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TMI Blog2011 (2) TMI 1528X X X X Extracts X X X X X X X X Extracts X X X X ..... d as reduced by the deduction of the corporation tax. Deduction u/s 80HHE - exclusion on account of maintenance of software and technical support, from the export turnover, to arrive at the deduction - reason for which receipts in respect of software maintenance and technical support have been not been taken into account for the purpose of computing deduction as deduction under section 80HHE is restricted to receipts in respect of development and production of software - HELD THAT:- We find that the connotations of software maintenance are quite distinct and separate in scope than maintenance per se - we direct the Assessing Officer to take receipts, in respect of software maintenance , into account for the purpose of computing deduction under section 80HHE. To this extent, grievance of the assessee is upheld. Receipts for technical support services - We uphold the action of the authorities below, but, in view of the Special Bench decision in the case of ITO v. Sak Soft Ltd. [ 2009 (3) TMI 243 - ITAT MADRAS-D] direct the Assessing Officer to exclude these receipts, both from the export turnover and from the total turnover, which are the numerator and the denominat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the US and Canada State Income-tax payments did not entitle the assessee to any tax credit, and either an Income-tax payment is to be allowed as deduction or it is to be taken into account for giving tax credit. We were also taken through the provisions of India-USA Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion [187 ITR (Statute) 102 - hereinafter referred to as Indo US tax treaty], to show that the tax credits under the India US tax treaty are restricted to credits in respect of Federal Income-tax paid in the United States. It was also submitted that under the India Canada Double Taxation Avoidance Agreement, tax credits are admissible only in respect of tax paid under the Income-tax Act of Canada whereas state Income-taxes are levied under separate provincial legislations. It could not, according to the learned counsel, result in a situation in which an Income-tax payment cannot have any tax implication - neither as a charge on income, nor as an allocation of income. While rejecting these arguments, and allowing the appeal of the Assessing Officer on this issue, we had, inter alia, observed as follows : 20. Learned counsel has also contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent. Therefore, on the facts of the present case and bearing in mind the fact that the Federal Income-tax in USA at the relevant point of time was lesser in rate at 35 per cent vis-a-vis 38.5 per cent Income-tax rate applicable in India, the admissible double taxation relief under section 91 will be higher than relief under the tax treaty. It will be so for the reason that State Income-tax will also be added to Income-tax abroad, and the aggregate of taxes so paid will be eligible for tax relief - of course subject to tax rate on which such income is actually taxed in India. The tax relief under section 91 thus works out to at least 38 per cent, as against tax credit of only 35 per cent admissible under the tax treaty. In such a situation, the assessee will be entitled to relief under section 91 in respect of Federal as well as State taxes, and that relief being more beneficial to the assessee vis-a-vis tax credit under the applicable tax treaty, the provisions of section 91 will apply to State Income-taxes as well. The State Income-tax is also, therefore, covered by Explanation 1 to section 40(a)( ii), and deduction cannot be allowed in respect of the same. Finally, in view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced in the preceding paragraph, it is incorrect to proceed on the assumption that State Income-tax paid in USA, or for that purpose paid in Canada, cannot be taken into account for the purposes of computing admissible tax credits. It is so for the elementary reason that the provisions of a tax treaty, based on which tax credits are said to be inadmissible, cannot be pressed into service to decline a benefit to the assessee which is otherwise available to him, even in the absence of such a tax treaty, under the provisions of the Income-tax Act. 5. Even as we have held that, in principle, State Income-taxes paid in USA are eligible for being taken into account for the purpose of computing admissible tax credit under section 91, we are alive to the fact that section 91 refers to a situation in which the assessee has paid tax in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation and that there is indeed an agreement under section 90 with United States of America, as also with Canada. If we adopt a literal interpretation of this provision, and bearing in mind the undisputed position that tax credit provisions under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a tax treaty provisions, does not disentitle him to make the claim in accordance with the provisions of the Act. In this view of the matter, and further to the observations made by us in our order on the cross appeal, in our considered view, the provisions of section 91 are to be treated as general in application and these provisions can yield to the treaty provisions only to the extent the provisions of the treaty are beneficial to the assessee; that is not the case so far as question of tax credits in respect of State Income-taxes paid in USA are concerned. Accordingly, even though the assessee is covered by the scope of India US and India Canada tax treaties, so far as tax credits in respect of taxes paid in these countries are concerned, the provisions of section 91, being beneficial to the assessee, hold the field. As section 91 does not discriminate between State and Federal taxes, and in effect provides for both these types of Income-taxes to be taken into account for the purpose of tax credits against Indian Income-tax liability, the assessee is, in principle, entitled to tax credits in respect of the same. Of course, as is the scheme of tax credit envisaged in section 91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany in the United Kingdom is liable to pay certain tax on that amount before the money goes to the hands of its shareholders. A shareholder outside the United Kingdom cannot claim any credit for the tax paid by the company. Therefore, the only entitlement of a shareholder outside the United Kingdom is to receive dividend as reduced by the deduction of the corporation tax. ..... 12. Respectfully following the esteemed views of Hon ble jurisdictional High Court, we uphold the grievance of the assessee in principle and direct the Assessing Officer to grant relief in accordance with the principles laid down in Ambalal Kilachand s case (supra). 13. Ground No. 2 is allowed in the terms indicated above. 14. In ground No. 3, the assessee is aggrieved that the CIT(A) erred in confirming the exclusion on account of maintenance of software and technical support, from the export turnover, to arrive at the deduction under section 80HHE. 15. The short reason for which receipts in respect of software maintenance and technical support have been not been taken into account for the purpose of computing deduction under section 80HHE was that deduction under section 80HHE is restricted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m change procedure and program migration process given as follows : Following the implementation and stabilization of a system, it enters into the ongoing development or maintenance stage. Thus ongoing development of a software system is nothing but its maintenance . Or in other words, in the world of computer systems and software, maintenance is a part of ongoing development. Maintenance of software, especially when it involves ERP modules, or bought out software s would require routines and sub-programs for interfacing it with other legacy systems and also for migration from other legacy systems to new system and building in new functionalities, which could vary from user to another user. 7.3 Thus, every maintenance or modification or bug repairing would require independent code and each such independent code/procedure including codes written of interfacing and specific problem solving relating to legacy programme would still be software s and nothing else. This being the case and taking the totality of the services rendered by the assessee, as can be made out from the description of work given in the agreement, which inter alia mentioned corrections of bugs in OVISS, cust ..... X X X X Extracts X X X X X X X X Extracts X X X X
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