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TMI Blog2012 (11) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... d 19th August, 2009 in assessee's own case in the cross-appeals for the assessment year 2005-06, viz. in ITA Nos.397 and 536/Hyd/20008.. In this regard, the learned counsel took us through para 8 of the said order dated 19th August, 2009 for the proposition that miscellaneous income and the credit balance written back should be included in the profit eligible for computation of exemption under S.10A of the Act. We find that the said direction was given by the Tribunal, following the decision of the Mumbai Bench of the Tribunal in the case of Extrusion Processes (P)Ltd V/s. ITO (2007) 106 ITD 336. The Tribunal also noted that there is no decision to the contrary brought to its notice and finally decided the issue in favour of the assessee. We have considered the facts of the present case in relation to this issue and find that they are analogous to those considered by the Tribunal in the above decision for the preceding year. Therefore, we are of the opinion that the CIT(A) was justified in deciding this issue in favour of the assessee. We accordingly confirm the order of the CIT(A) on this issue. 4. Further, on the aspect of notice period salary, the learned counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer, which can be seen from para 12.1 of the impugned order of the CIT(A). In fact, it is submitted, assessee raised grounds in its appeal against disallowance sustained by the CIT(A). The Learned Departmental Representative fairly agreed to the occurrence of the mistake in raising this ground. We have perused the discussion in paras 12 and 12.1 of the impugned order and find that the CIT(A) has in fact, did not find any infirmity in the disallowance made by the assessing officer and accordingly confirmed the disallowance of Rs. made for contravention of the provision of S.195 of the Act. In such factual circumstance, we find that the Commissioner of Income-tax has erroneously authorized the Department to raise this ground. This ground is accordingly rejected as misconceived. 9. In the result, appeal of the Revenue is dismissed. Assessee's Appeal 10. Summarised grounds of the assessee in this appeal are as under- "1. The order of the learned Commissioner of Income- tax(Appeals) is erroneous in law and on the facts of the case. 2. The learned Commissioner of Income-tax(Appeals) erred in directing the exclusion of the interest income of Rs. 1,09,0987 for purposes of comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the eligible income under S.10A of the Act. (ii) Exclusion of a sum of Rs. 2,58,24,051 being the amount received from branch office of the assessee at US. The assessing officer is of the opinion that this amount is not to be included in the export turnover of the assessee for the purposes of S.10A of the Act. (iii) Disallowance of Rs. 2,46,50,958 invoking the provisions of S.40(a)(ia) when these payments are made by the branch office of the assessee and when such branch office of the assessee is not non-resident. Now, we shall proceed with the issue-wise adjudication of this appeal filed by the assessee. 12. As for the first issue relating to interest income of Rs. 1,09,087, mentioned in ground No.2 of the summarized grounds of appeal, the facts in brief are that the assessee received interest amount of Rs. 1,09,087 and pleaded for inclusion of the same as profits of the business eligible for exemption under S.10A of the Act. The assessing officer held that this income is outside the operational income, and accordingly excluded the same from the scope of S.10A and taxed the same as income under the head 'other sources'. In the process, the assessing officer relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclude the said amount from the total turnover of the assessee, to maintain the 'principle of parity'. 17. Relevant facts of the issue are given in paras 8 to 10 of the impugned order. Briefly, the relevant facts are that the head office sales include Rs. 61,77,900 received from the branch office on account of 'software development charges' and another sum of Rs. 1,96,46,151 on account of 'HR and marketing services'. The assessee included them as part of the export of software services, which was not entertained by the assessing officer as discussed earlier. During the first appellate proceedings,, the assessee submitted that the said receipts from the branch office constitutes export of software services by the assessee, considering the fact that the said export was done with due approval of STPI, Hyderabad. In this regard, he relied on the Board's Notification No.0890E/F No.142/49200-TPL dated 26.9.2000 to support its case. Further, the assessee included the relevant income in the eligible profits of the assessee. However, to maintain harmony of exclusion from the export turnover, he also reduced the said amount from the eligible profit of the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be branch office. Further, the learned counsel for the assessee made a reference to the Delhi Bench of the Tribunal in the case of Virage Logic International V/s. Dy. Director of Income-tax (2007)13 SOT 270, for the proposition that transfers by the head office constitutes export sales for the purposes of computing deduction under S.10A of the Act. The Tribunal held that the assessing officer's approach of treating the sales between the assessee and the head office does not constitutes transfers was not approved for the purpose of completion of the sale, it is not necessary that there must be any third party. For arriving at the above proposition, the approval given by the STPI assumed importance as discussed in para 3 of the said order of the Tribunal. The Tribunal was supported by the provision of S.10A (7) read with S.80IA(8) of the IT Act in this regard. 21. On the other hand, the learned Departmental Representative, for the Revenue relied heavily on the orders of the lower authorities. 22. We heard both the parties, perused the orders of the Revenue authorities and the written submissions and citations filed before us. As discussed in the preceding paras, the crux of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head office was at arm's length price. On this basis, the claim of the assessee deserves to be accepted." The above extract demonstrates that the transfers between the Head Office and the Branch Office and vice versa with the approval of the STPI clubbed with satisfaction of other conditions like realization of proceeds in foreign exchange, constitutes exports for the purpose of the deduction under S.10A of the Act. Thus, without going into the other arguments raised by the learned counsel for the assessee, we find that the assessee must be given relief on this issue. Accordingly the decision of the CIT(A) to exclude the said sales by the assessee to the branch in US from the total turnover and the other changes made by the assessing officer are reversed. Accordingly, summarized grounds at Sl. No.3 and 4 of the assessee are allowed. 23. The third issue, covered by grounds No.5 to 8 of the summarized grounds of the assessee, relates to the disallowance made invoking the provisions of S.195 read with S.9 of the Income-tax Act and Double Taxation Avoidance Agreement(DTAA) with USA in respect of remittances made by the head office to Branch Office in US. 24. Brief facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d decision of the CIT(A), assessee raised this issue before us, vide grounds No.5 to 8 of the summarised grounds of appeal. 27. On this issue, arguments of the learned counsel for the assessee in the written submissions are briefly as follows- (a) Branch office in USA is part and parcel of the assessee company and therefore, the payment is nothing but payment to itself. Therefore the provisions of S.195 of the Act, where the payer and payee are not separate, are not applicable. (b) For the foreign branch of the assessee shares the same status as that of the assessee, considering the relevant provisions of DTAA as well as the Income-tax Act. When the payee is a branch of Indian company, such branch cannot be non- resident in status. Therefore, the impugned payment is outside the scope of S.195 of the Act. (c) Residential status of the assessee is 'resident' because S.3 of the Indian Companies Act defines that 'company said to be a resident' is an 'Indian company' or '...the control and management of its affairs is situated wholly in India'. Same is the case with the assessee. Therefore, the branch office of the assessee cannot be treated as non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Supra), in view of the subsequent decision of the Apex Court in the case of GE India Technologies Pt. Ltd. V/s. CIT and Others (supra). In so far as the first argument is concerned, it is a decided issue that the status of the branch office of the assessee abroad is not 'non-resident'. In such situation, the provisions of S.195 are inapplicable. Coming to the applicability of the decision of the Karnataka High Court, it is the argument of the learned counsel for the assessee that the Supreme Court has set aside the operation of the judgment of the Karnataka High Court in the cited case, vide judgment reported at 327 ITR 456. For these reasons, in our opinion, the impugned payment of Rs. 2,46,50,958 made by the assessee to the branch office in USA, is outside the scope of S.195 of the Act. Accordingly, this issue is decided in favour of the assessee, allowing grounds No.5 to 8 of the summarized grounds of appeal raised by the assessee.
31. In the result, assessee's appeal is partly allowed.
32. To sum up, while the Revenue's appeal, being ITA No.915/Hyd/2010, is dismissed, assessee's appeal, being ITA No.824/Hyd/2010, is partly allowed. X X X X Extracts X X X X X X X X Extracts X X X X
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