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2014 (6) TMI 707 - AT - Income TaxRoyalty u/s 9(1)(vi) - TDS u/s 195 – hiring of International Private Leased Circuits [IPLC] - Nature of Remittance made to Non-resident Company – Whether the services provided by the overseas company constitutes ‘Royalty’ or not - Held that:- Following Verizon Communications Singapore Pte Ltd. (formerly MCI Worldcom Asia Pte Ltd.) Versus The Income Tax Officer International Taxation – I [2013 (11) TMI 1058 - MADRAS HIGH COURT] - even if the payments were treated as non-relating to the use of equipment, they should be considered as payment for the use of the process provided by the assessee, whereby through the assured bandwidth, the customer is guaranteed the transmission of data and the voice - the bandwidth is shared with others, but it has to be seen in the light of the technology governing the operation of the process and this by itself does not take the assessee out of the scope of royalty - the consideration being for the use and right to use of the process, it is ‘Royalty’, within the meaning of Clause-(iii) of Explanation-2 to section 9(1)(vi) of the Act – Decided in favor of Revenue. Computation of deduction u/s 10A of the Act - Exclusion of foreign currency expenditure from export turnover and total turnover – Exclusion of telecommunication expenses - Held that:- Following Patni Telecom P. Ltd., Vs. ITO [2008 (1) TMI 452 - ITAT HYDERABAD-A ] - expenses incurred in foreign exchange, as part of the export carried out by the assessee, cannot be excluded from the export turnover – thus, the AO is directed to include foreign currency expenditure to form part of export turnover of the assessee in computing deduction u/s.10A of the Act - Decided against Revenue. Disallowance u/s 14A of the Act – Held that:- Following GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - the provisions of Rule 8D are applicable w.e.f. AY.2008-09 - The newly introduced provisions of Rule 8D have no retrospective applicability, the authorities below have erred in applying the same - The Tribunal in assessee’s own case for the AY.2005-06 has upheld the action of the Assessing Officer in making the dis-allowance @2% of the exempt income - the profit for the purpose of section 10A will be enhanced to the extent of dis-allowance - proportionate enhancement will be in the amount of deduction available u/s.10A – thus, the AO is directed to dis-allow 2% of the exempt income u/s.14A and further make proportionate enhancement in the amount of deduction available u/s.10A – Decided partly in favour of Assesseee. Deletion of dis-allowance of various expenses – Held that:- Following Bharat Earth Movers Vs. CIT [2000 (8) TMI 4 - SUPREME Court] - assessee is providing provision for expenditure incurred in the previous year itself - The amount was not paid by the end of the year and in certain cases bills were not received by the end of the year and in such cases the assessee is making a provision for such expenditure already incurred during the relevant previous year. In the course of the next previous year the assessee is making the payment and the differential amount, if any, is adjusted in its profit and loss account - This is a consistent practice followed by the assessee - The provision for unpaid expenses is not in the nature of contingent expenditure - It is a provision made against actual expenditure – Decided against Revenue.
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