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2008 (8) TMI 397 - AT - Income TaxDisallowance of deduction u/s. 80IA - software duplication activity - duplicating and sublicensing of software to its customers - royalty payment to M/s Oracle Corporation - allowance representing provision for leave encashment as claimed by appellant in the course of appeal proceedings - Deletion of addition on account of master copy expenditure - relief on account of exemption claimed under s. 10A at the Software Development Center, Bangalore - Charge of interest under ss. 234A, 234B and 234D. Disallowance of deduction u/s. 80IA - software duplication activity - Manufacture Or Production - HELD THAT - We find that this issue has been decided by the Tribunal in favour of the assessee in the case of the assessee itself for AY's. 1994-95 to 1997-98. In the present year, ld CIT(A) has followed his order passed by him in AY 1997-98. In AY 1997-98, the Tribunal has followed the Tribunal judgment in assessee's own case for AY's 1995-96 and 1996-97 - In these two years, this issue had reached to the Hon'ble Delhi High Court and Hon'ble Delhi High Court has held that there is no reason to differ with the view taken by the Tribunal on this issue since the Tribunal has merely followed the decision of Hon'ble apex Court rendered in the case of Gramophone Co. of India Ltd. vs. CCE 1999 (11) TMI 62 - SUPREME COURT . In view of this, we find no reason to take a contrary view in the present year and hence respectfully following the precedents, this issue is decided in favour of the assessee. This ground of the assessee is allowed. Claim for deduction for payment - duplicating and sublicensing of software to its customers - royalty payment to M/s Oracle Corporation - AO made a disallowance u/s. 92 r/w s. 37(1) on account of payment of royalty beyond 30 per cent of the license fee earned by the assessee - AO disallowed sum out of total royalty payment - HELD THAT - From Persual of provisions of s. 92, it is seen that the preconditions for invoking provisions of s. 92 is that there is no profit or less than ordinary profit accruing to the resident assessee on account of business connection between the resident and non-resident. It was held by the Tribunal in the case of Reuters India (P) Ltd. 2004 (4) TMI 275 - ITAT DELHI-D that the Revenue has not discharged its onus by proving that the profit being earned by the assessee is less than ordinary profit in this type of business and hence s. 92 cannot be invoked. The Tribunal in this case has followed the Tribunal decision in the case of Nestle India Ltd. 2005 (1) TMI 333 - ITAT DELHI-D in which it was held by the Tribunal that the burden is on the AO and not on the assessee to prove that the case falls under the provisions of s. 92 - Since in the present case also, this onus is not discharged by the Revenue by bringing on record a comparable case to show that the profits earned by the assessee company is less than ordinary profit, we are of the considered opinion that the provisions of s. 92 cannot be invoked in the present case to make any addition in the profit of the business of the assessee declared by it as per return of income - We, therefore, decide this issue in favour of the assessee by respectfully following the precedents. Denying allowance of Rs. 30,67,728 representing provision for leave encashment as claimed by your appellant in the course of appeal proceedings - HELD THAT - This issue is squarely covered in favour of the assessee by this judgment of Hon'ble apex Court rendered in the case of BHARAT EARTH MOVERS VERSUS COMMISSIONER OF INCOME-TAX 2000 (8) TMI 4 - SUPREME COURT . We also find that the Tribunal in the assessee's own case for asst. yr. 1998-99 has decided this issue in favour of the assessee by following the judgment of the Hon'ble apex Court. Respectfully following the precedent, in this year also, we decide this issue in favour of the assessee. This ground of the assessee is allowed. Deletion of addition of Rs. 45,52,944 on account of master copy expenditure - HELD THAT - In asst. yr. 1997-98, the Tribunal has followed the Tribunal decision in assessee's own case for asst. yrs. 1994-95 to 1996-97. In those three years, the Tribunal has followed the decisions of Hon'ble apex Court rendered in the case of EMPIRE JUTE COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX 1980 (5) TMI 1 - SUPREME COURT and in the case of ALEMBIC CHEMICAL WORKS COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX, GUJARAT 1989 (3) TMI 5 - SUPREME COURT and it was held that expenditure on acquisition of master copy is a capital expenditure. Respectfully, following the precedent, in this year also, we decide this issue in favour of the Revenue and against the assessee. This ground of the Revenue is allowed. Error in allowing a relief of Rs. 4,38,34,831 on account of exemption claimed under s. 10A at the Software Development Center, Bangalore - HELD THAT - This issue is decided in favour of the assessee and this ground of the Revenue is rejected because no difference in facts is pointed out by the learned Departmental Representative of the Revenue. Charge of interest under ss. 234A, 234B and 234D - HELD THAT - We decide the issue in favour of the assessee by respectfully following the decision of the Tribunal in the case of ITO vs. Ekta Promoters (P) Ltd. 2008 (7) TMI 452 - ITAT DELHI-E because it is held by the Tribunal in this judgment that interest u/s. 234D is chargeable from AY 2004-05 only because s. 234D was inserted by the Finance Act, 2003 w.e.f. 1st June, 2003 and hence it cannot be made applicable prior to that. The assessment year involved in the present case is AY 2001-02 and hence s. 234D is not applicable in the present case. This ground is allowed In the result, this appeal of the assessee is partly allowed.
Issues Involved:
1. Disallowance of deduction under Section 80-IA of the IT Act for software duplication. 2. Invocation of Section 92 regarding royalty payments to Oracle Corporation, USA. 3. Denial of allowance for provision for leave encashment. 4. Deletion of addition on account of master copy expenditure. 5. Allowance of exemption under Section 10A at the Software Development Center, Bangalore. 6. Charge of interest under Sections 234A, 234B, and 234D. 7. Initiation of penalty proceedings under Section 271(1)(c). Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 80-IA for Software Duplication: The Tribunal examined whether software duplication qualifies as a manufacturing activity under Section 80-IA. The Tribunal noted that this issue had been previously decided in favor of the assessee in earlier assessment years (1994-95 to 1997-98) and upheld by the Hon'ble Delhi High Court. Following these precedents, the Tribunal ruled in favor of the assessee, allowing the deduction under Section 80-IA for the assessment years 1999-2000, 2000-01, and 2001-02. 2. Invocation of Section 92 Regarding Royalty Payments: The Tribunal considered the assessee's contention that the royalty payments to Oracle Corporation, USA, were justified and within the permissible limits set by RBI guidelines. The Tribunal referred to previous decisions, including Reuters India (P) Ltd. vs. Dy. CIT and Addl. CIT vs. Nestle India Ltd., which emphasized that the burden of proof lies on the AO to show that the profits are less than ordinary. Since the AO did not provide any comparable cases to demonstrate this, the Tribunal ruled in favor of the assessee, disallowing the invocation of Section 92 and the related disallowance of royalty payments for the assessment years 1999-2000, 2000-01, and 2001-02. 3. Denial of Allowance for Provision for Leave Encashment: The Tribunal noted that the issue of provision for leave encashment was covered in favor of the assessee by the judgment of the Hon'ble Supreme Court in Bharat Earth Movers vs. CIT. Following this precedent and its own decision in the assessee's case for the assessment year 1998-99, the Tribunal allowed the provision for leave encashment for the assessment year 1999-2000. 4. Deletion of Addition on Account of Master Copy Expenditure: The Tribunal referred to its previous decisions in the assessee's own case for the assessment years 1994-95 to 1996-97, which held that expenditure on acquiring a master copy is a capital expenditure. Following these precedents, the Tribunal ruled in favor of the Revenue, disallowing the master copy expenditure for the assessment years 1999-2000, 2000-01, and 2001-02. 5. Allowance of Exemption under Section 10A at the Software Development Center, Bangalore: The Tribunal examined the issue of exemption under Section 10A for the Software Development Center in Bangalore. It noted that this issue had been decided in favor of the assessee in the assessment year 1998-99 and that the Revenue had accepted this decision. Following the principle of consistency, the Tribunal allowed the exemption under Section 10A for the assessment years 1999-2000, 2000-01, and 2001-02. 6. Charge of Interest under Sections 234A, 234B, and 234D: The Tribunal held that the charge of interest under Sections 234A and 234B is consequential and should be recalculated after giving effect to its order. Regarding Section 234D, the Tribunal followed the Special Bench decision in ITO vs. Ekta Promoters (P) Ltd., which held that interest under Section 234D is applicable from the assessment year 2004-05 onwards. Therefore, the Tribunal ruled in favor of the assessee, disallowing the charge of interest under Section 234D for the assessment year 2001-02. 7. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal noted that the ground regarding the initiation of penalty proceedings under Section 271(1)(c) was not pressed by the assessee's counsel. Hence, this ground was rejected as not pressed for the assessment year 2001-02. Conclusion: The Tribunal's decision resulted in the assessee's appeals for the assessment years 1999-2000 and 2000-01 being allowed, while the appeal for the assessment year 2001-02 was partly allowed. The Revenue's appeals were partly allowed for all three assessment years.
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