2010 (9) TMI 1113 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of Capital Investment Subsidy for Depreciation.
2. Disallowance of Expenditure for Software Purchase due to Non-Deduction of TDS u/s 195.
3. Assessment of Interest Income on Fixed Deposits.
4. Deletion of Communication Expenditure and Technical Consultancy Charges from Export Turnover for Deduction u/s 10A.
5. Treatment of Hardware Exports for Deduction u/s 10A.

Summary:

1. Treatment of Capital Investment Subsidy for Depreciation:
The assessee received a subsidy of Rs. 16,34,259 from the Government of Andhra Pradesh, with 50% received during the assessment year in question. The assessing officer deducted the entire subsidy from the actual cost of fixed assets, applying Explanation 10 of Sec. 43. The assessee argued that the subsidy was not related to the acquisition cost of fixed assets and should not be deducted from the 'actual cost' for depreciation purposes, citing judgments from the Supreme Court and Himachal Pradesh High Court. The Tribunal directed the assessing officer to reduce only the subsidy actually received during the assessment year, partly allowing the assessee's ground.

2. Disallowance of Expenditure for Software Purchase due to Non-Deduction of TDS u/s 195:
The assessee contended that payments for software modules to non-resident companies were not royalties or fees for technical services and thus not subject to TDS u/s 195. The departmental representative argued that these payments were royalties or fees for technical services under Sec. 9(1)(vi) and 9(1)(vii), requiring TDS. The Tribunal concluded that the payments were indeed royalties or fees for technical services, necessitating TDS u/s 195, and upheld the disallowance of expenditure u/s 40(a)(i).

3. Assessment of Interest Income on Fixed Deposits:
The Tribunal dismissed the assessee's ground, following its previous order and Supreme Court judgments, and assessed the interest income on fixed deposits under 'income from other sources.'

4. Deletion of Communication Expenditure and Technical Consultancy Charges from Export Turnover for Deduction u/s 10A:
The Tribunal directed the assessing officer to exclude technical consultancy fees, communication expenses, and selling commission from both the export turnover and total turnover while computing eligible profit for deduction u/s 10A, following its previous order and High Court judgments.

5. Treatment of Hardware Exports for Deduction u/s 10A:
The assessee argued that hardware export turnover should be included in export turnover for deduction u/s 10A. The Tribunal noted that the CIT(A) had treated the profit from hardware exports as part of export profit but did not address the turnover issue. The Tribunal remanded the issue to the CIT(A) for fresh consideration.

Conclusion:
The appeal of the assessee was partly allowed, with specific directions and remands for further consideration on certain issues.