2020 (12) TMI 556
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....payment in the nature of royalty. Since the assessee did not deduct tax at source from the payments so made, the A.O. disallowed the same u/s 40(a)(i) of the Act. The Ld. CIT(A) held that the payment made by the assessee for purchase of software was in respect of copy righted article and accordingly held that disallowance u/s 40(a)(i) of the Act is not called for. Accordingly, he deleted the disallowance. 4. We heard the parties on this issue and perused the record. The Ld. D.R. submitted that the jurisdictional High Court has held in the case of Samsung Electronics Company Ltd. (345 ITR 494) that the payment made for software purchase is in the nature of payment of royalty. Accordingly, the Ld. D.R. submitted that the assessee should have deducted tax at source from the payment made for purchase of software. Accordingly, he submitted that the A.O. was justified in making disallowance u/s 40(a)(i) of the Act. 5. On the contrary, the Ld. A.R. submitted that the decision in the case of Samsung Electronics Company Ltd. was rendered by Hon'ble jurisdictional High Court on 15.10.2011. Prior to the said decision of Hon'ble High Court, certain Tribunal decisions were available to the e....
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....9(1 (vi) of the Act to clarify that payments for, inter alia. License to use computer software would qualify as royalty. During the FY 10-11, the assessee did not have the benefit of clarification brought by the respective amendment. As such, for the FY 2010-11, in light of the provisions of section 9(1)(vi) of the Act read with judicial guidance on the taxation of computer software payments, tax was not required to be deducted at source. Given the practice in prior assessment years, the assessee was of the bona fide view that the payment of software license fee was not subject to tax deduction at source under section1941/195 of the Act. Liability to deduct tax at source cannot be fastened on the assessee on the basis of retrospective amendment to the Act (Finance Act 2012 amendment the definition of royalty with retrospective effect from 01.04.1976) or a subsequent ruling of a court (the Karnataka HC IT(TP)A Nos.405 & 474/Bang/2015 in CIT v Samsung Electronics Co. Ltd. (16 taxmann.com 141) was passed on October 15,2011). Courts have consistently upheld this principle as seen in: ♦ ITO v. Clear Water Technology Services (P.) Ltd. (52 taxmann.com 115) ♦ Kerala Vision....
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.... disallowance of provision for warranty. The A.O. noticed that the assessee has debited a sum of Rs. 29.17 crores towards Provision for warranty in respect of goods sold by it. The A.O. noticed that the deductibility of provision for warranty has been examined by the Hon'ble Supreme Court in the case of Rotork Controls India P. Ltd. (Civil Appeal No.3506 - 3510 of 2009) and certain guidelines have been laid down. The A.O. noticed that the assessee is making provision for warranty of huge amount every year and also reversing the warranty provision in subsequent years, which was also of significant amount. Hence, the A.O. took the view that the assessee is not following scientific method for creating provision for warranty and accordingly, he disallowed the same. 9. The Ld. CIT(A) noticed that the A.O. had made identical disallowance in assessment years 2004-05 to 2006-07 and the jurisdictional Income Tax Tribunal had deleted the same. Accordingly, the Ld. CIT(A), following the decision rendered by ITAT, deleted the disallowance. 10. We heard the parties on this issue. The Ld. A.R. submitted that the issue relating to disallowance of provision of warranty in the assessee's own cas....
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.... this account. 10. We express our concern and dissatisfaction at the manner in which the Assessing Authority in the present case has very casually disallowed the said claim in the hands of the Respondent-Assessee. Moreover, when the Higher Appellate Authorities have corrected the said approach of the Assessing Authority by the First Appellate Authority allowing the appeal of the Assessee and the Tribunal dismissing the appeal of the Revenue, we are all the more pained to see that the Revenue still felt dissatisfied and has brought up the matter before this Court under Section 260-A of the Act without actually any substantial question of law arising in the matter. This reflects the irresponsible manner in which the Revenue Department becomes a frivolous litigant in constitutional courts, by dragging such case, wasting public time and money. 11. As is well settled, the appeal under Section 260-A of the Act lies before this Court only on substantial questions of law. The final fact findings of the Tribunal under the Act are binding on this Court and cannot be disturbed unless they are found to be perverse on the basis of established material on record. We do not find any such case....
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....g detected in some of such items leads to a present obligation which results in an enterprise having no alternative to settling that obligation. In the present case, the appellant has been manufacturing and selling Valve Actuators. They are in the business from assessment years 1983-84 onwards. Valve Actuators are sophisticated goods. Over the years appellant has been manufacturing Valve Actuators in large numbers. The statistical data indicates that every year some of these manufactured Actuators are found to be defective. The statistical data over the years also indicates that being sophisticated item no customer is prepared to buy Valve Actuator without a warranty. Therefore, warranty became integral part of the sale price of the Valve Actuator(s). In other words, warranty stood attached to the sale price of the product. These aspects are important. As stated above, obligations arising from past events have to be recognized as provisions. These past events are known as obligating events. In the present case, therefore, warranty provision needs to be recognized because the appellant is an enterprise having a present obligation as a result of past events resulting in an outflow ....
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....prescribed in the warranty. Therefore, the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provision for the products should be based on the estimate at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. In our view, on the facts and circumstances of this case, provision for warranty is rightly made by the appellant-enterprise because it has incurred a present obligation as a result of past events. There is also an outflow of resources. A reliable estimate of the obligation was also possible. Therefor....
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....d. CIT(A) deleted disallowance made by the A.O. 15. We heard the parties on this issue and perused the record. The Ld. A.R. submitted that the A.O. has assessed the foreign exchange gains arising on account of revaluation of creditors and other trading items. He submitted that the forward contracts have been entered by the assessee in respect of revenue items only. He further submitted that the assessee has not imported any fixed assets during the year under consideration and hence, there did not exist any forward contract on capital account. He submitted that revaluation of forward contract relating to revenue item is allowable as deduction as held by the Bengaluru bench of ITAT in the caseof Quality Engineering & Software Technologies Pvt. Ltd. 16. The Ld. D.R. submitted that marked to market losses have been held as notional loss by the CBDT instruction No.3/2010 dated 23.3.2010. Accordingly, he submitted that the A.O. was justified in making the disallowance. 17. We heard the parties on this issue and perused the record. We notice that this issue has been decided in favour of the assessee by coordinate bench of Tribunal in the case of Quality Engineering & Software Technol....
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....axable income of an assessee has been considered by the Board. In this connection, I am directed to say that the Assessing Officers may follow the guidelines given below: 2....... 3. Treatment of loss from actual transactions in forex-derivatives. In a case where a loss on a forex-derivative transaction arises on actual settlement / conclusion of contract and is not a notional or marked to market book entry, a further question will arise as to whether such a loss is on account of a speculative transaction as contemplated in Section 43(5) of the Income tax Act. For determining whether loss from a transaction in respect of a forex-derivative is a speculation loss or not, the Assessing Officers may refer to Proviso (d) below sub-section (5) of Section 43 inserted by the Finance Act, 2005, with effect from 1.4.2006. It lays down that any 'eligible transaction' in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956, that has been carried out in a recognized stock exchange shall not be treated as a speculative transaction. Further, an 'eligible transaction' for this purpose would be one that fu....
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....rstood before determining the true scope, width and nature of proviso (a) to section43(5). Hedge contracts are those contracts which hedge against prejudicial price fluctuations. In speculative transactions the modus operandi of persons indulging in them is that when one enters into a contract of purchase, he also simultaneously enters into one or more contracts of sale against the same quantity deliverable at the same time either to the original vendor or to someone else, so as either to secure profit or to minimize loss, before the Vaida day ; and similarly when he enters into a contract of sale, he simultaneously enters into one or more contracts to purchase the same quantity before the Vaida day. The result of such dealings, when the sale and purchase are to and from the same person, has the effect of cancelling the contracts leaving only differences to be paid. The technique of hedge trading can be understood in simple terms. It is said that the hedge contract is so called because it enables the persons dealing with the actual commodity to hedge themselves, i.e., to insure themselves against adverse price fluctuations. A dealer or a merchant enters into a hedge contract when h....
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....way of hedge transactions usually afford a cover to a trader inasmuch as his loss in the ready market is offset by a profit in the forward market and vice versa. It, therefore, follows that in order to effectively hedge against adverse price fluctuations of the manufactured goods or merchandise, a manufacturer or merchant has necessarily to enter into forward transactions of sale and purchase both, and without these contracts of sale and purchase constituting hedge transactions, there would be no effective insurance against the risk of loss in the price fluctuations of the commodity, manufactured or the merchandise sold. 5.3. Hedging contracts are dealt in Clause (a) of the proviso to section 43(5) of the Act. From the above discussion it can safely stated that the said clause applies, if following conditions are fulfilled: (1) There is a contract for actual delivery of goods manufactured by the assessee /a merchandise sold by it, (2) Assessee must be a subsequent transaction intend to guard against losses through future price fluctuations in respect of such contract, (3) Transaction in question must be a contract entered into in respect of raw materials or merchandise in t....