9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2007 (11) TMI 444 - AT - Income TaxComputation of export turnover u/s 10A - newly established undertakings in free trade zone - expenses incurred towards link charges - Uplinking charges reduced from the export turnover -Loss of one STP unit - Computation of arm's length. Deduction u/s 10A - newly established undertakings in free trade zone - expenses incurred towards link charges - Uplinking charges reduced from the export turnover - HELD THAT - The details of expenses incurred towards link charges are available with the assessee company. It would not have been difficult for the assessee company to have asked the services provider to give the details of expenses incurred in transmitting information from India. The assessee could have obtained the details of expenses of outward transmission of data. When a specific information is available with the assessee and if the same is not produced, then adverse inference can be drawn. The assessee in the course of proceedings before the learned CIT(A) estimated such expenditure for transmission of data at 50 per cent of the expenditure on link charges. The learned CIT(A) discussed the software development with a number of representatives of various companies. Facts as mentioned by the learned CIT(A) in his order have not been controverted by the ld AR. Therefore, we decline to interfere with the finding of the learned CIT(A) in estimating that 80 per cent of uplinking charges are to be reduced from the export turnover. Such finding is upheld for both the assessment years. Uplinking charges reduced from the export turnover - Following the decision in the case of Tata Elxsi Ltd. v. Asstt. CIT 2007 (10) TMI 630 - ITAT BANGLORE and CIT v. Infosys Technologies Ltd. 2007 (10) TMI 627 - ITAT BANGALORE held that the components entering into export turnover and the total turnover should be the same. Thus, This ground of appeal is common for both the assessment years and, therefore, the decisions mentioned will be applicable for both the assessment years. Determining profits of the business for the purposes of section 10A/10B - Loss of one STP unit - set off from profits of other STP units - HELD THAT - In absence of the facts, it is not possible to say that Pune unit was an independent undertaking engaged in the business of software development, which was in no way related to the software development done at Bangalore or Chennai unit. In case, the Pune unit is found to be independent, then loss from such unit is to be independently calculated. In case such unit is associated with the activities, which are carried out at Bangalore or Chennai unit, then Pune unit will -be considered as part of that undertaking. Hence, the issue of ascertaining as to whether Pune unit was an independent unit or a unit associated with activities of other two units is restored back on the file of the Assessing Officer. In case it is found that it is part of the other two units and is associated with the activities done in other two units, then it will be considered as part of the same undertaking and loss will be adjusted. However, in case, if it is found, it is an independent unit, then it will be treated as independent undertaking and the assessee cannot be forced to have exemption in respect of such independent undertaking. In that case the loss will (not) be adjusted against other income. Computation of arm's length - HELD THAT - In the instant case, the assessee himself has computed the arm's length prices and has disclosed the income on the basis of arm's length prices. It is not a case, where there is an enhancement of income due to determination of arm's length price. Hence, it is held that assessee was entitled to deduction under section 10A in respect of income declared in the return of income on the basis of computation of arm's length price. In the result, both appeals are partly allowed.
Issues Involved:
1. Reduction of unlinking charges from export turnover for deduction under section 10A. 2. Reduction of unlinking charges from total turnover. 3. Set off of losses from one STP unit against profits of other STP units. 4. Deduction under section 10A on the adjustment made to the arm's length price. Issue-wise Detailed Analysis: 1. Reduction of unlinking charges from export turnover for deduction under section 10A: The assessee contested the CIT(A)'s decision to reduce 80% of unlinking charges from export turnover to determine the deduction under section 10A. The CIT(A) referred to clause (iv) of Explanation 2 below section 10A(8), which mandates reducing freight, telecommunication charges, or insurance attributable to software delivery from the export turnover. The CIT(A) concluded that 80% of the unlinking charges should be reduced based on discussions with representatives of various software companies, who indicated that a significant portion of telecommunication charges is used for outward transmission of data. The Tribunal upheld this finding, noting that the assessee failed to provide specific details of expenses incurred for outward transmission, thus supporting the CIT(A)'s estimate. 2. Reduction of unlinking charges from total turnover: The assessee argued that unlinking charges reduced from export turnover should also be reduced from total turnover. The Tribunal referenced decisions from the Bangalore Bench in Tata Elxsi Ltd. v. Asstt. CIT and Asstt. CIT v. Infosys Technologies Ltd., which held that components excluded from export turnover should similarly be excluded from total turnover. This ensures consistency in the formula used for computing deductions under section 10A. The Tribunal agreed with this reasoning and held that unlinking charges excluded from export turnover should also be excluded from total turnover. 3. Set off of losses from one STP unit against profits of other STP units: The assessee challenged the CIT(A)'s decision to set off losses from the Pune STP unit against profits from Bangalore and Chennai units before allowing the deduction under section 10A. The CIT(A) relied on section 10A(6) and the jurisdictional High Court's decision in CIT v. Himatasingike Seide Ltd., which mandated setting off losses against eligible profits. The Tribunal noted that the definition of 'industrial undertaking' includes multiple units engaged in similar activities. However, it was unclear if the Pune unit was independent or associated with activities at other units. The Tribunal remanded the issue to the Assessing Officer to determine the independence of the Pune unit. If independent, its loss would not be adjusted against other units' profits for section 10A deduction purposes. 4. Deduction under section 10A on the adjustment made to the arm's length price: The assessee sought deduction under section 10A on income adjusted to the arm's length price. The CIT(A) denied this, citing the proviso to section 92C(4), which disallows deductions on income enhanced after arm's length price computation. The Tribunal clarified that the proviso applies only when the Assessing Officer enhances income, not when the assessee voluntarily adjusts it. Since the assessee had already declared income based on arm's length price, there was no enhancement by the Assessing Officer. Hence, the Tribunal allowed the deduction under section 10A for the income declared by the assessee. Conclusion: The appeals were partly allowed, with the Tribunal upholding the CIT(A)'s finding on unlinking charges, agreeing to exclude these charges from total turnover, remanding the issue of set-off of losses to the Assessing Officer, and allowing the deduction under section 10A for income adjusted to the arm's length price.
|
