TaxTMI 
TaxTMI 
2023 (6) TMI 1118
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....tiny and notice u/s 143(2) was issued and other statutory notices were issued to the assessee and assessee also responded to the notices. The assessee claimed exemption u/s 10AA being profit of SEZ units. The total income also comprises income of short term capital gain amounting to Rs. 2,64,33,89,767/- on sales of Mutual Fund and Bonds units and other investments. The assessee had also Long Term Capital gain on sale of bonds and NCDs of Rs. 16,74,12,034/-after setting off of brought forward losses of earlier years. Further the assessee had disclosed loss from other sources of Rs. 9,21,99,128/- being interest expenses on ECB loan taken to invest in foreign subsidiaries company, viz, Wipro Cyprus. The assessee is engaged in different types of business activities, viz., software development services and IT services; manufacture of Vanaspati/Hydro generated oils; toilet soaps; lighting products; pharmaceuticals & Neutraceutical products; leather products; computers, hydraulic and pneumatic equipment; water treatment systems and solutions etc. It is also engaged in trading of servers, routers, networking equipments, spare parts, etc. The assessing officer passed final assessment order ....
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....l before the Income Tax Appellate Tribunal, The facts and observations of the co-ordinate bench are as under:- "6.1 ....... The AO noticed from the Chairman's message given in the Annual report of the assessee that it has developed an Artificial Intelligence Plat form named "Wipro HOLMES". He also noticed that the assessee has already received trade mark for the above product. In this regard, the AO observed as under:- "3 Assessee describes Wipro Holmes as "Wipro HOLMES Artificial Intelligence Platform (tm)". The platform is ready and it has already received trademark also. One does not have to be a Sherlock Holmes to realize that Wipro Holmes is a capital asset. So where is this platform recognized in fixed asset schedule? Where are the other platforms for internet 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 c....
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....t. The Ld DRP determined the cost of mandays for employees under the control of CTO at Rs. 314.11 crores and the cost of mandays of bench employees at Rs. 287.66 crores. Accordingly, the aggregate amount to be capitalised was determined at Rs. 601.77 crores by Ld DRP. With regard to allowability of depreciation, the Ld DRP noticed that the AO has changed his stand in the remand report and observed that the new software/application produced by the assessee are in the nature of "intangibles" and accordingly suggested depreciation @ 25% instead of 60%. Further, since the details of nature of asset created and the details of their usage were not available, the Ld DRP declined to grant depreciation. 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 c....
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....chartered accountant is produced stating that bench cost and CTO cost were allocated to 10AA units. The panel after careful consideration is of the view that the assessee should be granted additional benefit of 10AA on re-computation of profits of eligible units, consequent to partial capitalization of employee cost. It is seen that some of the 10AA units are eligible for 100% exemption and some units are eligible for 50% of exemption. Hence AO is directed to recompute the eligible profits of 10AA units and accordingly compute the eligible benefit under 10AA. Directed accordingly." 6.5 The assessee also raised a new claim before Ld DRP contending that, if the development of software products mentioned above are considered to 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 platfo....
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....al expenditure u/s 35(l)(iv). 2.17 The claim of the assessee under section 35(1)(iv) is made first time before DRP as an alternative claim. No concrete evidence is provided to prove that assessee is engaged in scientific research. Even before the AO during remand proceedings assessee has not substantiated the claim. 2.18 Section 35(1)(i) and Section 35(1)(iv) relate to revenue and capital expenditures in conducting scientific research related to a business carried on by the assessee. The reference to "scientific research related to a business" in section 43(4)(iii)(a) is to include the cases of scientific research which may lead to or to facilitate an extension of that business. Section 35 relates to cases where assessee exclusively carries on "scientific research, 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 assesse....
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.... providing software services, wherein the employee cost is the major portion of the expenditure. All the expenses have been claimed as revenue expenditure in all these years and the said claim has been accepted by the assessing officer. (ii) The AO has taken the view that the expenses spent on development of certain internal tools titled as "internal intangible assets" by AO should be capitalised. They consisted of Artificial intelligence software named "Wipro Holmes", other tools named as Wipro Accelerate, Rapids etc. The primary contention of the assessee is that there is no requirement of capitalising any of the salary expenses. Since the AO had taken different view, the assessee also made following alternative plea of allowing depreciation on the amount so capitalised, which was accepted by AO in 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/soft....
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....al intangible assets", which may be eligible for depreciation @ 25%. Thus, there is no clarity in the stand of the AO. The Ld DRP has rejected the claim for depreciation for the reasons that the details of 'nature of asset created' and the date on which they are put to use are not available. He submitted that the view so taken by Ld DRP is contrary to the facts discussed in the assessment order and the remand report. 6.8 The Ld D.R, on the contrary, supported the order passed by AO/DRP. He submitted that the assessee has developed many new applications, which are in the nature of intangible assets. Hence the expenses incurred on development of those applications have been rightly capitalised by the AO. 6.9 We heard rival contentions and perused the record. We notice that the primary contention of the assessee is that the expenses incurred by it on development of software/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 a....
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....th :- It enables medical professions to deliver patient centric care at anytime and anywhere. Healthcare solutions include 'Remote fetal monitoring' and 'Remote cardiac care'. This project has been completed. (d) Lab as Service :- It is Wipro's Technovate centre and caters to the digital requirement services to the customers/partners. This project has been completed. (e) Man Machine interface (WIPRO IMAGINE):- The acronym "IMAGINE" stands for 'Interfaces to Machine Ambient Gamified Immersive New-age Experience'. It provides near human abilities of multi-model interactions through voice, vision and haptic leading to personalised experiences. The application includes Customer service, Self service, In store interaction, Product-solution user manuals etc. It involves continuing development of the product. (f) Multiple Harizone 2 to Harizone 3 projects. It also involves continuing development. (B) Customer funded projects - These projects have been undertaken by CTO for customers. We noticed 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 ex....
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....turing company/dealer. In the hands of that company/dealer, it is a revenue item, while in the hands of the purchaser, it may become capital item. Sometimes, the present assessee might purchase any software, which are going to be used for its business of development of software products or providing software services, then such kind of purchases may constitute Capital expenditure. 6.14 We shall now refer to some of the judicial decision rendered on this aspect. The Hon'ble Karnataka High Court has held that the purchase of application software shall still continue to he revenue expenditure, in the case of CIT vs. IBM India Ltd (357 ITR 88. The relevant observations made by Hon'ble Karnataka High Court are extracted below:- "The Tribunal, on consideration of the material on record and the rival contentions held, when the expenditure is made not only once and for all but also with a view to bringing into existence an asset or an advantage for the enduring benefit, the same can be properly classified as capital expenditure. At the same time, even though the expenses are once and for all and may give an advantage for enduring benefit but is not with a view to bringing....
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....a High Court is that the purchase of "application software" may not always be capital expenditure. It has held that, if the software works as an aid in manufacturing process rather than tool itself, then the software does not result into acquisition of any capital asset, even though there is enduring benefit. The High Court further opined that the application software only enhances the productivity and efficiency and hence should be treated as revenue expenditure. Thus, the test of enduring benefit was rejected in this case. 6.15 The Bangalore bench of Tribunal was considering an issue in the case of Sasken Technologies Ltd, wherein the "sale of source code of software" (referred as "IPR") was claimed by the above said company as sale of capital asset and accordingly claimed that the profit arising therefrom should be assessed as Capital Gains. The AO treated the same as business income and the view of the AO was upheld by the Tribunal in its decision rendered in ITA 2546/Bang/2019 order dated 16.03.2012. The reasoning given by the Tribunal is relevant here:- "20. We have carefully considered the rival submissions. The subject matter of the Settlement Agreement da....
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....ls software and derives income from sale of software. This would be clear from the revenue recognition policy of the assessee as would be evident from Note 2(j) of the Notes to financial statement............ 22. The revenue received by the assessee from licensing the IPR to Spreadtrum was at all times earlier offered to tax by the assessee as license fee / royalty and declared as business revenue. The sum received under the Arbitration award was also offered to tax as business income. It is only the sum received under the Settlement Agreement that was claimed as not taxable. It is therefore clear that the independently owned IPR and Foreground Information which partakes the character of stock-in-trade for companies like that of the assessee was not a capital asset within the meaning of section 2(14) of the Act and therefore the sum received by the assessee cannot fall within the ambit of the head of "Income from Capital Gain". The assessee did not receive the sum in question for giving up any source of income as the assessee was free to exploit independently owned IPR as well as Foreground information and therefore the argument that the sum received is capital receipt for....
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....lity and permanence to the technical know- how at any particular stage in this fast changing area of medical science. The state of the art in some of these areas of high priority research is constantly updated so that the know-how cannot be said to be the element of the requisite degree of durability and non-ephemerality to share the requirements and qualifications of an enduring capital asset. The rapid strides in science and technology in the field should make us a little slow and circumspect in too readily pigeonholing an outlay, such as this as capital. The circumstance that the agreement insofar as it placed limitations on the right of the assessee in dealing with the know- how and the conditions as to non-partibility, confidentiality and secrecy of the know-how incline towards the inference that the right pertained more to the use of the knowhow than to its exclusive acquisition. * * *The improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture. The further circumstance that the agreement pertained to a product already in the line ....
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....s developed software differentiated, next generation products that enable telecommunication carriers to build converged networks that support traditional voice based services as well as new data dominated services. Their product line is marketed under the brand name TJ100. It claimed all material cost and salary expenses incurred in development of single product line as revenue expenditure on the plea that the machinery imported for preparation of Printed Circuit boards (PCBs) for the equipment are not reusable. The AO noticed that the PCBs and the machineries are lying with the assessee and hence he treated the expenses incurred by the assessee as capital expenditure. The ld CIT(A) confirmed the disallowance, but the Tribunal reversed it. The Hon'ble High Court has discussed the reasoning given by the Tribunal as under:- "The Tribunal on reconsideration of the entire material on record, taking note of the various judgments on which reliance was placed by both the parties, by a detailed order came to the conclusion that the technology in telecommunication is developing at a very fast speed and new products are to be developed in case one has to remain in the business. The ....
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....oduct Development of other products, they are lying in the office, they are not scrapped as contended by the assessee and, therefore, the expenses incurred towards these components is of enduring nature and it is in the nature of capital expenditure and the Tribunal was in error in holding it otherwise. 10. Per contra, the learned counsel for the assessee submitted that, the expenses are incurred for upgrading their product every year. It is in the nature of product development expenses and, therefore, it cannot be treated as a revenue expenditure. The Tribunal was right in treating it as a revenue expenditure. 11. In the light of the aforesaid facts and the rival contentions, it is clear that the assessee is in the business of developing and selling leading edge optical networking products for worldwide customers. It has developed software differentiated, next generation products that enable telecommunication carriers to build converged networks. The life span of this product is hardly a year. Because of competition in the market, the assessee has to come out with new features every year if they want to be in the field. Therefore, there is a constant upgradation ....
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....ted so that the know how cannot be said to be the element of the requisite degree of durability and nonephemerality to share the requirements and qualifications of an enduring capital asset. The rapid strides in science and technology in the field should make us a little slow and circumspect in too readily pigeon-holing an outlay such as this as capital. The improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture. The further circumstance that the agreement pertained to a product already in the line of the 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. 14. We are of the view the aforesaid statement of law equally holds good in the area of telecommunication, may be with more force. Having regard to the facts of this case, the expenditure that is claimed is for upgrading the existing product. The....
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....y of the existing system of development of software/provision of software services. In this view of the matter, the tools/applications/platforms developed for the "internal use" of the assessee company (Item D - Internal projects), in our view, cannot be capitalised and should be allowed as revenue expenditure. 6.20 We understand that the common practice followed by information technology companies is to expense all the expenses incurred on development of a software mean for sale/license/rent. We noticed earlier that, in the instant case, the applications developed under CTO projects are the products developed by the assessee for sale/license. These products are revenue assets. We also noticed that the development was complete in respect of first four products and the development work was continuing for the remaining two products. We noticed that the business of the assessee itself is development of software products or providing of software services and hence the revenue generated on their sales or providing of services is its income, in which case, the expenditure incurred on development of those applications shall constitute related expenditure. Even if the expenditure ....
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....O's order, there are 2 more companies which had been accepted by the TPO as being comparable to the Assessee's SWD segment but ultimately, not included in the TPO's final list of comparables. We note from page 21 of the TP order that there is substance in the assessee's aforesaid submission, since there are, in fact, 2 companies that have admittedly held by the TPO to being comparable to the assessee's SWD segment. These 2 companies are CG Vak Software and Exports Ltd. and RS Software (India) Ltd., as has been noted in page 21 of the TP order. Despite the clear finding of the TPO that these 2 companies are "Accepted. Passed all the filters applied by the TPO", however, they have not been included in the final list of comparables in page 29 of the TP order. We note that the TPO has not assigned any reasons for not including these two companies in the final list despite his clear finding that they are comparable. Assessee did not raise this issue before the ld.DRP. 9. The assessee submitted that it had filed an application dated 31.05.2022 under S.154 of the Act seeking rectification of the TP order by recomputing the TP adjustment, if any, after reckoning the margins of these 2co....
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.... the assessee has brought to our notice that the correctness of the adjustments made to the above two issues need not be gone into by the Tribunal in the light of the fact that the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India and the Appellant have entered into an Advance Pricing Agreement ('APA') dated 24.03.2023 under S.92CC and 92 CD of the Act which specifically covers these 2 international transactions. A copy of the APA is placed on record. 14. On an examination of the APA, it is noticed that as per Clause 2 of the APA, the same is applicable to the instant AY, i.e. AY 2016-17. Further, we note that Clause 6(a) provides for the rate at which the ALP of the international transaction of receipt of commission towards provision of corporate guarantees to AEs is to be determined. We further note that Clause 6(b) provides for the rate at which the ALP of the international transaction of receipt of interest on inter-corporate advances to AEs is to be determined. The Appellant submits that as per Section 92CC(5) of the Act, the APA shall be binding on the Appellant and the Respondent-Revenue authorities for these international tran....
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.... section and sections 92, 92C, 92D and 92E, "specified domestic transaction" in case of an assessee means any of the following transactions, not being an international transaction, namely:- (i) any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of subsection (2) of section 40A;* (ii) any transaction referred to in section 80A; (iii) any transfer of goods or services referred to in sub-section (8) of section 80-IA; (iv) any business transacted between the assessee and other person as referred to in sub-section (10) of section 80-IA; (v) any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are applicable; or (vi) any other transaction as may be prescribed, and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of (twenty crore)** rupees. (* Omitted by Finance Act, 2017 w.e.f. 1-4-2017. ** Substituted for "five" by Finance Act, 2015 w.e.f. 1.4.2016)" Section 92 of the Act mandates com....
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....provisions of sec.92BA(v) relating to Specified Domestic Transaction are applicable to the assessee. At the cost of repetition, we extract below clause (v) of sec.92BA:- "(v) any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of subsection (8) or sub-section (10) of section 80-IA are applicable;" Hence, it is pertinent to refer to the provisions of sec.80IA(8), which read as under:- "80IA(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services ....
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....nsactions of transfer of goods or services between eligible unit and non-eligible unit, if the said transfer of goods or services between the undertakings did not occur at "market value". The AO, for the purpose of computing deduction under respective section, shall compute the "profits and gains" of the eligible undertaking by substituting the "actual price" with "market value". 39.14 Though the above said provisions empowered AO to examine and determine the Fair Market Value of certain transactions mentioned therein, yet the Act did not prescribe any method to compute FMV of these transactions. Hence it has resulted in disputes between taxpayers and AO in determining FMV of transactions. The Hon'ble Supreme Court in the case of Glaxo Smithkline Asia (P) Ltd (supra) has examined the complications which arise in cases where fair market value is to be assigned to transactions between domestic related parties and suggested that Ministry of Finance should consider appropriate provisions in law to make transfer pricing regulations applicable to such related party domestic transactions. Accordingly sec.92BA was introduced along with corresponding amendment in sec.80IA of the Ac....
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.... earlier that the assessee has entered into inter-unit transactions with different units. It included transactions between (a) SEZ units and SEZ units, (b) SEZ units and non-SEZ units. In between SEZ units also, the transactions have taken place between SEZ units enjoying 100% tax deduction and SEZ units enjoying 50% tax deduction. Accordingly, one unit shall be providing services and another unit shall be receiving services. The inter-unit transaction would result in "generation of income" for "Service provider", while it would constitute "expenditure" for the "Service receiver". 39.19 Before us, the assessee has raised many important contentions, which would impact the exercise of determination of ALP. They have been summarised by us in the earlier paragraphs. We notice that many of the contentions have not been examined by the TPO/AO. We have noticed earlier, the TPO has determined the ALP of Profit ratio at 15.58% and has actually added the excess profit declared by the undertaking. The provisions of sec.10AA requires re-computation of deduction by substituting the actual value with market value. We notice that the AO/TPO did not carry out th....
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....d that Arms length price should be applied to both the eligible unit and non-eligible unit. This contention of the assessee is liable to rejected for the purpose of computing deduction u/s 10AA of the Act. This is so because, as per the provisions of sec.80IA(8) of the Act, the profits and gains of "eligible unit" alone is mandated to be recast by adopting "market value" for the purpose of computing deduction u/s 10AA of the Act. Since deduction u/s 10AA is not allowed for "noneligible unit", the question of recasting the profit and loss account of that unit shall not arise. (C) However, in our view, the above said contention of the assessee will hold good for sec. 92 of the Act, since the provisions of sec.92(2A) mandates that any income in relation to the SDT shall be computed having regard to the "arms' length price". Further, as per the provisions of sec.92C(4), the assessing officer may compute the "total income" of the assessee having regard to the arms' length price so determined. Accordingly, unless the ALP is adopted in both the "service providing unit" and "service receiving unit" in respect of their inter-unit transactions, the total income cannot be computed ha....
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....ction @ 100% and a non-eligible unit. Eligible unit is Service Provider and accordingly earns revenue from non-eligible unit. Transaction Price - 1,00,000 Arms Length Price - 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 -50,000 5,00,000 15,00,000 -50,000 Adj Rev 10,00,000 5,00,000 15,00,000 9,50,000 5,00,000 14,50,000 Cost Add: Corresponding Adjustment for ALP -9,00,000- -4,25,000- -13,25,000- -9,00,000- -4,25,000 50,000 -13,25,000 50,000 Adj Cost -9,00,000 -4,25,000 -13,25,000 -9,00,000 -3,75,000 -12,75,000 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 ....
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.... 50,000 In this illustration, (a) the "net income" remains at Rs. 1,75,000/- before and after ALP adjustments u/s 92 of the Act, since adjustment to the interunit transactions have to be done in the hands of both eligible and non-eligible units. (b) The amount of deduction u/s 10AA worked out to Rs. 1,00,000/- prior to ALP adjustment. However, it has fallen down to Rs. 50,000/- after ALP adjustment in terms of sec.80IA(8). (c) Thus the reduction in the quantum of deduction u/s 10AA, i.e., Rs. 50,000/- 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. 75,000/- (prior to ALP adjustment) to Rs. 1,25,000/- after ALP adjustment. The net effect is the addition of SDT adjustment of Rs. 50,000/-. (B) Eligible Unit - eligible for deduction u/s 10AA of the Act @ 50%. ILLUSTRATION 3 (Over invoicing of revenue) Transaction between an Eligible unit, which is eligible for deduction @ 50% and a non-eligible unit. Eligible unit is Service Provider and accordingly earns revenue from non-eligible unit. Transaction....
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....ss: 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 -50,000 75,000 - 1,75,000 -50,000 50,000 -25,000 1,25,000 - 1,75,000 -25,000 Total Income 1,25,000 1,50,000 SDT adjustment 25,000 In this illustration, (a) the "net income" remains at Rs. 1,75,000/- before and after ALP adjustments u/s 92 of the Act, since adjustment to the interunit transactions have to be done in the hands of both eligible and non-eligible units. (b) The amount of deduction u/s 10AA worked out to Rs. 50,000/- prior to ALP adjustment. However, it has fal....
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.... similar credit period to both AEs and Non-AEs and accordingly, based on internal CUP, no adjustment is warranted. Reliance placed on order of the Hon'ble Bombay High Court dated 08.01.2013 in ITA(L) No.1053/2012 in the case of CIT v. Indo American Jewellery Ltd. (iii) Without prejudice to above, interest rate of Libor + 450 basis points is applied by TPO and DRP has directed to apply Average SBI deposit rate (which was not applied while computing adjustment in the FAO). As regards advances to overseas subsidiaries interest rate of Libor+150 basis point is directed by Hon'ble Tribunal. Delayed receivables are much shorter credit period provided to AEs and Non-AEs and should warrant even a lower rate of interest. 21. Considering the arguments from both the sides and the orders of the authorities below, during the course of hearing, after taking consent from both the sides, we think it will be appropriate to grant credit period of 45 days and interest is to be calculated using LIBOR 6 months+350 basis points. Accordingly this is sent back to TPO/AO to recalculate the interest on delayed receivables afresh following the LIBOR 6 months+350 basis points. This ground is allow....
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....led 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. with the following observations: "12. Thus it is clear that the Tribunal was of the view that the disallowance made under section 14A as computed under Rule 8D(2)(iii) cannot be more than the actual expenditure which can be relatable for earning the exempt income and debited to the Profit and Loss account. In the case on hand the disallowance made by the assessee on its own is not the total expenditure debited to the profit and loss account but it is the allocation made by the assessee out of the total expenditure. Therefore the basis of the allocation and apportionment of the said disallowance made by the assessee is subject matter of verification and satisfaction of the Assessing Officer. Accordingly, we set aside this issue to the record of the Assessing officer to re-examine the issue in the light of the orders of this Tribunal in assessee's own case as well as in the case of DCIT vs. M N Dastur & Co P Ltd (supra)." ....
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....h losses have to be treated as speculative loss in terms of section 43(5) of the I.T. Act. Considering the arguments from both the sides we note that an identical issue has been examined by the co-ordinate bench in the assessee's own case in AY 2009-10 to 2015-16 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 cl....
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....ing the above said decision of co-ordinate bench rendered in the assessee's own case, we restore this issue to the file of AO with similar directions. The assessee is directed to furnish relevant details to prove that the value of underlying assets is more than the value of outstanding forward contracts as on the balance sheet date." Accordingly this ground is allowed for statistical purpose. 26. Ground No. 08 relates to the action of the AO in setting off the loss arising from SEZ units against income earned by non-tax holiday units. During the course of assessment proceedings the AO noted that the assessee has various SEZ units at different locations. Among SEZ units all are not profit making and the assessee had incurred losses on the six SEZ units as tabulated by the AO. The AO noted that the assessee has set-off the losses of the six SEZ units from other taxable units and other divisions. The AO after discussing the relevant provisions did not allow set-off the losses of the six SEZ units and added back in to the total income of the assessee to the extent of Rs. 90.66 crores. Considering the rival submissions we noted that an identical issue has been examined by the co-ordi....
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....duction allowed u/s 10A in respect of undertaking is to be allowed after setting off of brought forward loss of that undertaking. Income of each undertaking is to be computed independently as per the provisions of the Act. An assessee cannot be compelled to seek deduction u/s 10A in respect of an undertaking in which there is a loss. This is the basis of not setting off of losses of 10A units against the profit of 10A units for computing deduction u/s 10A. This is in view of the decision of the Third Member in the case of Navin Bharat Industries Ltd v. DCIT 90 ITD 1. In view of the judgment of the jurisdictional High Court in the case of Himmatsingh (supra), the assessing officer will set off brought forward losses of the units for which the assessee has disclosed positive income for the purpose of claiming deduction u/s 10A". 16.5 Respectfully following the decisions of the Hon'ble Tribunal referred supra, we direct the 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 u/s 10A" Respectfully following the decision of the co-ordinate bench of the Tribunal in th....
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....antial questions of law was considered by the apex court in the case of CIT v. Canara Workshops P. Ltd. (1986) 161 ITR 320 (SC) in favour of the assessee and against the Revenue. 164. Following the said judgement in the assessee's case itself in ITA 1395 of 2006 connected with ITA 1394 of 2006, this court by its order dated November, 5, 2013 following the judgement of the Supreme Court answered the said substantial question of law in favour of the assessee and against the Revenue. Therefore, aforesaid questions of law are answered in favour of assessee and against the Revenue." 4.9 We notice that the jurisdictional Hon'ble Karnataka High Court has decided an identical issue in favour of the assessee. Accordingly, we hold that the loss 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. Accordingly, this issue is decided in favour of the assessee." The Ld A.R submitted that the above said view of the Hon'ble Karnataka High Court has since been upheld by Hon'ble Supreme Court in the case of....
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....be taken. In the instant case, the tribunal has answered all the substantial questions of law in favour of the assessee by placing reliance on the case of the assessee in previous Assessment Years viz., 2004-05 and 2007-08. In the result, the appeal is disposed of in terms stated above." 5. In view of the observations made by the High Court, we dispose of the instant petition by reiterating the observations and clarifying that as and when the decisions with respect to the Questions No. (i), (ii) and (viii) are rendered by this Court, the matters shall be governed in terms of directions issued by the High Court. 6. With these observations, the Special Leave Petition is disposed of. 27. Respectfully following the above judgements, we hold that the loss 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 nonSEZ/non-STPI units this issue is decided in favour of the assessee. 28. Ground No. 09 relates to the taxability of profits from development centers located outside India. During the course of hearing the A....
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....ate bench of the Tribunal in the assessee's own case for Assessment year 2004-05 in ITA No.1072/Bang/07 (supra) and find that the discussions are at para 24 onwards and the relevant findings are at para 24.2 to para 24.2 which are extracted hereunder: "24.2 We have carefully considered the argument put-forth by the Ld. A.R. and also the reasoning of the Ld. A.O. and the Ld. CIT(A) in their respective orders. The Hon'ble Tribunal, for the AYs 2001-02 and 02-03 in the assessee's own case had an occasion to deal with an identical issue. After deliberations, the Hon'ble Tribunal had concluded thus - "34.4 The learned CIT(A) has also not recorded a finding that such goods or services have been transferred at the market value. In absence of such a finding, it is not possible to uphold the finding of the learned CIT(A). This issue is required to be remitted back to the assessing officer and the assessee will be required to file the relevant details as required by the assessing officer so that the assessing officer can ascertain the market value of such goods or services transferred by arriving at the profit of the eligible business." 24.3 Considering the above f....
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.... years relating to these items, accordingly he reduced from the computation of exemption u/s 10AA. Considering the rival submissions we noted that a similar issue has been decided by the co-ordinate bench of the Tribunal in assessee's own case for the AY 2015-16 in which it has been observed as under:- "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 in ITA 507 of 2002 decided on August 25, 2010 while dealing with the income earned from sale of scrap, export incentive and rent received, answered the question in favour of the assessee and against the Revenue. 167. In so far as gain on exchange rate fluctuation is concerned, it was subject matter of ITA....
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....nd decide the issue in accordance with the discussions made supra. Accordingly this issue is partly allowed for statistical purpose. 33. The eleventh issue relates to rejection of claim for deduction u/s 10AA 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 2.19 crores. The AO held that the same is not eligible for deduction u/s 10AA of the Act by observing that there is no relation of interest income with the Software Development Activity of the units claiming deduction u/s 10AA. It is also not akin to investment of surpluses earned and generated from Software Development Activity, which may be regarded as profits and gains of the undertaking to the extent they are held for working capital purpose of the undertaking or units distributed to the shareholders of the company. 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 i....
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.... nexus between interest income and the income of the business of the undertaking. The co-ordinate benches in the earlier years have also followed the decision rendered by Hon'ble Delhi High Court in the case of CIT Vs. Shriram Honda Power Equipment 289 ITR 475, wherein it was held that, if the AO has assessed interest income under the head 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....
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....y following the above said decision, we restore this issue to the file of AO for examining it afresh with similar directions. This ground is allowed for statistical purpose. 35. Ground No. 12 relates to the eligibility of the assessee to claim deduction u/s 10AA of the Act for deemed exports, i.e., sales made to own units located in SEZs and Indian subsidiaries of Foreign MNCs. The claim of the assessee was rejected by the AO by observing that only turnover pertaining to sales outside India is being taken as export sales. He further observed that the deemed export cannot be treated as Export out of the country and sec. 10AA is very clear on that. Secondly, the assessee in the return filed has not included the deemed export as part of ETO and now no additional claim for exclusion will be entertained. An identical issue was examined by the co-ordinate bench in 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 according....
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....from unit to port of shipment. d) Fulfillment of NFE by EO U/EHTP/STP/BTP units in regard to such exports shall be reckoned on basis of price at which goods are supplied by EOUs to other Exporter or other EOU/EHTP/STP/BTP/SEZ unit. e) All export entitlements, including recognition as Status Holder would accrue to exporter in whose name foreign exchange earnings are realized. However, such export shall be counted towards fulfillment of obligation under EOU/EHTP/STP/BTP scheme only." 20. From the aforesaid provisions, it is clear that if a assessee wants to claim the benefit of Section 10A, firstly he must export articles or things or computer software. Secondly, the said export may be done directly by him or through other exporter after fulfilling the conditions mentioned therein. Thirdly, such an export should yield foreign exchange which should be brought into the country. If all these three conditions are fulfilled, then the 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 ....
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....l Karnataka High Court, we direct the A.O. to include deemed exports as part of turnover while computing deduction u/s 10A/10AA/10B of the Act." 36. Respectfully following the above said decision of the coordinate bench and also the binding decision of the jurisdictional Hon'ble Karnataka High Court, we direct the AO to include deemed exports to SEZ as part of turnover while computing deduction u/s 10AA of the Act. Accordingly this ground is allowed. 37. Ground No. 13 relates to the to question as to whether reimbursements received by the assessee are required to be excluded from the export turnover for the purpose of computing deduction u/s 10AA of the Act. During the year under consideration, the assessee had received reimbursements to the tune of Rs. 177.77 crores categorized as assets reimbursements of Rs. 3.17 crores, communication link reimbursements of Rs. 24.79 crores, travel reimbursements of Rs. 23.24 crores, and incentive awards/other reimbursements of Rs. 126.57 crores. The ld. AR of the assessee submitted that reimbursements constitute an integral part of the measurement for realizing its price for the computer software exported. He further submitted that the sim....
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.... Since it is an expenditure incurred at the request of customer for which reimbursement was also received, there is no revenue element involved in it. Accordingly, we are of the view that this amount should not be considered as either expenditure or part of export turnover, i.e., the receipt should be netted off against the expenditure. We hold accordingly. 20.6 We shall next examine the nature of payment received by way of incentive awards. It is the submission of the assessee that whenever it completes software development work within the timeframe to the satisfaction of the customer, the customers pay a bonus/reward as consideration. It is stated that the said amount has been realized in foreign exchange and accordingly included in the export turnover. From the submission so made, we notice that this amount has been received as incentive from the customers, meaning thereby, it is in the nature of additional payments received towards export of software. Hence, we are of the view that it shall form part of sales turnover. Since it is only a revenue item, it cannot be categorized as expenditure as contemplated under the definition of the export turnover. Hence the same is ....
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....as decided as under:- "19.2 The facts relating to this issue are stated in brief. The A.O. noticed that the assessee has incurred various expenses in foreign currency under different heads. The issue is whether these expenses are required to be deducted from "export turnover" as required under the definition of the term "Export turnover" for the purpose of computing deduction u/s 10A/10AA/10B of the Act. ... ...... 19.3 ..................The AO took the view that, as per the definition of the term "Export Turnover" given under sec.10A/10AA/10B of the Act, "expenditure incurred in foreign currency" is required to be excluded from the amount of "Export turnover". Accordingly, the A.O. proposed to exclude all the expenditure incurred in the foreign currency from the amount of export turnover while computing deduction u/s 10A of the Act. .................. 19.5 The Ld. DRP agreed with the view taken by A.O. on the matter of exclusion of those expenses incurred in foreign currency from the amount of "export turnover", while computing deduction u/s 10A/10AA/10B of the Act. However, in assessment year 2009-10 to 2011-12, the Ld. DRP directed the A.O. to exclude ....
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....r of the assessee by following the decision of Hon'ble Tribunal in the case of Infosys Technologies Limited which has been challenged before the Hon'ble High Court. Another point on which the Revenue found fault with the CIT(A) was that the decision relied on by him was rendered with regard to deduction u/s 80HHC whereas the issue before him was the claim u/s 10A of the Act. It was, further, submitted that the assessee had filed annual returns before the STPI authorities showing the assessee had earned export income through data communication as well as onsite consultancy which shows that it had rendered technical services. The agreements entered into by the assessee with the clients for exporting computer software clearly provides software application development, deployment and support services. To strengthen its stand, the Revenue, further, submitted that the assessee provides technical services in developing software as per the specifications of the client(s) and, hence, it is clear that it provides technical services and therefore such expenditure met out in foreign currency in providing technical services outside the country should be deducted from the export turnover....
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....s 01-02 and 02-03 and holds good for the AY under dispute also and, accordingly, directed the AO to consider the reimbursements as part of export turnover for the purpose of computing deduction u/s 10A. 14.2. In respect of Telecommunication expenses, the Ld. AO retied on the definition of the export turnover to exclude of the said expenses as expenses attributable to delivery of computer software and excluded the said sum from export turnover. 14.3. The assessee company in its submission was of the view that - "17.1 ................This is erroneously excluded by the AO. The expenses never formed part of export turnover. Exclusion can be made provided the same is included in the first place. As telecommunication expenses are debited to the profit and loss account of each section 10A unit, it is clear that they have not been included in the turnover. Thus exclusion from tunio.er is not warranted at all. However, the AO has estimated Rs. 1,81,04,480/- being 5% of the net communication charges incurred as the amount incurred for delivery of computer software outside India and reduced the same only from export turnover. If it is held that the said sum is requ....
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....d. v.ACIT (Supra) 15. We have heard both the parties. Deduction u/s 10A is available in respect of profit or gains derived from an undertaking from the export of articles or things or computer software. One has to understand the meaning of computer software with reference to the fact that it is preceded by articles or things. Deduction u/s 10A was allowed if export proceeds are from the export of articles or things or computer software. It means that such export proceeds must relate to the goods and no for the services. Computer software is developed by providing off site expenses and onsite expenses. The amount receivable in respect of computer software does not include any reimbursement of onsite expenses. Payments made to Engineers employed on site are for the development of software. By such development, the assessee has not rendered any technical services relevant to clause (iv) of Explanation 2 of section 10A technical services have not been defined. The CBDT vide Circular No.694 dated 2.3.11.1994 stated that computer programmes are not physical goods but are developed as a result of an intellectual analysis of the system and method followed by the purchaser of the p....
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....es are incurred for the delivery of software. We are not having the details of the unlinking charges, hence, the issue of disallowance of telecommunication expenses relating to the delivery of software is restored on the file of the assessing officer. The assessing officer will give opportunity to the assessee to furnish the details in respect of telecommunication expenses for the delivery of software." 14.7. As similar issues have been decided by the Hon'ble Tribunal for the AYs 01-02 & 02-03 in the assessee's own case, we respectfully follow the said decision in toto which holds good for the AY under dispute also. Accordingly, this issue is remitted back on the file of the assessing officer as in last year." 19.8 We notice that the coordinate bench has followed the decision rendered by another coordinate bench in the case of M/s. RELQ Software Private Ltd (supra), wherein a distinction was made to the term "Technical services" and it was held that payment made to engineers employed on site for development of software cannot be considered as "Technical services" mentioned in clause (iv) of explanation (2) to section 10A of the Act. Accordingly, it was hel....
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....is the expenses specifically mentioned in the definition of "export turnover", viz., the expenditure incurred on freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any incurred in foreign exchange in providing technical services outside India alone are required to be excluded from the export turnover. 19.10 Further, if any amount is excluded from "export turnover", the same is required to be excluded from "total turnover" also, as held by Hon'ble Karnataka High Court in the case of Tata Elixi Ltd (2012)(204 Taxman 321) and by Hon'ble Supreme Court in the case of CIT vs. HCL Technologies Ltd (CA No.8489-8490) 19.11 Accordingly, we set aside the order passed by the A.O. on this issue and direct him to compute the deduction u/s 10A/10AA/10B of the Act by following the discussions made supra." 17.1 Before us, the Ld A.R submitted that the above said decision rendered by the co-ordinate bench would get support from the decision rendered by Hon'ble Jurisdictional High Court in the case of Motor Industries Company Limited (ITA No.776/2007 C/w ITA Nos. 1172/2006, 1171/2006, 7....
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....gh 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'ble High Court of Karnataka in the assessee's own case in 2001-02 to 2004-05, wherein the High Court decided the issue in favour of the assessee with the following observations:- "146. The facts are not in dispute. The assessee is a status holder exporter. The export has been done strictly in accordance with law. Foreign exchange remittances should have been received within six months from end of the financial year. It has....
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....'s own case for the AY 2015-16 which is as under:- "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 tax is payable on income under this Act as well as under the corresponding law in that country they could agree to tax in one country. This happens even before paym....
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.... 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 section 10A(1). Section 5 of the Act explains the scope of total income to mean all income from whatsoever source derived. Sec....
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....me-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 in the United States." 59. A perusal of the aforesaid provision makes....
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.... 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 and Canada shall be allowed as a credit against the....
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....ny 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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.... agreement with 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 ....
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....e only to the extent relief is eligible u/s 90 or deduction 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 y....
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....ble 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 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 ....
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.... 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 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 ....
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....relates to disallowance of payment made to M/s. Gartner Group u/s 40(a)(i) of the Act for non-deduction of tax at source at Rs. 10.23 crores. During the year the assessee paid Rs. 10.23 Crores to M/s Gartner group and no TDS was deducted. The assessee submitted that it is covered under exclusion clause of royalty as per section 9(1)(vi) wherein royalty paid for the purpose of business or profession carried outside India or for the purpose of making or earning any income from any source outside India is not regarded as royalty. The ld. AR of the assessee alternatively submitted that the undertaking is eligible for deduction u/s 10AA, therefore the deduction should be allowed on the enhanced profit of the eligible undertakings. Considering the rival submissions we notice that an identical issue has been decided against the assessee by the co-ordinate bench in AY 2015-16 in which it has been held as under:- We notice that an identical issue was decided against the assessee by the co-ordinate bench in AY 2010-11 to 2014-15. The facts relating to this issue has been discussed as under by the coordinate bench in the above said years:- "32.1 The facts relating to this is....
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....ised one more alternative contention to press that the amount disallowed u/s 40(a)(i) of the Act would go to increase the profits of the undertakings and hence the eligible deduction u/s 10A/10AA/10Bof the Act would also get increased correspondingly. The Ld. A.R. submitted that the alternative contention of the assessee gets support from the circular issued by CBDT. We notice that the alternative contention of the assessee was not considered by the AO and in view of the submissions made by Ld A.R, the same requires examination at the end of AO. Accordingly, we restore the above said alternative contention to the file of the A.O. in all the years i.e. assessment years 2010-11 to 2014-15 for examining it by following the circular of CBDT referred by Ld. A.R." 19.1 In AY 2010-11 to 2014-15, the Tribunal confirmed the disallowance made u/s 40(a)(i) of the Act for non-deduction of tax at source, following the decision rendered by the jurisdictional High Court in the assessee's own case. Since the assessee raised an alternative contention that the "profits of undertaking" eligible for deduction u/s 10A/10AA/10B of the Act will go to increase by the above said disallowance, the ....
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....is no requirement to deduct tax at source, then there is no requirement of making any disallowance u/s 40(a)(i) of the Act. However, if the AO comes to the conclusion that the above said decision of Hon'ble Supreme Court is not applicable and the assessee is liable to deduct tax at source, then the AO shall grant enhanced deduction u/s 10A/10AA/10B of the Act by increasing the profits of undertaking by the amount of disallowance so made. The assessee is given liberty to raise all contentions in this regard before the AO. 46. Respectfully following the above judgement of the co-ordinate bench of the Tribunal in assessee's own case cited supra we also send back to the file of the in above terms. The assessee is given liberty to raise all contentions in this regard before the AO. 47. The ground No. 18 to 18.1 relates to the disallowance of interest expenditure incurred on investment in Foreign Subsidiary u/s 115BBD of the Act of Rs. 9.22 crores. An identical issue has been examined by the co-ordinate bench in AY 2012-13 to 2014-15 and it was decided as under:- "29.1 The facts relating to the issue are stated in brief. The A.O. noticed that the assessee has declared loss....
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....d. DRP also confirmed the disallowance of interest expenditure incurred on ECB Loan. However, in the final assessment order passed for assessment year 2012-13, the A.O. disallowed the interest expenditure by invoking provisions of section 115BBD of the Act only. The AO did not mention about the reasoning of 'acquiring of controlling interest" or sec. 57(iii) of the Act, while making the disallowance. Hence, we confine ourselves to the applicability or otherwise of sec.115BBD of the Act. 29.4 We heard the parties on this issue and perused the record. The provisions of section 115BBD of the Act reads as under:- "115BBD. (1) Where the total income of an assessee, being an Indian company, for the previous year relevant to the assessment year beginning on the 1st day of April, 2012 28[or beginning on the 1st day of April, 2013] 28a[or beginning on the 1st day of April, 2014] includes any income by way of dividends declared, distributed or paid by a specified foreign company, the incometax payable shall be the aggregate of- (a) the amount of income-tax calculated on the income by way of such dividends, at the rate of fifteen per cent; and (b) the amoun....
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....it in the submissions of Ld A.R that the primary condition to be satisfied for invoking section 115BBD of the Act is that the total income of the assessee should include any dividend income received/declared from/by a specified foreign company. There is no dispute with regard to the fact that the total income of the assessee for the years under consideration does not include any dividend income received/declared from/by a specified foreign company. Hence, the question of invoking provisions of section 115BBD of the Act does not arise. The decision rendered by Hon'ble Delhi High Court in the case of Chem invest Ltd. (supra), though rendered in the context of sec.14A of the Act, brings out the principle of interpretation of a provision. For the sake of convenience, we extract below the following observations made by Hon'ble Delhi High Court in the above said case. "23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression does not form part of the total income" in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant pre....
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....deduction allowable to the assessee under S.10AA of the Act. 52. The second aspect of ground No.20 pertains to the DRP's direction that foreign taxes in the nature of VAT or GST have not been added back to the Export Turnover while computing the deduction under S.10AA which has however not been given effect to by the AO in the final assessment order. On examining the DRP's directions, we find that such a direction was in fact issued by the DRP vide para 13 at page 61 of the directions. However, we find that while computing the deduction allowable under S.10AA, the said direction of the DRP has not been given effect to. We, therefore, direct the AO to comply with the aforesaid direction of the DRP vide para 13.1 at page 61 of the directions and to, accordingly, recompute the deduction allowable to the assessee under S.10AA of the Act. 53. Ground No. 21 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 and the ld. DRP has also rejected the objection filed before them. If the deductor of TDS has filed the Statement of TDS with the Income ....