TaxTMI 
TaxTMI 
2023 (2) TMI 566
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....r Research and Gartner 3 3 Disallowance of software expenses for 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 (R....
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....ation as per rule 8D excluding and including the investment made in the shares of Infosys BPO Ltd. The Assessee relied on various decisions in support of the contention that 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 di....
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....ance voluntarily offered by the Assessee in AY 2012-13 and therefore the voluntary disallowance was therefore accepted in AY 2012-13. 10. In this regard the ld AR submitted that 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 ....
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....ction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (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 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 bef....
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....vidend income as per section 14A of the Income Tax Act. 3.2.2. It is seen that the taxpayer's computation for disallowance u/s 14A is not in accordance with the provisions contained in Rule 80 of Income Tax Rules. The crux of section 14A, which Is now obligatory in 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 14....
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.... where taxpayer in a particular year has not earned any exempt income. 3.2.7 As the computation for the disallowance u/s 14A is not satisfactory, the taxpayer company was asked the applicability of Rule 8D of the Income Tax Rules and to furnish the details of the working as per Rule 80 of the Income Tax Rules. The company furnished 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 &nb....
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....s made to M/s. Gartner Research Services holding the same to be in the nature of royalty. Therefore the AO disallowed the aforesaid payments under section 40(a)(i) for not deducting tax at source under section 195 on such payments. 18. On further appeal the CIT(A) upheld the addition made by the ld. AO relying on the decision of the jurisdictional High Court in Assessee's own case in ITA No. 613 to 616 of 2006 dated 15.10.2011. 19. 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 decisi....
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....ection 194J of the Act. The AO in this regard relied on the decision of the Karnataka High Court in CIT v Samsung Electronics Co Ltd (2011) 203 Taxman 477 (Kar). Aggrieved the assessee filed an appeal before the CIT(A) who upheld the action of the AO relying on the decision of the Karnataka High Court in Samsung Electronics case (supra). 24. We have heard the rival submissions and perused the materials available on record. We notice that this issue is 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 ....
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....cord by the revenue to demonstrate that the software payments are to be regarded as capital in nature. The ld AR drew our attention to the decision the Karnataka High Court in CIT v IBM India Ltd [2013] 357 ITR 88 where it is held that payment for purchase of application software is allowable as revenue expenditure and accordingly prayed that the AO be directed to verify the nature of the software, duration of license and allow the deduction of software expenses if 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 rathe....
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....also submitted in this regard [Page 801 to 814 of Paper book 2]. 33. The AO has noted that this issue has been duly examined in the assessment order passed for earlier years in Assessee's case wherein it was concluded that expenditure incurred granted an enduring benefit. Accordingly the AO has treated brand building expenses of Rs. 91,60,44,081 as deferred revenue expenditure, allowed only one fifth of the said expenditure amounting to Rs. 18,32,08,816 and held that the remaining 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 identi....
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....ender services from India or in India. BAP are also 'non-residents' under section 2(30) read with section 6 of the Act. Hence, no tax was deducted at source in respect of the commission paid to these nonresidents. [Page 781-800 of Paper book 2]. 39. The AO did not accept the submissions of the assessee and disallowed commission paid to non-resident entities amounting to Rs. 50,87,88,787 under section 40(a)(i) for not deducting tax at source in respect of the said payments under section 195. The AO placed 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 fo....
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.... Trevally Financial Softwa South Africa 13,93,21,694 Fees commission KUWAIT COMPUTER SERVICES Kuwait 59,96,000 Towards commission on License sale Al Futooh Consultancies E UAE 36,38,800 Towards commission on License sale Nihon Unisys Ltd. Japan 7,15,299 Fees commission MDSL SAL (Offshore) Lebanon 21,01,555 Fees commission MKTY Information Technolo Ethiopia 22,86,167 Towards License commission Hypertek Company Limited Vietnam 1,55,15,650 Towards commission on License sale Computech Zambia Ltd Zambia 15,40,193 Towards commission on 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 t....
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....management of the company. Similarly, no advice or consultancy was rendered by BAP so as to treat the services as consultancy services. Further, the services of BAP were not technical in nature. The payment of commission to BAP therefore did not constitute fees for technical services under section 9(1)(vii). 1.6. In the following decisions it has been held that commission paid for procurement of orders, business etc. cannot be regarded as 'fees for technical services' since the services are not managerial, technical or consultancy in nature. a) CIT v Faizan Shoes P Ltd [2014] 48 taxmann.com 48 (Madras) - Page 3879-3886 of case law compilation b) Apsara Silks v ITO [2016] 69 taxmann.com 399 (Bangalore - Trib.) - Page 3887-3890 of case law compilation c) CIT v Farida Leather Company [2016] 66 taxmann.com 321 (Madras) - Page 3891-3898 of 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) ....
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....nt (Tim Philippines 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 Bowin Consultancy Services Taiwan Same as above DTAA u/s 90A vide notification no. 48/2011 w.e.f. 2.9.2011 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 Ohnishi Legal office Japan Same as above Definition of FTS is similar tnot taxable under the Treatyo s. 9(1)(vii); Payment not in the nature of managerial, technical or consultancy; no PE in India; hence not taxable under the treaty Taldor Israel Same as above Payment does not 'make available' any technology, skills, process, know how etc as per the protocol to Treaty. Hence, payment not taxable under the Treaty. PT Business Intelligence Indonesia Same as above New Treaty 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 payme....
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....n India; hence not taxable under the treaty Crown Commercial Services United Kingdom Same as above Payment does not 'make available' any technology, skills, process, know how etc as per the protocol to Treaty. Hence, payment not taxable under the Treaty. Enterprise Business System Japan 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 1.9. Submissions in detail as to why payment of commission to BAP's were not taxable under the DTAA is as under. Make available test not satisfied with respect to India-UK treaty and India-Israel treaty 1.10. India - UK Treaty:-As per Article 13(4)(c) of the India - UK DTAA, a payment is considered as 'fees for technical services' if both of the following conditions are satisfied. (a) payment is made as a consideration for rendering of technical or consulting services; (b) such services should 'make available' technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. ....
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....R 542(E), dated 16-6-2000, as corrected by Notification Nos. SO 673(E), dated 25-8-2000 and No. GSR 597(E), dated 20-9-2005. The definition of "fees for included services" as per Article 12(4) of this Treaty is as follows: "For the purposes of this Article, "fees for included services" means payments of any kind, other than those mentioned in Articles 14 and 15 of this Convention, to any person in consideration of the rendering of any technical or consultancy services (including through the provisions of services of technical or other personnel) if such services (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received, or (b) make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein." 2.2. By virtue of the protocol to India - Israel Treaty read with FTS clause of India - Portugal republic Treaty, payment to Israel resident for services would not be regarded....
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.... above countries. As a result, commission paid to BAP's situated in these countries are not liable for TDS u/s 195 and consequently the said payments cannot be disallowed u/s 40(a)(i). 2.6. India has not entered into DTAA with Nigeria. Submissions have already been made as to why commission paid to BAP's is not liable for TDS under the Income Tax Act. The commission paid to company based in Nigeria would therefore not be chargeable to tax in India and hence outside the purview of section 195. 2.7. On the facts and in the circumstances of the case and law applicable, commission paid to overseas entities totally amounting to Rs. 50,87,88,787 was not liable for TDS under section 195 and as a result such payments were not liable for disallowance under section 40(a)(i). The deduction claimed in respect of commission paid is to be fully allowed. 43. We heard the rival submissions and perused the material on record. We notice that the ld AR during the hearing of assessee's case for AY 2012-13 has made similar submissions and that the coordinate bench of the Tribunal after considering the submissions held that - We have perused the submissions advanced by both....
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.... 2 to section 10AA, profits from onsite development of computer software are eligible for deduction under section 10AA. The pure onsite revenue was 3.58% of total revenue of all 16 SEZ units. 48. The Assessee relied on the decision of the Jurisdictional High Court in the case of CIT v Mphasis Software and Service India Pvt. Ltd decision dated 29th July 2015 62 taxmann.com 165 in support of the contention that onsite profits are eligible for deduction under section 10AA. 49. The CIT(A) did not accept the contentions of the assessee and upheld the action of the AO by relying on the appellate orders passed for AY 2007-08 to 2009-10. The CIT(A) declined to follow the jurisdiction High Court decision in Mphasis Software (supra) by stating that it is factually distinguishable. 50. The ld AR submitted that similar issue in assessee's own case for AY2012-13 is considered by the coordinate bench where the issue was remitted back to the AO for verification. The ld AR for the year under consideration argued that the required details have already been submitted before the AO and therefore the issue need not be remitted for the current year. The ld AR submitted that the AO has merely r....
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....puter software outside India would be deemed to be profits and gains from the export of computer software outside India. By this explanation, it is clear that the profits and gains which are derived from 'on-site' development of computer software would also be covered under Section 10A of the Act. What we notice is that the main Section 10A no where provides that the 'on-site' work of software development should be carried out by the own personnel of the assessee. As such, it would be wrong to deny the benefit under the said section merely because the 'on-site' work was not done by the personnel of the assessee as we are of the firm view that authorities or Courts are not to read something into the provision of law which is not there in the Section or its Explanation; more so, in the case of a beneficial piece of legislation, as is the present one. 21. With regard to denial of benefit of Section 10A because of the personnel of the assessee having not performed the 'on-site' work, emphasis has been laid by the learned counsel for Revenue on the Circular No.694 dated 23.11.1994 issued by the Central Board of Direct Taxes (CBDT). The relevant p....
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....sonnel. Such interpretation of the Section cannot be accepted because what is not there in the Section or the Explanation, cannot be read into by the authorities or by this Court. 24. Learned counsel for the Revenue has also submitted that the conditions laid down in sub-section (2) of Section 10A of the Act have not been fulfilled by the assessee, which have to be strictly construed and as such, the assessee would not be entitled to the benefit of Section 10A. According to the learned counsel for the Revenue, the production or manufacture should be in any free trade zone and if the same is not done in the free trade zone, the assessee would not get benefit of such manufacture or produce. The benefit is site specific and not project specific. According to him, only such production or manufacture which is carried at the site of the assessee's unit in the free trade zone would alone be eligible for the benefit under section 10A and not such production or manufacture which has been carried outside or by a third party. A mere reading of sub-section (2) would not be sufficient. The entire section has to be read in conjunction with Explanation 3, which clarifies that profits....
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.... work executed by AEs did not have any Indian connection on these works executed by it. The assessee has attempted to claim exemption on the work executed by a foreign entity over which the provisions of Indian Income Tax Act, 1961 are not applicable." 26. The Tribunal has considered this aspect and has come to the conclusion that the assessee company was solely responsible for the risks and rewards arising out of the sub-contract to the AE. It has given a clear finding that "the assessee is solely responsible for the discharge of its obligations under the contract to the customer and the sub-contractor has no say in the matter. It is seen from the Master Services Agreement that it is the assessee which is under an obligation to discharge its obligation of specific requirement of the customer and in pursuance thereof, to pass on the specification of the products to the AE and also to reserve right to reject the product if the AE does not produce the product in conformity with the product as given in the task order. Therefore, it can be safely concluded that the development of the software by the AE is under the supervision and control of the assessee". 27. From th....
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....asoning for such disallowance is absolutely uncalled for. However in the interest of justice, the Ld.AR suggested the issue may be remanded to the Ld.AO for due verification. We direct the Ld.AO to verify the details filed and to consider the claim of assessee in accordance with law. Needless to say that proper opportunity of being heard is to be granted to the assessee. 55. Considering the above decision and facts of the year under consideration we remit the issue back to the AO for verification of details and consider the claim of the assessee in accordance with law. The AO is directed to keep in mind the ratio laid down by the jurisdictional High Court in the case of Mphasis (supra) while deciding the issue on merits after giving a reasonable opportunity of being heard to the assessee. Ground No. 9 - Deduction under section 80JJAA 56. During the year under consideration, the Assessee claimed a deduction under section 80JJAA amounting to Rs. 86,97,65,436. The deduction claimed pertains to the 3rd year claim in respect of services of employees who joined in financial year 2012-13. The Assessee quantified and claimed deduction under section 80JJAA in respect of each indust....
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....the AO. 61. Aggrieved the assessee is in appeal before the Tribunal. 62. The ld AR during the course of hearing submitted a detailed written submissions contending the various grounds including those with regard to Software development activity amount to manufacture or production of article or thing. The ld DR also presented a similar written submission in which various arguments with regard to assessee being a service provider and not engaged in manufacture or production and that a service provider is not eligible for deduction u/s.80JJAA. We have taken on record both the written submissions on record. However we notice that the CIT(A) while rejecting the claim of deduction u/s.80JJAA has done so on the ground of type of employees eligible, the percentage increase in regular workmen, number of days of working of the eligible employees etc., but had not rejected the claim on the assessee not being an industrial undertaking engaged in manufacturing. Though the CIT(A) has extracted the relevant contentions presented before the AO by the assessee and the relevant findings of the AO in the appellate order, the CIT(A) has rejected the claim on a different ground. Accordingly, we w....
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....nder the provisions of 80A(4) of the Act, the assessee cannot enjoy benefits both under sections 10A and 80JJAA of the Act in respect of the same income. On objections by the assessee before the DRP, the DRP rejected the claim of the assessee. The DRP also took the view that, the assessee has not given Form 10DA for each 10A unit separately. The AO in the order giving effect to the order of the DRP on this aspect has observed as follows: "7.5 Apart from the above, I would like to highlight the fact that as per the provisions of section 80JJAA, deduction is allowable taking each unit as a basis rather than the assessee as an undertaking. Accordingly, the assessee is required to compute deduction u/s 80JJAA in respect of each eligible unit separately. While doing so, all the conditions stipulated would be applied taking each unit as the reference point, i.e The additional wages are required to be restricted by excluding the additional wages payable to 100 workmen in respect of each unit. There should be increase in workmen in each year to the extent of minimum 10% of the existing workmen at each unit level. It is required to be seen that the workmen employe....
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....th only be excluded from the definition of workman. In Assessee's case the software engineers in respect of whom deduction under s. 80JJAA has been claimed have not been employed in a supervisory capacity even though they may be getting a salary of more than Rs. 1,600 per month. As the software engineers were not employed in supervisory capacity they cannot be excluded from the definition of workman. Further as per the notification of the Karnataka Government, the Assessee company engaged in the development of software is covered by the Industrial Disputes Act. As such, I am of the considered opinion that the Assessee has satisfied all the conditions for claiming relief under s. 80JJAA. However, I find that the Assessee has claimed deduction of Rs. 2,55,81,220 with reference to the additional wages of Rs. 8,52,70,736 which included the wages of Rs. 4,87,64,029 in respect of the new workmen employed during the year ended 31st March, 2000 relevant to the asst. yr. 2000-01. As there was no claim for relief under s. 80JJAA for the asst. yr. 2000-01, the relief in respect of the workers employed in asst. yr. 2000-01 cannot be considered for relief under s. 80JJAA in the asst. yr. 20....
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....upervisory control. All these details were filed before the AO during assessment proceedings. These facts were not properly considered by the AO. Further, from the order of the CIT(A), it is seen that he had taken note of the notification issued by the Government of Karnataka and concluded that as per the notification issued, the assessee company engaged in the development of software is covered by the Industrial Disputes Act, 1947. Further it is not the case of the Revenue that the assessee did not fulfil the conditions extracted elsewhere in this order. Considering all those factual matters we do not find any infirmity in the order of CIT(A) according relief to the assessee. In fact he had clarified the relevant portions related to Industrial Disputes Act, 1947 and IT Act while granting relief to the assessee which are extracted at pp. 5 and 6 of this order. After carefully considering the same, we are inclined to accept the reasons shown by the learned CIT(A). The learned CITDepartmental Representative could not assail the finding reached by the learned CIT(A) by bringing in any valid materials. The order of the CIT(A) is confirmed. It is ordered accordingly. There is n....
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....s were made after obtaining certificate from the Chartered Accountant in the prescribed form. Additionally, payments were also made to following non-AE's during the FY 2014-15. 6 Future Focus Infotech UAE 3,37,102 7 Pt Maya International Indonesia 35,21,750 68. No tax was deducted in respect of the aforesaid payments also as the said payments were not chargeable to tax in India under the Act / Treaty. 69. The assessee submitted that the control and management of the affairs of these overseas entities is not wholly in India and these overseas entities are therefore 'non-residents' under the Act. The assessee also submitted the details of payments made to related concerns vide letter filed on 25.10.2016 [Page 53 of Paper book 1]. 70. The AO noticed that vide order passed under section 201(1)/(1A) dt. 29.1.2016, the ld. DCIT (IT), Circle 1(1), Bangalore treated the Assessee as an 'assessee in default' for not deducting tax at source under section 195 in respect of the aforesaid payments. The appeal against the said order is pending before the Hon'ble CIT(A) 12, Bangalore. Relying on order passed under section 201(1) and 201(1A) for AY 2015-16, the learned AO....
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....finition of 'Fees for technical services' as per the Treaties with Czech Republic, Mexico and Poland are similar to the definition of the said term under section 9(1)(vii) of the Act and therefore, the ratio of the decision of the Hon'ble ITAT in Assessee's own case in IT(IT)A Nos. 4&1182/Bang/2014 for AY 2011-12 and 2012-13 dated 28.03.2022 would govern the payments made to subsidiaries in the aforesaid countries 75. With regard to payments made to rest of the subsidiaries the ld AR submitted written submissions the extract of which is as given below - Payment of sub-contracting charges to Infosys Technologia do BrasilLtda; Future Focus Infotech, UAE and Pt Maya International, Indonesia - Fees for technical services * As mentioned above, 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. * The Assessee has made payments for onsite services to Infosys Technologia do Brasil Ltd a, Brazil ('Infosys Brazil'), Future Focus Infotech, UAE ....
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....siness carried on by such person outside India or for the purpose of earning any income from any source outside India, is not applicable in the case of the Assessee. The conclusion that the impugned payment constitutes fees for technical services under the Act was also sustained under the Treaty between India and China. With regard to Infosys BPO S.R.O. Czech Republic, Infosys Technologies S De Rl De Cv, Mexico and Infosys BPO Poland Sp, it is noticed that the definition of 'Fees for technical services' as per the Treaties with Czech Republic, Mexico and Poland are similar to the definition of the said term under section 9(1)(vii) of the Act and therefore the ratio of the decision of the Hon'ble ITAT in Assessee's own case in IT(IT)A Nos. 4&1182/Bang/2014 for AY 2011-12 and 2012-13 dated 28.03.2022 in our view would cover the payments made to subsidiaries in the aforesaid countries. Therefore respectfully following the above decision we hold that the tax ought to have been deducted on payments made to Infosys China, Infosys BPO S.R.O. Czech Republic, Infosys Technologies S De Rl De Cv, Mexico and Infosys BPO Poland Sp, and accordingly, the disallowance of payments made to these sub....
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....t, this issue is well settled now and there are plethora of judgments discussing this issue where it has been held that the assessee cannot be denied the deduction. The courts have clearly brought out the distinction between a fresh claim and revised claim. 82. In the case of PCIT vs E-Funds International India Pvt Ltd, [2015] 379 ITR 292 (Del) this principle of assessee making a revision to the original claim and not fresh claim is clearly laid out by the Hon'ble Delhi High Court. The assessee in E-Funds International (supra) through a letter filed before the AO submitted a revised computation for the claim u/s.80HHE. The Delhi Hon'ble High Court in this case held that "The Court noted that "Courts have taken a pragmatic view and not a technical view as what is required to be determined is the taxable income of the Assessee in accordance with law." In Influence v. Commissioner of Income Tax (supra) a similar approach was adopted when the AO in that case refused to accept the revised computation submitted beyond the time limit for filing the revised return under Section 139(5) of the Act. This Court noted that the decision in Goetze (India) Ltd. (supra) "would not apply....
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....r Section 139 (5), the effective return for the purpose of the assessment is thus the return which is ultimately filed by the assessee on the basis of which he wants his income to be assessed. In this context one should notice the issue on hand is not with regard to a claim that would vary the income of the assessee. The issue is with regard to allowing a credit on account of tax paid outside India in respect of which particulars were furnished to the assessing authority during the course of assessment proceedings before the assessment is passed. It is bound to be entertained and dealt with on merits. Once the return is filed and the income tax officer commences the assessment proceedings, the assessing authority is not the tax payer's opponent, in the strictly procedural sense of the term. The assessment functioning involves the adjustment of the tax liability of the assessee in accordance with the facts on record and in accordance with the law laid down by the legislature. The assessment is nothing but another name for adjustment of the tax liability to accord with the taxable event in the particular tax payer's case. While determining the tax liability of the assessee, t....
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.... the assessing authority was conscious that it is not a valid ground to reject the claim, he proceeded to consider the claim of the assessee on merits and has rejected the claim on merits also. 74. In view of the aforesaid discussions, the said substantial question of law is answered in favour of the assessee and against the revenue and the assessee is entitled to the tax benefit to the extent set out above)." 84. In the light of the various judicial pronouncements, we are of the considered view that the assessee cannot be denied the additional deduction claimed during the course of assessment towards payments made to overseas entities on the ground that the same is not made by filing revised return. Accordingly the AO is directed to consider these claims and decide the allowability of the claim on merits as directed in para 80 of this order. Ground No. 11 -Disallowance of deduction claimed under section 32AC 85. The same issue is contented by the assessee in the appeal filed for AY 2014-15 and the same is adjudicated in the later part of this order and accordingly this ground of the assessee is dismissed. Ground No. 12 - Deduction for state taxes paid outside ....
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.... that the aforesaid taxes cannot be disallowed u/s 40(a)(ii), as the aforesaid taxes are not eligible for relief under section 90 and hence does fall within the ambit of Explanation 1 to Section 40(a)(ii). The ld AR drew our attention to the relevant extract of Section 40 which is reproduced below - (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91. 90. The ld AR submitted that the Bombay High Court in Reliance Infrastructure Ltd v CIT [2016] 76 taxmann.com 257 held that tax paid outside India which is not eligible for relief under section 90/91 should be allowed as a deduction while computing the business income. The ld AR also submitted that following the above decision in Reliance ....
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....y rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits and gains. [Explanation 1. - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under Section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] [Explanation 2. - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under Section 90A.]" (i) We have considered the rival submissions. So far as the question relating to the Tribunal not following its order in the case of the applicant itself for A.Y. 1979-80, we find that there is a justification for the same. This is so as the decision of this Court in S. Inder Singh Gill (supra) was noted by the Tribunal on an identical issue while passing the order for the subject assessment year. Thus, the Tribunal had not erre....
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....r profession. Therefore, such expenditure is allowable as a deduction to determine the profits of the business. It is only after deducting all expenses incurred for the purpose of business from the total receipts that profits and/or gains of business/ profession are determined. It is this determined profits or gains of business/profession which are subject to tax as income tax under the Act. The main part of Section 40(a)(ii) of the Act does not allow deduction in computing the income i.e. profits and gains of business chargeable to tax to the extent, the tax is levied/ paid on the profits/ gains of business. Therefore, it was on the aforesaid general principle, universally accepted, that this Court answered the question posed to it in S. Inder Singh Gill (supra) in favour of the Revenue. (l) We would have answered the question posed for our consideration by following the decision of this Court in S. Inder Singh Gill (supra). However, we notice that the decision of this Court in S. Inder Singh Gill (supra) was rendered under the Indian Income Tax Act, 1922 and not under the Act. We further note that just as Section 40(a)(ii) of the Act does not allow deduction on tax paid ....
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.... paid abroad under Sections 90 or 91 of the Act and also claim the benefit of tax paid abroad as expenditure on account of not being covered by Section 40(a)(ii) of the Act. This is evident from the Explanatory notes to the Finance Act, 2006 as recorded in Circular No.14 of 2006 dated 28th December, 2006 issued by the CBDT. The above circular inter alia, records the fact that some of the assessee who are eligible for credit against the tax payable in India on the global income to the extent the tax has been paid outside India under Sections 90 or 91 of the Act, were also claiming deduction of the tax paid abroad as it was not tax under the Act. In view of the above, Explanation inserted in 2006 to Section 40(a)(ii) of the Act, would require in the context thereof that the definition of the word "tax" under the Act to mean also the tax which is eligible to the benefit of Sections 90 and 91 of the Act. However, this departure from the meaning of the word "tax" as defined in the Act is only restricted to the above and gives no license to widen the meaning of the word "tax" as defined in the Act to include all taxes on income/profits paid abroad. (o) Therefore, on the Explanat....
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....'ble Bombay High Court in the case of Reliance Infrastructure Ltd (supra) has laid down the ratio that to the extent tax paid in foreign country on income which has arisen/accrued in India, has to be considered in the nature of expenditure incurred or arisen to earn income and is to be allowed as a deduction. In the given case it is submitted that out of the foreign taxes paid no credit was claimed to an extent of Rs.9,32,85,133/-. Of the said foreign tax paid how much is attributable to the income accrues / arises in India needs to be verified in order to arrive at the extent of allowability. This issue is raised as additional ground before the Tribunal and the issue is not factually verified by the lower authorities. We therefore remit this issue back to the AO. The AO is directed to verify the amount of foreign tax credit paid that is attributable to the income accruing / arising in India and allow the same accordingly in the light of the decision of the Hon'ble Bombay High Court in the case of Reliance Infrastructure Ltd (supra) after giving reasonable opportunity of being heard. The assessee is directed to provide necessary information to the AO and cooperate with the proceedi....
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....t the sum paid by the Assessee cannot be considered as "donation". Therefore, such payments are not eligible for a deduction under section 80G. 98. Aggrieved the assessee is in appeal before the Tribunal. 99. We notice that the coordinate bench of Tribunal in the case of M/s Goldman Sachs Services Pvt. Ltd. v JCIT [IT(TP)A No.2355/Bang/2019 dated 15.06.2020 has considered a similar issue where it is held that - Whereas, the assessee company has made a claim for deduction of CSR expenses u/s. 80G of the Income Tax Act, 1961. But the assessing officer has rejected the assesses claim without verifying the nature of contributions and observed that it is not a donation, and was not spent voluntarily for the eligibility of claim u/s. 80G of the Act but due to legal obligation prescribed u/s. 135 r.w. Schedule VII of Companies Act, 2013. We find that the A.O has allowed deduction u/s. 80G of the Act in respect of contribution made to PM Relief Fund which is not disputed. We are of the opinion that the A.O. has not made his observations clear that no CSR expenses are eligible for deduction u/s. 80G of the Act. We consider it appropriate to refer to the Clauses (iiihk) & (iii....
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....R were claimed as deduction under section 80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, it would lead to double disallowance, which is not the intention of Legislature." 101. In assessee's case the reason for denying the deduction u/s.80G is that the deduction is not available for donations which are part of CSR expenditure. The CIT(A) while upholding the order of the AO stated that the CSR spend is not voluntary and therefore cannot be treated as donation. In our view, the assessee's case is therefore covered by the decision of the coordinate bench in the case of Goldman Sachs Services Pvt. Ltd (supra) and respectfully following the same we remit this issue back to the AO for verification of CSR spends in the light of the said decision. The AO is also directed to consider the ratio laid down by the coordinate bench in the case of Allegis Services (India) (P.) Ltd (supra) and allow a proper opportunity ....
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....07. We will now take up the appeal of the revenue for adjudication. Grounds No. 1, 4 and 5 are general in nature Ground No. 2 - Deduction under section 10AA in respect of interest income on GLES deposits with LIC, receipts from sale of scrap, interest income from loans given to employees and incentives from airlines. 108. During the year under consideration, the Assessee earned Rs. 95,07,75,764 as interest from GLES deposits, . Rs.4,07,40,415 as interest from employee loans, Rs. 8,08,04,033 from sale of scrap and Rs. 5,38,800 as incentive from airlines. The Assessee had offered these to tax under the head 'Profits and gains from business or profession'. Accordingly the assessee claimed deduction u/s.10AA including these incomes. 109. The AO reduced the interest income on GLES deposits with LIC relating to SEZ units eligible for 100% and 50% deduction amounting to Rs. 13,50,96,470 and Rs. 23,68,91,036 respectively from profits of the business of SEZ units for the reason that the said income is not derived from the activity of software development and export. Similarly, the AO has reduced the receipts from sale of scrap, interest income from loans given to employees and ince....
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.... and other income as explained above constitutes income from incidental and ancillary activity and is subservient to carrying on of the main business of the company and hence forms part of the business profits of the company. In Green Agro Pack P Ltd v CIT ITA No. 3112/2005 decision dated 13.4.2010, the Jurisdictional High Court held that interest from margin money fixed deposit which was offered as security to bank is business income. It was also held by the Court that such interest would be eligible for deduction under section 10A / 10B. In DCIT v Motorola India Electronics (P) Limited 46 taxmann.com 167, the jurisdictional High Court had an occasion to adjudge whether interest from EEFC account and fixed deposits and inter company loans was eligible for a deduction under section 10B. In this context, the High Court observed - "There is a direct nexus between this income and the income of the business of the undertaking. Though it does not par take the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of 'Income from Profits and ....
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....0B. It is in pari materia with Section 10A and has answered the said question in favour of the assessee and against the revenue. 169. As all these questions are decided and answered in favour of assessee in the aforesaid case, this question of law is answered in favour of the assessee and against the revenue The decision in Motorola India Electronics case (supra) has been affirmed by the Full Bench of the Karnataka High Court in CIT v Hewlett Packard Global Soft Ltd [2017] 87 taxmann.com 182. The Full Bench held that all profits and gains of 100 percent EOU including incidental income by way of interest on bank deposits or staff loans would be entitled to 100% exemption or deduction under sections 10-A or 10-B. The relevant portion of the decision is as follows: Exemption under sections 10-A and 10-B encompasses the entire income derived from the business of export of such eligible undertakings including interest income derived from the temporary parking of funds by such undertakings in Banks or even Staff loans. The dedicated nature of business or their special geographical locations in STPI or SEZs. etc. makes them a special category of assessees entitl....
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....preneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005, from his Unit, who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006, but before the first day of April, 2021, the following deduction shall be allowed- (i) hundred per cent of profits and gains derived from the export, of such articles or things or from services for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services, as the case may be, and fifty per cent of such profits and gains for further five assessment years and thereafter; (ii) for the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the "Special Economic Zone Re-investment Reserve Account") to be created and utilized....
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....he Full Bench decision of the Hon'ble Karnataka High Court, in the case of Hewlett Packard Global Soft Ltd., has distinguished the decision of Sterling Foods by stating that - "34. We are of the considered opinion that the above referred decisions relied upon by the learned counsel for the Revenue, Mr. Aravind do not cover the cases under Sections 10-A and 10-B of the Act which are special provisions and complete code in themselves and deal with profits and gains derived by the assessee of a special nature and character like 100% Export Oriented Units (EOUs.) situated in Special Economic Zones (SEZs), STPI, etc., where the entire profits and gains of the entire Undertaking making 100% exports of articles including software as is the fact in the present case, the assessee is given 100% deduction of profit and gains of such export business and therefore incidental income of such undertaking by way of interest on the temporarily parked funds in Banks or even interest on staff loans would constitute part of profits and gains of such special Undertakings and these cases cannot be compared with deductions under Sections 80-HH or 80-IB in Chapter VI-A of the Act where an assessee....
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....**** 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as 'Income from other Sources' under Section 56 of the Act. The incidental activity of parking of Surplus Funds with the Banks or advancing of staff loans by such special category of assessees covered under Section 10-A or 10- B of the Act is integral part of their export business activity and a business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be de-linked from its profits and gains derived by the Undertaking engaged in the export of Articles as envisaged under Section 10-A or Section 10-B of the Act and cannot be taxed separately under Section 56 of the Act. 116. We also notice that the coordinate 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....
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....re incidental to the business carried on by the assessee and therefore eligible for deduction under Section 10A of the Act. 30.3.1 We have heard the rival contentions, perused and carefully considered the material on record. The issue as to whether interest income, income from sale of scrap, export incentive, rental income, etc. are eligible for deduction under Section 10A of the Act has been considered by the Hon'ble High Court of Karnataka in the case of Subex Ltd. Vs. ITO in ITA Nos.46 & 47 of 2009 dt.2.10.2014 held that rental income by virtue of sub-section (4) of Section 10 of the Act is deemed to be business of the undertaking for the purpose of extending the benefit of deduction under Section 10A of the Act. At paras 8 & 9 thereof, the Hon'ble Court, explaining the interplay of section 10A(1) and 10A(4) of the Act, has held as under : 8. As could be seen from the aforesaid provisions, the opening words of Section 10A of the Act assumes importance. It commences with the words "subject to the provisions of this section". The opening words of sub section 4 of the Act clearly state that "for the purposes of [sub-sections (1) and (1A], the profits deriv....
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....n respect of income from sale of scrap, export incentive, rent received, interest income and gain on exchange rate fluctuation. The Hon'ble Court held that these items were eligible for deduction under Section 10A of the Act. At para 166 thereof; the Hon'ble Court followed its own earlier order in the case of Wipro Ltd. in ITA No.507 / 2002 dt.25.8.2010, in respect of income from sale of scrap, export incentive and rent received to hold as under : "166. This Court had 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 from sale of scrap, export incentive and rent received, answered the question in favour of the assessee ;and against the revenue." At para 169 thereof the Hon'ble Court held as under : "169. As all these questions are decided and answered in favour of the assessee in the aforesaid case, this question of law is answered in favour of the assessee and against revenue." 30.3.3 Respectfully following the decisions of the Hon'ble High Court of Karnataka in the case of Subex Ltd. Vs. ITO (supra) and Wipro Ltd. Vs. DCIT (supr....
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.... employee welfare measure, the Assessee extends loans to its employees. There were 3 types of loans- Soft loan, salary loans and salary advance. The soft loan carried an interest of 4% p.a., whereas salary loans and salary advances were interest free. The soft loan is recovered in 12/24 months (depending on eligibility), salary advance in the same month of disbursal and salary loan in 12 months. The perquisite value for soft loans and salary loans was taxed in the hands of the employees. Sale of scrap- During the year under consideration, the Assessee earned Rs. 8,08,04,033 from sale of scrap and Rs. 5,38,800 as incentive from airlines. The Assessee had offered the same for tax under the head 'Profits and gains from business or profession'. 118. From the perusal of facts in assessee's case, we are of the considered view that GLES deposits with LIC, receipts from sale of scrap, interest income from loans given to employees are covered by the decision of the Hon'ble High Court in the case of Hewlett Packard Global Soft Ltd (supra) and assessee's own case for AY 2007-08 to 2011-12 (supra). Accordingly we hold that these income should be included for the purpose of computin....
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....tributable to income on which deduction under section 10AA may be allowed once the Supreme Court decides revenue's SLP against the Karnataka High Court in the case of Wipro Limited v DCIT[2016] 382 ITR 179. Accordingly, the AO recording the above reservations of the Assessee, foreign tax credit amounting to Rs. 376,69,73,928 has been allowed. 123. The ld AR submitted that the claim for foreign tax credit amounting to Rs. 376,69,73,928 as has been granted by the AO in the order giving effect to CIT(A) order, should be fully allowed. The ld AR also submitted that the foreign tax credit on income on which deduction under section 10AA is claimed as per Wipro decision (supra) is also allowable subject to the outcome of the revenue's SLP before the Supreme Court. Similarly, FTC on taxes which are under dispute with the ATO is also allowable when the dispute is finally settled in accordance with the provisions of section 155(14A) read with rule 128(4). 124. Without prejudice to the above, the Assessee requests that state taxes paid in US and Canada be allowed as a deduction under section 37 of the Act following the decisions Reliance Infrastructure Ltd v CIT [2016] 76 taxmann.com 25....
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....(AC) (Ground No.11) which is common to AY 2014- 15 and 2015-16 and the issues unique to AY 2014-15 with respect to disallowance of payments made to US authorities (Ground No.10) and disallowance u/s. 35(2AB) (Ground No.12) are adjudicated in the following paragraphs. Ground No.1 is general not warranting separate adjudication. Disallowance of payments made to US authorities (Ground 10) 129. The brief facts in relation to this issue are that during the course of assessment proceedings, it was noticed that the assessee had paid a sum of Rs.208.93 crore (34 Million USD) to certain authorities of United States of America (hereinafter referred to as "US Authorities") towards settlement of visa violation. The assessee had debited the settlement paid of the aforesaid sum under the head "other expenses" and claimed the said payment as an allowable business expenditure. During the course of assessment proceedings, the assessee was asked to substantiate the claim of settlement amount so paid as an allowable expenditure. The assessee vide letter dated 08.12.2017, submitted the details of the impugned payment made to the US Authorities along with note giving detailed reasons for allowabi....
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....Infrastructure India Ltd. reported in 448 ITR 674 (Delhi). 132. The learned Departmental Representative, on the other hand, submitted that Explanation 1 is independent of Explanation 3. It was submitted that by virtue of Explanation 1, the expenditure claimed ought to be disallowed. The learned DR sought to distinguish the Hyderabad Bench order of the Tribunal relied on by the learned AR. It was submitted by the learned DR that the Hyderabad Bench order was rendered by placing reliance on various Court's rulings / judgments concerning interpretation of domestic law and rules, whereas, the Income-tax Act deals with global income and corresponding expenditure incurred globally. The learned DR placed reliance on the explanatory memorandum for introduction of Explanation 3 to section 37 and the Finance Minister's speech to contend that the above said Explanation 3 is retrospective in nature and not prospective. It was also contended that the emphasis has been given to the words "shall not deemed to have been incurred for the purpose of business or profession" and not to the word "law". It was submitted that the intend of the Legislature is to treat an expenditure for violation of la....
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....ot used in the said section, in order to claim exemption, the authority therein has to be constituted under any law for the time being in force in `India'. 136. However, the Finance Act, 2002 has introduced a new Explanation 3 to section 37 of the I.T.Act, which reads as follows:- "Explanation 3.-For the removal of doubts, it is hereby clarified that the expression "expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law" under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee,- (i) for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or (ii) to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person; or (iii) to compound an offence under any law for the time being in force, in....
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.... has also been noted in the Memorandum as reproduced above. Therefore, the aforesaid amendment alters the law as it stood earlier. Therefore, as per the above decision of the Hon'ble Supreme Court, the Explanation cannot be considered retrospective in nature. 141. Relying on the above judgment of the Hon'ble Supreme Court, the Hon'ble Delhi High Court in PCIT v Era Infrastructure [2022] 141 taxmann.com 289 (Delhi), held that a provision in the Act which is "for the removal of doubts" cannot be presumed to be retrospective if it alters or changes the law as it stood earlier. In this case, the Hon'ble High Court dealt with the amendment to section 14A by the Finance Act, 2022 by way of insertion of an Explanation to the said section. The opening portion of the newly inserted Explanation read "For the removal of doubts...". The High Court noted that the Memorandum of the Finance Bill, 2022 explicitly stated that the amendment made to section 14A will take effect from 1st April, 2022 and will apply in relation to the assessment year 2022-23 and subsequent assessment years. Despite noting the same, the High Court observed the following: "8. Consequently, this Court is of the....
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....was of the view that if at all deduction is to be granted u/s 32AC of the I.T.Act, only a sum of Rs.61.97 crore ought to be granted, instead of Rs.132 crore as claimed by the assessee. 145. The CIT(A) upheld the disallowance made by the A.O. The CIT(A) held that the software development activity cannot be considered as "manufacture" as defined in section 2(29BA) of the I.T.Act. As regards the issue of quantum of deduction, the CIT(A) held that the same is academic in nature and did not require any adjudication. 146. Aggrieved, the assessee has raised this issue before the Tribunal. The ld. AR has contended that the software development activities are to be considered in the nature of manufacture or production of article or thing. The ld. AR has relied on various decisions to support his contentions. 147. The ld. DR has filed a brief written submissions. The essence of the submissions of the ld. DR is that deduction u/s. 32AC of the I.T. Act is given as an impetus to the manufacturing sector only and assessee being predominantly in the service sector would not be entitled to the deduction. 148. We have heard the rival submissions and perused the material on record. The a....
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....halaux (2009) ("What is Holding Back Productivity Growth in India? Recent Microevidence" OECD Journal: Economic Studies Volume 2009, ISSN 1995-2848) and Kochhar et al. (2006) ("India's Pattern of Development: What Happened, What Follows?' Journal of Monetary Economics, Vol. 53 No.5, pp. 981-1019). Few expressed skeptical view (OECD 2007) as an answer to this question. The relevant paras are extracted below: From Dougherty, S. and R. Herd and T. Chalaux (2009) The slow take-off of India's manufacturing sector compared with many of its Asian neighbours is the source of a considerable amount of consternation and mystery. Manufacturing's share of value added has barely risen over the past three decades, and India's goods exports have remained below 1% of corresponding world trade. At the same time, services trade has expanded rapidly and the decline in the share of agriculture in the economy has found its counterpart in services rather than manufacturing (OECD, 2007). In apparent contradiction, the literature on economic development has long argued that production shifts first from agriculture into manufacturing and - only at a later stage of deve....
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....ty (TFP) is about twice as high in firms with more than 250 employees than in those with only up to 10 employees (Figure 4). (refer p 443-444 of DRPB) From Kochhar et al. (2006) Abstract India has followed an idiosyncratic pattern of development, certainly compared with other fast growing Asian economies. (refer p 457 of DRPB) While China, the world's manufacturing powerhouse, appears to be absorbing surplus labor from agriculture into manufacturing, there is growing concern that India has failed to match its neighbor in this process. To many India's emergence as a worldclass services hub offers shows them to be very large and persistent. Even after controlling for technology, industry scant comfort because of the relatively limited prospects of such skillbased development for employment growth. In addition, worries are mounting about the uneven distribution of opportunities across states (the fast-growing peninsula versus the slowmoving hinterland), sectors (services versus manufacturing or agriculture), and skill and education levels. Will India foster growth in labor-intensive manufacturing? If yes, how? If not, how can job....
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.... 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 the policy makers of India to increase the manufacturing base. Under this context only Sec.32AC was also introduced. To quote Hon'ble Finance Minister of India in this context, attention is invited to para 136 and 59 of Budget speech of Budget 2013-14. The relevant paras are reproduced below: "136. No large economy can become truly developed without a robust manufacturing sector. Hence, as stated in part A of my speech, I propose to provide an investment allowance at the rate of 15 percent to a manufacturing company that invests more than '100 crore in plant and machinery during the period 1.4.2013 to 31.3.2015." "59. To attract new investment and to quicken the implementation of projects, I propose to introduce an investment allowance for new high value investments. A company investing '100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15 percent of the investment. This will be in addition to the current rates of ....
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....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. The words production, article or thing are not defined in the IT Act. The Hon'ble Supreme Court in the case of CIT v. N.C. Budharaja & Co [1993] 70 Taxman 312 (SC) has dealt with the meaning of these words. The Hon'ble Supreme Court observed that the word production' has a wider connotation than the word 'manufacture' while every manufacture can be characterised as production, every production need not amount to manufacture. The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the byproducts, intermediate products and residual products which emerge in the course of manufacture of goods. It was further held that the word 'article' is not defined in the Act or the Rules. It must, therefore, be understood in its normal connotation - the sense in which it is understood in commercial world. It was....
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....ed 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 the assessee being engaged in the business of software development. The relevant findings of the tribunal in the context of section 32(1)(iia) is as below: 19. A bare reading of the aforesaid provisions shows that the new machinery or plant should be used by an assessee engaged in the business of manufacture or production of any article or thing and the new machinery or plant need not be used in manufacture or production of any article or thing. The learned counsel has before us relied on the decision of the Hon'ble Madras High Court High Court in the case of CIT v. VTM Ltd. [2010] 187 Taxman 319/12009] 319 ITR 336 (Mad.) wherein the assessee-company was engaged in the business of manufacture of textile goods. During the relevant assessment year, it had set up a wind mill for generation of power and claimed additional depreciation thereon under section 32(1)(iia). The Assessing Officer disallowed the claim on the ground that the assessee was engaged only in the ....
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.... 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 complete lack of details to decide whether the assets in question are "Plant" or "Office equipment" in the absence of the role these assets perform and purpose for which these assets are used by the Assessee. We therefore set aside the order of CIT(A) on this limited issue of determining whether the assets on which additional depreciation is claimed by the Assessee can be regarded as Plant. The Assessee is directed to furnish the details and description to the AO in this regard, who shall decide the issue afresh in accordance with law, after affording Assessee opportunity of being heard. In the event of the AO coming to the conclusion that the assets in question are in the nature of plant, the claim for additional depreciation should be allowed. With these observations we allow the relevant grounds of appeal for statistical purpose. 161. As is clear from the above extract, the Tribunal was dealing with the question whether the new machinery or plant should b....
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....tion 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 before the AO in this regard. The assessing officer noticed that as per form 3CL dated 19/05/2017 as issued by DSIR, the eligible expenditure for the purpose of deduction u/s. 35(2AB) was Rs. 245.8 Crores. The AO also noticed that the assessee had claimed the 200% deduction on an amount of 260.56 crores, therefore the assessing officer held that the differential amount of Rs. 14.71 crores is not eligible for weighted deduction at 200% and accordingly disallowed Rs. 29.44 crores. Before the CIT(A), the assessee argued that the expenditure as reported by DSIR in form 3CL could not alter the quantum of deduction available to the assessee u/s. 35(2AB) and the expenditure noted to be allowed but the basis of actual expenditure incurred. The assessee in this regard relied on the following decisions. 165. The CIT(A) did not accept the submissions of the assessee confirming the disallowance made by the AO by relying on the decision of Hon'ble Karnataka High Cou....
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....CL. 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 2012-13, in so far as it is relevant for the present appeal, was as given below. (i) As per guideline 5 (iv) of the guidelines so framed, every company which has obtained an approval from the prescribed authority should also submit an undertaking as per Part C of Form No. 3CK to maintain separate accounts for each R&D centre approved under Section 35(2AB) by the Prescribed Authority, and to get the accounts duly audited every year by an Auditor as defined in sub- section (2) of section 288 of the IT Act 1961. (The statutory auditors of the Company should audit the R&D accounts. To facilitate this audit separate books of accounts for R&D should be maintained. Also, the statutory auditors should sign the auditors' certificate in the details required to be submitted as per annexure- IV of the guidelines to facilitate submission of Report in Form 3CL). (ii) As per guideline 5(vi) of the guidelines, the audi....
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....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 (Exemption) within 60 days of granting approval. Therefore prior to 1.7.2016 there was legal sanctity for Form No.3CL in the context of allowing deduction u/s.35(2AB) of the Act. 18. The issue as to whether deduction u/s.35(2AB) of the Act can be denied for absence of Form No.3CL by the DSIR was subject matter of several judicial decisions rendered by various Benches of ITAT. (i) The Pune ITAT in the case of Cummins India Ltd. Vs. DCIT in ITA No.309/Pun/2014 for AY 2009-10 order dated 15.5.2018 had an occasion to consider a case where part of the claim for deduction u/s.35(2AB) of the Act was claimed supported by Form No.3CL but part of it was not supported by Form No.3CL. The Pune ITAT held as follows:- "45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed a....
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....uthority 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) on the ground that recognition and approval was given by the DSIR in February/September, 2006, i.e., in the next assessment year and, therefore, the weighted deduction cannot be allowed. The CIT(A) confirmed the order of the AO. The Tribunal held that the assessee would be entitled to weighted deductions of the aforesaid expenditure incurred by the assessee in terms of the s. 35(2AB) of the Act and in coming to this conclusion, the Tribunal relied upon the judgment of Gujarat High Court in CIT vs. Claris Lifesciences Ltd. 326 ITR 251 (Guj). In its decision the Hon'ble Gujarat High Court held that the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assessee was in indulging in R&D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued, that w....
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.... 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 to be allowed for the purpose of weighted deduction." 20. From the above discussion it is clear that prior to 1.7.2016 Form 3CL had no legal sanctity and it is only w.e.f 1.7.2016 with the amendment to Rule 6(7A)(b) of the Rules, that the quantification of the weighted deduction u/s.35(2AB) of the Act has significance. In the present case there is no difficulty about the quantum of deduction u/s.35(2AB) of the Act, because the AO allowed 100% of the expenditure as deduction u/s.35(2AB)(1)(i) of the Act, as expenditure on scientific research. Deduction u/s.35(1)(i) and Sec.35(2AB) of the Act are similar except that the deduction u/s.35(2AB) is allowed as weighted deduction at 200% of the expenditure while deduction u/s.35(1)(i) is allowed only at 100%. The conditions for allowing deduction u/s.35(1)(i....