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TMI Blog2011 (11) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be allowed to the assessee without excluding the foreign exchange expenditure incurred by the Assessee as relying on its own case [2013 (6) TMI 193 - KARNATAKA HIGH COURT] - Decided against the assessee. - IT APPEAL NO. 3262 OF 2005 - - - Dated:- 4-11-2011 - V.G. SABHAHIT AND RAVI MALIMATH, JJ. E. Sanmathi Indrakumar for the Appellant. Arvind Datar for the Respondent. JUDGMENT 1. This appeal is filed by the revenue being aggrieved by the order passed by the Income Tax Appellate Tribunal, Bangalore Bench 'A' (hereinafter referred to as the 'ITAT') in ITA No.l40/Bang./2001 dated 5-7-2005 wherein the appeal filed by the respondent herein has been allowed. 2. The material facts leading up to this appeal are as follows: The respondent-assessee is carrying on the business of development of software and sale of software packages. The respondent filed return of income for the assessment year 1997 98. The same was taken up for scrutiny assessment. The assessing officer found that the assessee had paid amounts to various clubs to obtain membership. The assessing officer held that payments made are not recurring in nature and proceeded to treat the said payment as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Authorities were correct in holding that amounts paid to Clubs for obtaining membership should be treated as a revenue expenditure and was allowable deduction and not a capital receipt as held by the Assessing officer? (2) Whether the Tribunal was correct in holding that 80HHE of the Act deduction should be allowed to the Assessee without excluding the foreign exchange expenditure incurred by the Assessee during the current assessment year? (3) Whether the Appellate Authorities committed an error in holding that Eagle Software was designed and developed by the assessee company as regular business activity and thereby it cannot be considered as a Capital Asset. (4) Whether the Appellate Authorities committed an error in proceeding to hold that the Sale of Eagle Software was effected from STP unit and thus the profit from such sale is eligible for deduction under Sec. 10A of the Act? (5) Whether the Appellate Authorities failed to take into consideration that the project of Eagle Software was started even prior to approval of STP unit and corresponding expenditure set up the unit as well as work in progress cannot be allowed as per Sec. 10A of the Act as the STP unit ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted under Section 80HHE of the Act. The assessing officer held that the said amount was not shown as revenue income and exemption under section 10A of the Act was not claimed as the assessee offered the consideration amount received by sale of Eagle software as long term capital gain and adjusted the same towards the long term capital loss of Rs. 4,61,03,206/-. Since the foreign currency was not brought into India as the consideration is received by way of shares, deduction under Section 80HHE of the Act is also not applicable and it is a trading receipt taxable as revenue and not exempted under Section 10A of the Act and accordingly, treated the said income as trade receipt and rejected the claim of the assessee for exemption under Section 10A of the Act. The first appellate authority, by order dated 29-12-2000 held that impugned finding of the assessing officer that the assessee is not entitled to exemption as the sale was effected from STP from Keonics under Section 10A is erroneous and accepted the contention of the assessee that it forms part of the profits and gain of STP unit and assessee has opted for certain exemption under Section 10A of the Act in respect of profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decided. The said question is a pure question of fact on which the concurrent, finding has been arrived at by the assessing officer, appellate authority and ITAT. It. is clear from the reasoning given by the appellate authority and the ITAT that having regard to the material produced by the assessee, the fact that the said sale took place after the establishment of STP unit is clearly evidenced and the said fact is also not disputed by the revenue. However, what is suggested by the revenue is that the development of the software has started in the year 1994 and according to the assessee the said software is not developed in STP unit and since no exemption has been claimed under Section 10A of the Act, the said exemption cannot be claimed. On scrutiny of the entire material on record, we find that admittedly, Eagle software was sold by the assessee to M/s. Yantra Corporation which wholly owned foreign subsidiary of the assessee for Rs. 3,59,00,000/- and the said income has been held to be a trading receipt. The material on record would show that the sale transaction took place after establishment of STP unit i.e. during the assessment year 1997 98, four years after the establishme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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