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2012 (12) TMI 683 - AT - Income TaxComputation of eligible income u/s 10A Whether interest income on FD is eligible for deduction u/s 10A - interest income derived on account of temporary parking of business funds Held that - Following the decision in case of assessee s own case for earlier assessment year Semantic Space Technologies Ltd.,(2012 (11) TMI 536 - ITAT HYDERABAD) held that the income by way of interest on fixed deposits is not eligible for special deduction u/s 10A. In favour of revenue Deduction u/s 10A - Whether export by HO to branch office is eligible for deduction u/s 10A Held that - Following the decision in case of assessee s own case for earlier assessment year Semantic Space Technologies Ltd.,(2012 (11) TMI 536 - ITAT HYDERABAD) that the transfers between the HO and the Branch Office and vice versa with the approval of the STPI clubbed with satisfaction of other conditions like realization of proceeds in foreign exchange, constitutes exports for the purpose of the deduction under S.10A of the Act. Thus, without going into the other arguments raised by the learned counsel for the assessee, we find that the assessee must be given relief on this issue. In favour of assessee Disallowance u/s 40(a)(ia) - Whether remittance by HO on account of sub-contracted to its branch office abroad subject to TDS - Assessee had paid to its US Branch on account of work sub-contracted to them - AO was of the opinion that the said sub contract payments attracted TDS u/s 194C/section 195, as the US branch is a non-resident Held that - The status of the branch office of the assessee abroad is not non-resident . Therefore, the provisions of Sec 195 are inapplicable. Following the decision in case of assessee s own case for earlier assessment year Semantic Space Technologies Ltd.,(2012 (11) TMI 536 - ITAT HYDERABAD) issue decides in favour of assessee TDS u/s 194C on leased line charges paid to BSNL - Disallowance u/s 40(a)(ia) Held that - Following the decision in case of USHODAYA ENTERPRISES PVT LTD (2012 (7) TMI 120 - ITAT HYDERABAD) held that payment made are akin to telephone lines and hence the provisions of section 194J is not attracted since BSNL is only providing the line and not any professional or technical services to the assessee. In favour of assessee Disallowance on non-deduction of TDS u/s 195 Payment to Non-resident for due diligence services in USA Assessee argued that expenditure provision was reversed and the expenditure never really incurred, the disallowance if upheld in the current year, a similar amount reversed in the next year, is liable to be deleted from the computation of total income - Held that - As the payment having been made to a foreign entity was liable for disallowance if tax was deducted is not made. Therefore view taken by the CIT(A) is justified. In favour of revenue Computation of eligible income u/s 10A Whether credit balance written back and notice period salary are part of eligible income u/s 10A Held that - Following the decision in case of assessee s own case for earlier assessment year Semantic Space Technologies Ltd.,(2012 (11) TMI 536 - ITAT HYDERABAD) as the amount represents recovery of the business expenses earlier incurred by the assessee, therefore the income arising on account of such recovery also represents the business income of the assessee. In favour of assessee Deduction u/s 10A Whether disallowed amount are eligible for calculation of deduction u/s 10A Held that - As the issue is squarely covered by the decision of the Tribunal in assessee s own case Semantic Space Technologies Ltd.,(2012 (11) TMI 536 - ITAT HYDERABAD) for AY 2006-07 in favour of the assessee.
Issues Involved:
1. Exclusion of interest income for computing eligible income under Section 10A. 2. Treatment of sales to the US branch for deduction under Section 10A. 3. Disallowance under Section 40(a)(ia) for payments to a non-resident entity. 4. Deduction of leased line charges under Section 194I versus 194C. 5. Disallowance of expenditure towards due diligence services in the USA. 6. Inclusion of 'other income' for deduction under Section 10A. 7. Treatment of amounts disallowed under Sections 40(a)(ia) and 40A(7) for deduction under Section 10A. 8. Exclusion of software development and service charges from total turnover and export turnover. Detailed Analysis: 1. Exclusion of Interest Income for Computing Eligible Income under Section 10A: The assessee challenged the exclusion of interest income of Rs. 1,57,409 for computing eligible income under Section 10A. The Tribunal referred to its earlier decision for AY 2006-07 where it was held that interest income from fixed deposits is not eligible for special deduction under Section 10A, as per the Chattisgarh High Court decision in Nav Bharat Explosives Co. Pvt. Ltd. Consequently, the Tribunal upheld the CIT(A)'s order and dismissed the assessee's ground. 2. Treatment of Sales to the US Branch for Deduction under Section 10A: The assessee included Rs. 66,60,400 from software development charges to its US branch in the export turnover, which the AO excluded, considering it as a transfer. The CIT(A) confirmed this exclusion. The Tribunal, referring to its decision for AY 2006-07, held that transfers between the head office and branch office with STPI approval and foreign exchange realization constitute exports for Section 10A purposes. Thus, the Tribunal reversed the CIT(A)'s order and allowed the assessee's grounds. 3. Disallowance under Section 40(a)(ia) for Payments to a Non-Resident Entity: The AO disallowed Rs. 89,70,751 paid to the US branch for subcontracted work, citing non-deduction of TDS under Section 195. The CIT(A) confirmed this. The Tribunal, following its decision for AY 2006-07, held that the US branch is part of the assessee and not a non-resident, making Section 195 inapplicable. The Tribunal also noted the Supreme Court's reversal of the Karnataka High Court's Samsung Electronics decision. Hence, the Tribunal allowed the assessee's grounds. 4. Deduction of Leased Line Charges under Section 194I versus 194C: The AO disallowed Rs. 31,48,566 for leased line charges to BSNL, stating TDS should have been under Section 194I. The CIT(A) upheld this. The Tribunal, referring to its decision in Ushodaya Enterprises Pvt. Ltd., held that such charges are akin to telephone lines and fall under Section 194C, not 194I. Thus, the Tribunal deleted the disallowance and allowed the assessee's grounds. 5. Disallowance of Expenditure towards Due Diligence Services in the USA: The AO excluded Rs. 12,57,269 from export turnover, considering it a foreign currency payment. The CIT(A) directed not to exclude it but opined disallowance if TDS was not made. The Tribunal upheld the CIT(A)'s view, rejecting the assessee's claim that the expenditure was reversed in the next year. Thus, the Tribunal dismissed the assessee's grounds. 6. Inclusion of 'Other Income' for Deduction under Section 10A: The AO excluded Rs. 1,41,61,613 under 'other income' from eligible profits for Section 10A. The CIT(A) included 'credit balance written back' and 'notice period salary' but excluded interest income. The Tribunal, following its decision for AY 2006-07, upheld the CIT(A)'s inclusion of 'credit balance written back' and 'notice period salary' and dismissed the revenue's ground. 7. Treatment of Amounts Disallowed under Sections 40(a)(ia) and 40A(7) for Deduction under Section 10A: The AO disallowed amounts under Sections 40(a)(ia) and 40A(7). The CIT(A) included these for Section 10A deduction. The Tribunal, citing the Bombay High Court's decision in CIT v. Gem Plus Jewellery India Ltd., upheld the CIT(A)'s inclusion and dismissed the revenue's ground. 8. Exclusion of Software Development and Service Charges from Total Turnover and Export Turnover: The AO excluded software development and service charges from export turnover. The CIT(A) directed exclusion from both total and export turnover. The Tribunal, referring to its decision for AY 2006-07, upheld the CIT(A)'s direction and dismissed the revenue's ground. Conclusion: The Tribunal allowed the assessee's appeal partly and dismissed the revenue's appeal, primarily relying on its decisions for AY 2006-07 and relevant judicial precedents.
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