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2010 (8) TMI 750 - AT - Income TaxRate of depreciation on the computer software - expenditure incurred on software treated treated as a capital expenditure - AO allowed the depreciation @ 25 per cent - CIT(A) accepted the claim of the assessee to allow the depreciation @ 60 per cent - HELD THAT:- In the assessment year 2002-03, the software was not identified as a separate item for depreciation but from the assessment year 2003-04 software is the part of the computer for the purpose of the depreciation. Otherwise also, as rightly held by the Ld CIT (A) the software cannot work in isolation but has to be loaded on computer and the later also cannot work without software. In sum and substance, the software is integrated part of the total operation of the computer. Accordingly, the issue is decided in favour of the assessee. Revenue has also raised the grievance that Ld CIT (A) erred in directing the AO to recomputed the exemption u/s 10A. In our opinion, this is a consequential issue as higher rate of depreciation is allowed on the software. Accordingly, ground is dismissed. Exemption u/s 10A - income generated from training given to the customer for the use of the software - he AO was of the view that the income generated from the training activity cannot be considered for the computation of deduction/exemption under section 10A and it is not on account of any development of software, but, training is given after software is delivered to the customer - HELD THAT:- In the case of Sovika Infotek Ltd[2007 (7) TMI 441 - ITAT MUMBAI] an identical issue has been considered by the Tribunal and it is held that the training activity of the assessee is intricately connected with the software development, sale, maintenance etc. and the same would be entitled for exemption under section 10B. Identical view is also taken in WOODWORD GOVERNORS INDIA (P.) LTD. [2007 (4) TMI 391 - ITAT DELHI] while interpreting the scheme of section 80IB and held that income generated for providing the training to his employees of his customers for the use of the product sold to them and was also maintaining after sales services and the repairing the products sold to his customers and same is to be treated as profit derived for the purpose of section 80IB. As the scheme of section 10A is analogous to section 80IB, the same principles are also applicable here also. We, therefore, confirm the order of Learned CIT (A) holding that the income generated from training given to the customer for the use of the software is eligible for exemption/deduction u/s 10A. Grievance of the assessee that it should form the part of the export turnover - CIT (A) directed AO to include the receipts of the training into the ‘total turnover’ but exclude the same from the ‘export turnover’ - We do not understand the logic behind the directions of the Learned CIT (A). It is a basic principle that the numerator and denominator of the formula are to be same, and adjustment should be made both to denominator and numerator. Once it is held that it is intricately related with the export of the software then it has to be included into the export turnover also as admittedly same is brought in to India in convertible foreign exchange. We, therefore, direct the Assessing Officer to include said amount of training receipt into export turnover and also to the total turnover and thereafter work out allowable deduction/exemption under section 10A of the Act. Eligible profit for claiming deduction u/s 10A - Exchange gain on travelling expenses recovery - AO noted that the assessee has recovered travelling expenses from his customers, which was received in foreign exchange due to the recovery of the travelling expenses in foreign exchange and treated the same as part of its eligible profit for the purpose of claiming exemption/deduction under section 10A - HELD THAT:- Admittedly, the gain is on account of reimbursement of expenditure incurred by the assessee from his customers and that is also on account of fluctuation in the rate of the foreign exchange. It can not be treated as an income derived by an undertaking from the export of articles or computer software. In our opinion, the same cannot form part of eligible profit for claiming deduction under section 10A of the Act as it can not be treated as income derived from the export of the software. TP Adjustment - computation of Arm's Length Price along with the price in relation to international transactions entered into by the assessee with it's subsidiaries as commission has been paid on customisation fees - D.R. vehemently argued that there is no reason to pay the additional commission to the subsidiaries then the independent local distributors. It is argued that entire customisation work is done by the assessee only and there is no contribution by the subsidiaries in the customisation work entrusted by the users of the software manufactured by the assessee company HELD THAT:- Though the subsidiaries are not directly involved in the customisation work of the software but at the same time they are only authorised to collect the customisation work in the market and other independent distributors are not doing said work. It is also seen that some of the independent distributors are paid higher commission then the subsidiaries without doing any job for collection of customization work. No interference is called in the order of the Ld CIT(A) on this issue. Accordingly, the same is confirmed. Ground taken by the revenue is dismissed.
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