TMI Blog2012 (11) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Such profits are, therefore, in the same nature as the sale proceeds and there is no reason while deduction u/s 10A should not be allowed in respect of such exchange gain. In favour of assessee Interest income for purposes of computing eligible income u/s. 10A – Held that:- Following the decision in case of Navbharat Explosives Co. P. Ltd. (2010 (6) TMI 588 - CHHATTISGARH HIGH COURT) wherein it was held that the income by way of interest on fixed deposits is not eligible for special deduction u/s 10A. In favour of revenue Deduction u/s 10A - Sales made to the branch office located in US – AO argued that it is merely a case of transfer – Held that:- Following the decision in case of Virage Logic International (2007 (1) TMI 299 - ITAT DELHI) held that the said exports constitutes sales. As the transfers between the HO 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 u/s 10A. In favour of assessee Disallowance made invoking Sec 195 r.w. Sec. 40(a)(ia) - DTAA with USA – Whether remittance made by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice 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 assessee drew our attention to para 7 of the said order of the Tribunal and mentioned that the said issue was also decided by the Tribunal in favour of the assessee. In that regard, the Tribunal relied on the decision of the Supreme Court in the case of Lakshmi Machine Works (290 ITR 667). We have perused the facts of the case on this issue, and find that the issue involved in this appeal is identical to the one already adjudicated by the Tribunal. Relevant portion of the order of the Tribunal in this regard reads as follows- 7. We have considered the rival submissions and perused the material available on record. As for the notice period salary recovered from employees of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 1,09,0987 for purposes of computing eligible income u/s. 10A. 3. The learned Commissioner of Income-tax(Appeals) erred in upholding the exclusion of the sum of ₹ 2,58,24,051 received from the US branch of the assessee from export turnover for purposes of Sec.10A though these are covered by notification issued by CNBDT and approved by STPI. 4. Even if it is assumed that the impugned aggregate receipt of ₹ 2,58,24,051 did not represent export turnover, the learned Commissioner of Income-tax(Appeals) erred in upholding the action of the Assessing officer in excluding the entire turnover from the export income while computing the income from export of sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the assessee. 12. As for the first issue relating to interest income of ₹ 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 ₹ 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 the decision of the Apex Court in Sterling Foods (1999)237 ITR 579. Before the CIT(A), the assessee pleaded that the interest derived on account of temporary parking of business funds constitutes income derived from its export activity. The CIT(A) relying on the Mumbai Bench decision of the Tribunal in the case of Renaissance Jewellery P. Ltd. V/s.ITO(101 ITD 380), confirmed the disallowance made by the assessing officer. Aggrieved by the same, assessee is in appeal before us on this issue. 13. Learned counsel for the assessee, reiterating the contentions urged before the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer 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 business. Considering the fact that the assessee failed to produce segregation of the profit relatable to the said sales of the head office and the branch office, the assessing officer proceeded to exclude both the sums of ₹ 61,77,900 and ₹ 1,96,46,151 from the 'profits of the business' before deduction under S.10A was determined. Considering the above submissions of the assessee, the CIT(A) analysed and held that the above sums do not constitute the eligible sums for inclusion. He held it so on the reasoning that there cannot be sales between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 the issue relates to the transfers between the head office and the branch office located in US, and whether it constitutes exports for the purpose of S.10A of the Act. In this regard, in our opinion, the Delhi Bench order in the case of Virage Logic International (supra) helps to arrive at a conclusion and in favour of the assessee. In that case, the head office has sent goods to the assessee in India and the said export was included in the export turnover for the purposes of determining the deduction under S.10A of the Act. On these factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 this issue are that the assessee made payment of ₹ 2,46,50,958 to the US Branch on account of work sub-contracted to them. The assessee did not furnish details of TDS made in respect of such payments. The assessing officer is of the opinion that the said payments to the branch office attracts the TDS provisions under S.194C/195 of the Act, as the Branch is a non-resident, and consequently the assessing officer invoked the provisions of Section 195 read with S.40(a)(ia) of the Act and denied the benefit of deduction under S.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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-resident in the circumstances. The provisions of DTAA also support the above views. 28. The written submissions also mention that the payments/remittances in question do not attract the provisions of S.195 of the Act, as they represent neither interest nor dividend under DTAA. At the maximum, these payments constitute 'fee for included services'. In that case, the provisions of Article 12 of the DTAA with US do not apply. Applying the ratio of the Mumbai Bench decision of the Tribunal in the case of Raymo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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