the claim of Foreign Tax Credit on account of dispute with Australian Tax Authorities, appropriate direction may be issued to allow the same once the dispute gets settled and matter attain its finality in accordance with the provisions of section 155(14A) read with r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in respect of state taxes paid. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly. 126. Now we will consider the appeals filed for AY 2014-15 by the assessee (ITA No.125/Bang/2019) and the revenue (ITA No.226/Bang/2019) for adjudication. ITA No.125/Bang/2019 - Assessee's appeal 127. For AY 2014-15 original return of income was filed on 29.11.2014 declaring total income of Rs. 9466,45,56,580. A revised return of income was filed on 31.3.2016 declaring total income of Rs. 9312,39,90,460. Notice under section 143(2) was issued and served. Details called for from time to time were submitted. The assessment was completed and the order under section 143(3) was passed on 29.12.2017. Aggrieved by the variations made in the assessment order, the Assessee preferred an appeal before the Hon'ble Commissioner of Income Tax (Appeals) - 3, Bangalore. The learned CIT(A) passed the order on 03.12.2018. Aggrieved by the order passed by the learned CIT(A), the Assessee has filed this appeal. 128. The issues contended vide Ground Nos.2 to 9 for AY 2014-15 are covered by the decision as given in the earlier part of this order for AY 201....
X X X X Extracts X X X X
X X X X Extracts X X X X
....R's primary contention is that even assuming without admitting that the impugned payment is an offence of a law, the law violated is a foreign law and not a law in India. It was submitted that for the relevant assessment year, Explanation 1 to section 37(1) of the I.T.Act only provides for contravention of those laws which are in force in India and not of any foreign country. In this context, the learned AR relied on the judgment of the Hon'ble Supreme Court in the case of Oxford University Press v. CIT reported in (2001) 115 Taxman 69 (SC) and the decision of the Hyderabad Bench of the Tribunal in the case of Mylan Laboratories Ltd. v. DCIT reported in (2020) 113 taxmann.com 6 (Hyderabad-Tribunal). As regards the insertion of new Explanation 3 to section 37 of the I.T.Act by the Finance Act, 2022, the learned AR submitted that the above said Explanation is prospective in nature and not retrospective, hence, not applicable for the relevant assessment year. As regards the prospective of application of the Explanation, the learned AR relied on the judgment of the Hon'ble Supreme Court in the case of Sedco Forex International Drill. Inc. v. CIT reported in (2005) 279 ITR 310 (SC) and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... [2020] 13 taxmann.com 6 (Hyd. Trib.) has held that amounts to be disallowed under Explanation 1 to section 37(1) of the Act are for those for contravention of laws in force in India and not of any foreign country. The relevant observations of the Tribunal are as under:- 8.9 Thus, from the above decisions, it is clear that what has to be disallowed under Explanation 1 to Sec.37(1) of the Act is a payment made, for contravention of laws in force in India and not of any foreign country. The laws are specific to each of the countries according to their rules and regulations and an offence in one country may not be so in another country. Therefore, we agree with the contentions of Ld.Counsel for the assessee that it is only payment made for contravention of laws in force in India that disallowance under Explanation 1 to Sec.37(1) of the Act is to be made. 135. The Hon'ble Apex Court in the case of Oxford University Press v. CIT (supra) had held that the word "India" in relation to the word `law' is implicit. The Hon'ble Supreme Court in the said case interpreted the expression `any law for the time being in force' appearing u/s 10(29) of the I.T.Act. In this context, the Hon'ble Ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Court of India in Sedco Forex International Drill. Inc. v. CIT [2005] 149 Taxman 352/279 ITR 310 (SC) held as follows: "18. As was affirmed by this court in Goslino Mario [2000] 241 ITR 314, a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication (see also : Reliance Jute and Indus- tries Ltd. v. CIT [1979] 120 ITR 921 (SC) ; [1980] 1 SCC 139). An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section**. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force***. But if it changes the law it is not presumed to be retrospective irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts". 140. The law prior to the amendment was that expenses towards offence under domestic laws of India alone would not be allowed as a deduction under section 37. This proposition was affirmed by the Tribun....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... For the aforesaid reasoning and judicial pronouncements on the facts and circumstances of the case and law application, we hold that settlement amount paid to US authorities amounting to Rs. 208,93,00,000 should be allowed as deduction for the relevant assessment year. It is ordered accordingly. Disallowance u/s 32AC (Ground No.11) 144. For the relevant assessment year, the assessee had claimed deduction u/s 32AC of the I.T.Act amounting to Rs.132,13,18,483 on account of investment in new plant and machinery. Working of the aforesaid deduction claimed was submitted to the A.O. vide letter dated 28.09.2017. A brief submission giving the reasons for the allowability of deduction claimed was submitted vide letter dated 08.12.2017. The A.O. however disallowed the claim u/s 32AC of the I.T.Act for the reason that the activity of software development falls within the purview of service sector, whereas section 32AC of the I.T.Act has been inserted by the Legislature to give impetus to the manufacturing sector only. Further, the A.O. had held that the total of the addition to the plant and machinery block during the year amounted to only Rs.413.11 crore. Consequently, the A.O. was of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hieved including the stress levels, security levels and recovery levels are defined. 149. Therefore, the software development activity performed by the assessee involves various activities like developing a software from the scratch, modification of existing software, maintenance of existing software or software testing. 150. Before proceeding further, there is necessity to examine the background under which section 32 of the I.T. Act was introduced. It is generally felt in the academic arena that the structure of Indian economy is skewed towards or dominated by service sector and the base of manufacturing sector is inadequate. India transitioned from agriculture dominated country to service sector dominated country. This is an unusual path of development whereas most of the world countries treaded the path of agriculture dominated economy to manufacturing dominated economy then came to be dominated by the service sector. This unusual development path of India led to a question whether India can sustain its economic development. This is evident from OECD (2007) (Economic Survey of India, Paris, www.oecd.org/eco/surveys/india), Dougherty, S. and R. Herd and T. Chalaux (2009) ("Wha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....put (Figure 3). About 87% of manufacturing employment is in micro-enterprises of less than 10 employees, a smallness of scale that is unmatched, with the closest comparator being Korea, where less than half of employment is in micro-enterprises. While there is a fairly high share of very large companies - making for a bimodal distribution - there are few enterprises of intermediate size. ............ ............ Given the relatively small size of many manufacturing firms, India is reaping far smaller gains from scale economies than many other countries. Larger establishments often use newer technologies and thus achieve higher productivity, while smaller establishments are much less productive. Accordingly, although small firms' share in manufacturing employment is almost 90%, they produce only about a third of manufacturing output. An estimate of scale effects for plants, based on individual establishments in the Annual Survey of Industries, shows them to be very large and persistent. Even after controlling for technology, industry, region and firms' age, total factor productivity (TFP) is about twice as high in firms with more than 250 employees than in those wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he size of the services sector that is 10 percentage points of GDP greater than that of the average country. Finally, note in Table 5 (column 8, panel A), that India is again a negative outlier in terms of the employment share in services, falling below other countries by a huge 17 percentage points in 2000. Gordon and Gupta (2004) have also observed that, unlike other countries, Indian labor's share in services employment has been flat rather than growing with income. The huge increase in value added in services without a commensurate increase in employment, must have come from tremendous gains in labor productivity in services. (refer p 472-473 of DRPB) 151. Hence, it was felt that the unusual path may lead to vulnerability of Indian Economy to ups and downs of global economy. The reason being service industries are foot loose industries where as manufacturing industries are not. In addition, employment growth is inadequate and is not matching with the output of service sector. It means service sector led to jobless growth. To ward off this problem, the necessity to increase the manufacturing base with large scale manufacturing firms was felt and there is an urge among....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of any article or thing". The word manufacture is defined in section 2(29BA) to mean "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or 154. (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; 155. To qualify as 'manufacture', as per above definition, the change should be in a non-living physical object or article or thing. Software is intangible and not physical object or article or thing. So, at the threshold, software development activity cannot qualify as 'manufacture'. Further, it cannot be said that, creating or maintenance of software programs, results in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. 156. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rticle'. The AR has relied on the decision of the Karnataka High Court in the case of CIT v Datacons (P.) Ltd (1985) 155 ITR 66 wherein it was held as follows "It will be clear from these activities that the assessee receives vouchers and statement of accounts from the customer and they are converted into the required balance sheet, stock account, sales analysis, etc. They are got printed as per the requirements of the customer. In all these activities, the assessee has to play an active role by co-ordinating the activities and collating the information. Such activities, in our opinion, could fairly fall within the concept of processing of goods, if not manufacture of goods." 159. The Karnataka High Court has held that the activity of receiving vouchers, etc. and converting into balance sheet, stock statement, etc. can be treated as processing of goods. Thus, such activity can be treated as processing activity but not manufacture or production activity. 160. The learned AR has relied on the decision in the case of Texas Instruments India P Ltd v ACIT (2020) 115 taxmann.com 154 (Bangalore Trib) where in the Tribunal allowed additional depreciation under section 32(1)(iia) to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....preciation should be regarded as "Plant" or "Office Equipment", we do not find sufficient material before the revenue authorities to come to a conclusion one way or the other. The learned counsel for the Assessee submitted in the course of his arguments that the assets on which additional depreciation is claimed were used for testing process while designing semi-conductors which was also a business which the Assessee was carrying on. These details have not been brought on record by the Assessee before the lower authorities nor before us. He also placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT v. I.B.M. World Trade Corpn. [1981] 130 ITR 739 (Born.) wherein the Hon'ble Bombay High Court held the expression "office equipment" used in Sec. 33 should be construed in context of appliances which are generally used in office as an aid for proper function of office and that EA machines, data processing machines installation and operation of which is on scientific basis, and which has their roles to play cannot be equated with office appliances and therefore such machines are "Plant" and not "Office appliances". As we have already observed there is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll be eligible for investment allowance under section 32AC of I.T.Act. 163. Further, the learned AR had submitted that the prescribed authority i.e., DSIR had granted approval for deduction u/s. 35(2AB) of the I.T. Act. Section 35(2AB) of the I.T. Act deals with weighted deduction in respect of expenditure incurred on scientific research on in-house research and development facility. The said emphasis is on expenditure incurred on scientific research. Moreover, the approval given by DSIR is section specific i.e., section 35 of the I.T. Act. However, looking at the background of introduction of section 32AC, the definition of the term "manufacture" u/s. 2(29BA) of I.T. Act, we are of the firm view that benefit deduction is available to only manufacturing sector and not the service sector. For the aforesaid reasoning and judicial pronouncements cited supra, we hold that the assessee is not eligible for deduction u/s. 32AC. It is ordered accordingly. Deduction u/s. 35(2AB) - Ground No.12 164. During the AY 2014-15, the assessee has claimed an amount of Rs.521,11,36,156/- being 200% weighted deduction u/s. 35(2AB) of the Act. The assessee filed the relevant forms and submissions be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade before the revenue authorities and placed reliance on some judicial precedents on identical issue rendered by various benches of ITAT and Hon'ble High Courts. 14. For AY 2012-13, the previous year is FY 2011-12 i.e., the period from 1.4.2011 to 31.3.2012. The facts on record go to show that the Assessee's in-house R & D facilities was approved by the DSIR, Govt. of India, Ministry of Science and Technology for AY 2012-13 vide their letter dated 20.5.2009, a copy of which is placed at Page-30 of the Assessee's paper book. The approval is for the period 1.4.2009 upto to 31.3.2012. Therefore, the condition for allowing deduction u/s.35(2AB) of the Act has been fulfilled by the Assessee. The claim of the revenue, however, is that the approval by the prescribed authority in form No.3CM is not final and conclusive and the quantum of expenditure on which deduction is to be allowed is to be certified by DSIR in form No.3CL. There is no statutory provision in the Act which lays down such a condition. We shall therefore examine what is Form No.3CL. 15. DSIR has framed guidelines for approval u/s.35(2AB) of the Act. The guidelines as on May, 2010 which is relevant for AY....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is at page 43 to 65 of the Assessee's paper book. According to the Assessee, it has complied with all the requirements of the guidelines for issue of Form No.3CL, but the DSIR has issued Form No.3CL dated 5.4.2018 for AY 2014 & 15 & 2015-16 but no Form No.3CL was issued for AY 2012-13. Though there has been no communication to the Assessee in this regard, the learned counsel for the Assessee submitted that since the audited accounts were not submitted by 31st October of the succeeding AY, as is required under Guideline 5 (vi), the Assessee's application would not have been considered by the DSIR. 17. Rule-6(7A)(b) of the Rules specifying the prescribed authority and conditions for claiming deduction u/s.35(2AB) of the Act has been amended by the Income Tax (10th Amendment) Rules, 2016 w.e.f. 1.7.2016, whereby it has been laid down that the prescribed authority, i.e., DSIR shall quantify the quantum of deduction to be allowed to an Assessee u/s.35(2AB) of the Act. Prior to such substitution, the above provisions merely provided that the prescribed authority shall submit its report in relation to the approval of in-house R & D facility in Form No.3CL to the DGIT (Exemptio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on in-house R&D facility as weighted deduction under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by Rs. 6,75,000/-. Thus, grounds of appeal No.10.1, 10.2 and 10.3 are allowed." (ii) The Hyderabad ITAT in the case of M/S. Sri Biotech Laboratories India Ltd. Vs. ACIT ITA No.385/Hyd/2014 for AY 2009-10 order dated 24.9.2014 took the view (vide Paragraph-13 of the order) that when the Assessee's R & D facility is approved the deduction u/s.35(2AB) of the Act cannot be denied merely on the ground that prescribed authority has not submitted report in Form 3CL. 19. The question of allowing deduction u/s.35(2AB) of the Act was considered by the Hon'ble Delhi High Court in the case of CIT vs. Sadan Vikas (India) Ltd. (2011) 335 ITR 117 (Del) where AO refused to accord the benefit of the weighted deduction to the assessee under s. 35(2AB)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of s. itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered r. 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by s. 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up research and development facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has t....