TMI Blog2011 (1) TMI 1480X X X X Extracts X X X X X X X X Extracts X X X X ..... its return of income on 31-10-2002 declaring a total income of 'nil' after claiming deduction u/s 10A of the Income-tax Act, 1961 [hereinafter referred to as the Act ] of a sum of ₹ 5,05,15,560/- and claimed a refund of ₹ 2,76,033/-. The return was initially processed u/s 143(1) and a refund of ₹ 2,37,716/- was issued to the assessee. Subsequently, the AO issued a notice dated 4-8-2006 u/s 148 of the Act proposing to assess the income which has escaped assessment and asked the assessee to file a return of income for the relevant assessment year. In reply to the same, the assessee filed return of income on 18-9-2006. Thereafter, the AO passed the assessment order u/s 143(3) r.w.s 147 by making the following adjustments: i. Treating ₹ 43,19,905/- being telecommunication and related expenses as attributable to delivery of software outside India and therefore reduced the same from the export turnover for the purpose of calculating relief u/s 10A of the Act. ii. Stating ₹ 58,00,079/- being travel expenses incurred on its employees providing on-site development treating the same as expenses towards technical services outside India and reducing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,277/-. v. Reducing an amount of ₹ 16,12,420/- as being income from other sources such as interest on fixed deposit, rent received form sub-leased premises etc., not being directly related to the software development activities of the assessee. 6. Aggrieved by the same, the assessee preferred appeal before the CIT(A) who granted partial relief to the assessee and confirmed the major additions made by the AO. 7. Aggrieved by the relief given by the CIT(A) the revenue is in appeal before us and aggrieved by the confirmation of the additions by the CIT(A), the assessee is in appeal before us. 8. Coming to the revenue's appeals, the revenue has only challenged the order of the CIT(A) in holding that telephone communication expenses and foreign travel expenditure incurred in foreign currency for delivery of software are to be excluded from the total turnover for the purpose of computation of deduction u/s 10A of the Act. This ground of appeal is also connected with the assessee's ground of appeal Nos.2 and 3 for both the assessment years 2002-03 and 2005-06. 9. Shri Chythanya, the learned counsel for the assessee submitted that the telephone communication ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against supply of goods at free on board (FOB) and therefore the condition of delivery of goods at FOB has been put and the definition of export turnover as provided in clause (iv) of Explanation 2 to section 10A is required to be interpreted accordingly. Thus, on the basis of the above decisions, the learned counsel for the assessee submitted that while computing deduction u/s 10A of the Act, the telecommunication charges and the insurance charges should not be excluded from the export turnover. Without prejudice to the above contentions, it was also submitted that since the expenditure on telecommunication charges and insurance charges have not been incurred in foreign exchange, the question of reduction of the same from the export turnover also does not arise. For this proposition, he placed reliance upon the decision of the Chennai Bench of the Tribunal in the case of California Software Co. Ltd. vs. ACIT (2008)118 TTJ (Chennai) 842. 10. Shri G.V.Gopala Rao, the learned Departmental Representative, on the other hand, supported the order of the AO and submitted that the assessee though has stated that the telecommunication charges and insurance charges are not included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion that the same is also to be reduced from the total turnover by following various decisions of the Tribunal. We find that this issue is also covered in favour of the assessee by the decision of the Special Bench (Chennai) in the case of Sak Soft Ltd. (2009) 313 ITR 353)(SB) wherein it has been held that if a variable excluded from numerator export turnover then the same has to be excluded from denominator also in order to arrive at the correct profit of the business eligible for deduction. In view of the same, the assessee's ground Nos.2 and 3 are rejected and the revenue's grounds are also rejected. In view of the same, the revenue's appeals are dismissed. 13. Coming to ground Nos.4 and 5 of the assessee's appeal, learned counsel for the assessee has submitted that the assessee has incurred travel and other expenses on onsite personnel for both the assessment years which has been disallowed by the AO on the ground that it is for providing technical service outside India. The learned counsel for the assessee submitted that the assessee, being in the business of development and export of various software products for telecommunication industry from its offsho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have held that the losses of the non-STP unit are to be set off from the profits of the STP unit before allowing deduction u/s 10A of the Act. In support of his contention that the same is not to be set off against the profits of the STP unit, he placed reliance upon the following decisions: i) Madras Machine Tools Manufacturers Ltd. vs. CIT (98 ITR 119) wherein the Hon'ble Madras High Court had an occasion to consider the distinction between a company and its undertakings while deciding the case in the context of section 84 deduction and has held that when a company owns more than one undertaking the application of section 84 has to be with respect to the particular undertaking and not to the company in general. It is true that the word 'undertaking' has not been defined in the Income-tax Act but in common parlance it is taken as a concern started or formed for a specific purpose or a project engaged in . ii) Tata Consultancy Service Ltd. vs. ACIT (2009-TIOL-41-ITAT-Bang wherein referring to the decision of the Hon'ble Kerala High Court in the case of P.Alikunju, M A Nazeer Cashew Industries vs. CIT (166 ITR 804) it has been held that the word 'undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7(i) Learned counsel for the assessee had submitted that the deduction u/s 10A finds its place in Chapter III and the set off of unabsorbed loss or depreciation come under chapter VI pertaining to aggregation of income and therefore, according to him, the set off of carry forward losses has to be done only after allowing the exemption u/s 10A of the Act. 17(ii) Learned Departmental Representative, however, supported the orders of the authorities below. 18. Having heard both the parties and having considered the material on record, we find that in the earlier issue of granting setting off of loss of non-STP unit from the profits and gains of STP unit, we have already held that deduction u/s 10A has to be computed on a stand-alone basis. From the assessment order as well as the CIT(A)'s order, it is not clear as to the years from which the losses have been carried forward and whether they pertain to the STP unit only. As seen from the decision of the Hon'ble High Court in the case of Himatsingike Seide Ltd (supra) we find that the Hon'ble High Court has held that the carried forward losses of STP unit have to be set off against exempt income of STP unit and not agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find that the decision of the Hon'ble Supreme Court in the case of Liberty India (cited supra) is in respect of duty drawback to be considered for the purpose of computation of deduction u/s 80-IA and 80-IB wherein the language employed is the 'profits and gains of business derived from the undertaking' whereas in the present case we are dealing with the case of deduction u/s 10A where the language employed is 'profits and gains derived by the undertaking'. Having regard to the language used in both the sections, we are of the opinion that the decision of the Hon'ble Supreme Court in the case of Liberty India (cited supra) cannot be applied to the case in hand. On the other hand, we find that the decisions relied on by the learned counsel for the assessee are squarely applicable to the facts of the present case. Therefore, this ground of appeal is allowed. 21. In the result, the assessee's appeal for assessment year 2002-03 is partly allowed. 22. Coming to ground Nos.13 to 18 for the assessment year 2005-06 relating to the issue of disallowance of depreciation claimed on intellectual property rights, brief facts of the case are that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets and the purchase price. This also refers to the steps taken to transfer the purchased assets. Such steps mentioned are assignment of trademark, assignment of copyright, assignment of all material contracts of the customers, assignment of equipment leases and assignment of DSI Master Source Code Escrow Agreement. Prima facie, therefore, it appears that IPR refers to the copyright and will be eligible for depreciation. But since the AO has not considered this aspect and has not taken into consideration the relevant facts as mentioned by the AR and taken note of by this order, therefore, the Assessing Officer will look into these aspects and will give a finding as to whether the IPR as acquired is covered under the definition of intangible assets as given in section 32 of the I T Act. Since the asset has been acquired from a country outside India on the basis of consideration expressed in Canadian dollars and therefore, the AO will have to consider the provisions of section 43A of the I T Act while ascertaining the cost for the purpose of depreciation. 2.16 The learned CIT(A) has disallowed depreciation on the ground that the asset was written of in the books of account. Inta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital Cost P. Ltd. (Del.) 114 IRD 286 had an occasion to consider the allowability of depreciation in respect of an asset, which was shown under the head 'building' on the books of account. The Delhi Tribunal after considering the purchase agreement noticed that consideration was for the purchase of property comprising of land piece and building's super structure cost. Hence, the depreciation was allowed on that portion, which could have been attributable to the building. The treatment given by the assessee in its books of account was not accepted. The revenue in that case argued that the treatment given by the assessee cannot be accepted and the facts are to be found on the basis of the purchase agreement. Hence, the accounting treatment given by the assessee by writing of the cost of the intangible asset against the share premium account is not relevant for deciding the issue as to whether the assessee is entitled to depreciation or not. If the asset has been used for the purpose of business, then depreciation is to be allowed. So far as the ownership of the asset is concerned, it is established and deduction of depreciation cannot be denied on the ground that cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nations make it clear that in case the assessee has not filed the return or has not computed the income, then depreciation is to be treated as allowed as per Explanation 6 to section 43(6). As per Explanation 5 to Section 32, depreciation is to be allowed irrespective of the fact as to whether depreciation has been claimed or not. The Hon'ble Apex Court in the case of JCIT v United Phosphorous Ltd. 299 ITR 9 had an occasion to consider the following question of law:- Whether respondent assessee had an option in law to claim partial depreciation in respect of any block of assets? The Hon'ble Apex Court vide para 5 of the decision observed as under:- 5. Regarding the question No.(2), quoted above, it may be noted that the High Court has relied upon the judgment of this Court in CIT v Mahendra Mills (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC) in which it has been held that the assessee has an option to claim depreciation. However, s.34(1) of the IT Act, 1961 (for short, '1961 Act') has been omitted w.e.f. 1st April, 1988. Therefore, we are remanding the matter to the High Court after setting aside the impugned order of the High Court on this quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue also is covered by the decision of the Tribunal in the assessee's own case for assessment year 2003-04 and 2004-05 upholding the order of the CIT(A) holding that the building has never been used for the purpose of business and that it is not a trading asset of the assessee and therefore the rental income arising cannot be assessed as business income and is taxable as 'income from other sources' and the rent paid for the said building is an allowable expenditure u/s 37 of the Act. Respectfully following the decision of the co-ordinate Bench in the assessee's own case, this ground of appeal is rejected. 28. Coming to ground No.21 relating to disallowance of certain income for the computation of deduction u/s 10A of the Act, we find that this issue is similar to ground of appeal No.5 of the assessee's appeal for assessment year 2002-03 and respectfully following the same, we hold that these receipts are also eligible for deduction u/s 10A of the Act as they are all related to the assessee's business and are part of business income. In view of the same, this ground of appeal is allowed. 29. Ground of appeal Nos.16 and 22 in the assessee's ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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