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Wipro Ltd. Versus The Deputy Commissioner of Income-tax, Central Circle 1 (3) , Bangalore

Foreign tax credit ('FTC') allowed with respect to income exempt in India - Section 90(1)(a)(ii), 91, 10A, India-USA DTAA, India-Canada DTAA - With respect to the income of the assessee which was exempt in India u/s 10A, assessee paid tax in USA and Canada and claimed in India FTC benefit of the tax so paid in USA and Canada. Tax officer disallowed the claim of FTC on the ground that the said income is exempt in India u/s 10A and therefore does not form part of total income chargeable to tax .....

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r into an agreement with the Government of any country outside India for the granting of relief in respect of income tax chargeable under the Income-tax Act and under the corresponding law in force in that country. - India-USA DTAA - India-USA DTAA does not speak about any tax being paid in India as a condition precedent for granting FTC credit - A perusal of Article 25 of India-USA DTAA makes it clear that if an Indian resident derives any income on which tax is paid USA, then credit of su .....

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reading of Article 23 of India-Canada DTAA makes it clear that for an Indian resident to avail FTC benefit in respect of income from sources within Canada, income must be subjected to tax both in India and Canada, i.e., assessee has paid tax both in India as well as in Canada on the same income. Therefore, if the assessee is exempted from payment of tax in India, then if the same income is subjected to tax in Canada, the FTC benefit is not available to the Indian assessee. - State Income Ta .....

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he relief of double taxation benefit with respect to the latter payment also. Therefore, even in the absence of an agreement under Section 90 of the Act, by virtue of the statutory provision, the benefit conferred under Section 91 of the Act is extended to the income tax paid in foreign jurisdictions. India has entered into agreement with the Federal Country and not with any State within that country. In order to extend the benefit of this, relief or avoidance of double taxation, aforesaid expla .....

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greement between India and the State, the benefit of Section 90 is not available to the assessee is ex-facie illegal and requires to be set aside. - Decided in favour of assessee. - No revised return was filed by the assessee under Section 139 (5) of the Act claiming the relief under Section 90 of the Act read with Double Taxation Avoidance Agreement - Held that:- What the assessee is claiming by way of a letter is to bring to notice of the assessing authority the statutory provisions as wel .....

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ing authority was not justified in rejecting the said claim on the ground that no revised return is filed under Section 139(5) of the Act. In fact, probably the assessing authority was conscious that it is not a valid ground to reject the claim, he proceeded to consider the claim of the assessee on merits and has rejected the claim on merits also. In view of the aforesaid discussions, the said substantial question of law is answered in favour of the assessee and against the revenue and the asses .....

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duty when the finished goods are liable for excise duty, he is entitled to set-off that duty payable by him as against the duty he has paid while purchasing the raw material. If for any reason, the assessee is not able to exhaust the said MODVAT credit available it continues in his accounts. He can avail the benefit whenever he makes sale and the liability to pay the duty arises. But that amount i.e., the unavailed MODVAT credit cannot be treated as an income till it is availed by the assessee. .....

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me and there is no liability to pay tax on such unavailed MODVAT credit. Therefore, in terms of the order of the Tribunal, it is open to the assessing authority to recompute the opening and closing balance by adding the duty paid and duty availed but on the unavailed MODVAT credit, there is no liability to pay any tax. Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue. - Allocation of commission made - Held that:- Salary includes commiss .....

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t also has to be allocated to the unit which he is heading as a full time director. Though there are four units and each unit is carrying on different activities, assessee maintained separate accounts, preparing separate balance-sheets and also preparing profit and loss account, but in law it is the consolidation of four accounts which would be the account of the assessee. It is from the profits derived by the assessee that the salary is paid. The payment of the salary as it is not dependent on .....

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d by the authorities has no legal basis. On the contrary it runs counter to the statutory provisions. - Decided in favour of the assessee and against the revenue. - Exclusion of AMC profits for the purpose of computing deduction under Section 80IB of the Act, when AMC income is derived from the manufacturing units - Held that:- Customers would get attracted to a product, because of the warranty and the after sales maintenance and hence warranty/after sales maintenance is integral to the manu .....

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respect of an industrial undertaking which is involved in the manufacture of computers. Therefore, the assessing authority was not justified in not extending the benefit of Section 80IB to the profits derived from AMC contract in relation to the computers manufactured by the assessee. However, it is to be made clear that, if the assessee is deriving any profit under an AMC contract in respect of computers which are not manufactured by them in the industrial unit at Pondicherry the said income do .....

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et out earlier the assessee is carrying on the manufacturing of computers and sale of computers. He has satisfied all the requirements stipulated in sub-section (2) of Section 80IB and he is eligible for the said exemption. The monitors which he has purchased from outside is used as a spare part in the manufacture of computer and it is sold to the customers as such. In other words, those monitors which are used in the computers are not the traded commodities. Therefore, it is a part of the compu .....

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ately as a traded commodity. In fact, the assessee has not claimed any benefit in respect of those monitors. Therefore, the finding recorded by the authorities that the assessee is not entitled to the benefit of deduction under Section 80IB in respect of the monitors which form part of the computer is hereby set aside. Decided in favour of the assessee - Exclusion of VAT/GST from export turnover and total turnover for the purpose of computing deduction under Sec. 10A - Held that:- In the in .....

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charges from the sale consideration received, sale proceeds received in or brought into India in convertible foreign exchange constitutes the export turnover. If the sale proceeds are credited to a separate account maintained for the purpose by the assessee with any Bank outside India with the approval of the Reserve Bank of India, though the said proceeds are not actually received in India or brought into India, it is deemed to have been received in India and forms part of the export turnover. .....

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t:- The income tax is charged in the previous year in which such stock-in trade is sold. Sale took place in the assessment year 2004-05 and 2005-06. The power of attorney had been executed in assessment year 2001-02. When stock-in-trade is sold by executing a deed for conveyance and duly registered, the question of the said stock-in-trade being otherwise transferred would not arise at all. Therefore, the argument of the Revenue, that on the day the power of attorney was executed when the entire .....

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re is no intention to avoid payment of capital gains. On receipt of such capital gains, the capital gain tax has been paid in the previous year in which the stock-in-trade was sold and therefore the order of the Tribunal as well as the order of the assessing authority is contrary to the aforesaid statutory provisions. As such, it is unsustainable in law. Accordingly, the said two orders are set aside. The order passed by the Appellate Commissioner is restored. - Decided in fav0ur of assessee. .....

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. It has not been received. Therefore, an application is filed seeking for extension of time to the Reserve Bank of India. Even to this day the Reserve Bank of India has not rejected the said request. On the contrary, after the period of 6 months, foreign exchange remittances are received and credited to the assessee's account through the Reserve Bank of India. It is in this context merely because the written approval of extension is not passed by the Reserve Bank of India, whether the assessee .....

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ase, we do not find any error committed by the Tribunal. Therefore, the said substantial question is answered in favour of the assessee - Excluding the computer software sales made to STP units in India from "export turnover" for the purpose of computing deduction under section 10A - Held that:- The said question came up for consideration before this Court in the case Tata Elxsi v. Asst. Commissioner of Income Tax [2015 (10) TMI 634 - KARNATAKA HIGH COURT]. This Court has answered the said .....

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ocated 20% of the total expenditure incurred by corporate division. However, the Assessing Authority is of the view that, the allocation of the expenditure related to salary, wages and allowances and directors' fee should be dependent on the revenue generated and therefore he did not accept the allocation of 20% of expenditure to each of the unit. There is no provision of law which is pointed out to us which states that the allocation of expenditure should be proportionate to the revenue generat .....

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in respect of its subdivisions. In those circumstances, the Assessing Officer and the First Appellate Authority were not justified in allocating the substantial portion of the amount as the expenses incurred in respect of Section 10A and disallowing the deduction. That is precisely what the Tribunal has held on proper appreciation of the material on record. In that view of the matter we do not find any justification to interfere with the well considered order of the Tribunal. - Decided in favou .....

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was held to be sham. Now whether those transactions were for the market price or the shares had no value but purchased on account of the previous contract and thereby the assessee incurred any loss in the business, is a matter to be gone into by the Tribunal. The Tribunal had not gone into the said question and, therefore, the matter is remanded back to the Tribunal to decide the said question and record a finding thereon. - Exclusion of 80% of uplinking charges when the appellant and the r .....

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y no reasons are forthcoming for deviating from the consistent practice. Under these circumstances, it would be proper to set aside the finding recorded by the Tribunal and remand the matter to the Tribunal to decide the matter afresh taking into consideration the consistent practice followed by the authorities in the case of the assessee itself. That would meet the ends of justice. - Interest received under Section 244-A - whether would be taxable in the year of receipt of the said interest .....

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9/2008, 880/2008, 881/2008, 904/2008, 905/2008, 108/2009. 109/2009, 210/2009, 211/2009, 209/2009, 333/2009, 334/2009 & 363/2009 - Dated:- 25-3-2015 - N.KUMAR AND B. SREENIVASE GOWDA, JJ. For The Appellant : Venkataraman, Senior Counsel and Dr. R.B. Krishna, Adv. For The Respondent : E.R. Indrakumar, Senior Counsel and K.V. Aravind, Adv. JUDGMENT These batch of appeals filed by the assessee and the revenue/department arise out of the orders passed by the Bangalore Bench of the Income Tax Appellat .....

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mputer peripherals, IT enabled services, manufacture and sale of vegetable oils, soaps, leather products, hydraulic cylinders and tippers, and manufacture of reagents as well as marketing and support of medical equipment and other related businesses. The business of the company is carried on through the various business units or divisions of the company. It is the case of the assessee that it runs each business unit as an independent profit center. Accordingly separate accounts are maintained fo .....

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e Income Tax Act (for short, hereinafter referred to as the 'Act') to the extent of ₹ 620,17,27,569/-. 4. The case for assessment year 2001-02 was selected for scrutiny and notice u/s 143(2) was issued on 09.11.2001. The assessee moved a rectification application u/s 154 for having wrongly claimed deduction u/s 80HHC at 100% instead of 80%. Rectification order was passed on 19.02.2002 and the income was determined at ₹ 114,72,43,817/- u/s 143(1) read with Section 154. Notice .....

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2001-02. The demand, after making adjustments for interest, advance tax and tax refunded, was quantified at ₹ 261,45,68,657/-. 5. Assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which was disposed-off by the CIT(A) vide order dated 20.03.2006. Aggrieved by the said order, both the assessee and the Department preferred separate appeals before the ITAT. The ITAT, vide common order dated 30.05.2008 disposed of the appeals. Assessment Year - 2002-03 - ITA .....

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25.01.2005, 08.02.2005, 14.03.2005 and 15.03.2005. The assessee-company filed written replies along with enclosures from time to time. Assessment u/s 143(3) was completed and order dated 31.03.2005 was passed after making certain allowances/ disallowances. The total income of the assessee-company was determined at ₹ 717,81,57,770/- for assessment year 2002-03. The demand, after making certain adjustments for interest, advance tax and tax refunded, was quantified at ₹ 261,66,03,694/- .....

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2003-04 on 27.11.2003 disclosing a total income of ₹ 164,86,92,630/- after claiming deduction u/s 10A of the Act to the extent of ₹ 763,34,75,604/-. The assessee had claimed relief under Double Taxation Avoidance Agreement u/s 90 in the return amounting to ₹ 20,99,63,631/-. The assessee also claimed TDS of ₹ 9,55,12,095/- and advance tax payment of ₹ 69,40,50,000/-. The assessee claimed refund of ₹ 39,36,31,184/-. The return of income was processed u/s 143(1) .....

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ment year 2003-04 was passed after making certain allowances/disallowances, re-computation of deductions u/s 10A and 80-IB leading to a taxable income of ₹ 740,10,34,452/. 9. Assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which was disposed-off by the CIT(A) vide order dated 29.03.2007. Aggrieved by the said order, both the assessee and the Department preferred separate appeals before the ITAT. The ITAT, vide order dated 31.10.2008 disposed of the app .....

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eturn filed the tax payable was ₹ 48,38,27,302/-. The assessee also claimed TDS of ₹ 6,02,14,066/- and advance tax payment of ₹ 59,50,80,000/-. The assessee claimed refund of ₹ 17,12,21,725/-. The return of income was processed u/s 143(1) on 31.01.2005 and the case was selected for scrutiny and notice u/s 143(2) was issued on 14.02.2005. A questionnaire was issued on 27.04.2006 calling for certain details and the compliance was fixed on various dates beginning from 19.05. .....

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aid order, the Department preferred an appeal before the ITAT. The assessee filed a Memorandum of Cross Objections. The ITAT, vide order dated 30.01.2009 disposed of the appeal and the Cross objections. Assessment Year 2003-04 - ITA No. 209/2009; 12. There are two more substantial questions of law arising out of the order dated 26.09.2007 passed by the Commissioner u/s 263 of the Act. Assessee filed an appeal to the ITAT in ITA No. 1178/2007 and ITAT disposed-off the appeal vide order dated 31.1 .....

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answered by the Apex Court. However, some of the substantial questions of law do arise for consideration for the first time in these appeals. They are now first taken up for consideration. Substantial question of law No. 1 [Question of law No. (e) in ITA No. 879/2008, 880/2008 and 334/2009; Question of law No. (d) in ITA No. 108/2009 (Assessee's appeal)] "Whether the Tribunal was right in holding that credit for income tax paid in a country outside India in relation to income eligible f .....

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ake the nature of total income chargeable to tax as per provisions of section 4 of the Act and therefore not entitled to?" 14. The assessee-company is engaged in the business of export of computer software including services for on-site development of software through its permanent establishment (PE) in many countries such as USA, UK, Canada, Japan, Germany. The assessee computes the profits attributable to the PEs, pays the applicable income taxes on such profits and files the returns of i .....

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hments in foreign countries and also the incomes which are subjected to withholding tax in foreign countries. 15. The assessee-Company claims that it is entitled to relief of such income taxes paid in the foreign jurisdiction. The entitlement to relief of foreign tax is governed by the relevant Double Taxation Avoidance Agreements (DTAAs) with the foreign countries or specified territories as the case may be. For the assessment year 1990-91 in the case of Wipro Infotech Limited (the assessee' .....

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139(5) was required. The limitations of the domestic tax law, if any, would also not apply where relief is to be allowed as per the provisions of DTAA. 16. By a letter dated 10.02.2004, request was made to allow tax credit of ₹ 24,94,67,448/- at the fag end of the assessment proceedings which was erroneously not claimed earlier. . Therefore, the assessee raised a claim for tax credit for the tax paid in foreign countries. The assessing authority relying on Section 139(5) of the Act held th .....

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other countries, he has held that he is not in a position to allow tax rebate at this juncture. However, in the assessment order passed for the assessment year 2002-03, where break-up figures were furnished, he has discussed this question at length. After considering the said break-up figures, the assessing authority held that the assessee's claim of foreign tax credit is on the ground that the entire earnings in respect of claim under Section 10A has been included in computing the total inc .....

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being claimed under the provisions of Section 90, which is applicable for the grant of relief in respect of income on which have been paid both income tax under this Act and Income Tax in the foreign country. The issue of credit under Section 90 clearly does not arise. Then, after referring to agreements with various countries and after referring to the judgments on which reliance was placed it was held the claim made by the assessee for foreign tax credit is not admissible. The assessee has al .....

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or the foreign tax payment is being considered. 18. Against the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The CIT(A) relying on the Judgment in the assessee's case itself for the assessment year 1990-91 as well as 2000-01 where foreign tax credit was allowed, allowed the claim of the assessee for all the years, setting aside the order passed by the assessing authority. 19. Aggrieved by the said order, the revenue preferred an appeal to the Trib .....

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ession. In respect of the income of the unit qualifying for deduction under Section 10-A, income tax is neither paid nor incurred. The Apex Court in the case of CIT v. Williamson Financial Services & Ors. (297 ITR 17) dealing with computation of deduction under Section 80HHC in respect of profits from export of tea held that Section 10 groups in one place various incomes which are exempt from tax. In respect of incomes on which deductions under Chapter VI-A are allowed, such incomes are whol .....

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lable under Section 90(1)(a). Under Section 90(1)(b), the Central Government may enter into an agreement with the Government of any country outside India for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country. For application of Section 90(1)(b), one is required" to go with the DTAA. Though the assessing officer has discussed this issue in detail in his order but the CIT(A) has not considered the arguments advanced by the asses .....

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y. 21. Therefore, the finding of the Tribunal that credit for income tax paid in other country in relation to income under Section 10A will not be available under Section 90(1)(a) would stand and the appellate authority has to decide the appeal in the light of the aforesaid statement of law. Aggrieved by the said legal proposition laid down by the Tribunal, the assessee has preferred this appeal. 22. Sri N.Venkataraman, learned Senior Counsel appearing for the assessee assailing the impugned ord .....

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Section 10A income is chargeable to tax in view of Section 4 of the Act. However, subject to the assessee satisfying the conditions prescribed income under Section 10-A is exempted from making such payment. Once the assessee is made to pay tax on such exempted income in the other contracting State then Section 90(1)(a) (ii) enables him to claim credit of the tax paid in the contracting country. Though this provision 90(1)(a)(ii) came on the statute book from 01.04.2004, it is clarificatory in na .....

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background of Section 90(1)(a)(ii). He further submitted that in cases where income is subjected to tax, there is no difficulty. The entire amount subjected to tax is given credit which is known as "ordinary tax credit". Further, in the case of the agreements where expression used is subjected to tax on income derived, if the entire export income is not exempted from payment of tax, to the extent the income is subjected to tax, the assessee would be entitled to foreign tax credit. He f .....

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n a sum calculated on such doubly taxed income at the Indian rate of tax or rate of tax of the said country whichever is lower or at the Indian rate of tax if both the rates are equal. "The word "country" has been explained in Explanation (iv) where it provides that the expression "Income Tax" in relation to any country includes any excess profit tax or business profit tax charged on the profits by the Government of any part of that country or a local authority in that c .....

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ed he submitted the claim is in the nature of eligibility for tax relief under the Act. When he has furnished the particulars of the income and all other relevant particulars the relief to which the assessee is entitled to is a matter to be determined at the time of assessment. At that stage, he has put forth his claim. If the assessee is not liable to pay tax under the Act merely because he did not put forth the claim in the return he cannot be denied this benefit. Decision pertaining to mandat .....

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so, he is not entitled to credit of any tax paid in the contracting country. He submits that the idea behind the foreign tax credit is that the same income should not suffer taxation twice. When an income suffers taxation in both source and resident jurisdiction, tax paid in first jurisdiction needs to be allowed as tax credit in other jurisdiction. Consequently, if a source of income is taxed only in one jurisdiction, no tax credit or relief is required for other jurisdiction. The assessee' .....

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ch does not form part of the total income under the Act and therefore, he submits no case for interference with the judgment of the Tribunal is made out. Section 90(1)(a)(ii) came into effect from 01.04.2004. It is not retrospective in operation nor it is clarificatory as sought to be made out and therefore, at any rate the assessee is not entitled to any benefit under this provision for the assessment years prior to 01.04.2004. Further, he contended that tax paid or tax payable cannot be deduct .....

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it is not necessary for this Court to decide these legal issues in this appeal. 25. It is in this, background of rival contentions, the substantial question of law framed in these appeals has to be answered. 26. The answer to the question depends on the interpretation to be placed on Section 90 which is found in Chapter IX which deals with Double Taxation Relief. 27. Section 90 deals with agreement with foreign countries or specified territories. The present Section came into force from 01.04.2 .....

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amend section 90 of the Income-tax Act relating to agreement with foreign countries. The existing provisions of the said section, inter alia, provide that the Central Government may enter into agreement with the Government of any country outside India for granting of relief in respect of income on which have been paid both income-tax under the Income Tax Act and income-tax in that country, or for the avoidance of double taxation of income under that Act and under the corresponding law in force i .....

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003 reads as follows: "Double Taxation Avoidance Agreements-extending the scope to include agreements for developing mutual trade and investment Under the existing section 90, the Central Government may enter into an agreement with the Government of any country outside India for granting of relief in respect of income on which have been paid both income-tax under the Income-tax Act and income-tax in that country, or for the avoidance of double taxation of income under this Act and under the .....

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Section 90 reads as under :- "Agreement with foreign countries or specified territories. 90 (1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India, - (a) for the granting of relief in respect of- (i) income on which have been paid both income tax under this Act and income-tax in that country or specified territory, as the case may be, or (ii) income-tax chargeable under this Act and under the correspondin .....

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ory, as the case may be, or investigation of cases of such evasion or avoidance, or "(d) for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outsi .....

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defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent -with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf" 30. Sub-section (1) lays down that the Central Government may enter into an agreement with the Government of another country. Clause (a) (i) contemplates situation when t .....

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x. With effect from 1.4.2004, clause (a)(ii) was substituted to provide for entering into an agreement for granting relief in respect of income tax chargeable under this Act and under corresponding law in force in that country, to promote mutual economic relations, trade and investment. With this amendment the power of the Central Government has been greatly widened and it can now enter into agreement not only for avoidance of double taxation, but also for granting relief for income exempt from .....

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e countries was sine qua non. However, by the amendment made by the Finance Act 2003, the benefit of granting the relief was extended to even in respect of income tax chargeable under the Act. Therefore, the payment of income tax in both jurisdictions is not sine qua non any more for granting the relief. This provision was introduced with the object of promoting mutual economic relations, trade and investment. In other words, it was a policy of the Government. 33. When there is a specific provis .....

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the same income. Section 91 makes it clear that if a person who is residing in India has paid tax in any country with which, there is no agreement under Section 90 for the relief or avoidance of double taxation, income tax if deducted or otherwise paid as per law in force in that Country, then he shall be entitled to the deduction from the Indian Income Tax payable by him in a sum computed on such doubly taxed income, at the Indian rate of tax or the rate of tax of the said country, whichever i .....

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under Section 90 of the Income Tax Act, 1961, also provide that the laws in force in. either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contrary have been made in the. agreement. Thus where a Double Taxation Avoidance Agreement provided for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income Tax Act. Where there is no specific provision in the agr .....

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of Union of India And Another v. Azadi Bachao Andolan And Another reported in 263 ITR 706. Dealing with the purpose of provisions for avoidance of double taxation, the Supreme Court at page 721 held as under : "Every country seeks to tax the income generated within its territory on the basis of one or more connecting factors such as location of the source, residence of the. taxable entity, maintenance of a permanent establishment, and so on. A country might choose to emphasise one or the o .....

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greements for granting relief against double taxation. Such treaties, conventions or agreements are called double taxation avoidance treaties, conventions or agreements. The power of entering into a treaty is an inherent part of sovereign power of the State. By Article 73, subject to the provisions of the Constitution, the executive power of the Union extends to the matters with respect to which the Parliament has power to make laws. Our Constitution makes no provision making legislation a condi .....

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upon Indian nationals. The power to legislate in respect of treaties lies with the Parliament under entries 10 and 14 of List I of the Seventh Schedule. But making of law under that authority is necessary when the treaty or agreement operates to restrict the rights of the citizens or others or modifies the law of the State. If the rights of the citizens or others which are justiciable are not affected, no legislative measure is needed to give effect to the agreement or treaty. When it comes to f .....

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ion 90 of the Act." 37. It is in this background, when we notice Section 90 of the Act - relief from double taxation is granted in the following circumstances. Firstly, Section 90 (1)(b) of the Act speaks about avoidance of double taxation i.e., Central Government may enter into an agreement with the Government of any country for the avoidance of double taxation of income under this Act and under the corresponding law in force in other country i.e., when tax is payable on income under this .....

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could be given by giving credit of the tax paid in the foreign country to the assessee in India. In cases covered under this provision the assessee pays tax in both the jurisdictions. After payment of such tax, he is entitled to double taxation relief by way of credit in respect of the tax paid in the foreign jurisdiction. 39. Thirdly, in cases covered under Section 90(1)(a)(ii) of the Act it is not a case of the income being subjected to tax or the assessee has paid tax on the income. This appl .....

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his country, by negotiations with the other countries, they could also be requested to extend the same benefit. If the contracting country agrees to extend the said benefit, then the assessee gets the relief. In another scenario, though the said income is exempt in this country, by virtue of the agreement, the amount of tax paid in the other country could be given credit to the assessee. Thus for the payment of income tax in the foreign jurisdiction, the assessee gets the benefit of its credit i .....

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gets no benefit. However, if the benefit is extended to a portion of the income say for example 90% and 10% is subjected to tax then to that extent the assessee would be entitled to benefit of tax credit as he has paid tax in the foreign jurisdiction as per Section 90 (1)(a)(i) of the Act. 41. In this connection, it is contended on behalf of the Revenue that if the income is chargeable to tax in India, then only the assessee can have the benefit of tax credit in respect of the tax paid in foreig .....

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sions (including provisions for the levy of additional income tax) of this Act) in respect of the total income of the previous year of every person". Sub-section (2) of Section 4 provides, "In respect of income chargeable under subsection (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act". Section 2(45) of the Act defines total income as under:- "Total income" means the total amount of .....

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year; or (c) accrues or arises to him outside India during such year". The proviso speaks about a person not ordinarily resident. 43. Chapter III deals with Incomes which do not form part of Total Income. One such income which does not form part of a total income is contained in Section 10A; i.e. income of newly established undertakings in free trade zone, etc. Section 10A(1) provides, "Subject to the provisions of this section, a deduction of such profits and gains as are derived by .....

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s. The profits and gains derived by such undertaking would form part of the income chargeable to income tax under Sections 4 and 5 of the Act. Therefore, when an assessee is having several undertakings, one of which falls under Section 10A, the assessee's entire income from all the undertakings is computed to arrive at the total income. However, the income from such undertaking falling under Section 10A has to be deducted from the total income. 45. Chapter IV deals with the computation of to .....

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e legal position regarding the effect of Section 90 vis-à-vis Sections 4 and 5 held as under:- "A survey of the aforesaid cases makes it clear that the judicial consensus in India has been that section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a double taxation avoidance agreement. When that happens, the provisions of such an agreement, with respect to cases to which where they apply, would oper .....

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ections with the said clause is to enable the Central Government to issue a notification under section 90 towards implementation of the terms of the DTAAs which would automatically override the provisions of the Income-tax Act in the matter of ascertainment of chargeability to income tax and ascertainment of total income, to the extent of inconsistency with the terms of Double Taxation Avoidance Contract 47. Having regard to the object sought to be achieved by enacting Section 90 of the Act, the .....

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liance is placed on the judgment of this Court in the case of Commissioner of Income Tax and another v. Yokogawa India Ltd., and others reported in (2012) 341 ITR 385 (Karn.) In fact in the aforesaid judgment, this Court has held at paras 13, 14 & 15 as under: 13. Section 2(45) defines "total income" to mean the total amount of income referred to in Section 5 and computed in the manner laid down in the IT Act. Section 5 defines the scope of total income and it is subject to the pro .....

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cannot be understood in the same sense as in S.2(45). 14. The phrase "Total income" has been used in the IT Act in several places with different connotations and shades. The phrase "total income" used in S.10A is one such variant. The phrase need not necessarily mean the total income as computed in accordance with the provisions of the Act. The relief under this section is with reference to the STP undertakings and not to the assessee. In other words, the relief travels with .....

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iness as a whole has to be computed. The phrase "total income" used in Section 10A(1) is, therefore, to be understood as the total income of the STP unit. This-is-clear from the first proviso to Section 10A(1) which makes a reference to the total income of the undertaking and not to the total income of assessee. The definition of any term given in Section 2 will apply only when the context does not otherwise require. The placement, language and setting of Section 10A cannot mean the to .....

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ny head of income is to compute the same. The twin conditions of Section 14 are that income is subject, to charge of income-tax and is includible in the total income. As the relief under Section 10A is in the nature of exemption although termed as deduction and the said relief is in respect of commercial profits, such income is neither subject to charge of income tax nor includible in the total income. Therefore, the twin provisions of Section 14 are not existing in the case of income of STP und .....

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commercial profits and tax profits. 49. In the said judgment, the position has been made very clear. The phrase 'total income' has been used in the Income-tax Act in several places with different connotations and shades. The phrase "total income" used in Section 10A is one such variant. The phrase need not necessarily mean the total income as computed in accordance with the provisions of the Act... The relief under this section is with reference to the STP undertakings and not .....

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ess or profession". Under the above head, the income from business as a whole has to be computed. The phrase "total income" used in section 10A(1) is, therefore, to be understood as the total income of the STP unit. This is clear from the first proviso to section 10A(1) which makes a reference to the total income of the undertaking and not to the total-in-come of the assessee. The definition of any term given in section 2 will apply only when the context does not otherwise require .....

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iament was aware of the character of relief given in Chapter III. Chapter III deals with incomes which do not form part of total income. ' If Parliament intended that the relief under section 10A should be by way of deduction in the normal course of computation of total income, it could have placed the same in Chapter VI-A which houses the sections like 80HHC, 80-IA, etc. Parliament was aware of the various restrictions and limitations of provisions like section 80A and section 80AB which is .....

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. These are the incomes which are exempted from charge, but are included in the total income of the assessee. Parliament, despite being conversant with the implications of this Chapter, has consciously chosen to retain section 10A in Chapter III. 51. If section 10A is to be given effect to as a deduction from the total income as defined in Section 2(45), it would mean that section 10A is to be considered after Chapter VI-A deductions are given from out of the gross total income. The term "g .....

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refore, it would be inappropriate to conclude that section 10A deduction is to be given effect to after Chapter VI-A deductions are exhausted. 52. Section 10A (1) speaks of "deduction". The deduction is of profits and gains for a period of ten consecutive assessment years. The said deduction is from the total income of the assessee. Therefore, the total income before allowing the said deduction includes the profits and gains from the business referred to in Section 10A(1). Section 5 of .....

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in respect of the said unit is exempted from payment of income tax. The very fact that it is exempted from payment of tax means but for that exemption such income is chargeable to tax. This relief under Section 10A is in the nature of exemption although termed as deduction. But for this exemption, the said income namely profits and gains derived by an undertaking, is chargeable to tax under the Act. The said exemption is only for a period of ten years. After the expiry of the said ten years the .....

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untry outside India for the granting of relief in respect of income tax chargeable under the Income Tax Act or under the corresponding law in force in that country, to promote mutual economic relations, trade and investment. Therefore, the statute by itself is not granting any relief. But, by virtue of the statute, if an agreement is entered into providing for such relief, then the assessee would be entitled to such relief. 53. Relying on the judgments in the case of Wallace Flour Mills Contract .....

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rising under Customs Act at para 21 has held as under: The power to grant exemption from payment of duty, additional duty etc. under the Act, as already noticed, flows from the provisions of Section 25(1) of the Act. The power to exempt includes the power to modify or withdraw the same. The liability to pay customs duty or additional duty under the Act arises when the taxable event occurs. They are then subject to the payment of duty as prevalent on the date of the entry of the goods. An exempti .....

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ied or subjected to other conditions. The supersession or revocation of an exemption notification in the "public interest" is an exercise of the statutory power of the State under the law itself as is obvious from the language of Section 25 of the Act." 55. Similarly, the Apex Court in the case of Wallace Flour Mills Co. Ltd., v. Collector of Central Excise, Bombai, Division III reported in 44 ELT 598 at para 4 has held as under: "Excise is a duty on manufacture or production .....

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Karnataka Cement Pipe Factory v. Supdt. of Central Excise (1986 23 ELT 313) (Karn HC)), where it was decided that the words 'as being subject to a duty of excise' appearing in section 2(d) of the Act are only descriptive of the goods and do not relate to the actual levy. "Excisable goods", it was held, do not become non-excisable goods merely by reason of the exemption given under a notification. 56. Therefore, it follows that the income under Section 10A is chargeable to tax .....

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ome not leviable to income tax. The said exemption granted under the statute stands revoked after a period of 10 years. Therefore, the case falls under Section 90(1)(a)(ii). 57. In the background of this legal position, we have to look into the Double Taxation Agreements entered into between India and United States, Canada. (1) INDO-US AGREEMENT: 58. Article 25 of the Indo - US Double Taxation Agreement deals with Relief from double taxation. Clause 2(a) is the relevant provision. It reads as un .....

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the United States." 59. A perusal of the aforesaid provision makes it clear that if a resident Indian derives income, which may be taxed in United States, India shall allow as a deduction from the tax on the income of the resident, amount equal to the income tax paid in United States of America, whether directly or by deduction. The conditions mandated in the treaty is that if any "income derived" and "tax paid in United States of America on such income", then tax relief .....

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. Therefore, this provision is in conformity with Section 90(1) (a) (ii) of the Act i.e., the income tax chargeable under the income-tax Act and in the corresponding law in force in United States of America. "V Therefore, it is not the requirement of law that the assessee, before he claims credit under the Indo - US convention or under this provision of Act should pay tax in India on such income. However, the said provision makes it clear that such deduction shall not, however, exceed that .....

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l and closes on 31st of March of the succeeding year. Whereas in America, the 1st of January is the commencement of the assessment year and ends on 31st of December of the same year. Therefore, the income derived by an Indian resident, which falls within the total income of a particular financial year when it is taxed in United States, falls within two years in India. Therefore, while claiming credit in India, the assessee would be entitled to only the tax paid for that relevant financial year i .....

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s that the laws in force in either of the Contracting States will continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this agreement. In the case of India double taxation should be eliminated as follows: "(a) The amount of Canadian tax paid, under the laws of Canada and in accordance with the provisions of the Agreement, whether directly or by deduction, by a resident of India, in respect of income from sources w .....

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bjected to tax both in India and Canada, which forms part of the total income of the assessee and has suffered tax in India under the Income tax Act and has suffered tax in Canada also i.e., assessee has paid tax both in India as well as in Canada on the same income. Then the agreement provides the tax paid in Canada shall be allowed as a credit against the Indian tax payable in respect of such income. However, the said benefit is confined only to the extent of an amount not exceeding that propo .....

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ax in Canada, according to the treaty, there is no double taxation. Therefore, the benefit of this treaty is not available to the Indian assessee. 62. It is submitted on behalf of the assessee that by virtue of the formulae prescribed under Section 10-A (4), entire export profits had not got exempted under Section 10-A, residuary surplus being subjected to tax both in India and Canada. This residuary surplus could qualify for tax credit as it is subjected to tax in both the countries. 63. As is .....

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n of the income falling under Section 10-A is subjected to tax then, by virtue of aforesaid provision, the tax paid in Canada corresponding to the income subjected to tax in India, the assessee would be entitled to credit of the tax paid in Canada. However, this exercise has to be done by the assessing authority on the basis of materials to be produced by the assessee and after giving effect to the formulae prescribed under Section 10-A(4) of the Act. (3) NO AGREEMENT WITH STATES: 64. Whether th .....

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rue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country whichever is the lower, or at the Indian rate of tax if both the rates are equa .....

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ly taxed income even though there is no agreement under Section 90 for the relief or avoidance of double taxation. Explanation (iv) defines the expression income tax in relation to any country includes any excess profit tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country. Therefore the intention of the Parliament is very clear. The Income Tax in relation to any Country includes Income Tax paid in any part of the co .....

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en in the absence of an agreement under Section 90 of the Act, by virtue of the statutory provision, the benefit conferred under Section 91 of the Act is extended to the income tax paid in foreign jurisdictions. India has entered into agreement with the Federal Country and not with any State within that country. In order to extend the benefit of this, relief or avoidance of double taxation, aforesaid explanation explicitly makes it clear that income tax in relation to any country includes the in .....

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essee is ex-facie illegal and requires to be set aside. RETROSPECTIVE OR PROSPECTIVE 67. Whether the amendment to Section 90(1) vide Finance Act, 2003 is retrospective in operation or is clarificatory in nature. The Indo-US Treaty was entered into on 20.12.1990 vide notification GSR 199(E) dated 20.12.1990. The substituted section came into force from 1.4.2004. Now the question is whether provision is retrospective in operation or clarificatory in nature? Sub-section (2) of Section 90 which has .....

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s is, if the provisions contained in Section 90 is more beneficial to the assessee as compared to the terms in the agreement by India with the Government of any country outside India then, notwithstanding such agreement, the provisions of the Act to the extent they are beneficial to that assessee apply. The benefit claimed by the assessee is by virtue of the terms of the agreement. The agreement came into existence in 1990. The amended provision came into existence from 1.4.2004. In fact, the am .....

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90 towards implementation of the terms of DTAs which would automatically over-ride the provisions of Income Tax Act in the matter of ascertainment of chargeability to income tax and ascertainment of total income, to the extent of inconsistency with the terms of DTAC". 69. Therefore, if prior to the. amendment, there was no thorough provision granting the said benefit as the said benefit was conferred on the assessee under DTAs, the assessee was entitled to the said benefit as DTAs over-rid .....

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by the assessee under Section 139 (5) of the Act claiming the relief under Section 90 of the Act read with Double Taxation Avoidance Agreement. Only a letter claiming the said relief was filed before assessment and the same cannot be taken into consideration. 72. Section 139(5) of the Act provides that, if any person, having furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of Section 142, discovers any omission or any wrong statement therein, he .....

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and setting forth such other particulars as may be prescribed. If in such return the assessee discovers any omission or any wrong statements therein which has to be necessarily with reference to his income and if it is sought to be corrected, then it could be done only by resorting to a revised return under Section 139(5) of the Act. The income contemplated by Section 139(1) of the Act can only be the income which the assessee bona fide believes to be his income and not the income as finally -as .....

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s not with regard to a claim that would vary the income of the assessee. The issue is with regard to allowing a credit on account of tax paid outside India in respect of which particulars were furnished to the assessing authority during the course of assessment proceedings before the assessment is passed. It is bound to be entertained and dealt with on merits. Once the return is filed and the income tax officer commences the assessment proceedings, the assessing authority is not the tax payer .....

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dit for all prepaid taxes referred to in Section 234B. 73. The CBDT Circular No. 14 (XL-35) dated 11.4.1955 states to the effect that it is the duty of the assessing officer to make available to the assessee any legitimate and legal tax relief to which the assessee is entitled, but has omitted to claim for one reason or another. Merely because the assessee in the return filed under Section 139(1) has not put forth a claim for relief, he cannot be estopped from getting the tax relief if he is ent .....

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is claiming tax credit/relief and decide whether the assessee is entitled to such relief out of the tax liability on the total income in respect of which he has filed the return under Section 139(1) of the Act. As the tax liability is fastened on the assessee on the basis of the statutory provisions, if any statutory provision gives the assessee the tax benefit, the assessing authority is legally bound to consider the same 'and grant him relief. In the course of assessment the said claim can .....

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Section 139(1) of the Act. Once the assessee files the necessary particulars and claims relief under the provisions of the Double Taxation Avoidance Agreement, the limitation placed by domestic law would yield to the tax relief provided for under the Double Taxation Avoidance Agreement. Therefore, the assessing authority was not justified in rejecting the said claim on the ground that no revised return is filed under Section 139(5) of the Act. In fact, probably the assessing authority was consc .....

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is availed of prior to the due date for filing the return of income is deductible under Section 43B when it is apparent that MODVAT credit availed on goods purchased by the appellant is not a sum payable by the appellant and accordingly Section 43B itself is not applicable to the MODVAT credit?" [Question of law No. (c) in ITA Nos. 879/2008, 880/2008 and 108/2009; Question of law No. (d) in ITA 334/2009 - (assessee's appeal)) 75. The case of the assessee is that the finished goods are l .....

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goods manufactured by the company. Thus, the MODVAT credit did not form part of cost of purchase. As the valuation of stock of raw-material, work in progress and finished goods is at cost, the effect of MODVAT credit which is not a part of the cost was not included in the said stock. However, it was made clear that even if the MODVAT credit is included in cost of purchase such accounting practice will not alter the profit, of the year. The assessing authority did not accept the case of the asses .....

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t of ₹ 7,11,43,455/- be added to the value of the closing stock of the raw-materials. As the assessee had an opening balance of unavailed MODVAT credit to the extent of ₹ 5,78,92,690/-, the MODVAT credit was adjusted accordingly. Still a balance of ₹ 1,32,50,765/- MODVAT credit was available and that was directed to be added back to the total income on account of the impact of unavailed MODVAT credit on the closing stock. It is this adding back of unavailed MODVAT credit to the .....

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HA) held that the unavailed MODVAT credit cannot be allowed as deduction under Section 43B. It further held that if the excise duty paid by the assessee is to be included in the closing stock, then the same is to be considered in purchase as the closing stock is a figure to balance the item of purchase left at the end of the year. If MODVAT credit available on closing stock is set-off before the due date of filing of return, then such amount is available for deduction and not restricted under Se .....

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is to be reflected in the closing balance as well as in the opening balance of the next year. Though earlier they were maintaining accounts on the basis of net value of raw-material without including the Excise duty, in view of Section 145A if excise duty is added it makes difference insofar as the valuation of the goods are concerned but no difference in the profit for the year. But the question is whether the unavailed MODVAT credit can be added back as the income of the assessee. In this rega .....

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e added to the cost price of the raw-material. If the MODVAT credit is availed by the assessee at the time of sale of finished products to that extent, he would be entitled to deduction. If MODVAT credit still remain unavailed, it is to be added to the closing balance and that has to be taken into consideration in deciding the profit earned by the assessee and tax is liable to be paid on the said unavailed MODVAT credit. 78. Therefore, the short question that arise for our consideration is wheth .....

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unt to the income of each of these assessees." Answering the said question it was held as under: "We are unable to accept the view of the assessing officer that merely because the MODVAT credit is an irreversible credit available to the manufacturers upon purchase of duty paid on raw-materials, it would amount to income which is liable to be taxed under the Act. 79. Therefore, it is clear that by virtue of Section 145A of the Act, the valuation of purchase and sale of goods and invento .....

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followed a particular accounting practice where the cost of raw-material is taken into consideration as net value, even while determining the value of the finished products that net value could have been adopted. There was no obligation to include any tax, duty, cess or fee in the cost of raw-material. Having regard to the confusion on the conflicting views expressed by various Courts, the Parliament thought it fit to amend the law and introduce Section 145A taking away the decision which was in .....

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purchasing the raw material. If for any reason, the assessee is not able to exhaust the said MODVAT credit available it continues in his accounts. He can avail the benefit whenever he makes sale and the liability to pay the duty arises. But that amount i.e., the unavailed MODVAT credit cannot be treated as an income till it is availed by the assessee. Section 43B provides that if a deduction is claimed of duty, unless the duty is paid, he would not be entitled to claim deduction. Now, the questi .....

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nd closing balance by adding the duty paid and duty availed but on the unavailed MODVAT credit, there is no liability to pay any tax. Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue. Substantial question of law No.3 "Whether the Tribunal is right in holding that the allocation of commission made by the respondent had to be upheld?" [Question of law No. (a) in ITA Nos. 879/2008, 880/2008 and 334/2009 - (assesse's appeal)] 80. .....

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its directors. The directors of the company were entitled for commission on the services rendered on the basis of percentage of profit earned. The commission paid to its directors was allocated by the assessee to the units which these directors, are heading as whole time directors. The assessing authority was of the view that allocation of this commission" should be on the basis of the profits earned by each unit. Therefore the assessing authority re-allocated the said commission on the bas .....

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81. Aggrieved by the said re-allocation of the commission, the assessee preferred an appeal to the Commissioner of Income-tax appeals. 82. The appellate authority declined interference with the said order of the assessing authority. Aggrieved by the same, assessee has preferred an appeal to the Tribunal. 83. The Tribunal held that the profit from the undertaking which is 'qualifying for deduction under Section 10(A) is a source of making payment of commission to the directors. The payment of .....

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they are heading as whole time directors. Commission is a part of salary. The ability of earning profits in the future in a competitive environment depends on the strategies and the investment decisions made on an ongoing basis. Such decisions are taken up by the directors of the company collectively. Even though credit should go to all directors collectively irrespective of the unit which is making profit, it cannot be ignored that each one of them is in-charge of the respective unit exclusive .....

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source of making payment of commission, the commission paid to the extent of percentage of profit made should necessarily be allocated to the said unit, otherwise the profit margin of the unit which is exempted from payment of tax would be huge and such determination is improper and therefore he submits the allocation of commission to 10A unit made by the authorities is legal and valid and did not call for any interference. 86. It is not in dispute that the assessee is carrying on various busin .....

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. Section 198 of the Companies Act 1956 deals with overall maximum managerial remuneration payable to the directors which reads as under: "[198. Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits. (1) The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company, to its directors and its managing agent, secretaries and treasurers or manager in respect of any financial .....

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of the maximum remuneration specified in sub- section (1), a company may pay a monthly remuneration to its managing or whole- time director in accordance with the provisions of section 309 or to its manager in accordance with the provisions of section 387. (4) 2 Notwithstanding anything contained in sub- sections (1) to (3), but subject to the provisions of section 269, read with Schedule XIII, if, in any financial year, a company has no profits or its profits are inadequate, the company shall n .....

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other benefit or amenity in respect of accommodation free of charge, to any of the persons specified in sub- section (1); (b) any expenditure incurred by the company in providing any other benefit or amenity free of charge or at a concessional rate to any of the persons aforesaid; (c) any expenditure incurred by the company in respect of any obligation or service which, but for such expenditure by the company, would have been incurred by any of the persons aforesaid; and (d) any expenditure inc .....

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anagerial remuneration to its directors. After reducing such monthly remuneration paid, if the company earns profits more than what is paid as remuneration, then the directors should be eligible for payment of commission to the extent of 11% of the net profits of the company. 88. Section 17(1) of the Income-tax Act, 1961 defines what is salary for the purposes of Sections 15 and 16 of the Act, which reads as under: "17(1) "Salary" includes (i) wages; (ii) any annuity or pension; ( .....

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rised in the transferred balance as referred to in sub-rule(2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under sub-rule(4) thereof; and (viii) the contribution made by the Central Government (or any other employer) in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD." 89. The aforesaid provisions make it clear that salary includes .....

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fore, it also has to be allocated to the unit which he is heading as a full time director. Though there are four units and each unit is carrying on different activities, assessee maintained separate accounts, preparing separate balance-sheets and also preparing profit and loss account, but in law it is the consolidation of four accounts which would be the account of the assessee. It is from the profits derived by the assessee that the salary is paid. The payment of the salary as it is not depend .....

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s passed by the authorities has no legal basis. On the contrary it runs counter to the statutory provisions. 90. In that view of the matter the substantial question of law is answered in favour of the assessee and against the revenue. Substantial question of law No.4: 91. As the question of law involved is the same, these two substantial questions of law are taken up for consideration. They are : - "Whether the Tribunal was right in excluding AMC profits for the purpose of computing deducti .....

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omputers manufactured and sold by the units?" [Question of law No. 'b' in ITA Nos.881 & 882/2008, 109/2009 & 333/2009 - (assessee's appeal)] 92. In substance, the question for consideration is, whether profits derived from AMC and profits derived from sale of monitors are eligible for exemption under Section 80IB of the Act? 93. The assessee is manufacturing computers. For the purpose of sale of these computers manufactured they have two schemes. The first scheme is, on .....

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production units and it is incorrect to conclude that AMC income is integrally connected with those units. Accordingly, he excluded AMC income and recomputed deduction under Section 80IB of the Act. Both the Commissioner of Income Tax (Appeals) and the Tribunal have upheld the said order of the assessing officer. Aggrieved by the said orders, the assessee is before us. 94. The learned senior Counsel appearing for the assessee, assailing the said finding, contends that the income derived from AM .....

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ourt in the very same judgment, they are not eligible for deduction. 96. The assessee manufactures computers at its Pondicherry unit. It also sells computers manufactured therein. It has two schemes for sale of such computer. For the first scheme, a three year warranty against sale of computers is granted. Therefore, the value of the computer includes the value of the computer + warranty charges. Similarly, in the second scheme, one year warranty is granted. There also the value of computer incl .....

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ngs other than infrastructure development undertakings. Section 80IB (1) reads as under: 80-IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to(11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subje .....

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aking is entitled to out of the profits and gains derived from such industrial undertaking for a period of ten consecutive assessment years. Sub-section (4) provides for the benefit being extended to an industrially backward State specified in the Eighth Schedule. 98. A reading of the aforesaid provision makes it clear that, the benefit is granted on profits and gains derived from such eligible business. The "Apex Court in the case of Liberty India v. Commissioner of Income Tax [(2009) 317 .....

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tisfying sub-section (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified dates(s). This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking". 99. In the said case, the Apex Court held that, duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the P&a .....

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e competitive in international market, held that, this special import licence has a direct nexus with the manufacturer and export of the products and it falls within the first degree and benefit was extended. 101. However, the learned Counsel for the revenue relied on the judgment of the Delhi High Court in the case of Commissioner of Income tax v. Gitwako Farma (I) (P) Limited [(2011) 332 ITR 471] where it was held that, converting raw fish into tinned fish did not amount to manufacturing and, .....

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ing of different qualities of tea constitute manufacture and production. It was held that, it does not constitute manufacture and production and Section 80-IB is not attracted. 103. In the instant case, the business which is carried on by the assessee consists of manufacturing of computers and servicing those computers either under a warranty arrangement or by virtue of AMC In fact, the assessee is also in the business of entering into AMC in respect of computers which are not manufactured by th .....

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f servicing the computers which they have manufactured and sold to the customer with one year warranty. Though the said amount does not form part of the sale consideration of the computer, the services rendered under the AMC contract is in continuation of the sale of computers manufactured by them. Though it does not represent the cost of manufacturing, it is a part of the business income of the undertaking. Any manufacturing product without warranty after sale maintenance may not have high stan .....

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. The said income has a direct nexus with the manufacturing activity. The said income constitute the income of eligible ' business. It is an income derived from the eligible business in respect of an industrial undertaking which is involved in the manufacture of computers. Therefore, the assessing authority was not justified in not extending the benefit of Section 80IB to the profits derived from AMC contract in relation to the computers manufactured by the assessee. However, it is to be mad .....

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itor. Although some monitors were bought and sold, the majority of the monitors purchased have been sold as part of the computers. The assessing officer took a similar stand as in the case of AMC income and directed that sale of monitors cannot be said to have an integral link with manufacturing activities of the appellant and is, therefore, not includable for computation under Section 80IB of the Act. Both the Commissioner of Income Tax (Appeals) and the Tribunal upheld the said contention. Agg .....

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ed since monitors are only a traded commodity, the assessee has furnished the particulars in a tabular column which reads as under : - Quantitative details of Monitors (for assessment year 2002-2003) Industrial undertaking Opening Stock Purchases Sales of only monitors Sales along with computers Closing Stock Industrial undertaking at Thirubuvanai, Pondicherry 2451 54114 25681 27736 3148 Value - 257082167 194693,285 Note - Industrial undertaking at Thattanchavady, Pondicherry 363 50 - 413 - Valu .....

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exure and did not extend the benefit of Section 80IB in respect of the monitors which were sold as a part of the computer. In the aforesaid tabular column, it is shown that the assessee has sold 25,681 monitors, i.e., they are purchased and sold as monitors and the value of the same is given and the assessee has not claimed benefit under Section 80IB in respect of the said amount. He has also given the particulars of the monitors sold along with the computers. 27,736 monitors were sold as a part .....

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. The monitors which he has purchased from outside is used as a spare part in the manufacture of computer and it is sold to the customers as such. In other words, those monitors which are used in the computers are not the traded commodities. Therefore, it is a part of the computer and the total consideration of the computer includes the value of this monitor. The profit derived from the said computer includes the sale of the monitor which is a part of the said computer which falls within the fir .....

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titled to the benefit of deduction under Section 80IB in respect of the monitors which form part of the computer is hereby set aside. Both the substantial questions are answered in favour of the assessee and against the revenue. Substantial Question of law No.5 : "Whether the Tribunal was right in excluding VAT/GST from export turnover and total turnover for the purpose of computing deduction under Sec. 10A of the Act ?" [Question of Law No.'d' in ITA Nos.881 & 882/2008, 10 .....

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aid and collected does not have profit element and therefore does not form part of turnover. The said stand of the assessing authority is confirmed both by the Commissioner of Income tax (Appeal) as well as the Tribunal. Aggrieved by the said order, the assessee is before this Court. 108. The learned Senior Counsel appearing for the assessee contended, having regard to the definition of export turnover contained in Explanation 2(iv) under Section 10A, that the consideration in respect of export .....

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sing authority that as VST and GST do not represent profit and it is tax collected and paid to the concerned Government, the same cannot be taken into consideration while granting benefit under Section 10A, is contrary to the express provision contained in the statutes. 109. Per contra, the learned Senior Counsel appearing for the Revenue contended that the VAT and GST collected by the assessee in foreign jurisdiction is paid to the authority there itself. The said amount is not received in or b .....

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s or things or computer 'software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India," 111. Explanation 2 makes it very clear, the definition of ' export turno .....

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nto India by the assessee in convertible foreign exchange in accordance with sub-Sec.(3). Therefore, in order to appreciate the said definition it is necessary to look into sub-Sec.(3) which reads as under: "(3) This section applies to the undertaking, if the sale proceeds or articles or things or computer software exported out of India are received in, or brought into India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, .....

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munication charges or insurance. Even though the assessee receives in or brings into India amount by way of convertible foreign exchange for the aforesaid purposes, the same shall not be taken into consideration for granting the benefit under Sec. 10A. The argument is, the. foreign exchange should be received in India or brought into India. In respect of GST and VAT, though the assessee collected the same as part of the sale consideration in foreign jurisdiction, it was paid to the appropriate G .....

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ia." 114. Therefore the sale proceeds referred to in sub-sec. (3) is defined under this explanation. With the approval of the Reserve Bank of India, if the assessee has maintained a separate account with any Bank outside India and the sale proceeds received for export of articles, things or computer software is credited to such separate account, the said sale proceeds is deemed to have been received in India. Though the said sale proceeds are not received in or brought into India, by a lega .....

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India by the assessee by virtue of the said legal fiction, then it falls within the definition of export turnover, unless expressly excluded, and the amount so received is eligible for benefit under Section 10A. 115. The authorities have declined to grant the said benefit by relying on a judgment of the Apex Court in CIT v. Laxmi Machine Works reported in [2007] 290 ITR 667. The question which arose for consideration in the said judgment was, whether excise duty and sales tax were includible in .....

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the business profit which is proportionately reduced by the above fraction/ratio of export turnover which constitutes 80HHC concession (deduction). Income in the nature of "business profits" was, therefore, apportioned. The above formula fixed a ratio in which "business profits" under Section 28 of the Act had to be apportioned. Therefore, one has to give weightage not only to the words "total turnover", but also to the words "export turnover", "total .....

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ability. As stated above, even commission and interest ' formed a part of the profit and loss account, however, they were not eligible for deduction under section 80HHC Even if the assessee was an exclusive dealer in exports, the said commission was not includible as it did not spring from the "turnover". Just as interest, commission etc. did not emanate from the "turnover", so also excise duty and sales tax duty did not involve any such turnover. Since excise duty and sa .....

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e to the definition of the word turnover in other laws like Central Sales Tax or as defined in the Accounting Principles. Therefore, the definition of export turnover has to be interpreted in the context in which it is used. Moreover in the aforesaid case, the assessee was not liable to pay either excise duty or sales tax on its exports. When the said amount was not included in the sale price, it could not have been included in the turn over or export turnover or total turnover. 117. In fact the .....

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chaser, such tax does form part of the consideration when he includes it in the price and realizes the same from the purchaser. The essential factor which distinguishes the former class of cases from the latter class is the existence of a statutory provision authorizing a dealer to recover the tax payable on the transaction of sale from the purchaser." 118. That was the case where the question for consideration was, whether purchase tax to be levied on turnover which includes sales tax paid .....

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part of the seller to pay the market fee. It is duty of the buyer to pay the market fee and the seller can realize it from the buyer. The market fee paid by the buyer does not form part of the purchase turnover of the buyer. Therefore there is no liability on the part of the dealer who purchases agricultural produce in the market area to pay purchase tax under the Punjab General Sales Tax Act, 1948, on the element of market fee." 120. That is the law laid down by the Apex Court while interp .....

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tax and hence not included in sales turnover. Levy of purchase tax on element of market fee paid by dealer in respect of agricultural produce purchased by him cannot be treated as sale consideration and hence not included in sales turnover. Levy of purchase tax on element of market fee is, therefore, not proper. Here again, the question was whether tax is leviable on the market fee. As such, it has no application to the facts of the case. 122. In fact the assessee also relied on a judgment in t .....

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;Where an article is taxed, whether by purchase tax, customs duty, or excise duty, the tax becomes part of the price which ordinarily the buyer will have to pay. The price of an ounce of tobacco is what it is because of the rate of tax, but on a sale there is only one consideration, though made up of cost plus profit plus tax. So, if a seller offers goods for sale, it is for him to quote a price which includes the tax if he desires to pass it on to the buyer. If the buyer agrees to the price, it .....

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y way of tax, that cannot be part of the sale price. So far as the purchaser is concerned, he pays for the goods what the seller demands, viz., price even though it may include tax. That is the whole consideration for the sale and there is no reason why the whole amount paid to the seller by the purchaser should not be treated as the consideration for the sale and included in the turnover." 125. Following the said judgment, the Apex Court in the case of Sinclair Murray and Co. Pvt. Ltd., v. .....

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seller offers goods for sale, it is for him to quote a price which includes the tax if he desires to pass it on to the buyer. If the buyer agrees to the price, it is not for him to consider how it is made up, or whether the seller has included tax or not. When the dealer collects any amount by way of tax, that cannot be part of the sale price. So far as the purchaser is concerned, he pays for the goods what the seller demands, viz., price even though it may include tax. That is the whole consid .....

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27. In the context of Sec. 10A when the statute provides a particular definition for the purpose of the said section only, then we have to interpret that definition in the light of the words used in the said provision. We cannot take assistance from the definition in the other statutes and not even the said definition in the very same Act if it is derived in the context of other sections. Similarly the object behind the said provision also has to be kept in mind. 128. In the instant case, VAT an .....

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ale consideration received, sale proceeds received in or brought into India in convertible foreign exchange constitutes the export turnover. If the sale proceeds are credited to a separate account maintained for the purpose by the assessee with any Bank outside India with the approval of the Reserve Bank of India, though the said proceeds are not actually received in India or brought into India, it is deemed to have been received in India and forms part of the export turnover. 129. In that view .....

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.03.2001 and not during the years when the execution and registration of the sale deeds took place?" [Question of Law No.(h) in ITA Nos.879/2008 -(assessee's appeal)] 130. The assessee acquired immovable property at Brunton Road, Bangalore, with a land bearing area 43,979 square feet for a cost of ₹ 1.97 crores in the assessment year 1989-90. The said immovable property was acquired and held as capital asset. The cost of acquisition of ₹ 1.97 crores is accounted and reported .....

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closing stock in trade year to year was valued at lower of cost or market price. As on 31st March 1999, the closing stock was valued at ₹ 17.70 crores. Amounts were drawn down from capital reserve to the extent of reduction in the value of land, i.e., stock in trade. On 09.02.2000, the assessee entered into an agreement to sell the aforesaid immovable property for ₹ 12.50 crores with Prestige Estate Projects Private Limited. A. sum of ₹ 2 crores was received along with the agre .....

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of attorney authorized the said attornies to sell or otherwise dispose of the immovable property by way of sale or otherwise in whole or in the form of undivided shares or in any other manner and on such terms and conditions as the attornies deem it fit in favour of any predecessors or in favour of his/her nominee (assesses). In the accounts, stock in trade was recorded as sold. They released the capital of ₹ 10.07 crores drawn down from the capital reserve to the profit and loss account. .....

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nveyance in favour of buyers identified by the power of attorney holder. A sum of ₹ 33,89,40,021 computed as per Section 48 read with Section 45(2) was declared in the return of income. Accordingly, the assessee filed his return declaring the capital gains of the aforesaid amount for the assessment years 2004-05 and 2005-06, respectively. However, the assessing authority taxed the capital gain of ₹ 41,83,08,696/- in the assessment year 2001-02 itself on the basis that general power o .....

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rred an appeal to the Tribunal. 131. The Tribunal reversed the order of the Appellate Commissioner on the ground that when the assessee himself has shown such stock in trade as sold and credited the sale proceeds in the assessment year 2001-02, the Order passed by the assessing authority levying tax on capital gains in the assessment year 2001-02 was correct and therefore, the Tribunal set aside the Order of the Appellate Authority and restored the assessment Order. Aggrieved by the said order, .....

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nversion by the owner of a capital asset into stock in trade of business or it is the treatment by him as a stock in trade in business and the same is chargeable to income tax as his income of the previous year in which such stock in trade is sold. By execution of the power of attorney, the assessee received the consideration due to him for sale of the land. As in law there was no transfer, the said amount is liable to tax only when the said stock in trade is sold and therefore, the order passed .....

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es two instances. One, when stock in trade is sold. The second, otherwise transferred by him. The words otherwise transferred by him as incorporated under the Act includes the interest in an immovable property transferred by way of a power of attorney. In the instant case, by virtue of the power of attorney, the power of attorney holder was authorized to execute the sale deed, to collect the entire sale consideration and to dispose of the property in the manner he liked and therefore, on the day .....

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ey by the assessee, is there a transfer of stock in trade so as to attract capital gains under Section 45(2) of the Act on the date of execution of the power of attorney, i.e., in the assessment year 2001-02?" 135. The facts are not in dispute. The assessee acquired immovable property at Brunton Road to an extent of 43,979 square feet at a cost of ₹ 1.97 crores. This falls within the definition of a capital asset. Section 2(47) defines transfer in relation to a capital asset. Sub-clau .....

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de of ₹ 45 crores was reported under inventory in the balance sheet. Now, the dispute is regarding the capital gain tax payable on sale of such stock in trade and the year in which the tax is payable. In order to answer the said question, we have to look at Section 45 which deals with capital gains. It reads as under: "Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D,, 54E, 54EA, .....

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other convulsions of nature; or (ii) riot or civil disturbance; or (iii) accidental fire or explosion; or (iv) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head ''Capital gains" and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and f .....

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rgeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. (2A) Where any person has had at any time during previous year any beneficial interest in any securities, then, any profits or ga .....

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) of section 2, the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method. 136. Section 45(1) deals with profits or gains arising from the transfer of a capital asset. Therefore, it does not deal with transfer of a business asset or a stock in trade. It provides that the profits and gains arising from the transfer of the capital asset shall be chargeable to income tax under the head 'capital gains' and shall be d .....

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conversion by the owner of a capital asset into or its treatment by him as stock in trade of business carried on by him shall be chargeable to income tax as his income of the previous year in which such stock in trade is sold or otherwise transferred by him. Therefore, in so far as stock in trade is concerned, the relevant year in which the capital gain tax is leviable is the previous year in which such stock "in trade is sold. The word used is sold or otherwise transferred by him. In view .....

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sale, exchange or relinquishment of the asset as evidenced by registered documents. It can be in any one of the modes contemplated in clause (i) to (vi) of Sec. 2(47). However, when it comes to levying of capital gains under sub-sec.(2) of Sec. 45, it deals with capital asset converted by the owner thereof into, or is treated by him as stock-in-trade of a business carried on by him as contemplated under Sec. 2(47)(iv). Once such capital asset which is converted as stock-in-trade is sold, it is .....

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sub-section (2) of Sec. 45, the case of considering stock-in-trade otherwise transferred, would arise-only if-stock-in-trade is not sold. If stock-in-trade is sold, the question of considering whether the stock-in-trade is otherwise transferred would not arise for consideration. The object of using the words 'otherwise transferred' as it is in the other provisions in the same section is to prevent avoidance of payment of capital gains by the owners thereof by resorting to modes which ar .....

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ng whether it has been otherwise transferred would not arise. 138. In the instant case, the assessee entered into an agreement with M/s. Prestige estates Pvt. Ltd. on 09-02-2000 to sell the aforesaid property for a sum of Rupees twelve crores fifty thousand. Clause (6) of the said agreement provides that, as desired by the purchasers, in order to enable the purchasers to process with the preparation of the plan, sanction and other orders required for commencement of the construction in the sched .....

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no whisper of delivery of possession of the schedule property to the power of attorney holder. Under Sec. 2(47), any transaction involving the allowing of possession of immovable property be taken or retained in part performance of a contract of the nature referred to in Sec. 53A of the Transfer of Property Act is a deemed transfer in relation to a capital asset. Therefore even if the stock-in-trade which was prior to its conversion a capital asset, as treated by the Tribunal as a capital asset .....

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ractice in such cases is adopted normally where transfer of ownership is not legally permitted. A person holding the power of attorney is authorized the power of owner, including that of making construction. The legal ownership in such case continues to be with the transferor. Therefore, with that object and in respect of such persons, clause (vi) was inserted which reads as under : "2(47)(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a cooperative soc .....

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ve Petition No.13917/2009 explaining the scope of power of attorney has held as under : "a power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. A power of attorney is creation of an agency whereby the grantor authorises the grantee to do the acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him (Sec. 1A and 2 of Power of Attorney Act, 1882). It is revocable or termi .....

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of transactions or to manage the affairs of the principal generally conferring necessary authority upon another person. A deed of power of attorney is executed by the principal in favour of the agent. The agent derives a right to use his name and all acts, deeds and things done by him and subject to the limitations contained in the said deed, the same shall be read as if done by the donor. A power of attorney is as is well known, a document of convenience". 142. A deed of power of attorney .....

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ner known to law. 143. Therefore even if Section 2(47) is held to be applicable to a stock-in-trade, unless the transaction in question has the effect of transferring or enabling the enjoyment of any immovable property, it would not amount to a transfer. 144. In the instant case, assessee executed a power of attorney after entering into an agreement of sale for the purposes mentioned therein. It is in pursuance of the power so conferred, coupled with the terms of the agreement of sale, the power .....

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ould not fall under Sec. 2(47)(vi). The assessee though executed a power of attorney, received the entire consideration under the agreement and acknowledged the same in the books of account and showed it in the balance sheet, that by itself did not confer the power of transferring the stock-in-trade in favour of the power of attorney holder or in favour of the purchasers unless he has executed the sale deed on behalf of the purchasers. Therefore, in view of sec. 45(2) of the Act, the capital gai .....

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rise at all. Therefore, the argument of the Revenue, that on the day the power of attorney was executed when the entire consideration due under the agreement of sale was received and by virtue of the power of attorney, the power of attorney holder is authorized to develop the property, to sell the property and to receive the entire consideration, it amounts to the stock-in-trade being otherwise transferred leading to the said income being chargeable to income tax in the previous year in which th .....

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wo orders are set aside. The order passed by the Appellate Commissioner is restored. 145. Accordingly, the substantial question of law is answered in favour of the assessee and against the Revenue. REVENUE'S APPEAL - QUESTION No.7: "Whether the Appellate Authorities were correct in holding that the assessee will be entitled to claim deduction u/s 10A of the Act in respect of foreign exchange which is yet to be received during the current assessment year for sale of software i.e., within .....

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orter. The export has been done strictly in accordance with law. Foreign exchange remittances should have been received within six months from and of the financial year. It has not been received. Therefore, an application is filed seeking for extension of time to the Reserve Bank of India. Even to this day the Reserve Bank of India has not rejected the said request. On the contrary, after the period of 6 months, foreign exchange remittances are received and credited to the assessee's account .....

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as not been rejected and foreign exchange is received and remitted through the proper channel, the assessee is entitled to the benefit of Section 10A. In the facts of the case, we do not find any error committed by the Tribunal. Therefore, the said substantial question is answered in favour of the assessee and against the revenue. Substantial Question No.8: "Whether the Tribunal was right in excluding the computer software sales made to STP units in India from "export turnover" fo .....

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favour of the assessee and against the revenue. Substantial Question No.9: "Whether appellate authority were correct in holding that the expenses incurred by the Corporate Division cannot be allocated in respect of various business units of the assessee based on the turn over, but at an ad hoc percentage of 20% as held in the earlier assessment years?" [Question of law No.20 in ITA Nos.907 & 909/2008; Question of law No. 16 in ITA Nos.904 & 905/2008; Question of law No.3 in IT .....

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ated to salary, wages and allowances and directors' fee at 20% to Wipro Technologies which is a 10A unit and which had generated 57% of the revenue of the assessee. Assessing Authority did not agree with assessee's submission and allocated expenses of the corporate division in the ratio of revenue of the 10A units. Aggrieved by the same the assessee preferred an appeal. In the appeal by the assessee, the Commissioner of Income-Tax following the judgments of the ITAT in the assessee's .....

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location.of.20% of its expenditure and the same has been confirmed by the CIT (A). Therefore, the Tribunal felt that the allocation at the rate of 20% of common expenses is in order. Thus the ITAT upheld the order of the Appellate Authority. Aggrieved by the said order the revenue is in appeal. 149. Learned Senior Counsel appearing for the revenue submits that, when 57% of the revenue is generated by the 10A units and 82% is the profit earned by the said units allocating 20% of the common expend .....

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diture incurred by each unit. When the Assessing Authority did not agree, they came forward and agreed that each of the units could be allocated 20% of the total expenditure incurred by corporate division. However, the Assessing Authority is of the view that, the allocation of the expenditure related to salary, wages and allowances and directors' fee should be dependent on the revenue generated and therefore he did not accept the allocation of 20% of expenditure to each of the unit. There is .....

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units and the said procedure is followed consistently by the assessee for more than a decade now. In the aforesaid judgment of the assessee's cases, this Court after considering very same point accepted actual allocation of expenditure. The relevant observations of this Court is at para Nos.27 and 28. "27. A perusal of the aforesaid statement shows the Corporate Office has spent a sum of ₹ 7,37,98,774/- towards the expenses consisted of salaries etc., excluding interest less reven .....

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t interest outgo is 10,73,10,402/-. 28. It is this amount which they were claiming as deduction. In the light of the aforesaid facts it does not represent the expenditure incurred by the Corporate Office in respect of its subdivisions. In those circumstances, the Assessing Officer and the First Appellate Authority were not justified in allocating the substantial portion of the amount as the expenses incurred in respect of Section 10A and disallowing the deduction. That is precisely what the Trib .....

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Appellate Authorities were correct in reversing the finding of the Assessing Officer that the selling, administrative and general expenses and loss in respect of some units having not been correctly arrived at was allocated on proportion of sales and worked out the loss when computing deduction u/s.80IB of the Act?" . [Question of law No. 15 in ITA No.363/2009 -(Department's appeal)] "Whether the Appellate Authorities were correct in holding that the allocation made in the assessme .....

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itself has answered the said substantial question of law in favour of the assessee and against the revenue and accordingly, the said substantial question of law is answered in favour of the assessee and against the revenue. Substantial Question No. 11: "Whether the Appellate Authorities were correct in holding that units which had got approval from STPI as expansion of old undertakings commenced operations prior to 01.04.1993 will also be entitled to claim u/s 10A of the Act as a new indus .....

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concern in the case of Wipro GE Medical Systems Ltd., in ITA Nos.391 and 392/2008 and substantial question of law was answered in favour of the assessee and against the revenue. 154. Following the said Judgment, the above substantial question of law is answered in favor of the assessee and against the revenue. Substantial question No. 12: [Question of law No.33 in ITA Nos.907 & 909/2008 - (Department's appeal)] "Whether the Tribunal was correct in reversing the finding of the Asses .....

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of the said judgment as under : - 53. In the facts and circumstances of the case, we are satisfied that it is not a real scheme. It is not a legitimate tax planning. It is a devise adopted to evade payment of tax on the capital gains earned by the assessee company. Though the proximity of the date between the sale of shares and purchase of shares and disinvestment alone cannot be a criteria to hold the transaction is a sham transaction and the profit earned from sale of shares in Wipro Net Limi .....

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ion to avoid payment of tax on capital gains and it is not a case of legitimate tax planning but a devise to avoid payment of tax. Therefore, the Tribunal was not justified in characterizing this transaction as a legitimate tax planning. The observation of the Tribunal that the shares transactions of Wipro Finance Limited had happened at different times in the past is not factually correct. It is not a case where the assessing authority came to such a conclusion merely because of the proximity o .....

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ncurrent finding of fact without properly appreciating the mechanism adopted by the assessee to avoid payment of tax. In that view of the matter the finding of the Tribunal on this issue requires interference and accordingly, the same is set aside. The said substantial question of law is answered in favour of the revenue and against the assessee. 156. In the instant case, the facts are slightly different. The balance of 21,62,044 equity shares of Wipro Finance Limited out of 5,04,76,188 acquired .....

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s case there is no windfall gain, still having regard to the total number of shares of Wipro Finance Limited which is already sold and only a small balance was the subject matter of these proceedings, we do not find any justification to differ from the finding which we have given earlier and, therefore, following the said reasoning, the finding recorded by the Appellate Tribunal is hereby set aside. 159. However, the assessee has incurred capital loss in assessment year 2001-02 of ₹ 102,58 .....

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vertible Preference Shares allotted to the assessee and sale thereafter* (out of ₹ 95,00,00,000 infused on 31.12.1999) 20,00,00,000 20,00,00,000 Total 99,13,18,970 102,59,01,03 3 * Short-term capital loss 160. In the aforesaid judgment referred to supra, in an identical situation we have held as under : - "55. We find force in the said submission. It is only when we held that the purchase of shares at a premium is a genuine transaction and infusion of capital of ₹ 95 crores is a .....

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record a finding thereon. Substantial QUESTION No. 13: [Question of law No. 'e' in ITA No.333/2009 -(Assessee's appeal)]. "Whether the Tribunal erred in not disposing off the ground pertaining to deductibility of net receipts of the software development centres located outside India, under Section 10A? Whether the appellant is entitled to such deduction?" 162. The learned Counsel for both the parties contended that the Tribunal at paras 220 and 221 has considered a wrong qu .....

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was right in directing that losses of a 10A unit, which are already set-off against other business income of the appellant, should be again carried forward and set-off-. against eligible profits of the same unit in a subsequent year?" [Question of law No. (b) in ITA Nos.879/2008, 880/2008 and 108/2009 and Question of law No. 'c' in ITA No.334/2009 - (assessee's appeal)] -. "Whether the Tribunal was correct in holding that income of each undertaking should be taken independe .....

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and adjusted against other income?" [Question of law No.23 in ITA Nos.907 & 909/2008, Question of law No. 19 in ITA Nos.904 & 905/2008 and Question of law No.9 in ITA Nos.210 & 211/2009 - (Department's Appeal)]. "Whether the Appellate Authorities were correct in holding that the finding recorded by the AO that in view of the amendment to section 10A (6)(ii) w.e.f 01.04.2001 the loss of the STP units should be carried forward at the end of the 10 years, tax holiday perio .....

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ue. 164. Following the said Judgment in the assessee's case itself in ITA 1395/06 connected with ITA 1394/06, this Court by its order dated 5.11.2013 following the Judgment of the Supreme Court answered the said substantial question of law in favour of the assessee and against, the revenue. Therefore, aforesaid questions of law are answered in favour of assessee and against the revenue. Substantial Question of Law No. 15: ''Whether the Appellate Authorities were correct in holding th .....

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Nos.210 & 211/2009 and Question of law No. 14 in ITA No.363 /2008 - (Department's Appeal)]. [Question of law No.29 in ITA Nos.907 & 909/2008 - (Department's Appeal)]. [Question of law No.31 in ITA Nos.907 & 909/2008 and Question of law No. 13 in ITA Nos.210 & 211/2009 - (Department's Appeal)]. [Question of law No. 14 in ITA Nos.210 & 211/2009 - (Department's Appeal)]. 165. In the connected cases similar questions were raised which are treated as substantial qu .....

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uestions of law are accordingly answered in favour of the assessee and against the revenue. Substantial Question No. 16: "Whether the Appellate Authorities were correct in holding that income earned from sale of scrap export incentive, rent received, interest income and gain on exchange rate fluctuation should be treated as profits and gains derived from export and exempted u/s.10A of the Act contrary to the judgment of the Apex Court in Sterling Sea Foods 237 ITR 579?" [Question of la .....

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n so far as gain on exchange rate fluctuation is concerned, it was subject matter of ITA 3202/05 which was decided on 28.2.2012 in the assessee's case itself, where the said question was answered in favour of the assessee and against the revenue. 168. In so far as income earned from interest is concerned that was subject matter of this Court in the case of CIT v. Motorola India Electronics (P) Ltd., in ITA No.428/2007 decided on 11.12.2013 while dealing with exemption under Section 10B. It i .....

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d during the current assessment year and the assessee not following actuarial method of accounting?" [Question of law No.25 in ITA Nos.907 & 909/2008; Question of law No.21 in ITA Nos.904 & 905/2008; Question of law No. 11 in ITA Nos.210 & 211/2009 and Question of law No. 10 in ITA No.363/2009 - (Department appeal)] "Whether the Appellate Authorities were correct in holding that the provision for warranty was held to be an allowable deduction despite the unit was on the bri .....

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evenue. Substantial Question No. 18: "Whether the Appellate Authorities were correct in holding that the payments made by the assessee for import of software cannot be disallowed u/s 40(a)(i) of the Act for failing to deduct tax at source u/s 195 of the Act as such payments did not constitute royalty u/s 9(1)(vi) of the Act? [Question of law No.26 in ITA Nos 907 & 909/2008, Question of law No.22 in ITA Nos.904 & 905/2008 and Question of law No.9 in ITA No.363/2009 - (Department' .....

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tial questions of law arose for consideration in the assessee's case itself in ITA 507/02 which was decided on 25.8.2010 where the substantial question of law was answered in favour of assessee and against the revenue. Accordingly, the said question of law is answered in favour of the assessee and against the revenue. Substantial Question No. 19: "Whether the Appellate Authorities were correct in holding that excise duty and sales tax should be included in the total turnover for the pur .....

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favour of assessee and against the revenue. 173. Accordingly, the said question of law is answered in favour of assessee and against the revenue. Substantial Question No.20 : "Whether the tribunal was right in referring to another decision and fixing an exclusion of 80% of uplinking charges when the appellant and the respondent has agreed upon an exclusion of 5% of telecommunication expenses or attributable to delivery of computer software outside India for the later assessment years?' .....

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nected, the exclusion has been enhanced to 80%. Absolutely no reasons are forthcoming for deviating from the consistent practice. Under these circumstances, it would be proper to set aside the finding recorded by the Tribunal and remand the matter to the Tribunal to decide the matter afresh taking into consideration the consistent practice followed by the authorities in the case of the assessee itself. That would meet the ends of justice. Substantial Question No.21: "Whether the Tribunal wa .....

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& 882/2008 and Question of law No.'f in ITA No.333/2009 - (Assessee's appeal)] 176. The assessee contended, interest under Sec. 234D is not leviable if a refund was due unless it was actually granted for use in the business of the assessee. Further, Section 234D is not applicable as it came into force with effect from 1-6-03. However, the assessing officer levied interest under Sec. 234D of the Act. Both the CIT (Appeal) and the Tribunal upheld the levy of interest. It is against th .....

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he Tribunal for fresh consideration after taking note of the explanations inserted and then decide whether it is prospective in nature or retrospective in nature and whether the said provision applies to the factual situation in the assessee's case. That would meet the ends of justice. Substantial Question No.23: "Whether the Tribunal was correct in holding that expenditure towards termination of rent agreement with BSNL (A communication link provider) ₹ 3 crores, termination of i .....

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/s 263 of the Act that the expenses of ₹ 18.15 crores had been explained by the assessee under a letter dated 11.11.2005 which did not reflect the correct details to consider the expenses and therefore the details sought in the subsequent letters by the department dated 13.12.2005 and 25.01.2006 were not considered by the Tribunal and consequently recorded a perverse finding? [Question of law No.1 in ITA No.209/2009 -(Department's appeal)] "Whether the Tribunal was correct in reve .....

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9 -(Department's appeal)] 178. The said questions arose for consideration before this Court in assesssee's case itself in ITA 3202/05 by order dated 28.2.2012, it was held that loss incurred on discontinuance of business does not involve a substantial question of law. Here again, the same questions arise. They do not constitute substantial questions of law. We decline to answer the same. Substantial Question No.24: "Whether the Tribunal was right in holding that interest received un .....

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Notification: Seeks to extend the last date for filing the return in FORM GSTR-3B for the months of August to December, 2017

Circular: Filing of Special Leave Petition against Orders of Hon'ble High Courts staying Collection of Tax under GST- reg.

Highlight: Exemption u/s 54F - LTCCG - once entire net consideration is invested, the absence of completion certificate cannot be a ground to deny the benefit of deduction.



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