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2015 (4) TMI 55 - AT - Income TaxDeduction u/s 10B denied - Held that - Exemptions are not available to the assessee and order of AO on this issue does not need any interference and the issue was decided in favour of Revenue respectfully following the order of the ITAT 2002 (5) TMI 217 - ITAT HYDERABAD-B - Decided against assessee. Tax not deducted at source on the payment made to non resident - disallowance u/s 40(a)(i) - amount represents the fee paid to Barnes & Thornburg, Attorneys at Law, USA., the said Attorneys for the services rendered by them in connection with the takeover of a company M/s Analytical Surveys Inc - revenue expenditure or capital expenditure - Held that - At any rate under article 15 of the DTAA between India and USA, independent professional charges are to be taxed only in the country of residence unless there is a fixed base in the source country. As there is no such fixed base in India, the payment in question is not taxable in India. So there is no liability for tax deduction at source in terms of section 194J and as such the payment is not hit by section 40(a)(i). As this amount is not taxable in India under the DTAA between India and USA and as no asset is acquired, it is allowable as Revenue expenditure. - Decided in favour of assessee. Technical service fee - amount paid by the Appellant to M/s. Infotech Software Solutions Inc (ISSI) USA, the subsidiary of the Appellant - whether amount of ₹ 2,01,40,454 paid by the Appellant to M/s. Infotech Software Solution - Held that - Issue is covered in favour of the assessee by the decision of the Tribunal in assessee s own case for AY 2006-07 & 2007-08 wherein held that no operations have been undertaken by foreign subsidiaries in India and no engineers have been deputed by them to India and even they do not have permanent establishment in India. In terms of the respective DTAA, no income of the foreign subsidiary is taxable in India in terms of either section 9(1)(i) of the I.T. Act or the concerned Articles relating to business profits (Article 7 r.w. Article 5) in the respective DTAAs. As no technical knowledge was made available to the assessee company by its foreign subsidiary which is the requirement under the DTAA for payment to qualify as technical services fee, payment in question is not taxable in India and so there is no requirement for deduction of tax at source o the payment and so the assessee company is not hit by provisions of section 40(a)(i). - Decided in favour of assessee. Deduction under section 80HHE - expenditure incurred in foreign currency is to be reduced from export turnover while granting the deduction - Held that - The amount of expenditure incurred in foreign currency can be considered for exclusion, only if it represents expenses incurred in foreign currency while providing technical services. In the present case the assessee has not provided any technical services. Further, it is not charged to the customers and so not included in export turnover. The principle that what is not included cannot be excluded has been accepted by the ITAT in the assessee s own case a for the AY 2006-07. - Decided in favour of assessee. Deduction under section 80HHE - communication expenses are excludible from export turnover for granting deduction - Held that - This amount is not charged to the customer and so not included in the export turnover and so cannot be reduced from it. This issue is covered in favour of the assessee by the order of the Tribunal in the assessee s own case for AYs 2006-07 & 2007-08 - Decided in favour of assessee. Taxability of amounts accrued on forfeiture of convertible share warrants - Held that - Forfeited amounts are to be treated as capital receipts. Further, these amounts were not added by the AO in the assessment and so the CIT (A) has no jurisdiction to include this amount in the assessment. - Decided in favour of assessee. Deduction under section 80HHE - on-site software services is not part of the business profits - Held that - This amount has to be included in profits of business by virtue of the Explanation to section 80HHE and also by the CBDT Circular dated 17.01.2013.- Decided in favour of assessee. Weighted deduction u/s 35 (2AB) - whether cannot be allowed on the ground that there is no requisite approval from the prescribed authority? - Held that - As it was submitted by the ld Counsel that the assessee had the necessary approval of the Dept. of Scientific and Industrial Research for the last so many years and it has been renewed periodically. The recognition for the relevant period dated 11 Mar 2003 bearing No. TU/IV-RD/1812/2003 was filed before the CIT(A) and before the ITAT at page 266 of paper book, thus disallowance in question is deleted. - Decided in favour of assessee. Reopening of assessment - Held that - All the material facts were disclosed by the assessee and it was merely a change of opinion on the part of the AO for reopening the assessment u/s 147. Following the ratios of the decision in the case of CIT vs. Kelivinator India (2002 (4) TMI 37 - DELHI High Court ), we dismiss the Revenue s appeal. - Decided in favour of assessee. Software link service charges are liable for exclusion from both the export turnover as well as the total turnover for the purpose of computing deduction u/s 10A of the IT Act 1961 as relying on Patni Telecom Pvt. Ltd vs. ITO 2008 (1) TMI 452 - ITAT HYDERABAD-A - Decided in favour of assessee.
Issues Involved:
1. Eligibility for exemptions under Sections 10A and 10B of the Income Tax Act. 2. Disallowance under Section 40(a)(i) for non-deduction of tax at source. 3. Classification of expenditure as capital or revenue. 4. Exclusion of foreign currency expenses from export turnover. 5. Exclusion of communication expenses from export turnover. 6. Taxability of forfeited amounts from convertible share warrants. 7. Validity of reassessment under Section 147. Detailed Analysis: 1. Eligibility for Exemptions under Sections 10A and 10B: The assessee claimed exemptions under Sections 10A and 10B, which were denied by the AO on the grounds that the assessee started production before 01.04.1994. The CIT(A) upheld this view, referencing a previous ITAT decision for A.Y. 1998-99, where similar disallowances were confirmed. The ITAT followed the principle of stare decisis and dismissed the assessee's appeal, noting that the issue is pending before the Hon'ble jurisdictional High Court. 2. Disallowance under Section 40(a)(i): - Barnes & Thornburg, USA: The AO disallowed Rs. 1,09,385 paid to Barnes & Thornburg, USA, for non-deduction of tax at source. The ITAT allowed the payment, stating it was not taxable in India under the DTAA between India and USA and classified it as revenue expenditure since no asset of enduring benefit was acquired. - Infotech Software Solutions Inc (ISSI), USA: The AO disallowed Rs. 2,01,40,454 paid to ISSI, USA, under Section 40(a)(i). The ITAT referenced its own decision for A.Ys 2006-07 and 2007-08, stating that the payment was not taxable in India as it did not constitute fees for technical services under the DTAA between India and USA. The ITAT allowed the deduction, noting that the retrospective amendment by Finance Act 2010 did not overrule the Supreme Court's decision in Ishikawajima Harima Heavy Industries Ltd. 3. Classification of Expenditure as Capital or Revenue: The AO classified software purchases as capital expenditure and allowed depreciation at 25% instead of 60%. The CIT(A) upheld this view, but the ITAT noted the fast-changing technology and the nature of software, referencing the Supreme Court's decision in Empire Jute Co. Ltd. The ITAT, however, dismissed the ground as the assessee conceded during the hearing. 4. Exclusion of Foreign Currency Expenses from Export Turnover: The AO excluded Rs. 12,08,19,698 incurred in foreign currency from export turnover. The ITAT noted that the definition of export turnover does not include travel and subscription expenses and ruled that these should not be excluded. The ITAT directed the AO to verify if these amounts were not included in the export turnover and allowed the ground. 5. Exclusion of Communication Expenses from Export Turnover: The AO excluded Rs. 92,60,349 as communication expenses from export turnover. The ITAT ruled that these expenses were not charged to customers and, therefore, should not be excluded from export turnover. The ITAT referenced the decision in Patni Telecom (P) Ltd. vs ITO and allowed the ground. 6. Taxability of Forfeited Amounts from Convertible Share Warrants: The AO added Rs. 36,65,000 and Rs. 17,50,000 as revenue receipts from forfeited share warrants. The CIT(A) and ITAT held that these amounts are capital receipts and not taxable. The ITAT referenced the Supreme Court's decision in Travancore Rubber and Tea Co. vs. CIT and allowed the ground, noting that the CIT(A) cannot make new additions without proper jurisdiction. 7. Validity of Reassessment under Section 147: The CIT(A) held that the reassessment was invalid as the AO did not prove any default by the assessee in disclosing material facts. The ITAT upheld this view, referencing the Supreme Court's decision in CIT vs. Kelvinator India, and dismissed the Revenue's appeal, stating that the reopening was based on a mere change of opinion. Conclusion: - The ITAT allowed the assessee's appeals for A.Ys 2002-03, 2004-05, and 2005-06 on various grounds, including the exclusion of certain expenses from export turnover and the classification of forfeited amounts as capital receipts. - The ITAT dismissed the Revenue's appeals, upholding the CIT(A)'s decisions on the invalidity of reassessment and the proper exclusion of communication expenses from export turnover.
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