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TMI Blog2011 (11) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that the same should be treated as revenue expenditure was disallowed. The assessing officer further held that the assessee had failed to take into consideration the expenditure incurred in foreign currency when computing deduction under Section 80HHE of the Act and claim of the assessee that the expenditure had been incurred for the purpose of marketing only and therefore cannot be deducted before granting deduction under Section 80IIHE of the Act was rejected. The assessing officer further found that there was an error in proceeding to hold that sale of eagle software was not effected from STP unit and therefore, profit from such sale is not eligible for deduction under Section 10A of the Act. Being aggrieved by the order passed by the assessing officer, the assessee preferred the appeal before the appellate authority in ITA No. 14/SR-6/CIT(A)-l/2000-2001. The appellate authority held that the amount paid to various clubs cannot be disallowed as capital in nature and it was held that the said expenditure was revenue expenditure. Further, regarding the deduction under Section 80HHE of the Act, the appellate authority confirmed the order passed by the assessing officer Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oped? (6) Whether the Appellate Authorities recorded their finding based on the sale in respect of Eagle Software and not on corresponding expenditure? (7) Whether the Tribunal committed an error in failing to appreciate that the assessee had received the royalty from Canada which was not a subject matter of tax there and forms the part of the turn over for the purpose of computation of deduction under Sec. 80HHE of the Act? (8) Whether the Tribunal committed an error in proceeding to grant relief in favour of the assessee by holding that Double Taxation Agreement between Canada and India was applicable and the royalty cannot form part of the turnover for the purpose of deduction under Sec. 80HHE of the Act. 5. We have heard the learned counsel appearing for the appellants and learned counsel appearing for the respondent-assessee on the above stated questions of law. Reg: Substantial Question of Law Nos. (3) to (6): 6. The assessee received an amount of Rs. 3,59,00,000/- by sale of software system (Eagle Warehouse Management System) developed by the assessee to M/s. Yantra Corporation, USA which is fully owned foreign subsidiary of the assessee for considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 1997-98 and accordingly allowed the appeal. Being aggrieved by the said finding, in the appeal filed by the revenue, the ITAT has confirmed the finding given by the first appellate authority and held that income by the sale of Eagle software is to be treated as trading receipt. However, as the product has been sold as STP unit, the software was the product of STP unit and profit iron the sale of the said item is held to be exempted under Section 10A of the Act. 7. The learned counsel appearing for the revenue submitted that, since no exemption was claimed under Section 10A of the Act by treating the amount received as sale of Eagle software as trading receipt, the question of granting exemption would not arise and even according to the assessee, since the production of the said software commenced in 1992 and STP unit was established in the year 1994, it cannot be said that the said software was developed in the STP unit and therefore, the question of granting exemption under Section 10A of the Act would not arise and therefore, concurrent finding arrived at by the ITAT and the appellate authority is erroneous and liable to be set aside. 8. The learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the fact that assessee was STP unit when a sale transaction took place is not in dispute. In view of the fact that the assessee that claimed the income by sale of Eagle software as long term capital gain, the question of seeking exemption under Section 10A of the Act while filing return did not arise. If the assessee is entitled to exemption under Section 10A of the Act as STP unit, having regard to the date of transaction, nature of the transaction and the fact that the assessee is a STP unit, the same should not come in the way of holding that assessee is not entitled to the benefit under Section 10A as it has been alternatively argued both before the assessing officer and the appellate authority that if the income is treated as trading receipt, exemption under Section 10A of the Act may be granted. Therefore, the finding on the said question of fact that the assessee being a STP unit is entitled to exemption under Section 10A of the Act in respect of the transaction of sale of Eagle software as admissible is justified and the said finding is based upon the material on record as we have already held on consideration of the entire material on record that assessee being a STP ..... X X X X Extracts X X X X X X X X Extracts X X X X
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