TMI BlogIssues relating to export of computer software Direct tax benefits -Clarification reg.X X X X Extracts X X X X X X X X Extracts X X X X ..... dertakings", established under different schemes, which are/were deriving profits from export of computer software subject to fulfilling the prescribed conditions. 2. It has been represented by the software companies that several issues arising from the above mentioned provisions are giving rise to disputes between them and the Income-tax authorities leading to denial of tax benefits and consequent litigation and, therefore, require clarification. Various issues highlighted by the Software Industry have been examined by the Board and the following clarifications are hereby issued - (i) (a) Whether "on-Site" development of Computer Software Qualifies as an extort activity for tax benefits under sections 10A . 10AA and 10B of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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.), w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lient and the Indian software developer setting out the broad and general terms and conditions of business under the umbrella of which specific and individual Statement of Works (SOW) are formed. These SOWs, in fact, enumerate the specific scope and nature of the particular task or project that has to be rendered by a particular unit under the overall ambit of the MSA. Clarification has been sought whether more than one SOW can be executed under the ambit of a particular MSA and whether SOW should be given precedence over MSA. The matter has been examined. It is clarified that the tax benefits under sections 10A , 10AA and 10B would not be denied merely on the ground that a separate and specific MSA docs not exist for each SOW. The S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10AA and 10B would continue to Remain available in case of a slump-Sale of a Unit/Undertaking. The vital factor in determining the above issue would be facts such as how a slump-sale is made and what is its nature. It will also be important to ensure that the slump sale would not result into any splitting or reconstruction of existing business. These are factual issues requiring verification of facts. It is, however, clarified that on the sole ground of change in ownership of an undertaking, the claim of exemption cannot be denied to an otherwise eligible undertaking and the tax holiday can be availed of for the unexpired period at the rates as applicable for the remaining years, subject to fulfilment of prescribed conditions. (v) Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Income-tax Act, 1961. It is further clarified that the unit so relocated will be eligible to avail of the tax benefit for the unexpired period at the rates applicable to such years. (vii) Whether new Units/undertakings set up in the same location where there is an existing eligible unit/undertaking would amount to expansion of the existing unit/undertaking Whether setting up of new unit/undertaking in a location (covered by section 10A , 10AA or 10B ), where an eligible unit is already existing, would amount to expansion of such already existing unit is a matter of fact requiring examination and verification. However, it is clarified that setting up of such a fresh unit in itself would not make the unit ineligible for tax b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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