TMI Blog2014 (3) TMI 1138X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the fact that in preceding assessment years, it has been getting benefit of deduction qua the same on-site application maintenance operations. Apart from this, the Revenue’s argument only turns out to be a hyper technical approach since in the circular dated 17.1.2013 whose contents have already been reproduced hereinabove, it is nowhere necessary that the software in question has to be mandatorily deployed at the holding company or the agreement should be between the ultimate client and assessee. The latter argument of the Revenue that there was no subsisting contract already stand repelled in our findings hereinabove that indeed there existed agreements between the assessee and its clients/associated entities. No merit in the ground raised by the Revenue that assessee’s income of ₹ 20.43 crores is not eligible for deduction u/s 10A of the Act since it had arisen from on-site and offshore software application maintenance activity. Not to exclude the foreign currency expenditure from the export turnover - Held that:- As decided in M/S. PENTASOFT TECHNOLOGIES LTD. [2010 (7) TMI 75 - MADRAS HIGH COURT] holding therein that such gains have to be treated as part of income ‘ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue, for assessment year 2008-09, are directed against order of the Commissioner of Income-tax (Appeals) Large Taxpayer Unit, dated 25.2.2013, passed in Appeal No.108/11-12/LTU(A), in proceedings under section 143(3) r.w.s 92CA of the Income-tax Act, 1961 (in short the Act ). 2. First we take up I.T.A.No.1090/Mds/2013 filed by the assessee. In this case, the sole substantive ground is that the CIT(A) ought not to have upheld disallowance of ₹ 74,41,489/- u/s 14A r.w. rule 8D of the Income Tax Rules. 3. The assessee, a company engaged in the business of providing software services and related solutions, had filed its return on 29.9.2008 declaring total income of ₹ 93,54,87,072/- u/s 115JB of the Act. The same was summarily processed. In the course of scrutiny, the Assessing Officer noticed from its statement of income exempt income from mutual funds of ₹ 12,42,22,409/- without attributing any expenditure. On being put up to notice, the assessee reiterated its stand as not to have incurred any expenses. In assessment order dated 30.12.2011, the Assessing Officer invoked section 14A of the Act r.w.r 8D of the Income-tax Rules and computed the impugned di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... US holding company but at a different third party premises in the absence of any subsisting contract between them. 10. The assessee supports the findings under challenge by the CIT(A). 11. Relevant facts pertaining to this issue are that the assessee, a subsidiary of its USA based holding company had provided on-site and off-shore software application maintenance services to its associate companies abroad in the relevant previous year and derived income therefrom. There is no dispute between the parties that the rates charged by the assessee have already been found at arm s length in the course of assessment. In the course of scrutiny , the Assessing Officer was of the view that this application maintenance at its client s premises did not come within the purview of section 10A of the Act. In assessment order, the Assessing Officer denied the claim of deduction qua this income inter alia, on three grounds i.e no conclusive proof had come demonstrating major part of the application maintenance to be from the concerned software technology park or the special economic zone unit, no separate billing or invoicing had been done qua on-site or off-shore work coupled with the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 10A and 10B (vide Finance Act, 2001) and Explanation 2 to section 10AA (vide Special Economic Zones Act, 2005) providing that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India , and a clarification has been sought on the impact of the Explanation on the tax-benefits as compared to the situation that existed prior to the amendments. The matter has been examined. In view of the position of law as it stands now, it is clarified that the software developed abroad at a client s place would be eligible for benefits under the respective provisions, because these would amount to deemed export and tax benefits would not be denied merely on this ground. However, since the benefits under these provisions can be availed of only by the units or undertakings set up under specified schemes in India, it is necessary that there must exist a direct and intimate nexus or connection of development of software done abroad with the eligible units set up in India and such development of software should be purs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and offshore services to M/s Cognizant Technology Solutions U.S. Corporation. The assessee claims to have executed such agreements with each of the entities to whom it has rendered the services in question. On being pointed out, the Revenue has not drawn our attention to any material contrary to the same. Coming to the first plea of the Revenue that there must exist a direct and intimate nexus or connection of development of software done abroad with the eligible units set up in India, we find that the same goes contrary to Explanation 3 to section 10A read with Circular reproduced stipulating that profits and gains derived from on-site development of computer software outside India by deputing technical manpower are deemed as export profits. The second argument of the Revenue is that there should be a contract for development of software between the client and the eligible unit. Needless to say, we have already observed about such agreements between assessee and its clients which is nowhere rebutted by the Revenue. So, this plea also fails. The next argument of the Revenue is that the assessee had not signed any contractual argument with the clients and only placed on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) has relied upon the decision of hon'ble jurisdictional high court in the case of CIT vs Pentasoft Technologies Ltd - 2010-TIOL-525-HC-MAD as well as that of the tribunal in assessee s own case for assessment year 2007- 08 in I.T.A.No.2100/Mds/2011 dated 23.1.2013 holding therein that such gains have to be treated as part of income derived from export for the purpose of deduction u/s 10A of the Act. On being granted opportunity to rebut, the Revenue only reiterates the pleadings in the grounds. In our view, once the hon'ble jurisdictional high court has decided the very question of law which has also been echoed in the assessee s own case, there is hardly any reason to adopt a different approach in the impugned assessment year. Consequently, this ground is rejected. 17. The next grievance raised by the Revenue relates to telecommunication expenditure which has been ordered by the CIT(A) not to be excluded from the export turnover. 18. In this regard as well, the parties are unanimous that the issue stands decided in assessee s favour by the order of the 'tribunal' dated 23.1.2013. Taking cue from the same, we order accordingly and reject the Revenue s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gapore DTAA, he observes that fee for technical services contemplate making available of technical knowledge which is missing in this case. The CIT(A) s findings further conclude that there is no permanent establishment of assessee s payees in India attracting section 9(1)(vii) r.w.s 195 of the Act and the maintenance services availed are neither permanent nor durable. In this manner, the disallowance stands deleted. 26. Before us, the Revenue vehemently reiterates the pleadings to submit that payments in lieu of annual maintenance services amount to fee for technical services , the CIT(A) had wrongly relied upon DTAA between India and Singapore inspite of the fact that one of the payee entities had been incorporated in Hong Kong and also ignored section 9(1)(vii) Explanation introduced by the Finance Act, 2010 with retrospective effect from 1.6.1976. 27. In reply, the assessee draws strong support from the CIT(A) s order to argue that there are two payees namely, Cognos Pte Ltd and Epicore (Asia) Ltd pertaining annual maintenance contract. Per assessee, they did not render any technical services by making available the technology in question resulting into any obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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