TaxTMI 
TaxTMI 
2022 (5) TMI 1560
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....tc. The assessing officer passed final assessment order on 31-10-2019 in conformity with the directions given Ld DRP. The assessee is aggrieved by the order so passed by the AO and hence it has filed this appeal before the Tribunal. The assessee has raised several grounds in a detailed manner. However, the Ld Senior Counsel appearing for the assessee has advanced his arguments on issue-wise. Accordingly, we find it convenient to dispose of the issues, which would, in turn, dispose of relevant grounds of appeal. 3. The first issue is that the AO has issued two different and contradictory computation sheets computing total income. There should not be any dispute that any one of them will only survive. Since it is a matter requiring verification, we restore this matter to the file of AO for verifying the claim of the assessee. Further, since the assessing officer is required to give effect to the order passed by this Tribunal, the grievance of the assessee may get redressed at that stage. 4. The second issue relates to the demand raised by the AO towards Dividend distribution tax. It is the submission of the assessee that the AO has raised demand towards Dividend Distribution Tax up....
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....capital asset. So where is this platform recognized in fixed asset schedule? Where are the other platforms for lnternet of Things and Blockchain reported? ln the course of hearing on 15.11.2018, this was confronted to the AR. AR argued that it is an industry practice to claim all employee expenses as revenue expenditure. The AR was asked to furnish details of (a) number of man-days of the company in the year, (b) number of man-days that have been utilized in in-house projects, and (c) number of man-days that have been characterized as 'bench'. 'Bench' is an industry nomenclature. An employee who is on the 'bench' is not working on any client project at a given time (she might have completed one client project and is awaiting another client project). But companies generally keep these employees busy by giving them some in-house projects. Assessee was also asked to furnish some sample timesheets of persons working on the 'bench', so as to verify this fact" The AO noticed that the assessee has claimed all expenses incurred in development of these software products as revenue expenditure. The AO took the view that a portion of expenses relating to thes....
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.... The relevant observations made by the Ld Dispute Resolution Panel are extracted below:- "2.g With respect to the classification of assets and resultant treatment for applying correct rates the information is not sufficient. The AO initially took the stand that the assets created are software and applied 60% rate (restricted to less than 182 days). However as per the remand report the AO raised alternative argument that the depreciation may be restricted to 25%, as the assessee was creating intangible assets. The information with regard to the nature of assets created and put to use is not made available to the Panel. Hence, it is not possible to grant depreciation to the assessee in the given circumstances." 6.4 The assessee raised an alternative contention that the above said disallowance would result in increasing the profits of undertakings, which are eligible for deduction u/s 10AA of the Act and hence enhanced amount of deduction should be given to the assessee. The Ld DRP accepted the same with the following observations:- "2.11 The Panel has considered the grounds, the submissions of assessee and the Report of the AO. At the outset it is seen that the assessee made a ....
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.... be capital in nature, then the same is allowable as deduction u/s 35(1)(iv) of the Act, since it is in the nature of Scientific Research expenses. In this regard, the assessee placed its reliance on the decision rendered by Hon'ble Karnataka High Court in the case of Talisma Corporation P Ltd (ITA 515/2007). The Ld DRP called for a remand report from AO, who opined that the assessee has only created "intangible assets" in the nature of "Software platform" and "software codes" and it cannot qualify as Scientific research activity. He also expressed the view that the decision rendered in the case of Talisma Corporation is distinguishable and cannot be taken support of by the assessee. The assessee strongly refuted the remand report given by the AO and contended that the provisions of sec.35(1)(iv) should be allowed in assessee's case and accordingly entire expenditure should be allowed. The ld DRP did not accept the contentions of the assessee and accordingly rejected the claim for deduction u/s 35(1)((iv) with the following observations:- "2.14 The contention of the assessee are carefully considered. In this regard it is relevant to examine the statutory provisions of Sec 35(1)(i....
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...., as business activity and cases where assessee carries on a business as well as scientific research as two distinct activities. Board's circular No. 281 dated 22.9.1980 states that the deductions u/s 35 are aimed at providing incentives to encourage scientific research in India and to encourage assessee who need the output of scientific research for their business. Hence the activities of the assessee need to be examined in the light of these provision if assessee has a stream of activity called scientific research related to the business carried on by it. Whether the activities of the assessee are in the nature of scientific research or commercial activities in development of new products not amounting to scientific research needs to be addressed as per the provisions of the Act. The assessee has never made any claim for conducting scientific research in the past. The returns of income do not show any claim to that effect. Section 35 is special incentive provision where both revenue and capital expenditure are allowed fully. It is also observed that assessee has not maintained separate books of account relating to the activities of scientific research. ITAT Mumbai, B Bench in....
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....the draft assessment order. Before Ld DRP, the assessee raised another alternative plea to allow the capital expenditure as deduction u/s 35(1)(iv) of the Act. However, Ld DRP rejected both the alternative pleas, viz., claim for depreciation and also claim for deduction u/s 35(1)(iv) of the Act. (iii) The Ld A.R submitted that these software products/applications/software tools/platforms, which have been developed are part of its regular business operations and the products used for inhouse only enable enhancing its capabilities and efficiencies in newer technological areas. These are normal research expenses incurred on certain futuristic and disruptive technologies in order to stay competitive and relevant in market place. The assessee has intended to use them in-house and was not meant to exploit it commercially in order to facilitate its business activities. Hence these expenses are revenue expenses only. (iv) He submitted that the intangible assets (as named by AO) are only tools and solutions deployed along with other IT services to differentiate, facilitate and have effective delivery of services. (v) Due to fast technological obsolescence in software industry, these prod....
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....re/applications/tools/platforms, which were meant to be used for internal purposes, are revenue in nature. These group of products have been titled as "internal intangible assets' by the AO. We noticed that the AO has, however, taken the view that cost of developing these internal intangible assets are required to be capitalised, as according to him, these internal intangible assets are capital in nature. 6.10 We notice that the assessee has furnished the details relating to the above said applications/tools etc before the AO. In the details furnished before the AO, the assessee has described these items as "Tools/Solutions/Platforms". The relevant details are available at pages 235 to 240 of paper book filed by the assessee. The break-up details of expenses capitalised by Ld DRP are given below:- (A) CTO PROJECTS:- (Rs. In crores) (i) CTO projects 94.81 (ii) Customer future projects 24.17 (iii) Domain Projects 109.79 (iv) Internal Projects 34.52 (v) Platform/tools/solutions 74.98 338.27 Less:- Customer future projects 24.17 Total of CTO projects 314.10 (B) Allocation of Bench employees cost 287.67 Total amount cap....
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.... earlier that the expenses relating to this project has not been capitalised. Hence it is outside ambit of this issue. (C) Domain projects:- These are expenses incurred as investment in 'Centre of Excellence' (CoE) to do research in specific domain solutions. It is stated that any outcome, which qualifies for development' will go to CTO projects for development and for further funding under CTO. As the name suggests, these expenses have been incurred to do research and improve domain specific solutions. Some of the work carried out under this heading are Digital CoE, Energy & Utilities CoE, Business Application Service CoE, Insurance CoE, Healthcare CoE, Financial Solutions CoE, Testing CoE etc. (D) Internal Projects :- These expenses have been incurred for internal use of Wipro, i.e., it is Enterprise specific projects for internal use and it is not meant to sale or use in customer's projects. These are regular upgrades, support and maintenance of existing process, solutions, tools etc. It is stated that no significant new development has taken place in FY 2014-15 relevant to AY 2015-16. (E) Platforms/tools/solutions:- These are Wipro specific solution on third party Plat....
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....ses are once and for all and may give an advantage for enduring benefit but is not with a view to bringing into existence any asset, the same cannot be always classified as capital expenditure. The test to be applied is, is it a part of the company's working expenses or is it expenditure laid out as a part of the process of profit earning. Is it on the capital layout or is it an expenditure necessary for acquisition of property or of rights of a permanent character, possession of which is condition on carrying on trade at all. The assessee in the course of its business acquired certain application software. The amount is paid for application of software and 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 stand alone basis. 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 an enduring benefit, it does not result into acquisition of any capital asset. The same mere....
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.... considered the rival submissions. The subject matter of the Settlement Agreement dated 21.03.20216 was independently owned IPR and Foreground Information that both the parties were privy to in the course of joint development of Foreground IPR but excluding Foreground IPR. We have already reproduced clause 3.1 and 3.2 of the Settlement Agreement in the earlier part of this order. The assessee and Spreadtrum were recognized as joint owners of the independently owned IPR and Foreground Information. In this regard, we may recollect that when the assessee and Spreadtrum entered into Agreement dated 30.05.2005, for joint development of Foreground IPR, the assessee agreed to contribute its WCDMA Source Code together with technical and testing documents in addition to deputing engineers to Shanghai, China, to work with Spreadtrum engineers on the project. This was the independently owned IPR that was recognized as joint property of assessee and Spreadtrum under the Settlement Agreement. This is clear from the term "Independently Owned IPR" as understood under the Settlement Agreement which means background IPR which in turn means that is owned or controlled by a party existing prior to th....
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....n and therefore the argument that the sum received is capial receipt for losing a source of income and therefore not chargeable to tax, is devoid of any merits." It can be noticed that the Tribunal has expressed the view that the software product developed by an Information Technology company constitutes its revenue asset (akin to stock in trade) and hence the revenue generated on its sale or licensing, constitutes business income. In respect of the software product so developed, the said information technology company may be holding IPR and the transfer of IPR was also held to business receipt. The business model of an information technology company is such that it would retain source code of the software product with itself and would be issuing licenses for using the said software. Once source code is retained, the company could issue "n" number of licenses to its customers, whenever it receives orders from its customers. This is the peculiar feature of the software products. In the above said decision, the Tribunal has used the expression "stock in trade", only to mean that it is a revenue asset and hence would fall under the exceptions given in the definition of Capital asset....
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....nt pertained to a product already in the line of assessee's established business and not to a new product indicates that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day to day business of the assessee's established enterprise." The above said observations were made by Hon'ble Supreme Court in the context of deciding the issue whether the expenditure incurred by a pharma company for acquiring technical knowhow is revenue expenditure or not. The Hon'ble Calcutta High Court took support of the above said decision to hold that the expenditure incurred on purchase of software by a mining company is revenue expenditure. The relevant observations made by Hon'ble Calcutta High Court in the case of Indian Aluminium Company Ltd vs. CIT (ITA 278 of 2007 dated 18-03-2016) are extracted below:- "The Apex Court in Alembic Chemicals has recognized the fact that in a field where advancements are taking place rapidly and where technology which was once the state of the art becomes obsolete in a short time, the test of enduring nature cannot always reliably be applied. Software ind....
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....iness. The product developed is marketed for one year only, as the next product will come before the end of first year of the introduction of an earlier product. A number of prototypes are developed but all such prototypes are not used as model for the new product. The prototypes, which are not finally approved for commercial production, are rejected and such prototypes are of no use. Only those prototypes are retained, for which, the Company manufactures the product. Such prototype is kept for four to five years, so that the assessee Company is able to redress the complaint of any customer in case any complaint is received. Such prototype is model of the product, which is marketed and, therefore, it was of the view that the benefit is not derived for a period of more than five years, the benefit is not of enduring nature and expenses cannot be treated as capital and, therefore, ultimately it recorded a finding that the expenditure on prototype development is to be treated as revenue and not as capital. It also held that the expenditure in the alternative as allowable under Section 35 (1) (iv) of the Act without any discussion." Following questions were posed before the Hon'ble H....
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....that context substantial amount is spent towards employees cost and the upgradation also includes use of components purchased every year. In fact, those components are used for manufacturing Printed Circuit Boards. Every year these Circuit Boards under go modification, changes. Therefore, the expenses incurred in this regard is in the nature of revenue expenditure. 12. The Apex Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 has held that, the decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is no all embracing formula which can provide a ready solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. Further they held that, there may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee....
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....time progresses, keeping in mind the requirement and the competition in the market. The Tribunal rightly held that the expenditure is not in the nature of capital expenditure but is revenue expenditure. Therefore, the first substantial question of law is answered in favour of the assessee and against the revenue. 15. In so far as the second substantial question of law is concerned, in fact the Tribunal has not given any reasons and as the assessee succeeds on the first substantial question of law, we are not going into the said question and that question is left open to be agitated at an appropriate time in an appropriate forum. On the ground that no reasons are given, we set aside the said finding." The Hon'ble jurisdictional Karnataka High Court has followed the decision rendered by Hon'ble Supreme Court in the case of Alembic Chemical works Co Ltd (supra) and held that the principles laid down by the Hon'ble Supreme Court shall equally apply to the area of telecommunication also, may be with more force. 6.18 In the case of CIT v. Carborandum Universal Ltd [2009] 177 Taxman 347 (Madras), it has been held that, it is well-settled that it is not only permissible, but it is al....
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....sidering the business nature of the assessee, those expenses shall constitute revenue expenditure in the hands of the assessee, as it is necessary for the assessee to keep updating itself and keep trying new products to be afloat in the competitive market. Accordingly, apart from the principles discussed in the earlier paragraphs, applying above said rationale, the expenses incurred on CTO projects (Item A), Domain projects (Item C) and Plantform/tools/solutions (Item D) are required to be allowed as revenue expenditure. 6.21 Accordingly, we hold that the impugned expenses incurred by the assessee are allowable as revenue expenditure and accordingly, the disallowance made by the assessing officer could not be sustained. 6.22 Since we have held that these expenses are revenue in nature, the question of allowability of depreciation or the question of allowing it u/s 35(1)(iv) as Scientific research expenses shall become academic and we are not adjudicating them. 7. The fifth issue relates to the transfer pricing adjustment made by TPO/AO. This adjustment consists following three items:- (a) Adjustment for interest on advances given to Overseas subsidiaries. (b) Adjustment made....
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....ly, it is noticed that a consistent view is being taken on this issue. Accordingly, we direct the A.O./TPO to adopt the ALP rate of interest at Libor + 150 basis point." Following the above said decision, we direct AO/TPO to adopt ALP rate of interest at Libor rate of relevant outstanding period of loan + 150 basis point. In the grounds of appeal, the assessee has pointed out that the TPO has computed annual interest on month end balances. It is the submission of the assessee that the month end balance of a particular month may include opening balance and it has resulted in duplication/multiplication. In any case, we have directed AO/TPO to compute interest for "the outstanding period of loan" only. Accordingly, the assessee is directed to furnish the outstanding period of each advances in order to enable AO/TPO to compute correct amount of interest. 7.3 The next item relates to the transfer pricing adjustment made in respect of corporate guarantee given by the assessee to its Associated Enterprises. The assessee has provided corporate guarantee on behalf of its Associated Enterprises (AE) to guarantee the services to be rendered by the A.E. to its customers. In consideration fo....
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....sion rendered by Tribunals on this issue. It is stated that the guarantee commission @ 3% is generally charged by banks for providing guarantees. We notice that the TPO has rejected them by observing that those decisions are not of jurisdictional ITAT. We also notice that the various benches of Tribunal have accepted the guarantee commission of 0.50% to be at arm's length. In this regard a gainful reference may be made to the decision rendered by Mumbai Bench of ITAT in the case of IL&FS Technologies Ltd. (ITA No.4469 & 1551/Mum/2016 dated 27.2.2019), wherein the corporate guarantee commission of 0.50% is held to be at arms length. Accordingly, we are of the view that the TP adjustment made by the AO/TPO by adopting guarantee commission rate @ 3% as applicable to guarantees provided by banks is not justified. Accordingly, we direct the A.O. to delete the TP adjustment made on corporate guarantee in assessment year 2010-11 to 2014-15." Following the above said decision, we direct the AO/TPO to adopt the rate of guarantee commission @ 0.50% and accordingly delete the addition made by estimating the commission in excess of 0.50%. 7.5 The last item in this issue relates to the transf....
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....also be determined having regard to the arm's length price. (2) Where in an international transaction or specified domestic transaction, two or more associated enterprises enter into a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises, the cost or expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm's length price of such benefit, service or facility, as the case may be. (2A) Any allowance for an expenditure or interest or allocation of any cost or expense or any income in relation to the specified domestic transaction shall be computed having regard to the arm's length price. (3) The provisions of this section shall not apply in a case where the computation of income under sub-section (1) or sub-section (2A) or the determination of the allowance for any expense or interest under sub-section (1) or sub-section (2A), or the determination of any cost or expense allocated....
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....the open market; or (ii) the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA." The provisions of sub.sec (9) of sec.10AA specifically states that the provisions of sub-section (8) and sub-section (10) of section 80IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purpose of the undertaking referred to in section 80-IA. The provisions of sec. 80IA(8) mandates substitution of actual price with "market value" when there is transfer of goods or services (a) from "eligible business" to "any other business" carried on by the assessee or (b) from "any other business" to "eligible business" carried on by the assessee. Section 10A/10AA/10B, 80IA etc., grants income tax concession by way of granting deduction to certain specified undertakings from gross total income (or) at the point of computation itself, meaning thereby, the same results in income-tax benefit to the assessee. It may so happen that an assessee may be having more than one undertaking, out of which only some units may be....
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....s." Accordingly, for the purpose of sec. 10A/10AA/10B/80-IA and other incentive provisions, the "market value" of the transaction shall mean "Arm's length price" as determined in sec. 92 of the Act. Section 92C of the Act prescribes the modes of computation of arm's length price. 39.15 Under section 92C(4), where an arm's length price is determined by the AO under sub-section (3), the AO may compute the total income of the assessee having regard to the arm's length price so determined. It is further provided that no deduction u/s 10A or section 10AA or section 10B or under Chapter VIA shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under sec. 92C(4). 39.16 As per provisions of sec.92(3), the transfer pricing provision of sec.92 shall not apply in a case where the computation of income/expenses under sub. sec (1) or (2) or (2A) of sec.92 has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the Specified Domestic Transaction was entered into. ....
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....he provisions of sec.80IA(8) refer to the transactions between "eligible units" and "non-eligible units". We have noticed earlier that, in the case of the assessee, various eligible units, inter se, have also entered into transactions. We have noticed earlier that the TPO has expressed the view in his remand report that the transactions between two SEZ units (eligible units) have also been included for the purpose of determining ALP of the transactions. However, we notice that the provisions of sec. 80IA(8) cover only the transactions entered between "eligible units" and "noneligible units", i.e., it does not take into its ambit the transactions entered between two eligible units. Accordingly, we are of the view that there is merit in the contentions of the assessee that the transactions entered between two eligible units would not be covered by the provisions of sec. 80IA(8) of the Act. Even if the rate of deduction allowable to two eligible units differ and such inter-unit transactions between two eligible units may result in tax arbitrage, yet, we are of the view that the same shall be outside the scope of provisions of sec.10AA/Transfer pricing provisions, since the provisions ....
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....two different tax entities. However, in the instant cases, the transactions are entered between two units belonging to the same assessee. Hence both the units are two arms of the same tax entity. We have earlier expressed the view that the ALP value of inter-unit transactions has to be applied in both the transacting units for the purposes of sec. 92 of the Act. Hence the substitution of ALP value (market value) in respect of inter-unit transactions u/s 92 of the Act is tax neutral exercise. However, the effect will be seen in this regard while computing deduction u/s 10A/10AA/10B of the Act. Accordingly, the "reduction", if any, in the quantum of deduction under above sections after application of the ALP, in our view, is the Transfer pricing adjustment contemplated in sec.92 of the Act. 39.21 We have prepared certain illustrations in order to explain above points. They are given below:- There are two situations in which the profits of eligible business are inflated. They are (a) Over invoicing revenue (b) Under invoicing expenses Let us give some illustrations in order to explain the effect of adoption of ALP u/s 92 and also while computing deduction u/s 10AA of th....
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.... ILLUSTRATION 2 (Under invoicing expenses) Transaction between an Eligible unit, which is eligible for deduction @ 100% and a non-eligible unit. (B) Eligible unit is Service receiver and accordingly pays money to noneligible unit. The said payment constitutes expenditure in the hands of Eligible Unit. Transaction Price - 1,00,000 Arms Length Price - 1,50,000 Actual Transaction SDT Adjustment Eligible Unit Non-eligible unit Total Eligible Unit Non-eligible unit Total Sales Revenue Less: Adjustment for ALP 10,00,000 - 5,00,000 - 15,00,000 - 10,00,000 - 5,00,000 50,000 15,00,000 50,000 Adj Rev 10,00,000 5,00,000 15,00,000 10,00,000 5,50,000 15,50,000 Cost Add: Corresponding Adjustment for ALP -9,00,000 - -4,25,000 - -13,25,000 - -9,00,000 -50,000 -4,25,000 - -13,25,000 -50,000 Adj Cost -9,00,000 -4,25,000 -13,25,000 -9,50,000 -4,25,000 -13,75,000 Net Income Deduction u/s 10AA - 100% 1,00,000 -1,00,000 75,000 1,75,000 -1,00,000 50,000 -50,000 1,25,000 - 1,75,000 -50,000 Total Income 75,000 1,25,000 SDT adjustment 50,000 In this illustration....
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....f deduction u/s 10AA, i.e., Rs.25,000/- is also the adjustment made u/s 92 of the Act in respect of Specified domestic transaction. (d) Hence the total income has increased from Rs.1,25,000/- (prior to ALP adjustment) to Rs.1,50,000/- after ALP adjustment. The net effect is the addition of SDT adjustment of Rs.25,000/-. ILLUSTRATION 4(Under invoicing expenses) Transaction between an Eligible unit, which is eligible for deduction @ 50% and a non-eligible unit. Eligible unit is Service receiver and accordingly pays money to non-eligible unit. The said payment constitutes expenditure in the hands of Eligible Unit. Transaction Price - 1,00,000 Arms Length Price - 1,50,000 Actual Transaction SDT Adjustment Eligible Unit Non-eligible unit Total Eligible Unit Non- eligible unit Total Sales Revenue Less: Adjustment for ALP 10,00,000 - 5,00,000 - 15,00,000 - 10,00,000 5,00,000 50,000 15,00,000 50,000 Adj Rev 10,00,000 5,00,000 15,00,000 10,00,000 5,50,000 15,50,000 Cost Add: Corresponding Adjustment for ALP -9,00,000 - -4,25,000 - -13,25,000 - -9,00,000 -50,000 -4,25,000 - -13,25,000 -50,000 Adj Cost -9,00,000 -4,25....
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....wn funds available with the assessee, no disallowance was made out of interest expenses. Hence the disallowance was made out of administrative expenses only, which worked out to about 2% of the corporate expenses. The A.O. did not accept the workings furnished by the assessee. Accordingly he computed the disallowance as per rule 8D(2)(iii) of the I.T. Rules @ 0.5% of average value of investments. Ld. DRP restored the matter to the file of A.O. with the direction to examine this issue afresh by considering the decision rendered by ITAT in the case of Syndicate Bank, by Hon'ble Bombay High Court in the case of Godrej &Boyce Manufacturing Company Ltd. 328 ITR 81 and by Hon'ble Kerala High Court in the case of Dhanalakshmi Bank Ltd. 344 ITR 259. The A.O. while passing the final assessment order, duly considered the above said 3 decisions and confirmed the disallowance originally made in the draft assessment order. Aggrieved, the assessee has filed this appeal before us. 22.3 We heard the parties on this issue and perused the records. We notice that the coordinate bench has considered an identical issue in assessment year 2008-09 and the matter was restored to the file of the A.O. wi....
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....by the co-ordinate bench in the assessee's own case in AY 2009-10 to 2014-15 and it was decided as under:- "27.5 We heard Ld. D.R. on this issue and perused the record. We notice that the Tribunal is consistently taking the view that the loss arising on revaluation of outstanding forward contracts entered to safe guard the underlying revenue assets cannot be considered as notional loss and accordingly the same is eligible for deduction while computing total income. The following observations made by the co-ordinate bench in the case of M/s Quality Engineering and software Technologies P Ltd (supra) are relevant:- "4.5.11 As discussed earlier, in the case on hand, there has been an existing contract with a binding obligation accrued against the assessee when it entered into forex forward contracts. The forward contracts are in respect of consideration for export proceeds, which are revenue items. There is an actual contract for sale of merchandise. In this factual matrix, it is clear in our view that the transaction in question will not qualify to be called as speculative transaction. In view of the facts and circumstances of the case on hand, as discussed above, we hold that t....
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....se in AY 2009-10 to 2014-15 and it was decided as under:- "4.7 We heard rival contentions on this issue and perused the record. We notice that the co-ordinate bench has considered an identical issue in AY 2008-09 in assessee's own case in ITA No.1665/Bang/2012 dated 04-01- 2017 and it was decided in favour of the assessee with the following observations:- "14. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset, we note that an identical issue was also involved for the Assessment Year 2004-05 as well as for the Assessment Year 2007-08. The Hon'ble jurisdictional High Court in assessee's own case reported in 382 ITR 179 for the Assessment Year 2004-05 has upheld the decision of this Tribunal in favour of the assessee and against the revenue. We further note that this Tribunal in assessee's own case for the Assessment Year 2007-08 has again decided this issue in para 7.4 as under : "7.4 We have heard both parties and perused and carefully considered the material on record. We find that the identical issue was considered by a coordinate bench of the Tribunal....
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.... Assessing Officer to set off brought forward losses of the units for which the assessee has disclosed positive income for the purpose of claiming deduction under section 10A." Thus it is clear that the Tribunal has followed the earlier order for the Assessment Year 2004-05 which has been upheld by the Hon'ble jurisdictional High Court. Following the earlier order of this Tribunal as well as Hon'ble jurisdictional High Court, we decide this issue in favour of the assessee and against the revenue." 4.8 Though it is stated that the issue is decided in favour of the assessee, we notice that the discussions were not happily worded. We notice that an identical issue was decided by Hon'ble High Court of Karnataka in AY 2001- 02 to 2004-05 in the assessee's own case reported in 382 ITR 179. We extract below the relevant discussions made by Hon'ble Karnataka High Court on this issue:- "Substantial question of law No.14: "Whether the Tribunal was right in directing that losses of a section 10A unit, which are already set off against other business income of the appellant, should be again carried forward and set-off against eligible profits of the same unit in a subsequen....
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.... arising in eligible SEZ/STPI undertakings are not required to be adjusted against the profits arising from other SEZ/STPI undertakings and the said loss can be adjusted against profits arising from non-SEZ/non-STPI units. 11. The ninth issue relates to the taxability of profits from development centers located outside India. The case of the assessee was that these development centers are only extension of STPI units eligible for deduction u/s 10A/10AA/10B etc. However, the AO took the view that these development centres are independent units and accordingly estimated income from these centres and correspondingly reduced the said profit from the units eligible for deduction u/s 10A/10AA/10B of the Act. An identical issue has been examined by the co-ordinate bench in the assessee's own case in Ay 2009-10 to 2014-15 and it was adjudicated as under:- "23.3 We heard the parties on this issue and perused the record. We notice that the coordinate bench has considered an identical issue in assessment year 2008-09 and matter was restored to the file of the A.O. with the following observations: "18. Ground no.11 & 12 are regarding computation of profit of overseas software development....
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....the Assessing Officer to consider the same in accordance with the earlier directions of the Tribunal." Consistent with the view taken by the Tribunal in the earlier years, we remit this issue to the file of the A.O. for examining it afresh in accordance with the directions given in the earlier order of the Tribunal." 12. The tenth issue relates to exclusion of "other income" for the purpose of computing deduction u/s 10AA of the Act. The details of miscellaneous income reported during the year under consideration are given below:- Sale of scrap/News paper - 0.90 crores Other income 25.42 crores 26.32 crores The AO excluded the above income while computing income u/s 10AA of the Act. An identical issue was considered by the co-ordinate bench in the assessee's own case in AY 2009-10 to 2014-15 and it was decided as under:- "5.4 We notice that an identical issue was considered by the Hon'ble High Court in the assessee's own case reported in 382 ITR 179. For the sake of convenience, we extract below the decision rendered by Hon'ble High Court: "166. The court had an occasion to consider the substantial question of law in the assessee's case itself....
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....t. In this year also, the break-up details of "Other income" are not available. Accordingly, we restore this issue to the file of AO with the direction to examine the break-up details of other income and decide the issue in accordance with the discussions made supra. 13. The eleventh issue relates to rejection of claim for deduction u/s 10A/10AA/10B of the Act in respect of interest income earned by the assessee. During the year under consideration, the assessee had earned interest income on short term deposits made out of PCFC Loan and also from Surplus funds. After deducting the interest expenses, there was net surplus of 4.28 crores. The AO held that the same is not eligible for deduction u/s 10A/10AA/10B of the Act. An identical issue has been examined by the co-ordinate bench in the assessee's own case and it was decided as under:- "6.2 We notice that the assessee has booked interest income under the head "Miscellaneous income" in AY 2012-13 and 2013-14, apart from booking interest income separately as under:- Assessment year Interest Income 2009-10 60.27 crores 2010-11 150.03 crores 2011-12 26.54 crores 2012-13 224.65 crores 2013-14 2.91 crores 2014-15 3.45 c....
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....d Income from business and this has not been challenged by the department thereafter, then the question cannot be permitted to be reopened and the only question then will be if netting should be allowed. Accordingly following principles emerge out from the above said discussions:- (a) if the AO has assessed interest income under the head Income from business, which has not been challenged by the department, then it shall form part of business income as per the decision of Hon'ble Delhi High Court in the case of Shriram Honda Power equipment (supra). (b) if there is direct nexus between interest income and income of the business of undertaking, then also it shall form part of business income as per the decision of Hon'ble Karnataka High Court in the assessee's own case. In both the cases, the interest income should be eligible for deduction u/s 10A/10AA/10B of the Act. 6.6 In the instant cases, the assessee has earned interest income from two types of deposits, viz., (a) The packing credit loan funds, which are not immediately required in its business operations were deposited into short term fixed deposits. (b) The surplus funds available with the SEZ unit....
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....the assessee's own case in AY 2009-10 to 2014-15 and it was decided as under:- 7.2 During the years under consideration, the assessee has provided services to some of the customers located in SEZ units and received sale proceeds in foreign currency. The assessee claimed it to be part of export turnover and accordingly claimed deduction u/s 10A/10AA/10B of the Act. According to the assessee, the services were provided to its customers located in SEZs are ultimately exported by those SEZs to a person located outside India. ................... 7.5 We heard Ld. D.R. and perused the record. We notice that an identical issue has been decided in favour of the assessee by Hon'ble High Court of Karnataka by following the decision rendered by High Court in the case of Tata Elixsi Ltd. The relevant portion of High Court's order is extracted below:- "Substantial Question No.8: "Whether the Tribunal was right in excluding the computer software sales made to STP units in India from "export turnover" for the purpose of computing deduction under section 10A of the Act?" 147. The said question came up for consideration before this Court in the case Tata Elxsi vs. Asst. CIT (I.T.A N....
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....e object of enacting Section 10A is fulfilled and the assessee would be entitled to the benefit of exemption from payment of Income Tax Act on the profits and gains derived by the Undertaking from the export. 21. Clause 6.11 of Exim Policy dealing with entitlement for supplies from the DTA states that supplies from the DTA to EOU/EHTP/STP/BTP units will be regarded as 'deemed export', besides being eligible for relevant entitlements under paragraph 6.12 of the Policy. They will also be eligible for the additional entitlements mentioned therein. What is of importance is when a supply is made from DTA to STP, it does not satisfy the requirements of export as defined under the Customs Act. However, for the purpose of Exim policy, it is treated as 'deemed export'. Therefore, when Section 10A of the Act was introduced to give effect to the Exim Policy, the supplies made from one STP to another STP has to be treated as 'deemed export' because Clause 6.19 specifically provides for export through Status Holder. It provides that an EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through other exporter or Status holder recognized under this policy or any other....
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....ordinate bench in the assessee's own case in AY 2009-10 to 2014-15. The relevant facts have been narrated by the co-ordinate bench as under:- "20.2 The facts relating to this issue are discussed in brief. In respect of software development activity, for which the assessee had claimed deduction u/s 10A/10AA/10B of the Act, the assessee has received certain payments as reimbursements. These reimbursements have been categorized as asset reimbursements, communication link reimbursements, travel reimbursements, incentive awards and other reimbursements. The A.O. excluded the above amounts from export turnover and accordingly computed deduction u/s 10A/10AA/10B of the Act. The A.O. did not accept the contentions of the assessee that these amounts were also received in foreign exchange and hence they are in the nature of export proceeds realized in respect of computer software export and hence they should not be excluded from export turnover." .................... 15.1 It was noticed in the earlier years that the assessee had received different types of reimbursements, which have been grouped as under:- (a) Asset reimbursements (b) Communication link reimbursements (c) Travel rei....
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.... the remaining amounts require fresh examination in the light of discussions made supra. 20.8 We also make it clear that, if any of the amount is required to be excluded from export turnover, then the same shall be excluded from the total turnover also, as held by Hon'ble High Court of Karnataka in the case of CIT Vs. Tata Elxi Ltd. 204 Taxmann.com 321 and also by Hon'ble Supreme Court in the case of CIT Vs. HCL Technologies Ltd. (C.A. No.8489-8490)." 20.9 Accordingly, we direct the AO to compute the deduction u/s 10A/10AA/10B of the Act by following discussions made supra. We noticed that during the year, the break-up details of reimbursements are not given in the assessment order. In the above said decision, detailed discussions have been made with regard to this issue. Accordingly, we restore this issue to the file of AO with the direction to obtain break-up details of reimbursements and follow the directions given in AY 2009-10 to 2014-15 for computing deduction u/s 10A/10AA/10B of the Act. 16. The fourteenth issue relates to question as to whether the expenditure incurred in foreign currency is required to be deducted from the export turnover while computing deduction....
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.... in directing the AO not to exclude expenditure in foreign currency. The Ld.AO had excluded from export turnover the expenses incurred in foreign currency on the basis of the definition of the export turnover contain in section 10A. He had also concluded that the assessee had ed technical services and thus expenses incurred in foreign currency in rendering such technical services require exclusion from export turnover. On the other hand, the assessee company, extensively quoting the provisions of section 10A(4) of the Act and also placing strong reliance on the decision of the CIT(A) for the AYs 01-02 and 02-03 had argued that the exclusion of above sums of communication link and other reimbursements, VAT/GST, telecommunication expenses and expenditure in foreign currency as carried out by the AO be vacated. 15.1. After critically analyzing the rival submissions and also drew strength from his earlier decision on a similar issue, the Ld.CIT(A) has held that no exclusion was required on this issue and, accordingly, directed the Ld. AO to re-compute the deduction u/s 10A. 15.2. Protesting against the action of the Ld. CIT(A), the Revenue has brought up this issue before us for ....
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....rsement of communication links, incentives, rewards, telecommunication expenses etc., In respect of reimbursement of communication links and other sales performance incentives, the Ld. AO had stated that only the consideration in respect of export of article or things is liable to be taken for the purposes of section 10A. Thus, the AO had concluded that the amount received by the assessee as communication link charges or other rewards and incentives were not a consideration for the export of the software. However, the assessee company's contention was that - "15.1 The reimbursement of certain expenses was also in the nature of export as the same was paid pursuant to the contract of sale of computer software. Alternatively, if it is held that the said sum does not form part of sale proceeds of export turnover then similar amount should be reduced from the total turnover also as held by Bombay High Court in Sudarshan Chemicals reported in 245 769. Alternatively, the AO should have consistently applied the rationale that what is not turnover in the first place cannot be part of either export turnover or total turnover." 14.1, After considering the rival submissions, the Ld. ....
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....ded thus - "24.5 ...........In respect of expenditure incurred on onsite development, the issue stands covered by the order of this Tribunal in the case of Infosys Technologies Limited. This Bench in the case of Insosys Technologies vide order dated 31 March, 2005 in ITA NO.50/Bang/2001 held in that case that the assessee is involved in developing software. The assessee was not involved in rendering of technical services. Such software are provided through the computer programmes developed by them. Hence, expenses in foreign currency were not to be reduced for ascertaining the export turnover. This bench in the case of M/s.Relq software Pvt. Ltd. in ITA No:767/Bang/2007 vide order dated 16th May 2008 has also held that the on-site expenses for development of computer software is not in the nature of technical services. It will be useful to reproduce para 14 and 15 from that order:- "14. During the course of proceedings before us, the learned AR submitted that the issue stands decided in favour of the assessee by the Tribunal in the case of" I. ACIT v. M/s.Infosys Ltd.653 & 969(B)/2006 2. M/s.TataElxsi Ltd. 315(B)/2006 dt 16.10.2007 3. M/s.I-Gate Global Solutions Ltd.....
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....e included in the export turnover. Hence, following the decision of this Bench and considering the decisions of other Benches on this issue, the expenses on traveling etc. cannot be excluded from the export turnover. Income-tax Act does not provide any bifurcation of the expenses incurred outside India. The assessing officer has not brought on record any expenditure which may not be relevant for the purpose of export. Hence, the apportionment is not desirable. We confirm the finds of the learned CIT(A) that such apportionment cannot be done. 24.7. In respect of telecommunication expenses, only those expenses which are relevant for the delivery of software are to be excluded. No effort has been made by the assessing officer to ascertain the telecommunication expenses relating to the delivery of the software. This Bench in the case of I-Gate Global Sales held that 80% of unlinking charges should be reduced from the export turnover. Such finding of the learned CIT(A) was confirmed on the basis of the fact that the learned CIT(A) discussed the software development with a number of representatives of various companies and noticed that 80% of the uplinking charges are incurred for the....
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....rred in foreign exchange in providing technical services outside India. However, in sec.10AA, there is modification of the definition, i.e., the term "technical" is not used therein. It is mentioned as "expenses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India. The question as to whether the cost of development of software would fall under the category of "technical services" has been examined by the coordinate bench in assessment year 2004-05 and the Tribunal has taken the view that the cost incurred outside India in development of software would not fall under the category of 'expenses incurred in providing technical services outside India' as mentioned in the definition. Accordingly, we are of the view that the expenditure incurred in development of software and which forms part of "direct cost of development of software" would not fall under the category of "technical services" or "services" rendered outside India, as contemplated in the definition of Export turnover. Hence the same is not required to be excluded from export turnover. Accordingly, what is required to be excluded is the expenses specifically mentioned in ....
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....ion of the assessee that it has made applications to RBI through the authorized dealer for extension of time for receipt of profits on export turnover. It was submitted that the amounts were collected subsequently after the expiry of the period of 6 months. Accordingly, during the course of assessment proceedings, the assessee made a claim before A.O. to include the sale amount, for which extension applications were submitted to RBI through the authorized dealers in the amount of "export turnover", for the purpose of computing deduction. However, the A.O. rejected the claim of the assessee on the reasoning that mere submission of application by the assessee to RBI is not sufficient to infer that RBI has allowed extension of time for realizing sale proceeds in foreign exchange. Accordingly, he rejected the claim of the assessee. Ld. DRP also confirmed the order of A.O. in all the years under consideration except in assessment year 2011-12, wherein Ld. DRP directed the A.O. to include the turnover covered by the application filed to RBI as part of export turnover. 8.3 We heard the parties on this issue and perused the record. We notice that an identical issue was considered by Hon....
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....ear is two-fold. The first contention relates to the allowability of quantum of foreign tax credit. The second contention is that the foreign tax paid, if not fully allowed, then the difference amount should be allowed as business expenditure. 18.1 With regard to the first contention, we notice that an identical issue was examined by the co-ordinate bench in the assessee's own case in AY 2009-10 to 2014-15 in respect of tax credit and it was decided as under:- "9.10 We notice that the issue relating to foreign tax credit has been examined in detail for Hon'ble High Court of Karnataka in the assessee's own case. For the sake of convenience, we extract below the relevant observations made by the Hon'ble High Court of Karnataka on this issue. 37. It is in this background, when we notice section 90 of the Act-relief from double taxation is granted in the following circumstances. Firstly, section 90(1)(b) of the Act speaks about avoidance of double taxation, i.e., the Central Government may enter into an agreement with the Government of any country for the avoidance of double taxation of income under this Act and under the corresponding law in force in other country, i.e., when t....
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....ect of the income chargeable to tax under this Act in respect of which no benefit is granted in the corresponding country the assessee gets no benefit. However, if the benefit is extended to a portion of the income say for example 90 per cent. and 10 per cent. is subjected to tax then to that extent the assessee would be entitled to benefit of tax credit as he has paid tax in the foreign jurisdiction as per section 90(1)(a)(i) of the Act. 41. In this connection, it is contended on behalf of the Revenue that if the income is chargeable to tax in India, then only the assessee can have the benefit of tax credit in respect of the tax paid in foreign jurisdiction. In respect of exemption under section 10A, the income derived is not included in the total income. It is not charged to Income-tax. Therefore, section 90 of the Act has no application at all. .......... 52. Section 10A(1) speaks of "deduction". The deduction is of profits and gains for a period of ten consecutive assessment years. The said deduction is from the total income of the assessee. Therefore, the total income before allowing the said deduction includes the profits and gains from the business referred to in secti....
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....e to tax. The said exemption granted under the statute has the effect of suspending the collection of Income-tax for a period of 10 years. It does not make the said income not leviable to Income-tax. The said exemption granted under the statute stands revoked after a period of 10 years. Therefore, the case falls under section 90(1)(a)(ii). 57. In the background of this legal position, we have to look into the Double Taxation Agreements entered into between India and United States, Canada. (1) Indo-US Agreement : 58. Article 25 of the Indo-US Double Taxation Agreement deals with relief from double taxation. Clause 2(a) is the relevant provision. It reads as under (see [1991]187 ITR (St.) 102, 124) : "2(a) Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Income-tax paid in the United States, whether directly or by deduction. Such deduction shall not, however, exceed that part of the Income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed ....
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.... in India, the assessee would be entitled to only the tax paid for that relevant financial year in America, i.e., the income attributable to that year in America. In other words, the Income-tax paid in the same calendar year in the United States of America is to be accounted for two financial years in India. Of course, this exercise should be done by the assessing authority on the basis of the material to be produced by the assessee. (2) Indo-Canada agreement : 60. In so far as the Indo-Canada Double Taxation Agreement is concerned, article 23 deals with elimination of double taxation. It provides that the laws in force in either of the Contracting States will continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this agreement. In the case of India, double taxation should be eliminated as follows (see [1998] 229 ITR (St.) 44, 64): "3(a) The amount of Canadian tax paid, under the laws of Canada and in accordance with the provisions of the agreement, whether directly or by deduction, by a resident of India, in respect of income from sources within Canada which has been subjected to tax both in India a....
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....the aforesaid provision, if any portion of the income falling under section 10A is subjected to tax then, by virtue of aforesaid provision, the tax paid in Canada corresponding to the income subjected to tax in India, the assessee would be entitled to credit of the tax paid in Canada. However, this exercise has to be done by the assessing authority on the basis of materials to be produced by the assessee and after giving effect to the formulae prescribed under section 10A(4) of the Act. (3) No agreement with states : 64. Whether the assessee is entitled to the aforesaid benefit when India has no agreement with the States where tax is levied on the income of the assessee. 65. Section 91 of the Act specifically deals with the said question. The afore said section reads as under : "91. Countries with which no agreement exists.-(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, Income-tax,....
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....th the State of a country and if the assessee has paid Income-tax to that State, the Income-tax paid in relation to that State is also eligible for being given credit to the assessee in India. Therefore, the argument that in the absence of an agreement between India and the State, the benefit of section 90 is not available to the assessee is ex-facie illegal and requires to be set aside. We notice that the Hon'ble High Court has accepted all the contentions of the assessee on various aspects discussed above. 9.11 We are also of the view that the expressions used in sec. 90(1)(a)(i) and (ii) and in sec.91 would also merit attention in this regard. Section 90(1)(a)(i) uses the expression "income on which have been paid both income tax....". Section 91(1) uses the expression "If any person who is resident in India in any previous year proves that in respect of his income which accrued or arose during the previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any Country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income tax, by deduction or otherwise..... It can be noticed that, "payme....
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....ion is eligible u/s 91. To the extent relief u/s 90 or deduction u/s 91 is denied as ineligible, the company is eligible for deduction u/s 37 or as a loss u/s 28 of the Act. Further, we wish to submit that the said amount shall also be allowed as a deduction from the book profits as "taxes levied under any Act other than Income Tax Act" is not covered in the inclusion given in Explanation - 2 u/s 115JB. We wish to reproduce the definition of income tax as provided in Explanation - 2: « Explanation 2.-For the purposes of clause (a) of Explanation 1, the amount of income-tax shall include- (i) any tax on distributed profits under section 115-O or on distributed income under section 115R; (ii) any interest charged under this Act; (iii) surcharge, if any, as levied by the Central Acts from time to time; (iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time.] Further, it is submitted that FTC claim for Australia and Oman for the current assessment year includes the additional liability arising during the financial year 2017-....
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....ore, 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 on profit and/or gain of business. The Indian Income Tax Act, 1922 Act also contains a similar provision in Section 10(4) thereof. However, the Indian Income Tax Act, 1922 contains no definition of "tax" as provided in 2(43) of the Act. Consequently, the tax paid on income/profits and gains of business/profession anywhere in the world would not be allowed as deduction for determining the profits/gains of the business under Section 10(4) of the Indian Income Tax Act, 1922. Therefore, on the state of the statutory provisions as found in the Indian Income Tax Act, 1922 the decision of this Court in S. Inder Singh Gill (supra)....
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....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 Explanation being inserted in Section 40(a)(ii) of the Act, the tax paid in Saudi Arabia on income which has accrued and/or arisen in India is not eligible to deduction under Section 91 of the Act. Therefore, not hit by Section 40(a)(ii) of the Act. Section 91 of the Act, itself excludes income which is deemed to accrue or arise in India. Thus, the benefit of the Explanation would now be available and on application of real income theory, the quantum of tax paid in Saudi Arabia, attributable to income arising or accruing in India would be reduced for the purposes of computing the income on which tax is payable in India. (p) It is not disputed before us that some par....
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....hers on payment of license fee. The assessee has obtained license from M/s. Gartner Group for using the data base. The assessee did not deduct tax at source from the license fee paid to the above said group. The AO, however, took the view that the payment so made is in the nature of royalty and hence the provisions of sec.9(1)(vi) are attracted. Hence the AO took the view that the assessee should have deducted tax at source from the above said payment and accordingly proposed to disallow the payment by invoking provisions of sec.40(a)(i) of the Act. Before the A.O., the assessee submitted that the license was used for the business carried on by the assessee outside India or for the purpose of earning income from any source outside India. Accordingly, it was contended that the payment made for the use of license would be covered by the exception given u/s 9(1)(vi) of the Act. However, the A.O. noticed that an identical issue has been examined by the jurisdictional Karnataka High Court in the assessee's own case reported in 355 ITR 284 and the issue has been decided against the assessee. Accordingly, the A.O. held that the payment made to M/s. Gartner Group is in the nature of royalt....
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....ibunal and the matter was restored to the AO. 19.2 Before us, the Ld A.R raised a new contention on this issue. He submitted that the Hon'ble Karnataka High Court had decided an identical issue against the assessee in the assessee's own case reported in 345 ITR 494 and for that purpose, the High Court had placed reliance on the decision rendered by it in the case of Samsung Electronics Ltd. However, the decision rendered by Hon'ble Karnataka High Court in the case of Samsung Electronics Ltd has since been reversed by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited vs. CIT (CA Nos. 8733 - 8734/2018). Accordingly, he submitted that the decision rendered by Hon'ble Karnataka High Court is no more good law. Accordingly he submitted that the assessee is not liable to deduct tax at source from the payment made to M/s Gartner Group, since the said payment cannot be treated as "royalty" payments as per the decision rendered by Hon'ble Supreme court, referred above. Accordingly he prayed that this dissallowance should be deleted. 19.3 We heard Ld D.R on this issue and perused the record. We noticed that the co-ordinate bench had confirmed....
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....bove. Accordingly, the assessee has claimed loss. 29.2 The A.O. noticed that section 115BBD of the Act provided for taxation of dividend income received from foreign companies at concessional rate, however, subject to the condition that the Indian company should hold 26% or more right in the nominal value of the equity share capital of the foreign company. It is also provided in the said section that no expenditure shall be allowed against the dividend income under any provisions of the Act. The AO noticed that the assessee's shareholding in the foreign subsidiary was more than 26% and hence the provisions of section 115BBD of the Act are attracted. Accordingly, the A.O. took the view that the interest expenditure claimed by the assessee on the ECB loan is not allowable as deduction u/s 115 BBD of the Act, in view of the specific bar mentioned in that section. Accordingly, the AO disallowed the interest expenditure claimed by the assessee by invoking sec.115BBD of the Act. 29.3 Before Ld. DRP, the assessee placed its reliance on the decision rendered by Hon'ble Supreme Court in the case of Rajendra Prasad Mody (115 ITR 519) and contended that the expenditure is allowable, eve....
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....as is given to "dividend" in clause (22) of section 2 but shall not include sub-clause (e) thereof; (ii) "specified foreign company" means a foreign company in which the Indian company holds twenty-six per cent or more in nominal value of the equity share capital of the company." The Ld. A.R. submitted that the provisions of section 115BBD are attracted only if the total income of the assessee "includes any income by way of dividend" declared, distributed or paid by a specified foreign company. According to Ld A.R, availability of taxable dividend income during the previous year is the sin-qua-non for invoking the provisions of sec.115BBD of the Act. He submitted that the assessee has not received any dividend income from specified foreign company during the years under consideration and hence the total income of the assessee does not include any taxable dividend income. In fact, the A.O. also has also not included any such dividend income while computing the total income. Accordingly, he submitted that the A.O. was not justified in invoking the provisions of section 115BBD of the Act. The Ld. A.R. submitted that the ratio of decision rendered by Hon'ble High Court of Delhi i....
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.... the same." Following the above said decision, we direct the AO to delete the disallowance u/s 115BD of the Act, if the assessee has not received any dividend during the year under consideration. 21. The nineteenth issue relates to claim for deduction of Education Cess as expenditure. This ground is liable to rejected in view of the amendment brought in by Finance Act 2022 inserting specific provision in the Income tax Act providing for disallowance of Education Cess. Accordingly, we reject this ground. 22. The twentieth issue relates to claim for credit of TDS credit on the basis of additional TDS certificates. The AO did not grant TDS credit on the reasoning that the said TDS amount were not reflected in Form 26AS. If the deductor of TDS has filed the Statement of TDS with the Income tax department, then the said TDS will automatically reflected in Form 26AS. If there is failure on the part of the deductor to file statement of TDS, then it will not be reflected in Form 26AS. In our considered view, the assessee cannot be penalised for the fault of the TDS deductor in not filing statement of TDS. It is also possible that the deductor of TDS would have filed the statement of T....