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2013 (9) TMI 519 - AT - Income TaxAllowability of Service Charges - AO held that the services agreement between the assessee and its holding company has been entered into with the clear intention of reducing the tax liability of the assessee and increasing the non-taxable profits of SSL. - Held that:- The assessee had placed each and every head of expenditure and this Expenditure has been bifurcated under the three heads- STP unit entitled to deduction under section 10A, non STP not entitled to deduction u/s.10A and support services - the basis of allocation amongst the three heads is actual expenses, number of employees and ratio of fixed assets, floor area and turnover ratio - Thus, on the basis of above five criteria, expenditure has been allocated to the three heads - The issue regarding the allocation of expenses in respect of service charges arose in the case of SSL - In that case, the Assessing Officer was of the view that allocation of expenses for Non-section 10A unit (not eligible for exemption) was excessive as exempted unit was much more expenditure oriented - allocation of support services expenses on the basis of turnover was justified. - Decided in favor of assessee. Allowability of Deputation Charges - Reimbursement of Various Expenses – Held that:- The terms of the Agreement between the Assessee and SSL by which SSL agreed to render some common services in the areas of Finance, Accounts, Taxation, Legal, Administration, HRD, education, Training, Research etc. Clause-3 of the said agreement which have been referred to in the earlier part of this order clearly shows that the expenses covered by that agreement cannot and do not relate to expenditure incurred on deputing employees to work on specific projects of the Assessee - Therefore the expenses on account of deputation charges as well as other expenses were not covered under the aforesaid agreement - The other reasons given by the AO for making the impugned disallowance cannot also be sustained. Royalty u/s. 91 (1)(vi) OR Not - Purchase of Software from Various Resident Entities - Held that:- Payment received by the assessee was towards the title and GSM system of which software was an inseparable parts incapable of independent use and it was a contract for supply of goods - Therefore, no part of the payment therefore can be classified as payment towards royalty - The consideration received by the Assessee for software was not royalty - The receipts would constitute business receipts in the hands of the Assessee - Admittedly the Assessee who was a non-resident does not have a permanent establishment and therefore business income of the Assessee cannot be taxed in India in the absence of a permanent establishment. Following Director of Income-tax Versus Ericsson A.B. & Ericsson Radio System A. B. & Metapath Software International Ltd. [2011 (12) TMI 91 - Delhi High Court] - The consideration received by the Assessee for software was not royalty - The receipts would constitute business receipts in the hands of the Assessee - Admittedly the Assessee who was a non-resident does not have a permanent establishment and therefore business income of the Assessee cannot be taxed in India in the absence of a permanent establishment.
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