2007 (9) TMI 629 - AT - Income Tax

Deduction u/s 10A - Interest income derived from the industrial undertaking - HELD THAT - Similar issue had arisen for consideration in assessee s own case for the assessment year 1999-2000 and this Tribunal in I.T. Appeal and held that interest income cannot be considered as part of the profits and gains derived from the business of export of computer software. This Tribunal has referred to the decision of the Hon ble Supreme Court in the case of CIT vs. Sterling Foods 1999 (4) TMI 1 - SUPREME COURT and ultimately concluded that interest income cannot form part of the income eligible for deduction u/s 10-A of the Act. Thus first ground of appeal of the assessee is dismissed. Expenditure incurred for earning dividend income - exempt u/s 10(33) - invoking the provisions of section 14A - HELD THAT - In the present case we find that no attempt has been made by the assessing officer to establish the expenses which were incurred in earning the tax-free income. We may also add here that the decision of the Third Member in the case of Wimco Seedings Ltd. vs. DCIT 2006 (12) TMI 65 - ITAT DELHI in the absence of any decision of the Special Bench in Maruti Udyog Ltd. 2004 (10) TMI 278 - ITAT DELHI-A to the contrary has a binding force as that of a Special Bench as laid down by the Special Bench of the Tribunal in the case of DCIT vs. Padam Prakash 2006 (9) TMI 222 - ITAT DELHI-E . Thus we uphold the order of the CIT (Appeals) and dismiss the first ground of appeal of the Revenue. Addition on account of common expenses - HELD THAT - Similar disallowance was made by the assessing officer and the Tribunal had an occasion to deal with the same and in I.T. Appeal for assessment year 1999-2000 The Tribunal deleted the similar addition made by the assessing officer. The Tribunal found that there were no common expenses attributable to the software unit which were incurred or met by the head office and consequently no disallowance of expenses could be made in the head office account. In the present assessment year the assessing officer has merely followed the order in assessment year 1999-2000. The facts and circumstances being identical we are of the view that the CIT (Appeals) was justified in deleting the addition made by the assessing officer. Consequently ground No. 2 raised by the Revenue is dismissed. Addition on account of notice pay - HELD THAT - It is not in dispute that in AY 1999-2000 in this issue had come up for consideration before this Tribunal and the Tribunal held that the notice period pay was debited to the software division and when it was recovered the same has to be considered as income derived by the industrial undertaking. The Tribunal held that such notice period pay would go to reduce the expenses on account of salary and this real nature of the transaction will not have any effect on the income derived by the assessee from the business of computer software. Respectfully following the aforesaid decision of the Tribunal we uphold the order of the CIT (Appeals) and dismiss the third ground of appeal of the Revenue. In the result both the appeals by the assessee and the Revenue are dismissed.

Issues:
1. Whether interest income can be considered as profits derived from the business of export of computer software under section 10-A of the Income-tax Act.
2. Allowability of excess amount remitted by the customer, income of foreign exchange fluctuation, and sundry balance of unclaimed expenses written back as income derived from the industrial undertaking under section 10-A.
3. Disallowance of expenses relatable to dividend income exempt under section 10(33) and common expenses.
4. Addition of notice pay as income derived from the industrial undertaking under section 10-A.

Analysis:

Issue 1:
The assessee, engaged in project management and engineering consultancy services, included interest income in profits derived from the export of computer software for claiming exemption under section 10-A. However, the assessing officer and CIT (Appeals) rejected this claim based on previous tribunal decisions. The tribunal upheld the decision, stating interest income cannot be considered as part of the profits eligible for deduction under section 10-A.

Issue 2:
Regarding the excess amount remitted by the customer, foreign exchange fluctuation income, and unclaimed expenses written back, the CIT (Appeals) had already decided the issue on merits, rendering the appeal infructuous. Hence, this ground of appeal was dismissed.

Issue 3:
The Revenue contested the deletion of an addition of administrative and management expenses relatable to dividend income exempt under section 10(33). The tribunal upheld the CIT (Appeals) decision, emphasizing that without clear identification of expenses incurred for earning tax-free income, disallowance cannot be made on an estimate basis, following a Third Member decision.

Issue 4:
The Revenue challenged the deletion of an addition made on account of common expenses related to the software unit. The tribunal upheld the CIT (Appeals) decision, highlighting the absence of common expenses attributable to the software unit, thereby dismissing the Revenue's appeal.

Issue 5:
The Revenue disputed the deletion of an addition on account of notice pay as income derived from the industrial undertaking. The tribunal upheld the CIT (Appeals) decision, citing a previous tribunal ruling that notice period pay, when recovered, should be considered income derived by the industrial undertaking, reducing salary expenses, and thus eligible for exemption under section 10-A.

In conclusion, both the appeals by the assessee and the Revenue were dismissed by the tribunal, upholding the decisions of the CIT (Appeals) on various grounds related to income tax exemptions and deductions under the Income-tax Act.

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