TaxTMI 
TaxTMI 
2025 (5) TMI 1572
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....ues permeating in the assessment years shown above. 3. Ground of appeal raised by the Assessee in ITA No.1194/Chny/2024 for AY 2011-12 are as under: "The grounds of appeal listed below are without prejudice to each other. Issue No. 1 - Disallowance under section 14A of the Income-tax Act, 1961 ('the Act') computed as per Rule 8D of the Income-tax Rules, 1962 ('the Rules') 1. The learned CIT(A) erred in facts and law in upholding the applicability of Section 14A of the Act read with Rule 8D of the Rules thereby confirming the disallowance made by the learned Assessing Officer ('AO') under the normal provisions of the Act. 2. The learned CIT(A) has erred in not appreciating the fact that the Appellant has not earned any exempt income during the subject year and hence, the provisions of Section 14A read with Rule 8D of the Rules shall not be invoked. 3. Without prejudice to the above, the learned CIT(A) has erred in not appreciating the fact that the learned AO has invoked the provisions of Section 14A read with Rule 8D of the Rules without providing a finding on incurrence of expenditure in relation to earning exempt income. 4. Without prejudice to the fact that the prov....
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....ction under section 10A/ 10AA of the Act. b) Payments towards license to use software - ('Software License') 12. The learned CIT(A) has erred in law and facts by not appreciating the fact that the software license payments are covered under the exclusion provided in sub-clause (b) to clause (vi) of section 9(1) of the Act. 13. Without prejudice to the above, the learned CIT(A) erred upholding the disallowance made up the learned AO for the aforesaid payments under Section 40(a)(i) of the Act which have already been paid within the previous year and were not outstanding as at the year end. 14. Without prejudice to the above grounds of appeal, even if the payments made are to be considered as payments for purchase of 'software', the same cannot be treated as 'royalty' under the relevant DTAA's, as the Appellant only acquires a right to use of the 'copyrighted article' and not rights over the 'copyright' itself. 15. The learned CIT(A) failed to appreciate the fact that the above issue is covered in favour of the Appellant by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. Vs. CIT 432 ITR 471. 16. The learned CIT(....
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....o error in the AO's act of invoking rule 8D to compute the disallowance u/s 14A for the purpose of earning dividend and therefore the grounds of appeal nos 8 and 9 stand dismissed. ..........." 4.4 Aggrieved by the aforesaid action of Ld. CIT(A), the Assessee is in appeal before us. For AY 2010-11, the Assessee submitted various arguments before us which we have summarised as follows: - The provisions of section 14A of the Act cannot be applied as the assessee has not incurred any expenditure in earning exempt income. - As per provisions of sub-section (2) and (3) to section 14A of the Act, the AO does not have power to compute disallowance under section 14A as per provisions of Rule 8D, even for A.Ys. 2008-09 and onwards, if the AO does not express dissatisfaction. - For the purpose of computation of disallowance u/s. 14A of the Act read with rule 8D, the investments which have not yielded any exempt income during the subject year shall not be considered. - Without prejudice to the above, for the purpose of computation of disallowance u/s. 14A of the Act read with rule 8D, the investment in debt-oriented mutual funds shall not be considered. - The investments made by ....
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....nd and in excess of actual exempted income is per se asburd and hypothetical and it cannot be so made. ....................... 11. Affirming the view of the Punjab and Haryana High Court in the case of Pr. CIT v. State Bank of Patiala [2017] 88 taxmann.com 667, the Hon'ble Supreme Court in the case of Maxopp Investment Ltd.(supra) held in paragraphs 40 and 41 as under: "40 We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are h....
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....the Central Board of Direct Taxes in Circular No. 5 of 2014 dated 11-2-2014, which has been relied by the Tribunal in the impugned order cannot be upheld and the disallowance under section 14A of the Act cannot go beyond the extent of exempted income itself. ........ ............ 9. We are unable to subscribe to the aforesaid view. The provisions of section 14A were inserted as a response to the judgments of the Supreme Court in Commissioner of Income-tax v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 and Rajasthan State Ware Housing Corporation v. Commissioner of Income-tax [2000] 242 ITR 450/109 taxmann.com 145 (SC) in terms of which, expenditure incurred by an assessee carrying on a composite business giving rise to both taxable as well as non-taxable income, was allowable in entirety without apportionment. It was thus that s.14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of income exempt from taxation. As observed by the Supreme Court in the judgment in the case of Commissioner of Income-tax v. Walfort Share and Stock Brokers (P.) Ltd. [2010] 326 ITR 1' .... The mandate of s.14A is clear. ....
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.... we direct the AO to restrict the disallowance u/s. 14A of the Act to the exempt income earned for A.Y.2010-11. The Assessee also submitted that the regarding the issue of enhancement of the exemption u/s. 10A, 10AA of the Act, this issue was not discussed by the Ld. CIT(A) in their orders. 5.3 For AY 2010-11 the Assessee submitted that the AO provided the relief under Section 10A / 10AA of the Act on the enhanced profits arising due to disallowance under Section 14A of the Act. Now, given that the disallowance u/s. 14A of the Act is restricted to exempt income earned for AY 2010-11, we direct the AO to recompute the consequential relief u/s. 10A/ 10AA of the Act on the enhanced profits arising due to disallowance under Section 14A of the Act. Accordingly, the Grounds of appeal are partly allowed for AY 2010-11. 6. Facts for AY 2011-12 to AY 2014-15: During the A.Y. 2011- 12 to A.Y.2014-15, the assessee has not earned any income from its investments which are exempt under the provisions of the Act. The AO has computed expenditure in relation to earning exempt income by applying Rule 8D and disallowed the same under section 14A of the Act and Ld. CIT(A) upheld the Order of the AO.....
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....ware Annual Maintenance Charges ('AMC') for regular upgrades of the latest version of the software, corrective patches, resolution of issues in the software over online/ remote mode. The assessee has not deducted tax at source on the aforesaid payments made to non-resident vendors on the premise that the same is not taxable in India under the provisions of the Act. 8.2 The AO had concluded that taxes are required to be withheld on payments made towards Software AMC and Software License based on provisions of the Act and had disallowed the payments u/s. 40(a)(ia) of the Act. Payments towards Software Annual Maintenance Charges ('Software AMC') 8.3 On appeal, the Ld. CIT(A) upheld the action of the AO vide Para no. 3.5.6 & 3.5.7 in it's order. The relevant Para no. 3.5.6 & 3.5.7 is reproduced below:- ".....3.5.6 Considering the above, I hold that the payments for AMC are in the nature of fees for technical services as defined in the Act u/s. 9(1)(vii) and also as per Article of DTAA. Thus, the company was liable to deduct tax u/s. 195 and it failed to do so. The submission made by the appellant with respect to payment towards AMC charges fails and hence, Ground Nos.5 to of appea....
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....issioner of Income-tax (OSD) vs Aspire Systems India (P.) Ltd [2023] 157 taxmann.com 699 (Chennai ITAT) reference in this regard is made to Page No. 381 (Para No. 12) of the case law paper book o Titan Industries v ITO (11 SOT 206 Bang.) o Lufthansa Cargo India (P) Ltd v DCIT (91 ITD 133 Del.) o ITO v Bajaj Hindustan Ltd (47 SOT 74 Mum. (URO)) o Ajappa Integrated Project Management Consultants P. Ltd vs. ACIT (33 CCH 207 Chen) o Mahindra Holidays & Resorts (97 DTR (Chennai Trib) 393) o Aqua Omega Services P Ltd v ACIT (23 ITR Trib 191 Chen) - In respect of those payments made to residents of Singapore, USA and UK, the tax treaties of these countries contain 'make available' clause. Since software AMC does not make available any technical knowledge, skill, know-how, the same is not taxable as per respective DTAAs: o CIT vs DeBeers India Minerals Private Limited (2012) 346 ITR 467 (Kar HC) reference in this regard is made to Page No. 239 (Para No. 22) of the case law paper book o Raymond Limited vs. DCIT [86 ITD 791 (Mum. ITAT)] o CESC Ltd vs. DCIT [87 ITD 653 (Cal. ITAT)] o NQA Quality Systems Register Ltd vs. DCIT 2 SOT 249 (Del. ITAT) o Ernst & Young Privat....
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....hnology Inc USA USD 6,137 2,87,027 Total of payments (with 'make available' clause) (A) 12,464 5,93,879 Total of payments (without 'make available' clause) (B) 0 0 Total Software AMC payments (C) = (A)+(B) 12,464 5,93,879 Assessment Year 2011-12 S No Name of Company Country of residence Currency Amount (in foreign currency) Amount (in Rs. ) Payments made towards Software AMC - countries with 'make available' clause 1 Actuate Pte Ltd USA USD 53,672 24,07,189 2 Allround Automations The Netherlands USD 1,800 81,756 3 Amax Engineering Corporation USA USD 3,000 1,36,260 4 Apnic Pty Ltd Australia AUD 7,226 3,28,677 5 Atlassian Software Systems Pty Ltd Australia USD 5,139 2,30,484 6 Flexera Software Ltd (Ind) United Kingdom USD 8,592 3,85,351 7 Mobile Complete Inc USA USD 4,900 2,18,197 8 Parasoft Corporation USA USD 3,456 1,55,002 9 Tibco Software Inc USA USD 3,834 1,74,961 10 Xenos Group Inc Canada USD 1,59,300 74,20,194 11 Zoho Corp USA USD 2,923 1,31,798 12 Zoho Corp USA USD 8,320 3,76,480 Total of payments (with 'make available' clause) (A) 2,62,162 1,20,46,349 Payments made towards Soft....
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....record any arguments to controvert the above decision placed on record before us by the Ld.AR for the assessee. Therefore, relying upon the decision of this Tribunal in ITA No. 1202/Mds/2013, we hold the issue of Software AMC payments made in relation to vendors from countries having 'make available clause' (i.e. Singapore, USA, Netherlands, Australia, United Kingdom, Canada) in favour of the assessee and against the revenue. 12. The Ld.AR for the assessee stated that the services rendered by the non-resident vendors would fall within the purview of the exclusionary clause provided in section 9(1)(vii)(b) of the Act, as the payments made by the Company (a resident) are utilized to earn income from a source outside India as the Company is an exporter of computer software and related services. Reliance is placed on the judgement of the Hon'ble Jurisdictional High Court of Madras in CIT Vs. Aktiengesellschaft Kuhnle Kopp and Kaush W. Germany by BHEL 262 ITR 513. The Ld. AR also stated that routine repair/ maintenance services and remote IT support services do not constitute 'technical services' and relied on the following cases: o Lufthansa Cargo India (P) Ltd. vs. DCIT: 91 ITD....
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..... The relevant Para No. 3.5.7 & 3.5.8 is reproduced below. "3.5.7 ..... Software License: It is clear from the above said analysis of the DTAA, Income Tax Act, Copyright Act that the payment would constitute 'royalty' within the meaning of Article 12(3) of the DTAA and the provisions of 9(1)(vi) of the Act. The definition of 'royalty' under clause 9(1)(vi) of the Act is broader than the definition of 'royalty' under the DTAA. It is clear that the payment made by the appellant to the non-resident supplier would amount to royalty. In view of the said finding, it is clear that there is obligation on the part of the appellant to deduct tax at source under section 195 of the Act and it failed to do so. The submission made by the appellant with respect to purchase of software license fails and hence, Ground Nos.3 & 4 of appeal are dismissed. Accordingly, as discussed supra and as analysed in CIT(A) order as extracted above, the payments made for software licenses during the year squarely attract TDS provisions. The above payments made by the assessee company outside India for software license without deduction of TDS u/s 195 of the Income-tax Act to the tune of Rs. 1,12,52,512/....
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....) and other judgements. - Further, amendments made in the Act vis-a-vis the definition of royalty do not affect the taxability of payments made to non-residents who are governed by the applicable DTAA. Reliance is placed on B4U International Holdings Ltd. Vs Deputy CIT (International Taxation) (Mumbai): 346 ITR 62 (AT)/ 52 SOT 545 - Further, in the case of Engineering Analysis Centre of Excellence (P.) Ltd vs CIT, SC has held that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software is not the payment of royalty for the use of copyright in the computer software were not liable to deduct any TDS under section 195 of the Act. - Issue covered in assessee's own case in favour of the assessee during the A.Y. 2009-10 by the Chennai ITAT in ITA No.1798/Mds/2014 reference in this regard is made to Page No. 310 (Para No.27) of the case law paper book. 21. We have heard both the parties and perused the records. From the details submitted by the assessee, we understand that the payments made to the non-resident vendors in relation to Software License for years u....
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....the retrospective amendments and the same was repeatedly asserted by the Finance Minister in the Floor of the House. When there are payments like this to the tax residents abroad are involved, where DTAA exists with Singapore and USA, the beneficial provisions apply and not the domestic laws and the amendments if any to the domestic laws. Ld Counsel for the assessee mentioned number of decisions on the issues relating to the copyrighted article v/s copyright of the software; the retrospective effect of the Explanations to section 9 etc. In any case, similar issues were the subject matter of favourable decisions of the Tribunal in the earlier assessment years in the assessee's own case. In our opinion, CIT (A) merely complied with the direction of the Tribunal. Therefore, in our opinion the decision taken by the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, this ground raised by the Revenue is dismissed. 28. In the result, appeal of the Revenue is dismissed. 21.2 The aforesaid principle as held by this Tribunal above in the assessee's own case was also upheld by the Hon'ble Apex Court in the case of Engineering Analysis Centre of Excel....
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....out appreciating that as per the books of accounts of the assessee itself the same has been sold and for the purpose of taxation of capital gains, the condition, 'transfer' of the asset has taken place. 5. The Id. CIT(A) has erred in deleting the disallowance made in the computation of 'Book Profits' made u/s. 115JB of the Act of the amount of expenditure disallowed u/s. 14A r.w.Rule 8D of the Act, amounting to Rs. 2,71,85,283/- without appreciating that as clause (f) of Explanation (1) to Section 115JB, such a disallowance is required to be made. 6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of ld. CIT(A), with respect to the grounds raised, may be set aside and that of the Assessing officer be restored. 25. Ground No. 1 is general in nature and hence, doesn't require any adjudication, therefore, we move to Ground No. 2, which is Issue 3: Disallowance of set-off of losses incurred by units eligible for deduction under section 10A and 10AA against other taxable income. 26. The facts relating to the issue of disallowance of set-off of losses incurred by units eligible for deduc....
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....ic sales, is one instance of deduction provided by the amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into the computation under the head "profits and gains from business" in Chapter IV and denied the benefit of deduction. The provisions of Sub-section (6) of Section 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation etc. commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understand by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisons of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operation of Chapter VI of the Act. The retention of the said provisions of the Act i.e. Section 80HHC and 80HHE, desp....
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....essee" in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in Section 10A as 'total income of the undertaking'. 18. For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly." 10. Accordingly, all the aforesaid questions are answered against the Revenue, as covered by aforesaid decisions of this Court and Supreme Court and in favour of the Assessee in terms of the aforesaid judgments. The Tax Case Appeals are accordingly disposed of." 3.3.5 Further, during the course of hearing, the AR contended that for AYs 2016-17, 2017-18 and 2018-19, the subject issue was examined by the assessing officer of the Appellant during t....
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....depreciation on such software at the rate of 60% prescribed under the Income-tax Rules, 1962. The AO had treated the computer software as 'intangible assets' eligible for depreciation at the rate of 25% as against the rate of 60% claimed by the assessee. 29.1 On appeal by the assessee before the Ld.CIT(A), the Ld.CIT(A) held the issue in favour of the assessee relying on this Tribunal decision in assessee's own case in ITA No.160 & 233/ Chny/ 2022 (supra) for A.Y. 2015-16. 30. This ground in this appeal of Revenue is as regards to the order of Ld.CIT(A) allowing the depreciation on computer software at 60%. We note that this issue is squarely covered by the decision of this Tribunal in assessee's own case in ITA No.160 & 233/ Chny/ 2022 and it has been noted by ld.CIT(A) in para 3.6.5. The relevant finding of ld.CIT(A) in para 3.6.5 reads as under: "....... 3.6.5 Further, the Appellant also placed reliance on a recent decision of the Honourable Chennai Income-tax Appellate Tribunal in the Appellant's own case vide order dated 29.12.2023 in ITA No.160/Chny/2022 wherein the issue has been decided in favour of the Appellant. The Appellant relied on the following extracts of th....
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....sessee's appeal." 3.6.6 After carefully consideration of the facts of the case and the submissions of the AR including the above favorable order passed in the Appellant's own case, I direct the AO to delete the disallowance made to the depreciation of computer software and grant depreciation at the rate of 60 percent on the computer software. ......." 31. Since, this issue is squarely covered by the decision of this Tribunal in assessee's own case (supra), we respectfully following the decision of this Tribunal and accordingly uphold the order the ld.CIT(A) and hence this issue raised in the Grounds of appeal based on chart mentioned supra, filed by the Revenue for AY 2011-12 to AY 2014-15 are dismissed. 32. Issue 5: Unrealized gains on mutual fund units remaining unsold at the end of the year added as income of current year Assessment Year Appeal by Ground No. AY 2011-12 Department (ITA No. 1263/CHNY/2024) 4 AY 2012-13 Department (ITA No. 1264/CHNY/2024) 4 33. During the A.Y. 2011-12 and A.Y. 2012-13, the Assessee has earned income from transfer of investments in units of Mutual Funds which was offered to tax under the head 'capital gains'. The amount of capital ga....
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.... through the facts and circumstances of the case. We note that the AO has made the addition of the unrealized gains on mutual fund units remaining unsold at the end of the year. As per ld.CIT(A) order, the AO has treated the un-realized gain on mutual fund units remaining unsold in the hands of the assessee recognized in the financial statements as having accrued to the assessee during assessment year under consideration on the presumption that the units have been sold by the assessee during the financial year. Hence, the AO has added unrealized gains on mutual fund units remaining unsold at the end of the year as income of current year but on perusal of the Ld.CIT(A) order, these units were unsold during the year end and the capital gain on sale of these mutual funds were offered to tax as income from Capital Gains in the year in which they were sold. 34.1 The revenue did not bring anything on record to controvert this fact relevant for A.Y.2011-12 & A.Y.2012-13. Hence, the Ld.CIT(A) has rightly deleted the addition and held that un-realized gain on mutual fund units remaining unsold in the hands of the assessee cannot be added back as income of the current year and the capital g....
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.... of this Tribunal in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 82 taxmann.com 415 (Delhi-Trib.)(SB), wherein it is held that disallowance u/s. 14A of the Act r/w Rule 8D of the Rules cannot be added back while computing the book profit u/s. 115JB of the Act. This issue is also covered by the following decisions: I. Pr. CITvs. Bhushan Steel Ltd. in ITA NO.593 & 595 of 2015 (Delhi HC); II. PCCIT vs. Jj Glastronics P. Ltd. 139 taxmann.com 375 (Karnataka HC); III. Jayant Packaging (P.) Ltd. vs DCIT 189 ITD 321 (ITATChennai). No contrary decision is brought to our notice by the Revenue and hence, this issue of Revenue's appeal is dismissed. .........." 38. Therefore, by following the decision of this Tribunal in assessee's own case (Supra) we are of the considered view that the Ld.CIT(A) has rightly deleted the disallowance made by the AO invoking the provisions of Section 14A r.w.r. 8D while computing the book profits u/s. 115JB of the Act; and accordingly, this Ground of Revenue stands dismissed for A.Y.2010-11 to A.Y.2014-15. Grounds filed by the assessee on consequential penalty proceedings invoked: 39. Issue 7: Consequential penalty proceedings initiated b....