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TMI Blog2007 (10) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... hat payments are not covered under the direct provisions of sec.5 or any deeming provisions of section 9 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act']. This was not accepted by the Assessing Officer mainly on the ground that similar issue was decided against the assessee for earlier assessment years. On first appeal, the learned CIT (A) granted relief to the assessee. In our view, this issue is squarely covered by the decision of this Tribunal in the case of the assessee for assessment years 1997-98 and 2001-02 in ITA Nos. 833 to 837/Bang/2003 dated 12-8-2005 wherein this Tribunal held as under in paras 2 and 3: "2. The facts of the case are as follows: The assessee is a company engaged in development and export of software. For exporting software, the company utilized the services from M/s. AT & T and MCT Telecommunications by using bandwidth provided for down-linking signals in foreign countries. The Assessing Officer was of the view that the down-linking charges paid by the assessee without deducting any tax under section 195 of the Act. Therefore, it was held that the assessee is a defaulter within the meaning of section 201 (1) of the Act. Accordingly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee are directed against the common order of learned CIT (A) -W, Bangalore dated 28-11-2003 in an appeal against order under section 201 (1) and 201 (1A) for alleged default in not deducting tax as required under section 195 of the Act in respect of payment made to Gartner Group (GG) , USA. 2. Identical issue arose before this Tribunal in the case of Wipro Ltd. ( 94 ITD 9) (Bang.) wherein it was held that payment made to Gartner Group for providing, access to information available in data base maintained by said company in foreign country is not subject to deduction of tax at source under section 195 of the Act. The facts in the present case is identical wherein it was held thus:- 'It was undisputed that the GG was web based publishing house giving access to the data base to all those who were willing to pay. Those payments were towards obtaining of market data and clients strategy details, etc. Those were publications and not an Information or advice given individually. The information was available on subscription to anyone willing to pay. Further, it was a copy-righted information and could not be passed on to anyone else. There was no license granted to the assessee to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 195. When the law is clear and unambiguous on the liability to tax, it is not possible to confirm the liability on emotional plea of national interest. The order of the authorities below was to be cancelled as unsustainable. Accordingly, both the tax liability under section 201 (1) and interest levied under section 201 (1A) were deleted. In view of the decision of ITAT in Wipro Ltd. (supra) , the assessee cannot be treated as assessee in default under section 201 (1) . Consequently, no interest is leviable under section 201 (1A) . Accordingly, the order of learned CIT (A) is to be set aside." Applying the same, we confirm the order of the learned CIT (A) . It is ordered accordingly. 6. The next issue relates to exchange variation gain in EEFC Account. The assessee-company had claimed deduction under section. 80HHE. While doing so, the assessee did not exclude expenditure in foreign currency both from export turnover as well as total turnover. According to the Assessing Officer, exchange variation in EFFC account has to be reduced from the export turnover and the total turnover. The Explanation offered by the assessee was not accepted by the Assessing Officer on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn exchange gain is not to be excluded while computing profit eligible for deduction under section 10B as well as for computing profits of the business for the purpose of computing deduction under section 80HHE. The decisions of ITAT, Delhi Bench in the case of Smt. Sujata Grover v. Dy. CIT ( 74 TTJ 347) and the decision of ITAT, Bangalore in the case of Infosys Technologies Ltd. v. Asstt. CIT (ITA No. 471/Bang/2003) , relied by learned counsel for assessee, is squarely applicable'." The aforesaid decision is squarely applicable to the facts of the case. Therefore, applying the same, we confirm the order of the learned CIT (A) . 7. The next issue relates to exclusion of certain expenditure from export turnover and total turnover while computing deduction under section 80HHC. The claim was disallowed by the Assessing Officer but allowed by the learned CIT (A) . The learned counsel for assessee submitted that this issue is squarely covered by the decision of this Tribunal in the case of the assessee in ITA Nos.50/Bang/2001, 793 to 795, 742 and 732 to 734/Bang/1998 dated 31-3-2005 for assessment years 1993-94 to 1996-97. The learned counsel for assessee submitted that though the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the specification agreed to with the customers. We are also of the opinion that having initially agreed that the company was involved in software development activity, the CIT (Appeals) Incorrectly went on to conclude that the appellant was involved in rendering of technical services. The example of construction, of bridge and various activities there under and. the similarities of processes of the appellant company with the said example, has not been disputed by the Learned counsel for the dept. All go to demonstrate the fact that the appellant was involved in computer software development. That the appellant was involved in the creation of computer software and export thereof, has been accepted by the Assessing Officer himself while agreeing to the claim of exemption under section 10A of the Act. We are also in agreement with the learned counsel for the appellant when he states that 80HHE confers a deduction in respect of two types of activities. It has accordingly prescribed two separate sub clauses for them. The exclusion from export turnover and total turnover, of expenditure incurred in foreign currency is only where an assessee is involved in rendering of technical ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... currency other than those already done by the appellant company. In the result, this ground of appeal by the appellant company for all the years stands allowed. We are fortified in our conclusion, by the observations of the Supreme Court in Bajaj Tempo Ltd. v. CIT 196 ITR 188, that provisions that have been incorporated to provide an incentive have to be construed liberally and in a manner so as to promote the object and not frustrate it This leaves us with individual issues for the respective years which we shall now take up." Applying the same, we confirm the order of the learned CIT (A) . 8. The next issue in both the appeals is in respect of deduction of expenses in foreign currency from export turnover for the benefit of section 10A. This was not allowed by the Assessing Officer but the learned CIT (A) granted relief to the assessee. In our view, this issue is also squarely covered by the decisions of this Tribunal cited in para 7 of this order. Applying the same, we confirm the order of the learned CIT (A) 9. The next issue relates to deduction under section 80HHE. The assessee adopted total turnover relating to 80HHE units only. According to the Assessing Officer, as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "matching price" i.e. matching cost with revenue. Such matching principle has been recognized in the case of Taparia Tools Ltd. v. Jt. CIT ( 260 ITR 102) . Thus, the provision represents a liability in prasenti though discharged at a later date. In following cases, it has been held that the provision for warranty liability or provision for post sales customer support is not a contingent liability but an accrued liability and hence allowable:- (1) Inland Revenue v. Mitsuibushi Motors, New Zealand (222 ITR 697) (2) Singhal & Co. v. ITAT (1 ITD 477) (Chd.) . (3) Wanson (India) Ltd. v. ITO ( 5 ITD 102) (Pune) . (4) Majestic Auto v. ITO (47 ITD 1) . (5) Voltas Ltd. v. Dy. CIT ( 64 ITD 232 ) (Mum.) . (6) Jaybee Industries v. Dy. CIT (1998) ( 61 TTJ 403 ) . (7) CIT v. Brema Mfrs. (P.) Ltd. [2003] 130 Taxman 400. (8) Wipro GE Medical Systems [2003] (81 TTJ 457 (Bang.) . (9) Hamilton on Research & Technology v. ITO (88 TTJ 891) . Later on Hon'ble Kerala High Court in the case of CIT v. Indian Transformers Ltd. ( 270 ITR 259) and Hon'ble Delhi High Court in the case of CIT v. Vinitec Corporation (P.) Ltd. ( 278 ITR 337 ) held that provision made for the three years was b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made from the export turnover should also be made from the figure of total turnover." In our view, this issue is also covered by the decision of this Tribunal in the case of Tata Elexi Ltd. v. Asstt. CIT [IT Appeal No. 315 (Bang.) of 2006, dated 16-10-2007] wherein it has been held as under : "9. The formula prescribed for computing the deduction under section 10A is the same as prescribed in section 80HHE. The formula .provides for a deduction of profits from the business in the ratio of export turnover as compared to the total turnover, section 10A has incorporated In entirety the philosophy, of section 80HHE. The definition of the terms 'computer software' and 'convertible foreign exchange' in section 10A are the same as in section 80HHE. However, from out of the three terms relevant for applying the formula, section 10A defines only one term namely 'export turnover'. The other two terms 'profits of the business' and 'total turnover' are not defined. Since the section proceeds broadly on lines similar to section 80HHE in the absence of the definition of any term in section 10A, one could refer to the definition of a similar term in section 80HHE. Thus, the term 'total turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sudarshan Chemicals Industries Ltd., reported in 245 ITR 769 at page 773 the Hon'ble Bombay High Court held as under: 'Further, the meaning of export turnover in clause (b ) of Explanation to section 80HHC, therefore, clearly shows that export turnover did not include excise duty and sales tax. The export turnover is the numerator in the above formula whereas the total turnover is the denominator. The above formula has been prescribed to arrive at the profits from exports. In the circumstances, the above two items, namely, sales tax and excise duty cannot form part of the total turnover. In fact, if the denominator was to include the above two items and if the numerator excluded the above two items then the formula would become unworkable." [Emphasis supplied] 11 (b) In the case of Chloride India Ltd., reported in 256 ITR 625 at page 630 the Hon'ble Calcutta High Court held as under: 'We find no reason to differ from the view of the Division Bench of the Bombay High Court expressed in the above noted case (CIT v. Sudarshan Chemicals Industries Ltd.) In our view, octroi, excise duty and sales tax cannot have any element of profit and as such those items cannot be included ..... X X X X Extracts X X X X X X X X Extracts X X X X
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