2016 (1) TMI 1084 - AT - Income Tax

Eligibilty to claim deduction u/s 10A - Set off loss of eligible unit against the business income of the assessee rejected - Held that - In the circular no. 7/DV/2013 FILE NO.279/MISC./M-116/2012-ITJ , DATED 16-7-2013 at para No. one that it has been brought to the notice of the Board that the provisions of 10A/10AA/10B/10BA of the Income-tax Act, with regard to applicability of Chapter IV of the Act and set off and carry forward of losses, are being interpreted differently by the Officers of the Department as well as by different High Courts. Therefore, it cannot be said that circular is against the provision of the law merely because different high courts have interpreted the law differently. It is apparent that this circular is issued with an intention to clarify anomaly in law and its interpretation. Undoubtedly circular is beneficial to the assessee as it sets certain controversy involved therein to rest. Therefore we are of the opinion that this issue now should be decided in view of the above circular where in it is provided that If after aggregation of income in accordance with the provisions of sections 70 and 71 of the Act, the resultant amount is a loss (pertaining to assessment year 2001-02 and any subsequent year) from eligible unit it shall be eligible for carry forward and set off in accordance with the provisions of section 72 of the Act. Therefore, according to us assesse s claim deserves to be considered favourably in view of the beneficial circular issued by CBDT. However at the time of making assessment AO was not having the privilege of this circular , we set aside this matter to the file of with direction to grant benefit of deduction of set off of losses of STPI unit of ₹ 54, 90, 557/- against the profit of non - STPI unit in accordance with this circular. Non deduction of tds on expenses of the FTS - disallowance u/s 40a (i) - withholding of tax - Held that - The sum is not chargeable to tax in India according to the domestic tax laws and consequently there is no withholding tax liability in case of such payments, we do not wish to address the alternative arguments of the AR of the assessee regarding non-taxability of such sum in accordance with the provision of Article 12 (6) of the indo Japan DTAA. - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of set-off of losses of STPI unit against the profit of non-STPI unit.
2. Deletion of addition by CIT(A) on account of non-deduction of TDS on outsourcing cost paid by Japan BO to HCL Japan Ltd.

Issue-wise Detailed Analysis:

1. Disallowance of Set-off of Losses of STPI Unit Against the Profit of Non-STPI Unit:
The appellant contested the CIT(A)'s decision upholding the AO's action of not allowing the set-off of losses incurred by the STPI unit against the business profits from the non-STPI unit. The CIT(A) held that section 10A provides an 'exemption,' and losses from units eligible under section 10A should be treated as losses from a 'source exempt from tax.' The appellant argued that the circular issued by CBDT (Circular No. 7/DV/2013) clarified that losses from eligible units could be carried forward and set off against profits of non-eligible units in accordance with section 72 of the Act. The tribunal considered the circular binding on the revenue authorities, citing Supreme Court judgments that circulars beneficial to the assessee should be applied even if they deviate from the strict interpretation of the law. The tribunal concluded that the assessee's claim for set-off of losses of the STPI unit against the profit of the non-STPI unit should be allowed, setting aside the matter to the AO for re-assessment in light of the CBDT circular.

2. Deletion of Addition by CIT(A) on Account of Non-Deduction of TDS on Outsourcing Cost Paid by Japan BO to HCL Japan Ltd.:
The revenue challenged the CIT(A)'s decision to delete the addition made by the AO under section 40(a)(i) for non-deduction of TDS on outsourcing costs paid by Japan BO to HCL Japan Ltd. The CIT(A) concluded that the payments were covered by the exclusion under section 9(1)(vii)(b) as they were made for services utilized in a business carried on by the Japan BO outside India. The tribunal upheld the CIT(A)'s decision, noting that the Japan BO had an independent existence, carried out business activities in Japan, and the payments were made and utilized outside India. The tribunal also noted that the revenue had accepted this position in subsequent assessment years, as directed by the DRP. Therefore, the tribunal confirmed the deletion of the disallowance under section 40(a)(i) of the Act.

Conclusion:
The tribunal allowed the assessee's appeal regarding the set-off of losses of the STPI unit against the profit of the non-STPI unit, directing the AO to reassess the matter in light of the CBDT circular. The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s deletion of the addition for non-deduction of TDS on outsourcing costs paid by Japan BO to HCL Japan Ltd. The tribunal's decision was pronounced in open court on January 22, 2016.