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TMI Blog2012 (12) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gone through the orders of the authorities below. We find that similar issue, on identical facts and circumstances, came up for consideration before the Tribunal in assessee's own case for AY 2006-07 in ITA No.s 824/Hyd/10 and 915/Hyd/10 vide order dated 07/03/2012 wherein the coordinate bench vide paras 12 to 15 held as under:- "12. As for the first issue relating to interest income of Rs.1,09,087, mentioned in ground No.2 of the summarized grounds of appeal, the facts in brief are that the assessee received interest amount of Rs.1,09,087 and pleaded for inclusion of the same as profits of the business eligible for exemption under S.10A of the Act. The assessing officer held that this income is outside the operational income, and accordingly excluded the same from the scope of S.10A and taxed the same as income under the head 'other sources'. In the process, the assessing officer relied on the decision of the Apex Court in Sterling Foods (1999)237 ITR 579. Before the CIT(A), the assessee pleaded that the interest derived on account of temporary parking of business funds constitutes income derived from its export activity. The CIT(A) relying on the Mumbai Bench decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. Aggrieved, the assessee is in appeal before us. 9. After hearing the arguments of both the parties and perusing the record, we find that similar grounds were raised by the assessee in AY 2006-07 (supra), wherein the Tribunal held as under:- "16. The second issue, covered by grounds No.3 and 4 of the summarized grounds of appeal of the assessee, relates to the treatment to be given to the sales made to the branch office located in US. The said sales were included by the assessee in the export turnover of the assessee for the purposes of computing deduction under S.10A. Per contra, the assessing officer is of the view that the said inclusion is not proper, considering the fact that sale by head office to the branch itself does not constitute sale per se. It is merely a case of transfer. Therefore, the assessing officer excluded such sales to its branch office from the export turnover of the assessee, before allowing the said deduction. At the end of the first appellate proceedings, the CIT(A) not only confirmed the said exclusion of the sales from the export turnover of the assessee, but also proceeded to exclude the said amount from the total turnover of the assessee, to maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed the decision of the assessing officer, in the absence of any segregation of profits relatable to the above mentioned sums. 19. Aggrieved with the above decision of the CIT(A), assessee is in appeal before us on this issue. 20. Learned counsel for the assessee filed written submissions, out of which para 3 is relevant in this regard. Essentially, it contains narration of the facts and reiterated the stand against exclusion from the export turnover as well as total turnover. He emphasized the fact of exporting the goods to the branch office in US, with the approval of the STPI Hyderabad. Further, he questioned the validity of exclusion of the entire receipt from the export income instead of reducing only the profit segment of the said sales to the branch office in US by adopting some estimated profit, if any. Regarding the exclusion of the said sales to branch office in US from the total turnover, the learned counsel was of the view that the same is not in accordance with the said principle that the total turnover of the assessee should exclude the transfers, if any , made to be branch office. Further, the learned counsel for the assessee made a reference to the Delhi Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange. The only reason assigned by the Revenue authorities for denying exemption under section 10A of the Act is that there has been no export sale by the assessee, since the computer software was transmitted to head office and since the assessee and the 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-à-vis sale by it or transfer by it from an eligible business or to an eligible business has been recognised 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 the statutory recognition of such legal fiction- "10A. .....*****************" 14. In the present case, 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 the head office was at arm's length price. On this basis, the claim of the assessee deserves to be accepted." T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not furnish any details regarding TDS made on such payments. The AO was of the opinion that the said sub contract payments attracted TDS u/s 194C/section 195, as the US branch is a non-resident, Concluding that the assessee had not made any such TDS, the AO disallowed the claim of expenditure of Rs. 89,70,751/- u/s 40(a)(i) of the Act. On appeal, the CIT(A) after considering the submissions of the assessee, examined the issue with case and laws and confirmed the action of the AO. Aggrieved, the assessee is in appeal before us. 13. We have heard the arguments of both the parties, perused the record and gone through the orders of the authorities below. We find that similar issues came up for consideration in assessee's own case for AY 2006-07(supra) as ground Nos. 5 to 8, wherein the Tribunal held as under:- "23. The third issue, covered by grounds No.5 to 8 of the summarized grounds of the assessee, relates to the disallowance made invoking the provisions of S.195 read with S.9 of the Incometax Act and Double Taxation Avoidance Agreement(DTAA) with USA in respect of remittances made by the head office to Branch Office in US. 24. Brief facts of this issue are that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, vide grounds No.5 to 8 of the summarised grounds of appeal. 27. On this issue, arguments of the learned counsel for the assessee in the written submissions are briefly as follows- (a) Branch office in USA is part and parcel of the assessee company and therefore, the payment is nothing but payment to itself. Therefore the provisions of S.195 of the Act, where the payer and payee are not separate, are not applicable. (b) For the foreign branch of the assessee shares the same status as that of the assessee, considering the relevant provisions of DTAA as well as the Income-tax Act. When the payee is a branch of Indian company, such branch cannot be nonresident in status. Therefore, the impugned payment is outside the scope of S.195 of the Act. (c) Residential status of the assessee is 'resident' because S.3 of the Indian Companies Act defines that 'company said to be a resident' is an 'Indian company' or '...the control and management of its affairs is situated wholly in India'. Same is the case with the assessee. Therefore, the branch office of the assessee cannot be treated as non-resident in the circumstances. The provisions of DTAA also support the above views. 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Others (supra). In so far as the first argument is concerned, it is a decided issue that the status of the branch office of the assessee abroad is not 'non-resident'. In such situation, the provisions of S.195 are inapplicable. Coming to the applicability of the decision of the Karnataka High Court, it is the argument of the learned counsel for the assessee that the Supreme Court has set aside the operation of the judgment of the Karnataka High Court in the cited case, vide judgment reported at 327 ITR 456. For these reasons, in our opinion, the impugned payment of Rs.2,46,50,958 made by the assessee to the branch office in USA, is outside the scope of S.195 of the Act. Accordingly, this issue is decided in favour of the assessee, allowing grounds No.5 to 8 of the summarized grounds of appeal raised by the assessee." 14. Since the grounds 5 to 8 in the present appeal are materially identical to that of AY 2006-07, respectfully following the decision of the Tribunal in that year, we set aside the order of the CIT(A) and allow the grounds 5 to 8 of the grounds of appeal. 15. Ground Nos. 9 & 10 read as under:- "9. The learned CIT(A) ought to have directed deletion of the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Apparently no explanation was offered by the assessee either during the assessment or during the TDS proceedings. The AO therefore held the payments to be of the fees for technical services and held that the assessee to be an assessee in default for non deduction of tax at source u/s 194J of the IT Act. 24. In the statement of fact the assessee submitted that it has taken Data Circuit line on lease from BSNL for transmitting data/news in its office from various places where the reporters or contributors collect news from various events across the country. These data circuit lines are akin to telephone lines and hence the provisions of section 194J is not attracted since BSNL is only providing the line and not any professional or technical services to the assessee. During the appellate proceedings, the AR of the assessee reiterated the fact stated earlier in the statement of fact and relied on the decision in the case of CIT Vs. Estel Communications P Ltd. 217 CTR 102 (Del.) and the decision of Hon'ble Madras High Court in the case of Skycell Communications Ltd. Vs. DCIT. The AR also filed copies of the invoices of BSNL for the period 1.7.04 to 30.9.04 in respect of the circuit l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended before the CIT(A) that the payment is not towards technical services and hence the same need not be deducted from eligible export turnover as per clause (iv) of Explanation 2 to section 10A. The CIT(A) accepted the contention of the assessee and directed the AO not to exclude the impugned amount from export turnover. However, he opined that the payment having been made to a foreign entity was liable for disallowance if tax was deducted is not made. He directed accordingly. Aggrieved by the order of the CIT(A) the assessee is in appeal before the Tribunal. 21. Before us, the learned counsel for the assessee submitted that the CIT(A) erred in concluding that the expenditure incurred by the assessee towards due diligence services in USA and paid to US firms is liable for disallowance u/s 40(a)(ia). He further submitted that the CIT(A) ought to have considered the applicability of the DTAA between India and USA as per which the impugned payments would constitute 'business profits' as per article 7 of the Indo-USA DTAA and hence are not chargeable to tax in India in the absence of a PE in India for the payee. It is submitted that the CIT(A) failed to appreciate the factual sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me' for the purpose of computation of income u/s 10A: i) interest income Rs. 1,57,409/- ii) dividend received Rs. 1,33,39,340/- iii) Credit balances written back Rs. 53,970/- iv) Notice period salary Rs. 6,10,984/- Total Rs.1,41,61,613/- ========== 28. On appeal, the CIT(A) following the decision of the Tribunal, held that income in the form of 'credit balance written back' and 'notice period salary' shall be included in the eligible profits for relief u/s 10A of the Act. As regards, interest income of Rs. 1,57,409/-, the CIT(A) held that the same is required to be excluded from the profits and gains derived from the export activity of the undertaking. 29. Aggrieved by the order of the CIT(A) holding that the income in the form of credit balance written back and notice period salary shall be included in the eligible profits for relief u/s 10A of the Act, the revenue is in appeal before us. 30. We have heard the arguments of both the parties, perused the record and gone through the orders of the authorities below. We find that the issue under consideration is covered by the decision of Tribunal in assessee's own case for AY 2006-07 (supra), wherein the coordinate benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y recovered from employees of Rs.1,40,548, we are of the view that the lower authorities are not justified in excluding the same from the eligible profits of the business while calculating the deduction under S.10A of the Act. Since the said amount represents recovery of the business expenses earlier incurred by the assessee in recruiting and training of the employees concerned, the income arising on account of such recovery also represents the business income of the assessee......" Considering the above reasoning given by the Tribunal, we find no infirmity in the impugned order of the CIT(A) on this aspect. We accordingly uphold the same, rejecting the ground of the Revenue in this appeal." 31. Respectfully following the decision of the tribunal, we uphold the order of the CIT(A) and dismiss the ground raised by the revenue. 32. Ground No. 3 reads as under:- "The CIT(A) ought to have upheld the disallowance made by the AO as amounts disallowed u/s 40(a)(ia) and 40A(7) are not eligible for calculation of deduction u/s 10A of the Act. 32. We have heard the parties and perused the record. We find that in the case of CIT v. Gem Plus Jewellery India Ltd. reported in (2010) 233 CTR ..... 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