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2019 (8) TMI 1325 - AT - Income Tax


Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on software expenses.
2. Jurisdictional High Court applicability.
3. Foreign Tax Credit (FTC) entitlement and computation.
4. Disallowance under Section 14A read with Rule 8D.
5. Addition of lapsed ESOPs to income.
6. Reduction of telecommunication and internet usage charges from export turnover for Section 10A deduction.
7. Exclusion of foreign currency expenses from export turnover for Section 10A deduction.
8. Eligibility of income from onsite software services and DTM for Section 10A deduction.
9. Set-off of brought forward losses and unabsorbed depreciation.
10. Deduction under Section 80G.
11. MAT credit determination.
12. Interest under Sections 234B and 234C.
13. Arm's Length Price (ALP) determination for interest received from Associated Enterprise.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on software expenses:
The assessee claimed a deduction for software expenses without deducting TDS. The authorities treated the payment as royalty under Section 9(1)(vi) and disallowed the expense under Section 40(a)(ia). The Tribunal upheld the disallowance, citing the Karnataka High Court's ruling that payments for software licenses constitute royalty, necessitating TDS.

2. Jurisdictional High Court applicability:
The Tribunal determined that the jurisdiction is based on the location of the Assessing Officer's office. Since the assessment was completed in Bangalore, the Karnataka High Court's rulings apply, despite the appeal being transferred to Pune.

3. Foreign Tax Credit (FTC) entitlement and computation:
The assessee claimed FTC for taxes paid by foreign branches. The AO allowed credit only for the basic MAT rate of 10%. The Tribunal ruled that FTC should be allowed only for the doubly taxed income and at the effective rate of 11.33%, including surcharge. The AO was directed to verify the tax rates in respective countries and allow FTC accordingly.

4. Disallowance under Section 14A read with Rule 8D:
The AO disallowed expenses under Rule 8D(2)(ii) and (iii). The Tribunal deleted the disallowance under Rule 8D(2)(ii) due to sufficient shareholders' funds but upheld the disallowance under Rule 8D(2)(iii), directing the AO to consider only those investments yielding exempt income during the year.

5. Addition of lapsed ESOPs to income:
The Tribunal held that lapsed ESOPs credited to General Reserve should not be included in book profits under Section 115JB but should be considered as income under Section 41(1) in the year of cessation or remission.

6. Reduction of telecommunication and internet usage charges from export turnover for Section 10A deduction:
Following previous years' rulings, the Tribunal held that any amount reduced from export turnover should also be reduced from total turnover in computing Section 10A deduction.

7. Exclusion of foreign currency expenses from export turnover for Section 10A deduction:
The Tribunal upheld the exclusion of foreign currency expenses from export turnover and directed that the same amount be excluded from total turnover.

8. Eligibility of income from onsite software services and DTM for Section 10A deduction:
The Tribunal followed its earlier decision, holding that income from onsite software services and DTM is eligible for Section 10A deduction.

9. Set-off of brought forward losses and unabsorbed depreciation:
The Tribunal, following the Supreme Court's ruling in Yokogawa India Ltd., held that profits of eligible units should be considered on a standalone basis for Section 10A deduction.

10. Deduction under Section 80G:
The ground was not pressed by the assessee and was dismissed.

11. MAT credit determination:
The Tribunal directed the AO to determine the MAT credit to be carried forward as a consequence of the decision on foreign tax credit.

12. Interest under Sections 234B and 234C:
The Tribunal held that interest under Sections 234B and 234C should not be charged to the extent of retrospective amendment to Section 115JB affecting book profits computation.

13. Arm's Length Price (ALP) determination for interest received from Associated Enterprise:
The Tribunal upheld the determination of ALP for interest received based on EURIBOR +2%, following the precedent set in previous years.

Conclusion:
Both appeals were partly allowed, with detailed directions provided for each issue. The Tribunal's order emphasized adherence to jurisdictional High Court rulings and proper computation of FTC, disallowances, and deductions.

 

 

 

 

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