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DEPUTY COMMISSIONER OF INCOME-TAX Versus WS ATKINS INDIA P. LTD.

2015 (11) TMI 917 - ITAT BANGALORE

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 India. Nevertheless, the assessee has on his own, on a conservative approach, .....

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m 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 Explanation to section 9(1)(vi) and hence deduction of tax at source under secti .....

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f. 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 assessee. - I. T. A. No. 1467 /Bang/ 2014(assessment year 2009-10). - Dated:- .....

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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 year 2008-09." 3. The assessee is a company engaged in the business of rende .....

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aid 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 excluded. According to the Assessing Officer, in the assessment year 2008-09, 50 per .....

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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 Commissioner of Income-tax (Appeals), the Revenue is in appeal before the Tribunal. 5 .....

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he 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 export turnover has also to be excluded from the total turnover as laid down by .....

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he 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(a)(ia) without appreciating the fact that the assessee had purchased software .....

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tion 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 interest, commission or brokerage, rent, royalty, fees for professional servic .....

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fficer 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 including the decision of Infotech Enterprises Ltd. v. Addl. CIT I. T. A. No. 11 .....

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cence 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 for obtaining the software was made, has not categorically laid down that tax is .....

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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. We have heard the submissions of the learned Departmental representative, wh .....

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