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TMI Blog2015 (7) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... he associated enterprises under sub-contract after reducing the expenses incurred by the assessee. Assessee is eligible for deduction with regard to the income earned by the assessee company from the ‘onsite development of software’ carried out by the AE. It is also noteworthy to mention that the payment made by the assessee to the AE for the work done by the AE at the site of the customer has been accepted by the TPO to be at Arm’s Length Price. Therefore, there cannot be any imputation that the assessee has been trying to shift the profits out of India by outsourcing the work to the AE.- Decided in favour of the assessee. - ITA No.677/Bang/2014 & CO No.98/Bang/2014 - - - Dated:- 31-7-2015 - ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ang/2012 which has not become final since the same has not been accepted by the Department. 4) For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) is so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 5) The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above. 3. The only issue arises in the Revenue s appeal is whether the assessee is eligible for deduction u/s 10B with regard to income earned by the assessee from the on site development of software through its associated enterprises under sub contract. 4. We have heard the learned DR as well as learned AR and consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenses incurred by the assessee. We find that an identical issue has been considered by the coordinate bench of this Tribunal in the case of group concern M/s Mphasis Software Services Pvt. Ltd., (Supra) in para 12 to 14 as under :- 12. Coming to the main issue in the assessee s appeal i.e reduction/deduction of the claim u/s 10A of the Income-tax Act in respect of onsite software development work performed by the associated enterprises of the assessee outside India, we find that the assessee entered into a contract with the end consumers who are outside India and to discharge its liabilities under the contract, the assesse sub- contracted the work to its AE outside India who in fact develop the software, test and implement the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mises in India. The moot question before us is whether the assessee can sub contract part or whole of its development of software work to an agency outside India and claim the income there-from as its income eligible for deduction u/s 10A of the Income-tax Act. The learned counsel for the assessee had placed reliance upon the decisions of this Tribunal at Delhi and Mumbai in various cases which are cited in para 3 above. In the case of Techdrive India Pvt. Ltd. (cited Supra), the Tribunal was considering whether exemption u/s 10B is allowable to the assessee therein where the product was produced by the sister concern of the assessee. The Tribunal at para 17 has culled out the various steps involved in the development/creation or production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t while clause (3) sets out the obligation of the assessee company. Clause (4) setsout obligation of the contractor and clause (7) relates to right over the intellectual property. The AO has held that the intellectual property relating to development of products is with the contractor and, therefore, it cannot be said that the work is carried out under the supervision of the assessee company. But a literal reading of the agreement reveals that the rights and responsibilities attached to the deliverables vests with the contractor, only till the company has paid the compensation payable for such portion of the deliverables in accordance with the terms of the agreement and the applicable task order. Therefore, once the compensation is paid for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully responsible for such obligation and for all acts or omissions of its subcontractors or agents. From the above clauses, it is clear that the assessee is solely responsible for the discharge of its obligation under the agreement to the customer and the subcontractor has no say in the matter. It is seen from the Master Services Agreement that it is the assessee which is under an obligation to discharge its obligation of satisfying the requirement of the customers and in pursuance thereof to pass on the specification of the products to the AE and also to reserve right to reject the product if the AE does not produce the product in conformity with the requirement of product as given in the task order. Therefore, it can be safely concluded t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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