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2015 (3) TMI 933 - ITAT MUMBAI

2015 (3) TMI 933 - ITAT MUMBAI - TMI - Treatment of income from lease rent - Profits & Gains of Business or Profession OR Income from House Property - assessee reiterated its alternative claim that the income should be taxed under the head ‘Other Sources’- Held that:- Ld. CIT(A) has very categorically and correctly stated that provisions of Sec. 56(2)(iii) are not applicable on the facts of the case. In the light of the decision of the Hon’ble Supreme Court in the case of Shambu Investment where .....

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to incurred for the purpose of providing technical services outside India and accordingly directed the AO to recomputed the deduction u/s. 10A of the Act - Held that:- It can be seen that the expenditures considered in the immediately preceding assessment years are identical to the expenditure considered during the year under consideration. A similar issue was considered in the case of Patni Telecom (P) Ltd. Vs ITO (2008 (1) TMI 452 - ITAT HYDERABAD-A ) wherein the issue was that the assessee h .....

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oted, expense is borne by the supplier. The logic and reason behind this have been explained by the CBDT vide its Circular No. 564 dt. 5.7.1990 that the delivery of the goods should be free on Board.

In respect of expenses incurred in foreign exchange in providing technical services outside India, the Tribunal observed that on reading of clause (iv) of Explanation -2 to Sec. 10A, it is evident that all expenses need not be reduced from consideration received in convertible foreign exc .....

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eduction u/s. 10A on the profits in respect of Units I & II - loss of Unit-III be set off against the income computed under the head “Profits & Gains of Business or Profession” - Held that:- We find force in the contention of the Ld. Counsel wherein the Hon’ble High Court in case of Hindustan Unilever Ltd. Vs DCIT & Another [2010 (4) TMI 206 - BOMBAY HIGH COURT] has held that all the four units of the assessee were eligible u/s. 10B of the Act. Three units had returned a profit during the course .....

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e unit with the profits of the ineligible unit - Decided in favour of assessee.

Disallowance made u/s. 14A of the Act r.w. Rule 8D. - Held that:- A perusal of the assessment record shows that the AO has computed the disallowance u/s. 14A r.w. Rule 8D of the Act. It is a settled proposition of law that application of Rule 8D is w.e.f 2008-09 as held by the Hon’ble High Court of Bombay in the case of Godrej & Boyce Manufacturing Co. Ltd. Vs DCIT [ [2010 (8) TMI 77 - BOMBAY HIGH COURT] ] .....

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he Respondent : Shri Pavan Kumar Beerla ORDER Per N.K. Billaiya, AM: These three appeals by the assessee are preferred against separate orders of the Ld. CIT(A)-21, Mumbai for assessment years 2002-03, 2004-05 and 2006-07. All these appeals have common issues, therefore they were heard together and disposed of by this common order for the sake of convenience and brevity. 2. The Ld. Counsel for the assessee stated that facts of A.Y. 2004-05 would cover the issues involved in all three appeals. 3. .....

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on the same. 5.1. The assessee is in the business of software development. While scrutinizing the return of income for the year under consideration, the Assessing Officer noticed that the assessee has received ₹ 1,37,26,637/- towards lease rental from two companies out of which one company is subsidiary of assessee company. The assessee was asked as to why lease rent received of ₹ 1.37 crores be not assessed as Income from House Property. The assessee filed a detailed reply claiming .....

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object clause in the Memorandum of Association of the assessee, the AO came to the conclusion that letting out of property cannot be considered as assessee s business objective. Further, it is not the assessee s case that the said let out was incidental or ancillary to the attainment of the main objects of the company, hence it is the case of leasing out of surplus office place. After considering various decisions of the Hon ble Supreme Court and Hon ble High Court, the AO finally held that inco .....

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held that letting out of property could not be considered as the assessee s main object. 6.1. Before the Ld. CIT(A), the assessee took an alternative plea that in any event if the income is not assessed under the head Business Income , the same should be considered under the head Income from other sources . After giving a thoughtful consideration to this claim of the assessee, the Ld. CIT(A) dismissed the same by holding that there was no machinery or plant which were let out alongwith the buil .....

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the outset, the decision of the Hon ble Supreme Court relied upon by the Ld. Counsel is misplaced and do not match with the facts of the case in hand because in the case of the Hon ble Supreme Court, the commercial asset of the business were temporarily put out of use and let out to another person and on this temporary let out, the Hon ble Supreme Court held that the yield of income by way of commercial asset is the profit of the business. However, in the case in hand, the let out was not tempo .....

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ontradicted his own evaluation of facts. On the one hand, the Ld. CIT(A) has observed that the provisions of Sec. 56(2)(iii) are applicable where the machinery, plant or furniture are let out alongwith building and letting out of building is inseparable from the letting out of said machinery, plant or furniture and on the other hand the Ld. CIT(A) observed that there was no machinery or plant which were let out alongwith the building. The Ld. Counsel further stated that the Ld. CIT(A) has dismis .....

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cable on the facts of the case. 11. We have given a thoughtful consideration to the submissions of the rival parties. The Hon ble Supreme Court in the case of CIT Vs Shambu Investment Pvt. Ltd. 249 ITR 47 has held as under: Where prime object of the assessee under the agreement was to let out the portion of the said property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month. Income der .....

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the computation of deduction claimed by the assessee u/s. 10A of the Act export turnover and total turnover were included on gross basis. The assessee was asked to explain the calculation of export turnover vis-à-vis freight, telecommunication charges, insurance attributable to the delivery of the articles or things or computer software outside India, expenses if any incurred in foreign exchange in providing the technical services outside India. The assessee was also asked to bifurcate s .....

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rges separately, then why it should not be assumed that the said charges/bill amount include delivery costs. According to the AO, unless and until assessee delivers said product/software to the foreign buyer, the said buyers is not going to pay bills raised by the assessee. The AO was of the firm belief that even if no separate charges are charged by the assessee, it does not mean that same are not included within invoice. The AO finally computed the deduction allowable u/s. 10A and computed the .....

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f software packages and services pertains solely to production and development of computer, software and there were no freight, telecommunication charges and insurance included in either export turnover or the total turnover. After considering the facts and the submissions, the Ld. CIT(A) observed that though these expenses were denied to have been incurred but they must have been incurred and the expenses must have been recovered from the foreign customer by making adjustment in the sale bills .....

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other related filed where technical services to be provided to the client. It was explained that the assessee was purely engaged in the development of computer software and therefore there was no occasion for incurring any expenditure for providing any technical services outside India. 15.3. After considering the facts and the submissions, the Ld. CIT(A) observed that it cannot be totally accepted that the assessee did not render any technical services outside India pertaining to the computer s .....

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chnical services outside India. The Ld. CIT(A) finally directed the AO not to consider professional fees, exhibition expenses, royalty and other expenses as pertaining to providing of technical services. In respect of other expenses, the Ld. CIT(A) reduced the allocation to 25% as pertaining to incurred for the purpose of providing technical services outside India and accordingly directed the AO to recomputed the deduction u/s. 10A of the Act. 16. Before us, the Ld. Counsel for the assessee expl .....

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r expenses, if any, incurred in foreign exchange in providing the technical services outside India. 17. It is the say of the Ld. Counsel that the assessee has not recovered any of the expenses nor these expenses were reimbursable by the foreign party. Further, the Ld. Counsel pointed out that the second limb of clause (iv) to Explanation-2 is independent and the issue has been decided in favour of the assessee by the Tribunal in assessee s own case in ITA No. 3464/M/08 for A.Y. 2003-04. 18. The .....

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ssessee s own case in ITA No. 3464/M/08 inter alia considered the following grounds: Ground No. 4: The Ld. CIT erred in holding that the assessee had claimed excess deduction u/s. 10A in respect of its software units. Ground No. 8: The Ld. CIT erred in holding that the aggregate expenses in foreign currency were to be entirely reduced from the Export turnover for the purposes of computing the deduction u/s. 20. The Tribunal at para-7 of its order has considered the following facts: As regards se .....

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/- (iv) Sales & marketing expenses - ₹ 7,70,56,613/ (v) Exhibition expenses - ₹ 14,48,572/- (vi) Royalty - ₹ 51,41,R67/- (vii) Other expenses (net of reimbursement include foreign office expenses) - ₹ 1,67,70,596/- ₹ 11,92,14,246/- 21. The Tribunal observed as under: As regards the ground on which the revision was sought to be made, we find that section 1OA is a special provision relating to newly established undertaking in trading zones and the clause (iv) of E .....

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unication charges or insurance charges attributable to the delivery of articles or things or computer software outside India. . From the facts of the case, it can be seen that the expenditure sought to be reduced from the export turnover is not in the nature of freight, telecommunication charges or insurance charges attributable to the delivery of the software outside India. The other expenditure which can be reduced is the expenditure incurred in foreign exchange in providing the technical serv .....

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urther these decisions also were already delivered when the assessment order was passed on 20.03.2006 and the view adopted by the Assessing Officer is inconsonance with the said decision as held by the Hon ble Supreme Court in the case of Max India Ltd. (supra) and Malabar Industrial Co. (supra). When two different views existed when the commissioner was passing the order, it had to be taken into account and the commissioner has no jurisdictional power to revise u/s. 263. Similar view has also b .....

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relating to proposition no. 1 and also proposition no. 2, we do not see any reason to adjudicate the proposition no. 3 advanced by the Ld. Counsel for the assessee. 21. The expenditures as per Ground No. 6 read as under: Expenditure in Foreign Currency Amount Rs. Travel Expenses 55,64,008/- Salary onsite employees 76,76,341/- Software package & Tools 13,27,805/- Sales & Marketing Expenses 66,80,683/- Total 2,12,48,837/- 22. It can be seen that the expenditures considered in the immediate .....

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Internet Service Provider (ISP), since it got leased ISP line exclusively. It was explained by the Tribunal that if the quoted price is inclusive of such expenses, then consolidated value of the goods is only mentioned in the invoice. In a case where only value of goods is quoted, expense is borne by the supplier. The logic and reason behind this have been explained by the CBDT vide its Circular No. 564 dt. 5.7.1990 that the delivery of the goods should be free on Board. 22.1. In respect of exp .....

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cts of the case in hand, in the light of the decision of the Tribunal discussed hereinabove, we set aside the findings of the Ld. CIT(A) and direct the AO to allow the claim of deduction u/s. 10A as computed by the assessee. Ground No. 4,5 & 6 are accordingly allowed. 23. Ground No. 7 & 8 relate to the claim of deduction u/s. 10A on the profits in respect of Units I & II by claiming that the loss of Unit-III be set off against the income computed under the head Profits & Gains of .....

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ny distinguishing decision in favour of the Revenue. 26. We have carefully perused the orders of the authorities below and the decision of the Hon ble Jurisdictional High Court. We find force in the contention of the Ld. Counsel wherein the Hon ble High Court has held that all the four units of the assessee were eligible u/s. 10B of the Act. Three units had returned a profit during the course of the assessment year, while one unit had returned a loss. Hon ble High Court held that the assessee wa .....

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No. 9,10 & 11 relate to the disallowance u/s. 14A r.w. Rule 8D of the Act. 28. The Ld. Counsel for the assessee stated that because of the smallness of the amount involved, he is not pressing these grounds. Ground No. 9,10 & 11 are accordingly dismissed as not pressed for the smallness of the amount involved. 29. In the result, the appeal filed by the assessee is partly allowed. ITA No. 2750/M/2011 - A.Y. 2006-07 30. The assessee has raised 5 grounds of appeal. Grievance raised vide grou .....

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1,2 & 3 in ITA No. 2672/M/2010. For the detailed reasons given therein, ground No. 3,4 & 5 are dismissed. 33. In the result, the appeal filed by the assessee is partly allowed. ITA No. 5974/M/2010 - A.Y. 2002-03 34. The assessee has raised 17 substantive grounds of appeal 35. Grievance raised vide ground No. 5 & 6 are similar to the grounds raised vide ground No. 4,5 & 6 in ITA No. 2672/M/2010. For the detailed reasons given therein, ground No. 5 & 6 are allowed. 36. Grievan .....

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