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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 ..... ice'). The assessee was accorded approval with effect from 23-9-1999 for setting up 100 per cent export oriented unit as per the Software Technology Park Scheme of the Government of India for development of computer software. The software developed by the assessee are transmitted electronically to its head office. As per the agreement between the assessee and the head office, the head office pays the assessee all direct and indirect costs incurred by the assessee plus 15 per cent of such direct and indirect costs. 3. During the previous year, the assessee electronically transmitted the software developed by it to its head office. Softex Form, a form of declaration of software export through data communication links and receipt of royalty on the software exported, duly certified by the Software Technology Parks of India (STPI) has been furnished. The assessee also received remittances from the head office in respect of such export of software. The assessee after deducting all expenses incurred earned a profit of Rs. 2,66,95,445 for the assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 7(1) of the DTAA between India and USA provides that profits of an enterprise shall be taxable in the other State only if the enterprise carries on business through a PE in the other State. In that case the profits attributable to that PE alone shall be taxed in the other State. Article 7(2) provides that in determining profits attributable to a PE by construing the PE as a distinct and independent enterprise. The assessee thus submitted that by virtue of the DTAA between India and USA the Indian branch viz., the PE of the head office in India has to be construed as a separate legal entity distinct from its head office. The assessee thus submitted that there was a sale by it to another entity and profits did accrue to it by virtue of such sale. That there was an export of software by assessee to another entity and, therefore, exemption under section 10A of the Act cannot be denied to the assessee. The assessee also highlighted the fact that even the 'Transfer Pricing Officer' competent to decide whether 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. The CIT (Appeals) in support of his conclusion also relied on the decision of the Special Bench of ITAT, Kolkata in the case of ABN Ambro Bank NV v. Asstt. DIT [2005] 97 ITD 89 wherein it was held that Indian branch and head office of a non-resident, assessee cannot be treated as a separate entity. Aggrieved by the order of the CIT (Appeals), the assessee is in appeal before the Tribunal. 9. We have heard the submissions of the learned counsel for the assessee and the learned Departmental Representative. The learned counsel for the assessee drew our attention to the provisions of section 10A of the Act and highlighted as to how the assessee satisfied all the conditions for grant of exemption of its income from tax under section 10A of the Act. The contentions as put forth before the Revenue authorities were reiterated. Specific attention was drawn by the learned counsel for the assessee to the provisions of section 10A(7) of the Act which provides that provisions of section 80-IA(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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the software is transmitted by way of export to its head office. He also highlighted that the market value at which the goods were sold cannot be disputed since the transfer pricing officer has already found the price at which the assessee sold software to its head office is at arm's length price. In this regard he also highlighted the fact that even the provisions of Chapter X sections 90 to 92F, which are applicable from assessment year 2002-03 are complied with and there can be no complaint by the Revenue in this regard. He also submitted that the decision of the Special Bench of ITAT in the case of ABN Ambro Bank NV (supra) was rendered in a different context viz., whether provisions of section 40a(i ) were attracted in a case where an Indian branch makes payment of interest on borrowings to its head office and in the absence of deducting tax at source on such payment interest could be disallowed by involving the provisions of section 40a( i) of the 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 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny free trade zone; or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park; (c) commencing on or after the 1st day of April, 2001 in any special economic zone; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, re-construction or revival by the assessee of the business of any such undertaking is referred to in section 33B, in the circumstances and within period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity vis-a-vis sale by it or transfer by it from an eligible business or to an eligible business has been recognized under section 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. "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 to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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