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2005 (7) TMI 667 - AT - Income TaxExemption u/s 10A - eligibility of Eagle Software - HELD THAT - In the cross-objection, the assessee desires that the amount received from sale of Eagle Software be charged under the head 'Capital gains' and not as revenue receipts. CIT(A) while holding that the amount is eligible for exemption u/s 10A, held as under '' We find that Eagle Software was designed and developed by the assessee during the course of its business in development of software. Thus, it cannot be said that assessee acquires certain capital asset. Design and development of software are part of a business activity of assessee company and hence, any amount realized on sale of such product is to be treated as trading receipt only. From the records, we find that the assessee has furnished all necessary details to show that the sale was affected through the eligible STP unit. The sale of STP unit started after 1st Sept., 1994. Thus, profit from sale of such software is eligible for deduction under s. 10A of the Act. The profit arises not at the time of manufacture but at the time when it is ultimately sold. Since the product was sold through the STP unit, the same is eligible for deduction as profit of eligible STP unit as provided u/s. 10A of the Act. We accordingly do not find any reason to arrive at a view other than that arrived by learned CIT(A).'' In the result, the appeal of assessee is partly allowed. The appeal of Revenue and the cross-objection by assessee are dismissed.
Issues Involved:
1. Computation of deduction under Section 80HHE. 2. Calculation of relief under Double Taxation Avoidance Agreement (DTAA) between India and Canada. 3. Calculation of surcharge after giving credit for rebates and relief under various chapters. 4. Disallowance of expenditure by way of initial payment to club. 5. Eligibility of "Eagle Software" for exemption under Section 10A and its treatment under capital gains. Detailed Analysis: 1. Computation of deduction under Section 80HHE: The assessee challenged the computation of deduction under Section 80HHE, arguing that the learned CIT(A)-I erred in confirming the reduction from export turnover and total turnover by the expenses incurred in foreign exchange. The assessee's activities were confined to the export of software, and the appellant was not engaged in providing technical services in connection with software development. The Tribunal directed the AO to compute the deduction under Section 80HHE based on the Tribunal's previous decisions in the assessee's own case for earlier years. 2. Calculation of relief under Double Taxation Avoidance Agreement (DTAA) between India and Canada: The assessee received royalty income from Canada, which was taxed in both Canada and India. The assessee claimed relief under Article 23 of the DTAA, arguing that the entire royalty income taxed in Canada should be treated as taxed in India. The AO and CIT(A) had different approaches to calculating the relief. The Tribunal upheld the AO's method of computation, which considered only the proportionate income as doubly taxed and provided relief accordingly. The Tribunal emphasized that relief under DTAA is available only when the same income has suffered tax in both countries. 3. Calculation of surcharge after giving credit for rebates and relief under various chapters: The assessee contended that surcharge should be calculated after giving credit for double taxation relief. The Tribunal dismissed this ground, stating that credit for double taxation is provided under Chapter IX of the Act, and while computing surcharge, the credit for double taxation should not be first reduced. However, it clarified that tax on doubly taxed income should include surcharge. 4. Disallowance of expenditure by way of initial payment to club: The AO disallowed the expenditure on initial payment to the club, considering it capital in nature. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, following its earlier orders for previous assessment years. 5. Eligibility of "Eagle Software" for exemption under Section 10A and its treatment under capital gains: The Revenue argued that income from the sale of "Eagle Software" was not exempt under Section 10A as its development started before the STP unit came into existence. The assessee contended that the sale was effected from the STP unit and should be exempt under Section 10A. The Tribunal found that the sale was through the STP unit and eligible for exemption under Section 10A. It also held that the amount received from the sale of "Eagle Software" should be treated as trading receipt and not as capital gains. Conclusion: The appeal of the assessee was partly allowed, while the appeal of the Revenue and the cross-objection by the assessee were dismissed. The Tribunal provided detailed reasoning for each issue, ensuring that the legal principles and factual findings were thoroughly analyzed.
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