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TMI Blog2007 (1) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, since the computer software was transmitted to head office and since the assessee and its head office were one entity, there was no sale to any third party. This approach of the Revenue authorities were not correct in view of the provisions of section 10A(7) of the Act. The legal fiction of treating an assessee as a separate entity vis-a-vis sale by it or transfer by it from an eligible business or to an eligible business has been recognized u/s 10A(7) of the Act. A plain reading of the provisions of section 10A(7) together with the provisions of section 80-IA(8) of the Act, which reads as follows reveals statutory recognition of such legal fiction. There cannot be any doubt about the market price also since the transfer pricing officer has already held that the price at which the assessee transmitted the computer software to its head office was at arm s length price. On this basis, the claim of the assessee deserves to be accepted. Thus, we deem it unnecessary to deal with the other arguments raised by the learned counsel for the assessee and the Ld DR regarding recognition of separate entity concept vis-a-vis an Indian PE and the foreign enterprise und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2002-03 the assessee filed a return of income declaring NIL income. The profit of Rs. 2,66,95,445 earned was claimed by the assessee to be exempt under section 10A of the Income-tax Act, 1961 (hereinafter referred to as the Act ). Under the provisions of section 10A of the Act, profit and gains derived by assessee from manufacture or production of an article or thing in any STPI and where the assessee exports not less than 75 per cent of the total sales during the previous year shall not be included in the income of the assessee. There are certain other conditions to be satisfied for claiming exemption under section 10A of the Act. In the present appeal there is no dispute that the assessee fulfils these conditions. 4. The Assessing Officer rejected the claim of the assessee for exemption under section 10A of the Act for the following reasons : ( a ) That the assessee claimed to have sold software to its head office. The assessee and its head office are one entity and, therefore, there cannot be a profit accruing to the assessee on sale to itself; ( b ) There cannot be an export of software by the branch office to the head office; ( c ) The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the price received by an assessee in an international transaction is arm s length price where transactions are between associated persons has found that the price paid by the head office to the assessee was arm s length price. Thus the provisions of Chapter X sections 92 to 92F introduced by the Finance Act, 2001 with effect from 1-4-2002 were satisfied by the assessee. 6. Another contention put forth by the assessee before the Assessing Officer was that as per article 26 of the DTAA between India and USA non-resident enterprise cannot be subjected to any taxation in the other State, which is more burdensome than the taxation and connected requirement which resident of the other State may be subjected. 7. The Assessing Officer has not specifically dealt with these objections in his order. The Assessing Officer has observed that the object of introduce- tion of section 10A of the Act was to encourage earning in foreign currency to replenish depleted foreign reserve in India and not to develop backward area by way of industrialization. He held that what the assessee received was remuneration on man hour basis for developing software and not the sale proceeds of the softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A(8) of the Act shall apply to an undertaking claiming exemption under section 10A of the Act. Section 80-IA(8) provides as follows : 10A. Special provision in respect of newly established undertakings in free trade zone, etc. (1) to (6)**** (7) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. 80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years. (2) to (7)**** (8) Where any good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. His submission was that the Tribunal accepted the deeming fiction of treating the head office and the Indian PE as two distinct entities for the purpose of computing profits of the PE, but refused to extent the fiction when it comes to allowing deduction of expenses. According to him, the ratio laid down in the said decision, therefore, cannot be extended while computing profits of the PE. He also drew our attention to para 40 of the judgment and submitted that the legal fiction of treating the Indian PE and the head office as separate entity could be recognized either in the Income-tax Act or the DTAA between the member countries and in that event the legal fiction has to be extended for all purposes. According to the learned counsel for the assessee the newly introduced provisions of Chapter X of the Act from sections 92 to 92F introduced by the Finance Act, 2001 with effect from 1-4-2002 contemplates such a fiction. He also submitted that the provisions of article 7 of the Indo-VL DTAA and section 10A(7) of the Act contemplates such a fiction. In particular he highlighted the fact that the decision of the Special Bench in the case of ABN Ambro Bank NV ( supra ) was render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ( iii ) of this sub-section as they apply for the purposes of clause ( ii ) of that sub-section. (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1. For the purposes of this sub-section, the expression competent authority means the Reserve Bank of India or such other authority as authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation 2. The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. (4) to (6)***** (7) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years. (2) to (7)****** (8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value ..... X X X X Extracts X X X X X X X X Extracts X X X X
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