TaxTMI 
TaxTMI 
2023 (8) TMI 1528
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....l income of Rs. 70,99,50,98,970 is contrary to the elaborate reason cited in the main portion of the assessment order and hence, computation with total income of Rs. 68,87,72,84,860 should have been considered. 3.1 The ld. A.R. submitted that National Faceless e-Assessment Centre ("NFeAC") has given two computations to the order wherein total income of Rs. 6,887 cr and Rs. 7,099 cr are computed under normal provisions. Second computation with total income of Rs. 7,099 cr is contrary to the elaborate reasons cited for variation in the assessment order whereas computation with total income of Rs. 6,887 cr is based on reasons cited in the order. Hence, without prejudice to our subsequent grounds to this appeal, computation with total income of Rs. 6,887 cr should have been considered. 3.2 The ld. D.R. not put any serious objection. 3.3 After hearing both the parties, we are of the opinion that if there is no mistake while determining the total income, the same be corrected by ld. AO while passing the Order Giving Effect to this Tribunal order. 4. Next ground no.3 of the assessee's appeal is with regard to order passed by NFAC u/s 144C(13) of the Act is barred by limitation....
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....bilities and improvisation are held as revenue expense • Applications developed under CTO projects are for sale/license and accordingly, revenue. Even if the expenditure does not result in creation of any successful software product/application/tool etc., considering 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, expenses incurred on CTOprojects (Item A), Domain projects (Item C) and Platform/tools/solutions (Item D) are required to be allowed as revenue expenditure • Adjustment for Bench employees are made on adhoc basis on presumption that their services would have been used for CTO projects and accordingly, decision for CTO projects would apply mutatis mutandis to Bench employees as well. 5.2 The ld. D.R. relied on the order of ld. DRP. 5.3 We have heard the rival submissions and perused the materials available on record. This issue came for consideration before this Tribunal in assessee's own case in IT(TP)A No.370/Bang/2021 for the ass....
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....rd, 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 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 timeshe....
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....hat 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 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 ....
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....ts 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 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 accordingl....
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....xpenditures 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 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....
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....hey 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/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....
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....ort. 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 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 ....
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....rfaces 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 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 Serv....
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....pect. The Hon'ble Karnataka High Court has held that the purchase of application software shall still continue to the 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 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 bus....
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.... 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 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 ass....
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.... 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 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 IP....
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....low 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 know-how 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 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 techn....
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....s) 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 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 pro....
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.... 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 of the original product. It is in 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. CI....
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....usiness 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. Therefore, the product so upgraded goes on changing as 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....
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.... 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 does not result in creation of any successful software product/application/tool etc., considering 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 incu....
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....er AEs as well." 6.1 The ld. A.R. submitted that the assessee has entered into an unilateral Advance Pricing Agreement for AYs 2016-17 to 2020-21 which is binding as per section 92CC(5). Hence, taking note of the APA, this Tribunal disposed of these issues in paras 12 to 16 pages nos.30 to 32 of its order. 6.2 The ld. D.R. relied on the order of ld. DRP. 6.3 We have heard the rival submissions and perused the materials available on record. Ground Nos.5.1 to 5.5 are infructuous since the assessee has entered for unilateral Advance Primary Agreement for assessment year 2016-17 to 2020-21, which is binding as per section 92CC(5) of the Act. Being so, these grounds are infructuous and dismissed. 7. Ground Nos.5.6 & 5.7 of the assessee's appeal are with regard to Corporate guarantee commission, which are reproduced as under: 5.6 "That NFAC, TPO and DRP erred in law in enhancing the percentage of commission on corporate guarantees issued by the appellant for and on behalf of its overseas subsidiaries to 2% (safe harbour rate for corporate guarantee for AY 2017-18 was 1%), without any valid computation or basis ignoring the arm's length price charged by the appellant ....
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.... in the open market. 5.13 That NFAC, TPO and DRP failed to appreciate that since SDT constituted a very minor portion (less than 5%) of the overall turnover of each SEZ units and 95% of the services are rendered to external third party, it would only be prudent to take the margin on the external third party services as open market price instead of determining an arbitrary arm's length price. 5.14 Without prejudice, NFAC, TPO and DRP failed to appreciate the fact that, any adjustment for SDT should be based on the ALP derived for the services segment for international transaction, as Companies services segment is nothing but an aggregation of all SEZs and STPI units. The TPO/DRP has erred in applying 7.37% for SDT and not considering the margin of international transaction. 5.15 Without prejudice, that NFAC, TPO and DRP have failed to appreciate the fact that, Revenue for a SEZ unit from another SEZ/STPI unit, which is a subject matter of adjustment under SDT, has not been considered as an export turnover, on which the assessee has not been allowed any deduction under Section 10AA. 5.16 Without prejudice, that NFAC, TPO and DRP erred in adding the....
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....se in AY 2015- 16.The decision rendered by the co-ordinate bench on this issue are extracted below:- "7.5 The last item in this issue relates to the transfer pricing adjustment made in respect of Specified Domestic Transaction (SDT) made. The TPO has made adjustment to the tune of Rs. 345.96 crores and it was confirmed by Ld DRP. This issue is also covered by the decision rendered by the co-ordinate bench in the assessee's own case in AY 2014-15. The decision rendered by the co-ordinate bench on this issue are extracted below:- "39.12 We heard Ld D.R and perused the record. We shall first have regard to various applicable provisions of the Act. The provisions of sec.92BA of the Act was introduced by Finance Act, 2012 w.e.f. 1.4.2013 to determine Arm's length price of Specified domestic transactions (SDT), when the aggregate value of such transactions exceeds the prescribed limit. Sec.92BA reads as under:- "92BA. For the purposes of this 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 r....
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.... 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 or apportioned, or, as the case may be, contributed under sub-section (2) or subsection (2A), 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 international transaction or specified domestic transaction was entered into." 39.13 The different undertakings owned by the assessee have entered into inter unit transactions and many of those undertakings have claimed deduction u/s 10AA of the Act. The aggregate value of those transactions has also exceeded the threshold limit prescribed in sec. 92BA of the Act. Accordingly, it is submitted that the 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....
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.... 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 eligible for deduction/benefit prescribed in those sections. Hence, there may arise a tendency to shift profits from "non-eligible" undertaking to "eligible" undertaking by under invoicing/over invoicing of transactions of transfer of goods or services, so that the assessee could avail higher tax benefits. Hence, sub-sec. (8) was introduced in sec. 80IA and the same was made applicable to other incentive provisions also. The purpose of introducing sub-sec. (8) was to prevent claim of excess deduction or benefit granted to certain "eligible undertakings". The modality adopted in se.80IA(8) is to substitute "market value" to the transactions 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 com....
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....c.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. 39.17 It can be noticed that the provisions of sec.92C(4) requires computation of total income by adopting arm's length price determined by the AO and further, if the total income is enhanced on account of adoption of ALP, then the deduction u/s 10A/10AA/10B/Chapter VIA will not be available for such enhanced income. At the same time, while computing the deduction u/s 10A/10AA/10B/Chapter VIA, the AO has to compute the "Profits and gains of business" by substituting ALP and this exercise has to be carried out for the purpose of computing the quantum of deduction. 39.18 We have noticed 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 bet....
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....hat 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 of sec. 80IA(8) do not cover transactions between two eligible units. This may be a lacunae in the Income tax Act, but the said lacunae could be cured only by the Parliament. Hence, on a strict interpretation of law, the transactions between two eligible units are not covered by sec.80IA(8) of the Act. Consequently, the transactions entered between two eligible units are outside the scope of "specified domestic transactions" mentioned in sec.92BA of the Act. Accordingly, this view of the tax authorities is set aside. (B) The assessee also contended 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....
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....justment 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 the Act. The illustrations are given in sets, i.e., for units eligible for deduction @ 100% and units eligible for deduction @ 50%. Within the above said examples, illustrations are given for both the situations, viz., over invoicing of revenue and under invoicing of expenses by eligible units. EXAMPLE A: - Eligible Unit - eligible for deduction u/s 10AA of the Act @ 100%. ILLUSTRATION 1 (Over invoicing revenue) Transaction between an Eligible unit, which is eligible for deduction @ 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 Tran....
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....ible 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 10,00,000 5,00,000 15,00,000 10,00,000 5,00,000 15,00,000 Less: Adjustment for ALP - - - - 50,000 50,000 Adj Rev 10,00,000 5,00,000 15,00,000 10,00,000 5,50,000 15,50,000 Cost -9,00,000 -4,25,000 - 13,25,000 -9,00,000 -4,25,000 -13,25,000 Add: Corresponding - - - -50,000 - -50,000 Adjustment for ALP Adj Cost -9,00,000 -4,25,000 - 13,25,000 -9,50,000 -4,25,000 -13,75,000 Net Income 1,00,000 75,000 1,75,000 50,000 1,25,000 1,75,000 Deduction u/s 10AA - 100% -1,00,000 -1,00,000 -50,000 - -50,000 Total Income 75,000 1,25,000 SDT adjustment 50,000 In this illustration, (a) the "net income" remains at Rs. 1,75,000/- before and after ALP adjustments u/s 9....
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....ible units. (b) The amount of deduction u/s 10AA worked out to Rs. 50,000/- prior to ALP adjustment. However, it has fallen down to Rs. 25,000/- after ALP adjustment in terms of sec. 80IA(8). (c) Thus the reduction in the quantum of deduction u/s 10AA, i.e., Rs. 25,000/- is also the adjustment made u/s 92 of the Act in respect of Specified domestic transaction. (b) 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 10,00,000 5,00,000 15,00,000 10,00,000 5,00,000 15,00,000 ....
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....sh in the light of discussions made supra. In the result, this issue is allowed for statistical purpose." 8.4 In view of the above order of the Tribunal, we remit this issue to the file of AO/TPO for fresh consideration on similar directions. 9. Next ground Nos.5.19 to 5.23 are with regard to adjustment for interest on delayed trade receivables, which are reproduced as under: "5.19 That NFAC, TPO and DRP erred in law by making adjustment towards interest on delayed receivable by contending that any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business advancement is covered under the definition of international transactions and by contending that the taxpayer has provided benefit to its AE by way of advancement of interest free loan in the garb of delay receipt of receivables which would otherwise have been deployed for earning interest income. 5.20 That NFAC, TPO and DRP erred in contending that the transaction relating to receivables needs to be benchmarked separately. 5.21 That NFAC, TPO and DRP erred in facts, in law and in circumstances of the case by not treating credit period to AE....
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....he TPO computed interest on such receivables to the tune of 1.04 crores. The Ld. DRP also confirmed the view taken by TPO. 20. The Appellant, during the course of hearing, made the following submissions in support of its contention that the above TP adjustment is liable to be deleted: (i) Wipro does not charge interest on receivables delayed beyond the credit period to any party whether it is AE or not. Accordingly, interest should be benchmarked at nil interest based on internal CUP. Further, OECD TP Guidelines also states that no interest may be charged on delayed payment on commercial consideration for ensuring a long and healthy relationship as persuasive value; (ii) Even otherwise, Wipro provides 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 ad....
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....o AO to examine the basis of the allocation and apportionment of expenses towards the exempt income. 11.2 The ld. D.R. relied on the order of ld. DRP. 11.3 We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that this issue came for consideration before this Tribunal in assessee's own case in ITA No.370/Bang/2021 cited (supra), wherein held as under: "22. The ground No. 06 relates to the disallowance of expenses u/s 14A of the Act against exempt income. During the year the assessee has received dividend of Rs. 6.58 crores and also earned Rs. 58.00 crores as interest income from tax free bonds. The assessee suo motu made disallowance for administrative expenses of Rs. 3.07 Crores. The total investments were made of Rs. 18463 crores and Reserve & Surplus were stood at Rs. 40,411.10 crores. The AO asked for details of computation made which was submitted by the assessee, but the AO was not satisfied and he calculated disallowance afresh after applying Rule 8D r.w.s. Section 14A of the Act at Rs. 8.76 Crores. The assessee had itself made disallowance of Rs. 3.07 crores accordingly the ne....
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....e. 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)." Before us the assessee contended that the A.O. has not given any substantial finding in respect of correctness or otherwise of the amount disallowed by the company. Accordingly, it was submitted that the A.O was not justified in applying rule 8D of IT Rules. The Ld. A.R. also placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Godrej &Boyce Manufacturing Company Ltd. 394 ITR 449. 22.4 We have noticed that this issue has been restored by ITAT in assessment year 2008-09 to the file of the A.O. A perusal of the assessment order passed by A.O. would show that the A.O. has observed that he was not satisfied with the working furnished by the assessee. However, the A.O. has not examined the basis of the allocation and apportionment of....
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....fit u/s 115JB of the Act. The Ld. DRP also confirmed the same. 28.3 We have heard the parties on this issue. We notice that the special bench of ITAT in the case of Vireet Investments Pvt. Ltd. (ITA No.502/Delhi/2012 dated 16.6.2017) has expressed the view that the amount disallowed u/s 14A of the Act cannot be adopted for the purpose of computation of book profit u/s 115JB of the Act and the disallowance to be made u/s clause (f) to explanation 1 has to be computed independently without having regard to the provisions of section 14A of the Act. In view of the above, we are unable to sustain the addition made by the A.O. Since the addition required to be made under clause (f) to explanation 1 is required to be computed independently, we restore this issue to the file of the A.O. for examining it afresh." 12.4 In view of the above order of the Tribunal, we remit this issue to the file of AO on similar directions. 13. Next ground no.7 of the assessee's appeal is reproduced below: 7. That the learned NFAC/DRP erred in denying set-off of losses of STP units aggregating to Rs. 36,83,30,977 against other business income of the appellant in terms of Section 70 or S....
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....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 co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA Na1072/Bang/2007 (supra), wherein the Tribunal confirming the finding of the learned CI (A), at para 16.4 on pages 29 and 30 thereof, held as under : "16.4. We have carefully considered the contentions of the either parties and also carefully perused the order of the Hon'ble Tribunal While deciding an identical issue, the Hon'ble Tribunal cited the following decisions - (1) [12.5.] ITA No: 669 & 804/Ban/05 dated: 22.3.2006 for the AY- 2000-01 in the case of assessee company wherein it was concluded that we direct the AO to allow set off of loss from 10A units against the other business inc....
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....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 setoff against eligible profits of the same unit in a subsequent year?" "Whether the Tribunal was correct in holding that income of each undertaking should be taken independently and losses of section 10A units cannot be set off against profits of section 10A units, when computing deduction under section 10A of the Act?" "Whether the appellate authorities failing to take into consideration the amendment provision of section 10A(6)(ii) of the Act, which clearly contemplated that the loss of the undertaking can be carried forward and adjusted against other income?" "Whether the appellate authorities were correct in holding that the finding recorded by th....
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....nt and final order dated 15-12-2020 passed by the High Court of Karnataka at Bengaluru in ITA No. 316 of 2012, which was disposed of in terms of the judgment passed in ITA No. 315 of 2021. ITA No. 315 of 2012 in turn was disposed of in terms of the judgment passed in Pr. CIT v. Wipro Ltd. [2021] 124 taxmann.com 240/278 Taxman 162 (Kar.). 4. While disposing of ITA No. 464 of 2017, the High Court had made following observations : "14. At this stage, learned counsel for the revenue submits that all the remaining issues covered by decisions of this Court in M/s. WIPRO Ltd. v. DCIT [2016] 383 ITR 179 (Kar) and Commissioner of Income-tax & Another v. TATA Elxsi Ltd., 382 ITR 654 (Kar) are pending adjudication at the instance of the revenue before the Supreme Court. In view of the aforesaid submission needless to state that the Assessing Officer shall decide the issues in accordance with the decision which may be rendered by the Supreme Court. 15. For yet another reason, at this stage, no interference is called for with the order passed by the tribunal. The Supreme Court in Radhasoami Satsang v. Commissioner of Income Tax, (1992) 60 Taxman 248 (SC) has held that....
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.... was held as follows: i) Allowed deduction u/s 10AA for sale of scrap and newspaper. ii) Other Income - restored back to AO to decide on merits. 14.2 The ld. D.R. relied on the order of ld. DRP. 14.3 After hearing both the parties, we are of the opinion that this issue came for consideration in assessee's own case in ITA No.370/Bang/2021 cited (supra), wherein the Tribunal held as under: 30. "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 31. During the course of assessment proceedings the details of unit wise Miscellaneous income was furnished. The assessee submitted that the sale of- scrap/newspapers are covered in favour of the assessee by the judgement of Hon'ble Karnataka High Court in ITA No. 507/2002 for the AY 1997-98 but the AO observed that the revenue has filed appeal before the Hon'ble SC against the judgement of the Hon'ble High Court and h....
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....st the Revenue. 169. As all these questions are decided and answered in favour of assessee in the aforesaid case, this question of law is answered in favour of the assessee and against the Revenue." 5.5 The decision rendered by Hon'ble Karnataka High Court would cover the income booked under the head Sale of Scrap/Newspaper, Rental income and interest income. Accordingly, we direct the AO to allow deduction u/s 10A/10AA/10B of the Act in respect of income earned on sale of scrap/newspaper and Rental income. The issue relating to interest income is dealt under the head Issue no.3 below. 5.6 The remaining item is "Other income". In AY 2007-08 and 2008-09, this item of miscellaneous income was restored to the file of the AO for examining the nature of receipt and decide the same accordingly. The observations made by the Tribunal in AY 2007-08 are extracted below:- " ....... However, since we find that no details are available with regard to 'other income' of Rs. 3,48,524/-, we deem it fit to remit the matter back to the file of the Assessing Officer with a direction to examine the matter afresh and decide the issue on merits." Following....
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....n 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 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 ....
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....TR 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 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 bus....
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....d to the file of AO/TPO on similar directions. 16. Next ground no.10 of the assessee's appeal is reproduced as under: 10. "That NFAC/DRP failed to appreciate that deemed exports are 'exports' as per the EXIM policy and thus erred in excluding deemed exports from export turnover of the undertaking for the purposes of computing deduction under section 10AA of the Act." 16.1 The ld. A.R. submitted that in paras 35-36; pg nos 67-70, the order dated 23rd May 2022 for AY 2015-16 following order dated 5th October 2020 for AYs 2009-10 to 2014-15 was followed, where the appeal was allowed in favour of Assessee by Tribunal. He submitted that the issue is also covered by decision of the Hon'ble High Court of Karnataka in Tata Elxsi Limited (ITA 411/2008) 16.2 The ld. D.R. relied on the order of ld. DRP. 16.3 After hearing both the parties, we are of the opinion that this issue came for consideration in assessee's own case in ITA No.370/Bang/2021 cited (supra), wherein the Tribunal held as under: "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....
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....a EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through another exporter or any other EOU/EHTP/STP/SEZ unit subject to the conditions mentioned in paragraph 6.19 of Handbook. The conditions to be fulfilled if a Unit has to export through other exporters is as under: "6.19 An EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through other exporter or any other EOU/EHTP/STP/SEZ/BTP unit subject to condition that: a) Goods shall be produced in EOU/SHTP/STP/BTP unit concerned. b) Level of NFE or any other conditions relating to imports and exports as prescribed shall continue to be discharged by EOU/EHTP/STP unit concerned. c) Export orders so procured shall be executed within parameters of EOU/EHTP/STP/BTP schemes and goods shall be directly transferred 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 ....
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...., then Section 10A of the Act is attracted and such exporter is entitled to benefit of deduction of such profits and gains derived from such export from payment of income tax. Therefore, the finding of the authorities that the assessee has not directly exported the computer software outside country and because it supplied the software to another STP unit, which though exported and foreign exchange received was not treated as an export and was held to be not entitled to the benefit is unsustainable in law. The substantial question of law is answered in favour of the assessee and against the revenue. The appeal is allowed. The impugned orders are set-aside. The assessee is held to be entitled to deduction of such profits and gains derived from the export of the computer software." 7.7 In view of the binding decision of the jurisdictional 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....
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....ed these reimbursements from the profits for computing deduction u/s 10AA of the Act. Considering the rival submissions we found that in assessee's own case the co-ordinate bench has observed as under:- An identical issue has been examined by the co-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....
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....ed as to whether the same shall form part of expenses, which are required to be excluded from the amount of Export turnover, as per the definition of the term "export turnover" given in sec.10A/10AA/10B of the Act. We have discussed the principles at length while adjudicating the earlier issue. Accordingly, 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." 38. 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 examined the break-up details of reimbursements and follow the directions given in AY 2009-10 to 2014-15 for comp....
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....very of the computer software outside India or expenses, if any incurred in foreign currency in providing technical services outside India also are required to be excluded from the export turnover. Further , if any amount excluded from the export turnover is required to be deducted from total turnover. 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:- "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....
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....zing 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 redressal. It was the case of the Revenue that the Ld.CIT(A) has grossly erred in deciding the issue in favour 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 clea....
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....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. CIT(A) took a view that this issue was covered by his decision for the AYs 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 telecommuni....
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....uter 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 - 1. ACIT v. M/s.Infosys Ltd.653 & 969(B)/2006 2. M/s.Tata Elxsi Ltd. 315(B)/2006 dt 16.10.2007 3. M/s.I-Gate Global Solutions Ltd. 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 Engineer....
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....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 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 ....
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....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 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 as....
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....im 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. The ld. DRP also rejected by observing that the assessee has not revised its return of Income A similar 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 decided as under:- "8.2 The facts relating to the issue are stated in brief. As per the provisions of section 10A/10AA/10B of the Act deduction is allowable only on export turnover which received in or brought into India in convertible foreign currency within the period of 6 months from the end of the previous year within such further period as the competent authority may allow in this behalf. The competent authority means 'Reserve Bank of India (RBI)' or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign currency. During the years under consideration, certain amounts were not received or brought into India within 6 months from ....
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....hat notwithstanding the fact there is no express order granting approval by the Reserve Bank of India, as it has not been rejected and foreign exchange is received and remitted through the proper channel, the assessee is entitled to the benefit of Section 10A. In the facts of the case, we do not find any error committed by the Tribunal. Therefore, the said substantial question is answered in favour of the assessee and against the revenue." Respectfully following the binding decision of the jurisdictional High Court, we direct the AO to include sale amount in the export turnover, while computing deduction u/s 10A of the Act, where the applications have been filed by the assessee to RBI seeking permission to receive the export proceeds beyond the prescribed period." 42. Following the decision of the Hon'ble jurisdictional Karnataka High Court, we direct the AO to include sale amount in the Export turnover while computing deduction u/s 10AA of the Act, wherever the applications have been filed by the assessee to RBI through its bankers seeking permission to receive the export proceeds beyond the prescribed period. Accordingly, this ground is allowed." 19.4 In view....
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....x paid by the assessee, to the extent not allowed as tax credit u/s 90/91 of the Act, should be allowed as deduction from the business income. 20.3 The ld. D.R. relied on the order of ld. DRP. 20.4 After hearing both the parties, we are of the opinion that this issue came for consideration in assessee's own case in ITA No.370/Bang/2021 cited (supra), wherein the Tribunal held as under: 43. "Ground No. 16 to 16.3 relates to the claim of foreign tax credit and allowability of State Taxes paid. The contentions raised by the assessee in this year is two-fold. The first contention relates to the allowability of quantum of foreign tax credit. The second contention is that the foreign tax & State Taxes paid, if not fully allowed, then the difference amount should be allowed as business expenditure. A similar issue has been decided by the co-ordinate bench of the Tribunal in assessee'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 ....
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....ontracting country agrees to extend the said benefit, then the assessee gets the relief. In another scenario, though the said income is exempt in this country, by virtue of the agreement, the amount of tax paid in the other country could be given credit to the assessee. Thus for the payment of Income-tax in the foreign jurisdiction, the assessee gets the benefit of its credit in this country. 40. However, if the contracting country is not agreeable to extend the said benefits, then in terms of the agreement and probably in terms of the exemption granted, the assessee would be entitled to benefit only in this country on account of the exemption and the benefit in the other country is not extended. Thus when exemption is granted in respect 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. ....
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....under the corresponding law in force in that country, to promote mutual economic relations, trade and investment. Therefore, the statute by itself is not granting any relief. But, by virtue of the statute, if an agreement is entered into providing for such relief, then the assessee would be entitled to such relief. 56. Therefore, it follows that the income under section 10A is chargeable to tax under section 4 and is includible in the total income under section 5, but no tax is charged because of the exemption given under section 10A only for a period of 10 years. Merely because the exemption has been granted in respect of the taxability of the said source of income, it cannot be postulated that the assessee is not liable 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....
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....d States. Therefore, an embargo is prescribed for giving such tax credit. In other words, the assessee is entitled to such tax credit only in respect of that income, which is taxed in the United States. This provision became necessary because the accounting year in India varies from the accounting year in America. The accounting year in India starts from 1st of April and closes on 31st of March of the succeeding year. Whereas in America, the 1st of January is the commencement of the assessment year and ends on 31st of December of the same year. Therefore, the income derived by an Indian resident, which falls within the total income of a particular financial year when it is taxed in the United States, falls within two years in India. Therefore, while claiming credit 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 ....
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..... It is submitted on behalf of the assessee that by virtue of the formulae prescribed under section 10A(4), entire export profits had not got exempted under section 10A, residuary surplus being subjected to tax both in India and Canada. This residuary surplus could qualify for tax credit as it is subjected to tax in both the countries. 63. As is clear from the aforesaid clause in the Indo-Canadian agreement if the income from source within Canada, is lower, has been subjected to tax both in India and Canada then, the tax paid in Canada shall be allowed as a credit against the Indian tax paid in respect of such income. If the entire income assessed by the assessee under section 10A is exempted in India, then, the aforesaid clause does not confer any benefit on the assessee. However, notwithstanding 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....
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.... part of that country meaning a State or a local authority, and the assessee would be entitled to the relief of double taxation benefit with respect to the latter payment also. Therefore, even in the absence of an agreement under section 90 of the Act, by virtue of the statutory provision, the benefit conferred under section 91 of the Act is extended to the Income-tax paid in foreign jurisdictions. India has entered into an agreement with the federal country and not with any State within that country. In order to extend the benefit of this, relief or avoidance of double taxation, the aforesaid Explanation explicitly makes it clear that Income-tax in relation to any country includes the Income-tax paid to the Government of any part of that country or a local authority in that country. Therefore, even though, India has not entered into any 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 assess....
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....gn country is not eligible for relief u/s 90 or u/s 91, such tax paid of Rs. 117.32 Crores is deductible u/s 37(1) of the Act or allowable as a loss u/s 28 and such unrelieved foreign taxes are not covered by the restriction in Section 40(a)(ii) of the Act. But for the restriction imposed by clause (ii) of section 40a, income-taxes paid or deducted in foreign countries by the assessee-company is an expenditure laid out or expended wholly and exclusively for the purposes of the business carried on by the assessee outside India and the same is deductible u/s 37 of the Act. In any case, it is a loss incurred by the assesse-company in carrying on business outside India and such tax is allowable u/s 28 of the Act. A plain reading of the aforesaid provision makes it abundantly clear that foreign taxes paid on profits or gains is not deductible 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 "ta....
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.... tax is not a payment made/incurred to earn profits and gains of business. Therefore, it cannot be allowed an as expenditure to determine the profits of the business. Taxes such as Excise Duty, Customs Duty, Octroi etc., are incurred for the purpose of doing business and earning profits and/or gains from business or profession. Therefore, such expenditure is allowable as a deduction to determine the profits of the business. It is only after deducting all expenses incurred for the purpose of business from the total receipts that profits and/or gains of business/ profession are determined. It is this determined profits or gains of business/profession which are subject to tax as income tax under the Act. The main part of Section 40(a)(ii) of the Act does not allow deduction in computing the income i.e. profits and gains of business chargeable to tax to the extent, the tax is levied/ paid on the profits/ gains of business. Therefore, it was on the aforesaid general principle, universally accepted, that this Court answered the question posed to it in S. Inder Singh Gill (supra) in favour of the Revenue. (l) We would have answered the question posed for our consideration by foll....
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.... income tax relief under Sections 90 or 91 of the Act, then the tax paid abroad would be governed by Section 40(a)(ii) of the Act. The occasion to insert the Explanation to Section 40(a)(ii) of the Act arose as Assessee was claiming to be entitled to obtain necessary credit to the extent of the tax paid abroad under Sections 90 or 91 of the Act and also claim the benefit of tax paid abroad as expenditure on account of not being covered by Section 40(a)(ii) of the Act. This is evident from the Explanatory notes to the Finance Act, 2006 as recorded in Circular No.14 of 2006 dated 28th December, 2006 issued by the CBDT. The above circular inter alia, records the fact that some of the assessee who are eligible for credit against the tax payable in India on the global income to the extent the tax has been paid outside India under Sections 90 or 91 of the Act, were also claiming deduction of the tax paid abroad as it was not tax under the Act. In view of the above, Explanation inserted in 2006 to Section 40(a)(ii) of the Act, would require in the context thereof that the definition of the word "tax" under the Act to mean also the tax which is eligible to the benefit of Sections 90 and 91....
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....C). (r) In the above facts and circumstances, question (iii)(a) is answered in the negative i.e. against the Revenue and in favour of the applicant assessee. Question (iii)(b) is answered in the negative i.e. against the Revenue and in favour of the applicant assessee." Accordingly, we direct the AO to allow the foreign tax paid by the assessee, to the extent not allowed as tax credit u/s 90 &91 of the Act, as deduction from the business income of the assessee." 44. Since this issue has been decided as stated above for the AY 2015-16 in assessee's own case, accordingly, we direct the AO to allow the foreign tax & State Tax paid by the assessee, to the extent not allowed as tax credit u/s 90 & 91 of the Act, as deduction from the business income of the assessee from the respective units." 20.5 In view of the above order of the Tribunal, this issue is remitted to AO/TPO to decide the assessee's case in the light of above directions of the Tribunal. 21. Ground No.16 of the assessee's appeal is reproduced as under: 16. Payments made to Gartner Group: 16.1 That NFAC/DRP erred on facts and in law in treating the payments of Rs. 20,01,03,442 made ....
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.... service is utilized. It is like a gate pass or entry fee and cannot be treated as imparting of information. The payment is for obtaining data and use it the way assessee want it to be used. It is for use of a copyrighted article and is not for transfer of right in the copyright in the article. Based on the above findings, this Tribunal held that provision for service of offering the data base to its customers is an event outside the taxable territories of India. It is also an accepted fact that Gartner do not have any permanent establishment in India. Further such an access to database cannot fall within the scope as found in DTAA. Accordingly, he submitted that the payments to Gartner were held not liable for taxation in India and consequently, assessee is not obligated to deduct TDS. 21.3 He further submitted that the aforesaid order of this Tribunal in ITA Nos 152 to 154/Bang/2004 was reversed by Hon'ble Karnataka High Court relying on the case of Samsung Electronics. This decision of Karnataka High Court in case of Samsung Electronics has been reversed by the Hon'ble Supreme Court in case of Engineering Analysis (supra) and accordingly, ruling in the case of Samsung Electro....
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.... 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 royalty and assessee is liable to deduct TDS from the said payment u/s 195 of the Act. Since the assessee did not deduct TDS, the A.O. disallowed the payments made to Gartner Grou....
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....at 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 disallowance 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 the disallowance following the decision rendered by the jurisdictional Hon'ble Karnataka High Court in the assessee's ow....