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2005 (11) TMI 384 - AT - Income TaxDisallowance u/s 40(a)(i) - Purchased software from various non-resident - Revenue expenditure or Royalty u/s 9(1)(vi) - Disallowance u/s 40(a)(ii) on account of service charges - Allocation of expenses in respect of service charges - HELD THAT:- The issue before us has already been concluded by the decision of the Tribunal in assessee’s own case wherein the Tribunal, following its decision in the case of Samsung Electronics Ltd. [2005 (2) TMI 438 - ITAT BANGALORE-A] has held that payment made by assessee for purchase of software did not amount of ‘Royalty’ within the ambit of section 9(1)(vi) of the Act and therefore, assessee was not liable to deduct tax at source u/s 195. Following the said decision, it is further held that, as a necessary corollary, the provisions of section 40(a)(i) could not be applied to the case of assessee. The finding of CIT(A) that payment towards purchase of software amounted to ‘Royalty’ within the meaning of section 9(1)(vi) of the Act is hereby vacated. In the present case, it has been noted by the CIT(A) that the non-resident had paid the tax on 22-3-2004, consequently, deduction could be claimed only in the assessment year 2004-05 and not in the year under consideration. The CIT(A), therefore, was incorrect in holding that no disallowance could have been made u/s 40(a)(i ) of the Act as the tax was ultimately paid by non-resident. Accordingly, we also vacate this finding of the CIT(A). Thus, we set aside the order of CIT(A) and deleted the entire disallowance u/s 40(a)(i) made by Assessing Officer and sustained by CIT(A). We find that 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 of Non-10A unit (not eligible for exemption) was excessive as exempted unit was much more expenditure oriented. The matter ultimately reached the Tribunal which accepted the case of assessee that allocation of support services expenses on the basis of turnover was justified. Admittedly, prior to incorporation of assessee company, SSL was carrying on two units independently i.e., unit exempted u/s 10A and the unit not exempted. Direct expenses incurred were separately booked to respective units. Only the support services expenses were allocated on the basis of turnover. Faced with the same, the ld. DR had nothing to add except to rely on the order of Assessing Officer. The ld. DR submitted that allocation of expenses requires verification and therefore, the matter may be referred to Assessing Officer for necessary verification. We are unable to accept this request since there is no dispute to the factual position that allocation of service expenses was made on the basis of turnover. No useful purpose would be served in restoring the issue. Accordingly, following the finding of the Tribunal in the case SSL, we set aside the order of CIT(A) on this issue and delete the disallowance sustained by him. In the result, the appeal of the assessee is allowed while the appeal of revenue is dismissed.
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