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2018 (3) TMI 1170 - AT - Income TaxDeduction u/s 10A - provision written back and miscellaneous income eligibility - Held that - Legal position of the assessee in the case on hand on the issue before us would be supported by the ratio of the decisions of the Full Bench of the Hon ble Karnataka High Court in the case of CIT Vs. Hewlett Packard Global Soft Ltd. (2017 (11) TMI 205 - KARNATAKA HIGH COURT); wherein it has been held that in the case of a 100% EOU, all the profits and gains arising thereof, including incidental income, would be entitled to exemption / deduction under Section 10A of the Act. Thus we direct the Assessing Officer to allow the assessee deduction under Section 10A of the Act in respect of the assessee s 100% EOU business income, including therein, the provision written back and miscellaneous income which also forms part of the assessee 100% EOU business. TDS u/s 194C/194J applicability for making TDS on payments for lease line expenses for purchase of bandwidth - Disallowance of payments towards Lease line charges u/s.40(a)(ia) - Held that - Respectfully following the decision of the co-ordinate bench of this Tribunal in the assessee s own case for Assessment Year 2009-10 we uphold the finding of the learned CIT (Appeals) that lease line charges paid for bandwidth are not liable for TDS under the provisions of Sec.194C / 194J of the Act and therefore no disallowance under Section 40(a)(ia) of the Act was called for. Deduction u/s.10A - reduction of expenditure incurred in foreign currency towards telecom charges as are attributable to the delivery of software outside India - Held that - The jurisdictional High Court of Karnataka in the case of Tata Elxsi Ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT ) has held that when certain expenses are excluded from the export turnover for the purposes of claiming deduction admissible under the Act, like under Section 10A of the Act, such expenses are also to be excluded from total turnover, as export turnover forms part of total turnover.
Issues:
- Dispute over excluding provisions written back and miscellaneous income from business profits for deduction under Section 10A - Applicability of TDS provisions on lease line charges - Treatment of expenditure in foreign currency for deduction under Section 10A Issue 1: Exclusion of provisions written back and miscellaneous income for Section 10A deduction The assessee appealed against the exclusion of provisions written back and miscellaneous income from business profits for computing the deduction under Section 10A. The dispute centered on whether these items were connected to the export business. The Tribunal considered the assessee's status as a 100% Export Oriented Unit (EOU) and the previous allowance of these items in the export business. Relying on a decision by the Karnataka High Court, the Tribunal held that all income, including incidental income, forms part of the business income for a 100% EOU. Consequently, the Tribunal directed the Assessing Officer to allow the deduction under Section 10A, including the provisions written back and miscellaneous income, as part of the business income. The assessee's appeal was allowed. Issue 2: Applicability of TDS provisions on lease line charges The Revenue's appeal contested the applicability of TDS provisions on lease line charges under Sections 194C/194J, arguing for disallowance under Section 40(a)(ia) of the Act. The Tribunal referred to a previous decision in the assessee's case for Assessment Year 2009-10, where it was held that TDS was not required on such expenses. Following this precedent, the Tribunal upheld the finding that lease line charges paid for bandwidth did not attract TDS under the specified provisions, thus dismissing the Revenue's grounds on this issue. Issue 3: Treatment of expenditure in foreign currency for Section 10A deduction The third issue revolved around the treatment of expenditure in foreign currency towards telecom charges for deduction under Section 10A. The Revenue argued against excluding such expenses from total turnover while computing the Section 10A deduction, citing a decision by the Karnataka High Court. However, the Tribunal upheld the decision of the CIT (Appeals) based on the precedent set by the Karnataka High Court in a similar case. It was held that if certain expenses are excluded from export turnover, they should also be excluded from total turnover for computing the deduction under Section 10A. Consequently, the Tribunal dismissed the Revenue's appeal on this issue. In conclusion, the Tribunal allowed the assessee's appeal for Assessment Year 2010-11 and dismissed the Revenue's cross-appeal, pronouncing the order on January 31, 2018.
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