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2012 (9) TMI 715 - AT - Income TaxRelief u/s 90 & 91 Assessee company paid income tax in Japan & New Zealand on income earned in respective countries - AO & CIT(A) not allowed relief u/s 90 be allowed in respect of taxes paid outside India CIT (A) decide against the appeal of assessee on the basis of decision given by Tribunal in assessee s own appeal for earlier year Appeal decides without the considering DTAA with these countries Held that - While deciding the issue, DTAA should also be considered and hence, this matter should go back to the file of the CIT (A) for deciding afresh after considering the issue in the light of these two DTAA of India with New Zealand and Japan and hence order is set aside. Issue remand back to revenue. Disallowance of Income Tax paid outside India - Whether Tax paid outside India are deductible u/s 37(1) Held that - As the assessee s appeal is squarely covered in favour of the revenue and against the assessee by the decision of the Tribunal in assessee s own case for earlier AY. Therefore, taxes paid by the assessee outside India are not deductible u/s 37(1) r.w.s 40(a)(ii) and Sec. 2(43). Appeal decided in favour of revenue. Deduction u/s 80HHC Whether turnover is to be compute on prorata basis despite of that assessee has maintain separate books of account in respect of that unit, while computing deduction u/s 80HHC - Assessee engage in export of electronic hardware from its unit in EHTP Assessee compute deduction u/s 80HHC by taking only the total turnover of one unit Whereas AO takes total turnover of the assessee company Assessee maintain separate books of accounts in respect of this unit and were duly audited Held that - When separate books of account are maintained by the assessee in respect of the concerned unit and profit eligible for deduction u/s 80HHC can be worked out directly on the basis of such separate books of account, the same needs to be preferred than the formula given in sub-section 3 which works out such profit only on prorata basis in absence of separate book of accounts following the decision in case of Rathore Brothers (2001 (10) TMI 72 - MADRAS HIGH COURT). Decision in favour of assessee Exemption u/s 10A Whether exemption can be claimed when the relevant statute was not there i.e. on the first day of the Financial Year -Assessee claimed exemption u/s 10A for a period of five years from AY 1991-92 to 1995-96 - Sec.10A were amended by Finance Act, 1998 w.e.f. 1.4.1999 extending the benefit of exemption u/s 10A for a period of ten consecutive A.Y. - Assessee claimed exemption u/s 10A for the year under consideration i.e. 1998-99 on the basis that it was ninth year from the AY in which it s eligible undertaking began manufacture or production AO contented that since exemption was not claimed by the assessee in the preceding two years i.e. AY 1996-97 and 1997-98 and also extended period of exemption up to ten years was applicable only to those undertakings which were currently enjoying the benefit of Sec. 10A - Held that - Following the decision in the case of M/s. DSL Software Ltd (2011 (10) TMI 423 - KARNATAKA HIGH COURT), the assessment year involved is AY 1998-99 and since the provisions of section 10A as amended w.e.f. 1.4.1999 were not there in the statute on the first day of AY 1998-99. Therefore, denying the claim of the assessee for exemption u/s 10A. Decision in favour of revenue Deduction u/s 80HHE Assessee computed the deduction u/s 80HHE by taking the relevant financial data only of the concerned unit which is related to export of software out of India - The AO and CIT (A) however adopted the relevant financial data of all the businesses of the assessee together to work out the profit eligible for deduction us/ 80HHE on prorata basis Held that - Following the decision in case of Rathore Brothers (2001 (10) TMI 72 - MADRAS HIGH COURT), allow the deduction to the assessee u/s 80HHE on the basis of separate books of account maintained in respect of the concerned undertaking / unit of the assessee. Decision in favour of assessee Disallowance of Provision for pension AO contended that same cannot be said that it is based on a reasonable certainty - Number of years for which a particular person is going to receive pension is not known with any certainty Held that - Deduction should be allowed if a business liability has definitely arisen in the accounting year, although the liability may have to be quantified and discharged at a future date. It was also held that it should also be capable of being estimated with a reasonable certainty, although the actual quantification may not be possible. Since the valuation was done on the basis of actuarial valuation, it cannot be said that the liability was not determined with a reasonable certainty. Decision in favour of assessee Interest income taxable under head PGBP or Income from other sources Held that - On the basis of decision of Tribunal in assessee s own case holding that interest income in the facts and circumstances of the assessee s case was chargeable to tax under the head income from other sources. The Tribunal however accepted that only net interest income should be assessed under the head income from other sources after deducting expenses incurred for earning the said income. Therefore issue partly allowed. Exclusion of Excise duty & Sales Tax from turnover for computing deduction u/s 80HHE Held that - Following the decision in case of Sudarshan Chemicals Industries Ltd (2000 (8) TMI 73 - BOMBAY HIGH COURT), to exclude excise duty and sales tax from the total turnover for the purpose of computing deduction u/s 80HHE. Decision in favour of assessee
Issues Involved:
1. Deduction of common management and facility expenses in computing income eligible for exemption u/s 10A. 2. Claim for relief u/s 90 and 91. 3. Deductibility of taxes paid outside India under sec. 37(1) r.w.s 40(a)(ii) and section 2(43). 4. Claim for deduction u/s 80HHC. 5. Claim for exemption u/s 10A. 6. Claim for deduction u/s 80HHE. 7. Disallowance of provision for pension made for the Managing Director. 8. Head of income under which interest income is assessable to tax. Detailed Analysis: 1. Deduction of Common Management and Facility Expenses in Computing Income Eligible for Exemption u/s 10A: The assessee did not press this issue during the hearings, and thus, it was dismissed as not pressed. 2. Claim for Relief u/s 90 and 91: The appellant contested the denial of relief under section 90 for taxes paid outside India, arguing that the CIT (A) wrongly concluded there was no double taxation due to the 100% deduction under section 80HHE. The Tribunal noted that similar issues had been restored to the file of the AO in previous years, directing the AO to consider the Double Taxation Avoidance Agreement (DTAA) with New Zealand and Japan. The Tribunal followed its earlier decisions and restored the matter to the AO for fresh consideration, treating the grounds as allowed for statistical purposes. 3. Deductibility of Taxes Paid Outside India: The Tribunal upheld the decision that taxes paid outside India are not deductible under sec. 37(1) r.w.s 40(a)(ii) and section 2(43), referencing its earlier decision for AY 1993-94 and relevant case law, including the Supreme Court's decision in Smith Kline and French (India) Ltd. and the Madras High Court's decision in CIT vs. Kerala Lines Ltd. 4. Claim for Deduction u/s 80HHC: The assessee's claim for deduction u/s 80HHC was initially restricted by the AO, who included the total turnover of the entire company rather than just the unit making the export. The Tribunal, referencing decisions of the Madras High Court and its own previous decisions, directed the AO to compute the deduction based on the separate books of account maintained for the specific unit, thus allowing the ground. 5. Claim for Exemption u/s 10A: For AY 1998-99, the Tribunal denied the claim for exemption u/s 10A based on the amendment effective from 1.4.1999, which was not applicable for that year. However, for AY 1999-2000, the Tribunal allowed the claim as the amended provisions were applicable from the first day of the assessment year. The Tribunal followed the Karnataka High Court's decision in CIT vs. M/s. DSL Software Ltd. 6. Claim for Deduction u/s 80HHE: The Tribunal decided in favor of the assessee, directing the AO to compute the deduction u/s 80HHE based on the separate books of account maintained for the specific unit, following its decision on a similar issue under section 80HHC. 7. Disallowance of Provision for Pension: The Tribunal allowed the assessee's claim for provision for pension for the Managing Director, following its earlier decision for AY 1996-97 and the Supreme Court's ruling in Bharat Earth Movers, which established that a business liability, though to be discharged in the future, is deductible if it is capable of being estimated with reasonable certainty. 8. Head of Income Under Which Interest Income is Assessable: The Tribunal upheld the decision to assess interest income under the head "income from other sources," but accepted the assessee's alternative contention to deduct expenses incurred for earning the interest income, thereby directing the AO to exclude only the net interest income from business profits for computing deduction u/s 80HHC. Conclusion: The Tribunal's order addressed multiple issues across different assessment years, providing detailed directions for the AO on each matter, largely following precedents and established case law. The appeals were partly allowed, with some issues restored for fresh consideration and others decided in favor of the assessee based on consistent judicial reasoning.
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