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TMI Blog2014 (3) TMI 1138X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The same was 'summarily' processed. In the course of 'scrutiny, the Assessing Officer noticed from its statement of income 'exempt' income from mutual funds of Rs. 12,42,22,409/- without attributing any expenditure. On being put up to notice, the assessee reiterated its stand as not to have incurred any expenses. In assessment order dated 30.12.2011, the Assessing Officer invoked section 14A of the Act r.w.r 8D of the Income-tax Rules and computed the impugned disallowance. 4. In lower appellate proceedings, the CIT(A) has affirmed the findings of the Assessing Officer. 5. Before us, the assessee argues that it did not incur any expenditure in view of various paper books filed and prays for deleting the disallowance. Its further argument is that rule 8D has been wrongly invoked in the instant case as the same was notified on 24.3.2008 and not applicable retrospectively in the accounting period from 1.4.2007 to 23.3.2008. 6. The Revenue has supported the disallowance in question. 7. After giving our thoughtful consideration to the arguments of the parties, the question which arises for our consideration is as to whether rule 8D has been rightly invoked in the impugned assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot come within the purview of section 10A of the Act. In assessment order, the Assessing Officer denied the claim of deduction qua this income inter alia, on three grounds i.e no conclusive proof had come demonstrating major part of the application maintenance to be from the concerned software technology park or the special economic zone unit, no separate billing or invoicing had been done qua on-site or off-shore work coupled with the fact that bifurcation had been arbitrarily shown. The third and last reason was presence of assessee's technical manpower from India at client's site was must whereas the maintenance activity in question had been supported by deputing its manpower from India after recruiting them here to the holding and other overseas associate companies. In this manner, the Assessing Officer excluded these receipts of Rs. 20.43 crores from the purview of section 10A of the Act. 12. The assessee challenged aforesaid action of the Assessing Officer in appeal. It transpires that first of all, the CIT(A) has taken into consideration section 10A Explanation 3 with effect from 1.4.2001 declaring that profits and gains from on-site development of computer software (includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount to 'deemed export' and tax benefits would not be denied merely on this ground. However, since the benefits under these provisions can be availed of only by the units or undertakings set up under specified schemes in India, it is necessary that there must exist a direct and intimate nexus or connection of development of software done abroad with the eligible units set up in India and such development of software should be pursuant to a contract between the client and the eligible unit. To this extent, Circular No. 694 dated 23.11.1994 stands further clarified. (b) It has also been brought to notice that it is a common practice in the software industry to depute Technical Manpower abroad (at the client's place) for software development activities (like upgradation, testing, maintenance, modification, trouble-shooting etc.), which often require frequent interaction with the clients located outside India. Due to the peculiar nature of software development work, it has been suggested that such deputation of Technical Manpower abroad should not be considered detrimental to the benefits of the exemption under sections 10A, 10AA and 10B merely because such activities are rendered o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Revenue is that there should be a contract for development of software between the client and the eligible unit. Needless to say, we have already observed about such agreements between assessee and its clients which is nowhere rebutted by the Revenue. So, this plea also fails. The next argument of the Revenue is that the assessee had not signed any contractual argument with the clients and only placed on record a MoU between itself and the holding company. As discussed hereinabove, the assessee has signed agreements with all its clients (supra) and so far as the present MoU at pages 265 to 277 of the paper book is concerned, the same is, in fact, a Master Services Agreement which rejects the Revenue's arguments. Its last plea is that the software produced by the assessee had not been deployed at its US holding company but at a different third party premises in USA without any subsisting contract. There is no material to substantiate this plea. In our view, section 10A is a deduction provision which has to be liberally construed. In course of arguments, the assessee has highlighted the fact that in preceding assessment years, it has been getting benefit of deduction qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The next grievance raised by the Revenue relates to telecommunication expenditure which has been ordered by the CIT(A) not to be excluded from the export turnover. 18. In this regard as well, the parties are unanimous that the issue stands decided in assessee's favour by the order of the 'tribunal' dated 23.1.2013. Taking cue from the same, we order accordingly and reject the Revenue's plea. 19. The next ground raised by the Revenue challenges the action of the CIT(A) in holding that losses of eligible units shall be set off against other taxable profits. 20. Qua this plea, we find from the case file that the CIT(A) has followed the order of the 'tribunal' dated 23.1.2013 (supra). Therefore, we maintain consistency in the impugned assessment year as well and decide same in assessee's favour. 21. The next grievance of the Revenue is against the findings of the CIT(A) in deleting the disallowance of expenditure incurred by the SEZ units which had not commenced operation. 22. Herein as well, though the CIT(A) relies upon the order of the 'tribunal' dated 23.1.2013(supra); the Revenue argued that in the said assessment year 2007-08, the DRP had given a cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 2010 with retrospective effect from 1.6.1976. 27. In reply, the assessee draws strong support from the CIT(A)'s order to argue that there are two payees namely, Cognos Pte Ltd and Epicore (Asia) Ltd pertaining annual maintenance contract. Per assessee, they did not render any technical services by 'making available' the technology in question resulting into any obligation to deduct TDS. Its further arguments are that since both entities are Singapore based, relevant DTAA covers the instant case. 28. We have heard both parties and gone through the case file. We make it clear that on being granted opportunity to rebut, the Revenue has failed to draw our attention to any material on record supporting its plea that both payees(supra) are not Singaporean entities. Coming to its argument that the annual maintenance charges amount to 'technical services' within the meaning of section 9(1)(vii), go against the case law of GE India Technology Centre Pvt. Ltd vs CIT 327 ITR 465 holding that section 195 applies only when the payment is taxable in India in the hands of non-resident payee which is not the case in hand as the concerned payees have carried out maintenance contracts outside I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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