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2016 (11) TMI 456 - DELHI HIGH COURT

2016 (11) TMI 456 - DELHI HIGH COURT - TMI - Entitlement to claim benefit of Section 10A - Transfer of computer software by the Indian branch to the head office - whether can be said to be ‘sale’ to the head office out of India - whether as the software is developed by the branch as per the requirement of Head Office and not sold to any third party? - Held that:- In this case the AO carried out the exercise mandated by Section 10A(7) read with Section 80-IA(8). Consequently the particulars o .....

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bsence of a “deemed export” provision in Section 10A similar to the one in Section 80HHC does not logically undercut the amplitude of the expression “transfer of goods” under Section 80-IA(8) – which is now part of Section 10A. Such an interpretation would defeat Section 10A(7) entirely. - Substantial questions of law framed are to be answered in favour of the assessee and against the Revenue. - ITA 1108/2007, ITA 1249/2009 & ITA 173/2016 - Dated:- 9-11-2016 - MR. S. RAVINDRA BHAT & MR. .....

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f the Income Tax Act, 1961, as the software is developed by the branch as per the requirement of Head Office and not sold to any third party? 2. The companion appeals i.e. ITA Nos. 1249/2009 and 173/2016 also concern the same questions of law, because the Income Tax Appellate Tribunal (in short ITAT ) followed the decision rendered by it on 05.01.2007, (which is the subject matter of ITA No. 1108/2007). 3. The assessee is engaged in the business of software development and was accorded approval .....

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broad. In terms of the agreement between the assessee and its head office, the latter pays all direct and indirect cost for development of software with the mark up of 15% of such process. 4. The assessee had developed a software known as Softex Form , and exported it through data communication links. It received consideration and furnished the relevant clarification which was accepted by the STPI authorities. It also received remittances from the head office towards the export/ transmission of .....

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but with a nominal mark up. Importantly, the AO held that transfer of software in the circumstances of the case did not amount to its export. 6. The assessee had contended that its Indian branch constitutes a permanent establishment (PE) of its foreign office and the profits were attributable to its business carried out in India and were taxable under the several provisions of the Act. The assessee had claimed that by virtue of the existing Double Taxation Avoidance Agreement (in short DTAA ), i .....

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hat the assessee remitted back its profits to the head office in foreign currency and that by this reason the objective for introducing Section 10A was defeated. The AO crucially referred to explanation 2 to Section 80HHC which provides that where goods and merchandise are transferred by a unit to a branch office, warehouse or other establishment situated outside India, and thereafter sold, such transfer shall be deemed to be export. The absence of a similar provision in Section 10A was held to .....

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...13. In the present case there is no dispute that the asseseee developed Computer Software and transmitted electronically to its head office. The assessee is an approved 100% export oriented unit for development of computer software duly approved by the STP of India. The export of software during the previous year is evidenced by the Softex form duly certified by the competent officer of STPI. The consideration has been received by the assessee in the form of convertible foreign exchange. The .....

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ale by it or transfer by it from an eligible business or to an eligible business has been recognized under section 10-A(7) of the Act..... 9. Arguing for the Revenue, Mr. Rahul Chaudhury, the learned counsel contends that the absence of a provision similar to explanation 2 to Section 80HHC(8) implies that intent of the Parliament was to exclude the kind of transaction which the assessee had undertaken. Urging this Court to accept the reasoning of the AO, the learned counsel also relied upon expl .....

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ally this Court had agreed and confirmed the findings of the ITAT in another decision i.e. Commissioner of Income Tax, Delhi-II vs. Moser Baer India Ltd. 177 Taxman 42 (Del) the reasoning there can be distinguished by the fact that the transfer of software involved was not between the branch and head office. 10. Mr. Balbir Singh, the learned senior counsel appearing for the assessee contends that the purpose of engrafting, by incorporation, as it were Section 80-IA(8) into the regime of Section .....

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cally dealt with the ITAT s logic and reasoning in the present case. There the Division Bench of this Court noted that transmission of computer software from an Indian entity to its head office on the basis of an arm s length price determined for export entitled the assessee to exemption under Section 10A. The Court is in agreement with the assessee s contention that mere omission of a provision akin to Section 80HHC Explanation (2) or the omission to make a provision of a similar kind that enco .....

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