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2016 (1) TMI 1019 - ITAT PUNE

2016 (1) TMI 1019 - ITAT PUNE - TMI - Entitlement to claim deduction u/s. 10A on the amount of foreign currency expenditure - Held that:- In the present case from the work flow of the activities provided by the assessee which has been reproduced in para 7 above, it is evident that the assessee is not providing any end product such as computer software or design to its parent company in Germany. The assessee is providing technical services to its holding company. In so far as the findings of Comm .....

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oncerned undoubtedly they are the part of the expenditure required for the technical services performed by the assessee to its AE. These expenses as per the contentions of the assessee are mainly with respect to setting up of workstations i.e. Desktops/Laptops, Wide Area Network, leased line for data transfer between KSB AG and the assessee, printers, internet etc. Applications such as Unigraphics, Autocad, SAP, Ms-office, various other softwares, etc. Payment for technical consultancy services .....

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10A. In the definition of the term “export turnover” it has been specifically stated that expenses incurred in foreign exchange in providing technical services outside India. Thus, the scope of the exclusion from the word “export turnover” cannot be enlarged by excluding the expenses incurred in foreign exchange in providing the technical services from India.

Exclusion of foreign currency expenditure from “export turnover” as well as “total turnover” while computing deduction u/s. 10 .....

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f Income Tax (Appeals). The assessee has filed another appeal in ITA No. 115/PN/2013 against the assessment order dated 12-10-2012 passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for the assessment year 2008-09. Since, the issues involved in all the three appeals are similar and are arising from similar set of facts, these appeals are taken up together for adjudication. 2. The assessee in both the appeals have impugned the findings of lower au .....

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of Income Tax (Appeals) in holding that the foreign currency expenses excluded from the export turnover while computing deduction u/s. 10A should also be excluded from total turnover. 4. The brief facts of the case as emerging from the records are: The assessee is a private limited company and is engaged in the business of providing computer software and IT-enabled services to its parent company and other group companies. The assessee is wholly owned subsidiary of KSB AG, Germany. The assessee .....

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0/- i.e. the expenditure incurred by assessee in foreign currency in providing technical services outside India. The Assessing Officer reduced the same from export turnover for the purpose of computing allowable deduction u/s. 10A of the Act. Aggrieved by the assessment order dated 31-12-2009, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). Before the Commissioner of Income Tax (Appeals) the assessee made first prayer in reversing the findings of the Assessing O .....

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000/- relates to expenses incurred in foreign currency in providing technical services outside India and thus, the said amount is not eligible for deduction u/s. 10A of the Act. However, the Commissioner of Income Tax (Appeals) accepted the alternate submissions of the assessee and directed the Assessing Officer to compute deduction u/s. 10A after excluding ₹ 4,04,29,000/- from export turnover as well as total turnover. 5. In the assessment proceedings for assessment year 2008-09, similar .....

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see and directed the Assessing Officer to reduce the amount of foreign currency expenses from export turnover and total turnover for computing deduction u/s. 10A of the Act. 6. Against the findings of the Commissioner of Income Tax (Appeals) in assessment year 2007-08, both the assessee and Revenue are in appeal. Whereas, in the assessment year 2008-09, only the assessee is in appeal before the Tribunal assailing the findings of Assessing Officer on same issue in order passed u/s. 143(3) r.w.s. .....

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e parent company but is providing final product. The assessee is providing technical services to the holding company from its establishment in India. The ld. AR contended that the authorities below have erred in coming to the conclusion that the assessee is engaged in providing technical services outside India. The ld. AR filed detailed work flow explaining the activities carried on by the assessee for its holding company. The work flow of the activities performed by the assessee is reproduced h .....

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mail, telephonic conversation etc. - In this step the engineers at KSB AG review development projects planned or underway at their end & identify the tasks to be done from KSB Tech, Pune e.g. creation of new 3D/2D CAD drawings or carrying out flow/stress analysis or pumps / valves to be included in the selection software or designing of pumps & valves. - A summary of tasks to be done at KSB Tech, Pune is prepared by KSB AG & discussed with the engineers from KSB Tech, Pune through E- .....

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- Engineers at KSB AG review the proposal & provide comments, suggestions. - Engineers at KSB Tech, Pune review the comments, modify the proposal, if required & resubmit for approval of KSB AG - Engineers at KSB AG finally approve the proposal sent by KSB Tech, Pune Step 3. Provide necessary technical information (inputs) for executing the tasks - Done by KSB AG through e-mail, telephonic conversation etc & data transfer via computer server at KSB AG. - In this step engineers at KSB .....

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at KSB Tech, Pune work on the assigned tasks as per the technical procedures & on the computers provided to them in the premises of KSB Tech, Pune - During the execution of the tasks at KSB Tech, Pune, engineers at KSB Tech, Pune discuss the technical difficulties with engineers at KSB AG as per need & seek their guidance in resolving the same. Step 5. Transfer the result (output) in the form of computer files / soft data to KSB AG - Done by engineers of relevant department at KSB Tech, .....

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s at KSB AG & transfers results to them. - Engineers at KSB AG review the results & communicate their approval, - The assigned tasks thus get completed. All communications with KSB AG during these steps take place via E- mail, teleconferences or video conferences or personal visit of German engineers to KSB Tech, Pune. The ld. AR referred to pages 87 to 89 of the paper book no. 4 (for assessment year 2007-08 - Submitted on 25-11-2014), to show that the assessee is raising invoices on the .....

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of KSB AG, Germany for rendering services to its holding company. The assessee is not engaged in developing or manufacturing any product or software. The assessee is merely providing services to the foreign company. The ld. DR further submitted that a perusal of invoices at pages 87 to 89 of the paper book shows that the assessee is performing work on hourly basis. In none of the invoices the actual product developed by the assessee or computer software developed by the assessee is mentioned. T .....

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authorities below. We have also considered the decision on which the ld. AR has placed reliance. The issue before us is, Whether the assessee is entitled to claim deduction u/s. 10A on the amount of foreign currency expenditure, ₹ 4,04,29,000/- in assessment year 2007-08 and ₹ 5,05,60,467/- in assessment year 2008-09? 10. The contention of the assessee is that the assessee is providing final product in the form of design and software to its holding company. Whereas, the Revenue is o .....

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he 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; From the perusal of above definition of export turnover it is clear that export turnover means the consideration in respect of export by the undertaking of arti .....

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provided by the assessee which has been reproduced in para 7 above, it is evident that the assessee is not providing any end product such as computer software or design to its parent company in Germany. The assessee is providing technical services to its holding company. In so far as the findings of Commissioner of Income Tax (Appeals) on this aspect of the issue is concerned we are in agreement with him. 12. Now, the next question that arises for consideration is, Whether the technical services .....

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rce in India. The assessee has its situs and work platform in India. Thus, in our considered opinion the assessee is providing technical services to its parent company from India. 13. The assessee has given the summary breakup of the expenses incurred in foreign currency during the impugned assessment years. The same are tabulated as under: Expenses incurred in foreign currency (in INR) Assessment Year IT expenses Tech. consultancy Services Reimbursements Total (in Rs.) AY 2007-08 30,715,878 4,3 .....

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between KSB AG and the assessee, printers, internet etc. Applications such as Unigraphics, Autocad, SAP, Ms-office, various other softwares, etc. Payment for technical consultancy services include, technical consultancy fees, off-shore salary paid by KSB AG to its technical representative deputed with the assessee, etc. As far as the third element i.e. reimbursement is concerned they relate to expenses incurred by holding company on behalf of the employees of the assessee when they visited Germ .....

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in providing the technical services from India. 15. In support of his submissions, the ld. AR has placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Wills Processing Services (India) (P.) Ltd. Vs. Deputy Commissioner of Income Tax (supra). We find that the issue in the said appeal is at variance from the issue in appeal before us. Therefore, the ratio laid down in the said case will not be of any help to the assessee in the present case. 16. In view of our above deta .....

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