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2015 (11) TMI 917 - ITAT BANGALORE

2015 (11) TMI 917 - ITAT BANGALORE - [2015] 41 ITR (Trib) 397 (ITAT [Bang]) - Telecommunication expenses for delivery of software out side India - whether 10 per cent. of the total telecommunications expenses are to be allowed or 50 per cent - Held that:- As per the agreement between the assessee and its customers overseas, communication expenses were to be borne by the customer. In such circumstances, there could be no expenses incurred by the assessee for delivery of computer software outside .....

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at:- Whatever is excluded from the export turnover has also to be excluded from the total turnover as laid down by the hon'ble High Court of Karnataka in CIT v. Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - Decided in favour of assessee.

Disallowance u/s 40(a)(ia) - whether the assessee had purchased software which is in nature of a licence paid for usage of the software and the consideration for such licences would fall within the definition of the royalty defined in Ex .....

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opyrighted software, which does not involve any commercial exploitation thereof. The assessee simply purchased software delivered along with computer hardware for utilisation in the day-to-day business. See SMS Demag Pvt. Ltd. Versus DCIT [2010 (1) TMI 624 - ITAT, DELHI ] - depreciation cannot be disallowed on the ground that at the time of remittance no tax was deducted at source - Provisions of section 40(a)(i) are not applicable for claim for deduction u/s 32 of the Act - Decided in favour of .....

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ssment year 2009-10. 2. Ground No. 2 reads as follows : "2. On the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) erred in law in holding that 10 per cent. of the total telecommunications expenses are to be allowed as telecommunication expenses for delivery of software out side India instead of 50 per cent., without appreciating that the Assessing Officer had given a substantial finding on this issue and the facts were same for the assessment yea .....

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ing to the assessee, as per the definition of "export turnover" as laid down in clause (iv) of Explanation 2 to section 10A of the Act, freight, telecommunication charges or insurance, attributable to delivery of articles or things or computer software outside India have to be excluded. According to the assessee, only 10 per cent. of the telecommunication expenses were attributable to delivery of computer software outside India and accordingly only a sum of ₹ 4,56,788 was exclude .....

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is of evidence led before him that only 10 per cent. of the telecommunication expenses were to be excluded from the export turnover as attributable to delivery of computer software outside India incurred by the assessee. In this regard, the Commissioner of Income-tax (Appeals) has verified all the documents filed by the assessee to demonstrate the above position and came to the conclusion that the estimate made by the Assessing Officer was without any basis. Aggrieved by the order of the Commiss .....

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e approach, disallowed 10 per cent. of the telephone expenses as incurred by the STPI unit as attributable to delivery of software outside India. In the given circumstances, we do not find any merit in ground No. 2 raised by the Revenue. 6. Grounds Nos. 3 and 4 are with regard to exclusion of reimbursement of certain expenses from both export turnover and total turnover for the purpose of computing deduction under section 10A of the Act. According to the assessee, whatever is excluded from the e .....

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as pending before the hon'ble Supreme Court. In our view, this cannot be the basis not to follow the binding decision of the hon'ble jurisdictional High Court. We therefore confirm the order of the Commissioner of Income-tax (Appeals) and dismiss grounds Nos. 3 and 4 raised by the Revenue. 7. Ground No. 5 reads as follows : "5. On the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) erred in law in deleting the disallowance under section 40 .....

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re was a sum of ₹ 32,36,441. The assessee claimed the aforesaid depreciation as an allowable deduction while computing its income from business. The Assessing Officer, however, noticed that on the purchase of software, the assessee had not deducted tax at source. The Assessing Officer was therefore of the view that the provisions of section 40(a)(ia) of the Act were applicable and claim for depreciation had to be disallowed under section 40(a)(ia). 9. Under section 40(a)(ia), deduction on .....

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e meaning of Explanation 2 to section 9(1)(vi) and accordingly the Assessing Officer disallowed the claim of the assessee for depreciation. 10. On appeal before the Commissioner of Income-tax (Appeals), the assessee raised a contention that software has been included in definition of royalty only by amendment of the Finance Act, 2012. Although this amendment is retrospective, there is no liability that can be fastened on the assessee to deduct tax at source. Various decisions were relied upon in .....

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pting the view of the Assessing Officer that the payment made for obtaining licence for use of software would amount to royalty, it is necessary to note that during the period when the purchase was made, i.e., financial year 2008-09, the assessee did not have the benefit of the clarification brought about by the retro spective amendment that the payment tantamounts to payment for royalty and consequently tax was to be deducted under section 194J. The law as extant on the date when the payment fo .....

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Ltd. v. Addl. CIT I. T. A. No. 115/HYD/ 2011 dated January 16, 2014 [2014] 30 ITR (Trib) 542 (Hyd) ; (ii) Kerala Vision Ltd. v. Asst. CIT [2014] 35 ITR (Trib) 81 (Cochin) ; and (iii) Channel Guide India Ltd. v. Asst. CIT [2012] 20 ITR (Trib) 438 (Mum). 7.4 The Assessing Officer is therefore directed to allow the claim of the appellant. This ground is allowed." 12. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue has raised ground No. 5 before the Tribunal. 13 .....

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