9911796707
TMI Blog2023 (6) TMI 1118X X X X Extracts X X X X X X X X Extracts X X X X ..... her statutory notices were issued to the assessee and assessee also responded to the notices. The assessee claimed exemption u/s 10AA being profit of SEZ units. The total income also comprises income of short term capital gain amounting to Rs. 2,64,33,89,767/- on sales of Mutual Fund and Bonds units and other investments. The assessee had also Long Term Capital gain on sale of bonds and NCDs of Rs. 16,74,12,034/-after setting off of brought forward losses of earlier years. Further the assessee had disclosed loss from other sources of Rs. 9,21,99,128/- being interest expenses on ECB loan taken to invest in foreign subsidiaries company, viz, Wipro Cyprus. The assessee is engaged in different types of business activities, viz., software development services and IT services; manufacture of Vanaspati/Hydro generated oils; toilet soaps; lighting products; pharmaceuticals & Neutraceutical products; leather products; computers, hydraulic and pneumatic equipment; water treatment systems and solutions etc. It is also engaged in trading of servers, routers, networking equipments, spare parts, etc. The assessing officer passed final assessment order on 28.05.2021 in conformity with the directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations of the co-ordinate bench are as under:- "6.1 ....... The AO noticed from the Chairman's message given in the Annual report of the assessee that it has developed an Artificial Intelligence Plat form named "Wipro HOLMES". He also noticed that the assessee has already received trade mark for the above product. In this regard, the AO observed as under:- "3 Assessee describes Wipro Holmes as "Wipro HOLMES Artificial Intelligence Platform (tm)". The platform is ready and it has already received trademark also. One does not have to be a Sherlock Holmes to realize that Wipro Holmes is a capital asset. So where is this platform recognized in fixed asset schedule? Where are the other platforms for internet of Things and Blockchain reported? ln the course of hearing on 15.11.2018, this was confronted to the AR. AR argued that it is an industry practice to claim all employee expenses as revenue expenditure. The AR was asked to furnish details of (a) number of man-days of the company in the year, (b) number of man-days that have been utilized in in-house projects, and (c) number of man-days that have been characterized as 'bench'. 'Bench' is an industry nomencl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.11 crores and the cost of mandays of bench employees at Rs. 287.66 crores. Accordingly, the aggregate amount to be capitalised was determined at Rs. 601.77 crores by Ld DRP. With regard to allowability of depreciation, the Ld DRP noticed that the AO has changed his stand in the remand report and observed that the new software/application produced by the assessee are in the nature of "intangibles" and accordingly suggested depreciation @ 25% instead of 60%. Further, since the details of nature of asset created and the details of their usage were not available, the Ld DRP declined to grant depreciation. The relevant observations made by the Ld Dispute Resolution Panel are extracted below:- "2.g With respect to the classification of assets and resultant treatment for applying correct rates the information is not sufficient. The AO initially took the stand that the assets created are software and applied 60% rate (restricted to less than 182 days). However as per the remand report the AO raised alternative argument that the depreciation may be restricted to 25%, as the assessee was creating intangible assets. The information with regard to the nature of assets created and put to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration is of the view that the assessee should be granted additional benefit of 10AA on re-computation of profits of eligible units, consequent to partial capitalization of employee cost. It is seen that some of the 10AA units are eligible for 100% exemption and some units are eligible for 50% of exemption. Hence AO is directed to recompute the eligible profits of 10AA units and accordingly compute the eligible benefit under 10AA. Directed accordingly." 6.5 The assessee also raised a new claim before Ld DRP contending that, if the development of software products mentioned above are considered to be capital in nature, then the same is allowable as deduction u/s 35(1)(iv) of the Act, since it is in the nature of Scientific Research expenses. In this regard, the assessee placed its reliance on the decision rendered by Hon'ble Karnataka High Court in the case of Talisma Corporation P Ltd (ITA 515/2007). The Ld DRP called for a remand report from AO, who opined that the assessee has only created "intangible assets" in the nature of "Software platform" and "software codes" and it cannot qualify as Scientific research activity. He also expressed the view that the decision rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o prove that assessee is engaged in scientific research. Even before the AO during remand proceedings assessee has not substantiated the claim. 2.18 Section 35(1)(i) and Section 35(1)(iv) relate to revenue and capital expenditures in conducting scientific research related to a business carried on by the assessee. The reference to "scientific research related to a business" in section 43(4)(iii)(a) is to include the cases of scientific research which may lead to or to facilitate an extension of that business. Section 35 relates to cases where assessee exclusively carries on "scientific research, as business activity and cases where assessee carries on a business as well as scientific research as two distinct activities. Board's circular No. 281 dated 22.9.1980 states that the deductions u/s 35 are aimed at providing incentives to encourage scientific research in India and to encourage assessee who need the output of scientific research for their business. Hence the activities of the assessee need to be examined in the light of these provision if assessee has a stream of activity called scientific research related to the business carried on by it. Whether the activities of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessing officer. (ii) The AO has taken the view that the expenses spent on development of certain internal tools titled as "internal intangible assets" by AO should be capitalised. They consisted of Artificial intelligence software named "Wipro Holmes", other tools named as Wipro Accelerate, Rapids etc. The primary contention of the assessee is that there is no requirement of capitalising any of the salary expenses. Since the AO had taken different view, the assessee also made following alternative plea of allowing depreciation on the amount so capitalised, which was accepted by AO in the draft assessment order. Before Ld DRP, the assessee raised another alternative plea to allow the capital expenditure as deduction u/s 35(1)(iv) of the Act. However, Ld DRP rejected both the alternative pleas, viz., claim for depreciation and also claim for deduction u/s 35(1)(iv) of the Act. (iii) The Ld A.R submitted that these software products/applications/software tools/platforms, which have been developed are part of its regular business operations and the products used for inhouse only enable enhancing its capabilities and efficiencies in newer technological areas. These are nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use are not available. He submitted that the view so taken by Ld DRP is contrary to the facts discussed in the assessment order and the remand report. 6.8 The Ld D.R, on the contrary, supported the order passed by AO/DRP. He submitted that the assessee has developed many new applications, which are in the nature of intangible assets. Hence the expenses incurred on development of those applications have been rightly capitalised by the AO. 6.9 We heard rival contentions and perused the record. We notice that the primary contention of the assessee is that the expenses incurred by it on development of software/applications/tools/platforms, which were meant to be used for internal purposes, are revenue in nature. These group of products have been titled as "internal intangible assets' by the AO. We noticed that the AO has, however, taken the view that cost of developing these internal intangible assets are required to be capitalised, as according to him, these internal intangible assets are capital in nature. 6.10 We notice that the assessee has furnished the details relating to the above said applications/tools etc before the AO. In the details furnished before the AO, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace (WIPRO IMAGINE):- The acronym "IMAGINE" stands for 'Interfaces to Machine Ambient Gamified Immersive New-age Experience'. It provides near human abilities of multi-model interactions through voice, vision and haptic leading to personalised experiences. The application includes Customer service, Self service, In store interaction, Product-solution user manuals etc. It involves continuing development of the product. (f) Multiple Harizone 2 to Harizone 3 projects. It also involves continuing development. (B) Customer funded projects - These projects have been undertaken by CTO for customers. We noticed earlier that the expenses relating to this project has not been capitalised. Hence it is outside ambit of this issue. (C) Domain projects:- These are expenses incurred as investment in 'Centre of Excellence' (CoE) to do research in specific domain solutions. It is stated that any outcome, which qualifies for development' will go to CTO projects for development and for further funding under CTO. As the name suggests, these expenses have been incurred to do research and improve domain specific solutions. Some of the work carried out under this heading are Digital CoE, Energy & U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Hon'ble Karnataka High Court has held that the purchase of application software shall still continue to he revenue expenditure, in the case of CIT vs. IBM India Ltd (357 ITR 88. The relevant observations made by Hon'ble Karnataka High Court are extracted below:- "The Tribunal, on consideration of the material on record and the rival contentions held, when the expenditure is made not only once and for all but also with a view to bringing into existence an asset or an advantage for the enduring benefit, the same can be properly classified as capital expenditure. At the same time, even though the expenses are once and for all and may give an advantage for enduring benefit but is not with a view to bringing into existence any asset, the same cannot be always classified as capital expenditure. The test to be applied is, is it a part of the company's working expenses or is it expenditure laid out as a part of the process of profit earning. Is it on the capital layout or is it an expenditure necessary for acquisition of property or of rights of a permanent character, possession of which is condition on carrying on trade at all. The assessee in the course of its business acquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enduring benefit was rejected in this case. 6.15 The Bangalore bench of Tribunal was considering an issue in the case of Sasken Technologies Ltd, wherein the "sale of source code of software" (referred as "IPR") was claimed by the above said company as sale of capital asset and accordingly claimed that the profit arising therefrom should be assessed as Capital Gains. The AO treated the same as business income and the view of the AO was upheld by the Tribunal in its decision rendered in ITA 2546/Bang/2019 order dated 16.03.2012. The reasoning given by the Tribunal is relevant here:- "20. We have carefully considered the rival submissions. The subject matter of the Settlement Agreement dated 21.03.20216 was independently owned IPR and Foreground Information that both the parties were privy to in the course of joint development of Foreground IPR but excluding Foreground IPR. We have already reproduced clause 3.1 and 3.2 of the Settlement Agreement in the earlier part of this order. The assessee and Spreadtrum were recognized as joint owners of the independently owned IPR and Foreground Information. In this regard, we may recollect that when the assessee and Spreadtrum entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum received under the Settlement Agreement that was claimed as not taxable. It is therefore clear that the independently owned IPR and Foreground Information which partakes the character of stock-in-trade for companies like that of the assessee was not a capital asset within the meaning of section 2(14) of the Act and therefore the sum received by the assessee cannot fall within the ambit of the head of "Income from Capital Gain". The assessee did not receive the sum in question for giving up any source of income as the assessee was free to exploit independently owned IPR as well as Foreground information and therefore the argument that the sum received is capital receipt for losing a source of income and therefore not chargeable to tax, is devoid of any merits." It can be noticed that the Tribunal has expressed the view that the software product developed by an Information Technology company constitutes its revenue asset (akin to stock in trade) and hence the revenue generated on its sale or licensing, constitutes business income. In respect of the software product so developed, the said information technology company may be holding IPR and the transfer of IPR was also held to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, such as this as capital. The circumstance that the agreement insofar as it placed limitations on the right of the assessee in dealing with the know- how and the conditions as to non-partibility, confidentiality and secrecy of the know-how incline towards the inference that the right pertained more to the use of the knowhow than to its exclusive acquisition. * * *The improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture. The further circumstance that the agreement pertained to a product already in the line of assessee's established business and not to a new product indicates that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day to day business of the assessee's established enterprise." The above said observations were made by Hon'ble Supreme Court in the context of deciding the issue whether the expenditure incurred by a pharma company for acquiring technical knowhow is revenue expenditure or not. The Hon'ble Calcutta High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying with the assessee and hence he treated the expenses incurred by the assessee as capital expenditure. The ld CIT(A) confirmed the disallowance, but the Tribunal reversed it. The Hon'ble High Court has discussed the reasoning given by the Tribunal as under:- "The Tribunal on reconsideration of the entire material on record, taking note of the various judgments on which reliance was placed by both the parties, by a detailed order came to the conclusion that the technology in telecommunication is developing at a very fast speed and new products are to be developed in case one has to remain in the business. The product developed is marketed for one year only, as the next product will come before the end of first year of the introduction of an earlier product. A number of prototypes are developed but all such prototypes are not used as model for the new product. The prototypes, which are not finally approved for commercial production, are rejected and such prototypes are of no use. Only those prototypes are retained, for which, the Company manufactures the product. Such prototype is kept for four to five years, so that the assessee Company is able to redress the complaint of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture. 11. In the light of the aforesaid facts and the rival contentions, it is clear that the assessee is in the business of developing and selling leading edge optical networking products for worldwide customers. It has developed software differentiated, next generation products that enable telecommunication carriers to build converged networks. The life span of this product is hardly a year. Because of competition in the market, the assessee has to come out with new features every year if they want to be in the field. Therefore, there is a constant upgradation of the original product. It is in that context substantial amount is spent towards employees cost and the upgradation also includes use of components purchased every year. In fact, those components are used for manufacturing Printed Circuit Boards. Every year these Circuit Boards under go modification, changes. Therefore, the expenses incurred in this regard is in the nature of revenue expenditure. 12. The Apex Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 has held that, the decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the assessee's established business and not to a new product indicates that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day-to-day business of the assessee's established enterprise. 14. We are of the view the aforesaid statement of law equally holds good in the area of telecommunication, may be with more force. Having regard to the facts of this case, the expenditure that is claimed is for upgrading the existing product. Therefore, the product so upgraded goes on changing as time progresses, keeping in mind the requirement and the competition in the market. The Tribunal rightly held that the expenditure is not in the nature of capital expenditure but is revenue expenditure. Therefore, the first substantial question of law is answered in favour of the assessee and against the revenue. 15. In so far as the second substantial question of law is concerned, in fact the Tribunal has not given any reasons and as the assessee succeeds on the first substantial question of law, we are not going into the said question and that question is left open to be agitated at an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue assets. We also noticed that the development was complete in respect of first four products and the development work was continuing for the remaining two products. We noticed that the business of the assessee itself is development of software products or providing of software services and hence the revenue generated on their sales or providing of services is its income, in which case, the expenditure incurred on development of those applications shall constitute related expenditure. Even if the expenditure does not result in creation of any successful software product/ application/tool etc., considering the business nature of the assessee, those expenses shall constitute revenue expenditure in the hands of the assessee, as it is necessary for the assessee to keep updating itself and keep trying new products to be afloat in the competitive market. Accordingly, apart from the principles discussed in the earlier paragraphs, applying above said rationale, the expenses incurred on CTO projects (Item A), Domain projects (Item C) and Planform/tools/solutions (Item D) are required to be allowed as revenue expenditure. 6.21 Accordingly, we hold that the impugned expenses incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arables in page 29 of the TP order. We note that the TPO has not assigned any reasons for not including these two companies in the final list despite his clear finding that they are comparable. Assessee did not raise this issue before the ld.DRP. 9. The assessee submitted that it had filed an application dated 31.05.2022 under S.154 of the Act seeking rectification of the TP order by recomputing the TP adjustment, if any, after reckoning the margins of these 2companies as well. However, we note from the order dated 24.02.2023 passed by the TPO on this application u/s. 154 that the said request for inclusion of these 2 comparable companies has not been considered by the TPO. Hence, we deem it fit and proper to restore this issue to the TPO / AO with a direction to the TPO / AO to re-compute the TP adjustment, if any, to the assessee's SWD segment after including CG Vak Software and Exports Ltd. and RS Software (India) Ltd. in the final list of comparables to this segment. 10. The second aspect of the Assessee's submissions on the TP adjustment to its SWD segment is that while computing the ALP of the SWD services segment, the TPO has not considered the segmental date pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of commission towards provision of corporate guarantees to AEs is to be determined. We further note that Clause 6(b) provides for the rate at which the ALP of the international transaction of receipt of interest on inter-corporate advances to AEs is to be determined. The Appellant submits that as per Section 92CC(5) of the Act, the APA shall be binding on the Appellant and the Respondent-Revenue authorities for these international transactions, which we concur with. 15. However, we note that in terms of S.92CD of the Act, the Appellant is required to file a modified return of income for this AY in accordance with and limited to the transactions covered in this APA. The Appellant submitted during the course of hearing on 03.04.2023 that the said modified return of income shall be filed by it in due course and in accordance with law. Pertinently, we note that as per S.92CD(3), the AO is bound to pass an order modifying the assessed income of the Appellant having regard to and in accordance with the APA. 16. In the light of the above, we dispose of the grounds raised in this appeal pertaining to these two international transactions, viz. (i) Adjustment for interest on advances g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable; or (vi) any other transaction as may be prescribed, and where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of (twenty crore)** rupees. (* Omitted by Finance Act, 2017 w.e.f. 1-4-2017. ** Substituted for "five" by Finance Act, 2015 w.e.f. 1.4.2016)" Section 92 of the Act mandates computation of income from international transaction or specified domestic transaction having regard to arm's length price. The said section 92 reads as under:- "Section 92. (1) Any income arising from an international transaction shall be computed having regard to the arm's length price. Explanation.-For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm's length price. (2) Where in an international transaction or specified domestic transaction, two or more associated enterprises enter into a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-section, "market value", in relation to any goods or services, means- (i) the price that such goods or services would ordinarily fetch in the open market; or (ii) the arm's length price as defined in clause (ii) of section 92F, where the transfer of such goods or services is a specified domestic transaction referred to in section 92BA." The provisions of sub.sec (9) of sec.10AA specifically states that the provisions of sub-section (8) and sub-section (10) of section 80IA shall, so far as may be, apply in relation to the undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider appropriate provisions in law to make transfer pricing regulations applicable to such related party domestic transactions. Accordingly sec.92BA was introduced along with corresponding amendment in sec.80IA of the Act. Under these provisions, the transfer pricing regulations were extended to cover Specified Domestic Transactions. Accordingly, under the Explanation to sec.80IA(8) of the Act, the "market value" for specified domestic transactions is meant as the "arms' length price" as defined in clause (ii) of section 92F. Under section 92F(ii), the term "arm's length price" has been defined as under:- "arm's length price" means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions." Accordingly, for the purpose of sec. 10A/10AA/10B/80-IA and other incentive provisions, the "market value" of the transaction shall mean "Arm's length price" as determined in sec. 92 of the Act. Section 92C of the Act prescribes the modes of computation of arm's length price. 39.15 Under section 92C(4), where an arm's length price is determined by the AO under sub-section (3), the AO may compute the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of sec.10AA requires re-computation of deduction by substituting the actual value with market value. We notice that the AO/TPO did not carry out this exercise of recomputing the quantum of deduction allowable u/s 10AA of the Act by recasting the profit and loss account with the ALP, which is the "market value" of inter-unit transactions. It is also pertinent to remember here that the ALP of transactions could be determined under any of the prescribed methods only. 39.20 Before us, the assessee has raised many contentions. We shall address below some of the contentions, which are legal in nature. (A) One of the contentions of the assessee is that the inter-unit transactions between two eligible units should not be subjected to ALP adjustment. We notice that the provisions of sec.80IA(8) refer to the transactions between "eligible units" and "noneligible units". We have noticed earlier that, in the case of the assessee, various eligible units, inter se, have also entered into transactions. We have noticed earlier that the TPO has expressed the view in his remand report that the transactions between two SEZ units (eligible units) have also been included for the purpose of deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing unit" and "service receiving unit" in respect of their inter-unit transactions, the total income cannot be computed having regard to the arms' length price. Accordingly, the ALP of the inter-unit transactions should be applied in both the eligible and noneligible unit for the purpose of sec.92 of the Act. (D) In our view, provisions of sec.92(3) shall not apply to interunit transactions. Sec.92(3) of the Act prescribes a condition that, where the T.P adjustment required to be made consequent to determination of ALP has the effect of reducing income chargeable to tax or increasing loss, then the T.P provisions shall not apply. In respect of international transactions, the transaction is entered between the assessee and its Associated Enterprises. Both are two different tax entities. However, in the instant cases, the transactions are entered between two units belonging to the same assessee. Hence both the units are two arms of the same tax entity. We have earlier expressed the view that the ALP value of inter-unit transactions has to be applied in both the transacting units for the purposes of sec. 92 of the Act. Hence the substitution of ALP value (market value) in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, since adjustment to the interunit transactions have to be done in the hands of both eligible and non-eligible units u/s 92 of the Act. (b) The amount of deduction u/s 10AA worked out to Rs. 1,00,000/- prior to ALP adjustment. However, it has fallen down to Rs. 50,000/- after ALP adjustment in terms of sec.80IA(8). (c) Accordingly, the Total income has increased from Rs. 75,000/- (prior to ALP adjustment) to Rs. 1,25,000/- after ALP adjustment. On this increase of Rs. 50,000/-, the assessee is not eligible for deduction u/s 10AA of the Act. (d) It can be noticed that the reduction in the quantum of deduction u/s 10AA, i.e., Rs. 50,000/- is also the adjustment made u/s 92 of the Act in respect of Specified domestic transaction, i.e. the net effect is the addition of SDT adjustment of Rs. 50,000/-. ILLUSTRATION 2 (Under invoicing expenses) Transaction between an Eligible unit, which is eligible for deduction @ 100% and a non-eligible unit. (B) Eligible unit is Service receiver and accordingly pays money to non-eligible unit. The said payment constitutes expenditure in the hands of Eligible Unit. Transaction Price - 1,00,000 Arms Length Price - 1,50,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding Adjustment for ALP -9,00,000 - - 4,25,000 - -13,25,000 - -9,00,000 4,25,000 50,000 -13,25,000 50,000 Adj Cost -9,00,000 - 4,25,000 -13,25,000 -9,00,000 - 3,75,000 -12,75,000 Net Income Deduction u/s 10AA - 100% 1,00,000 50,000 75,000 - 1,75,000 -50,000 50,000 -25,000 1,25,000 - 1,75,000 -25,000 Total Income 1,25,000 1,50,000 SDT adjustment 25,000 In this illustration, (a) the "net income" remains at Rs. 1,75,000/- before and after ALP adjustments u/s 92 of the Act, since adjustment to the interunit transactions have to be done in the hands of both eligible and non-eligible units. (b) The amount of deduction u/s 10AA worked out to Rs. 50,000/- prior to ALP adjustment. However, it has fallen down to Rs. 25,000/- after ALP adjustment in terms of sec.80IA(8). (c) Thus the reduction in the quantum of deduction u/s 10AA, i.e., Rs. 25,000/- is also the adjustment made u/s 92 of the Act in respect of Specified domestic transaction. (d) Hence the total income has increased from Rs. 1,25,000/- (prior to ALP adjustment) to Rs. 1,50,000/- after ALP adjustment. The net effect is the addition of SDT adjustment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining it afresh." In this year also, the TPO has not examined this issue in the line discussed above. Accordingly, we set aside the order passed by the AO on this issue and restore the same to the file of AO/TPO for examining it afresh in the light of discussions made supra." 18. Respectfully following the above judgement cited supra in assessee's own case, we remit this issue to the TPO/AO for examining it afresh in the light of discussions made supra. In the result, this issue is allowed for statistical purpose. 19. The last item of TP adjustment, i.e. the 5th item, pertains to the TP adjustment made towards interest on delayed receivables to Overseas subsidiaries. The facts are that the assessee had granted short term advances to its- various foreign subsidiaries without charging interest. Hence, the TPO computed interest on such receivables to the tune of 1.04 crores. The Ld. DRP also confirmed the view taken by TPO. 20. The Appellant, during the course of hearing, made the following submissions in support of its contention that the above TP adjustment is liable to be deleted: (i) Wipro does not charge interest on receivables delayed beyond the credit period to any part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an identical issue has been restored back to the file of the AO in AY 2015-16 following the decision rendered in assessee's own case in AY 2009-10 to 2014-15 where the relevant observations made by the co-ordinate bench are extracted below:- "22.2 The assessee has received dividend income from investments made in various mutual funds and claimed the same as exempt. The assessee also made disallowance u/s 14A of the Act by allocating some expenses as relatable to the exempt earned by the assessee. Since the quantum of investment was more than the own funds available with the assessee, no disallowance was made out of interest expenses. Hence the disallowance was made out of administrative expenses only, which worked out to about 2% of the corporate expenses. The A.O. did not accept the workings furnished by the assessee. Accordingly he computed the disallowance as per rule 8D(2)(iii) of the I.T. Rules @ 0.5% of average value of investments. Ld. DRP restored the matter to the file of A.O. with the direction to examine this issue afresh by considering the decision rendered by ITAT in the case of Syndicate Bank, by Hon'ble Bombay High Court in the case of Godrej &Boyce Manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, following the decision rendered by the coordinate bench, we restore this issue to the file of the A.O. The assessee is free to make its submissions and the AO shall decide the decide the issue in accordance with law, by duly considering the submissions made by the assessee." 23. Accordingly, following the above said decisions in assessee's own case for AY 2015-16, we restore this issue to the file of AO with similar directions. Since Rule 8D has been amended, the AO has to follow the amended Rule 8D. This ground is allowed for statistical purpose. 24. Ground No. 7 relates to the taxability of Marked to Market income on reinstatement of forward contracts. On scrutiny of the Profit & Loss account the AO noted that the assessee had debited Rs. 445.80 crores towards exchange fluctuation loss under the Finance Costs under Schedule 29 and a sum of Rs. 343.10 crores towards exchange fluctuation gain under Schedule 25 shown as income, resultantly there was a net loss of Rs. 102.70 crores . The assessee was asked to justify the same which the assessee by reply dated 20.12.2019 with detailed written submissions which has been incorporated by the AO in his order. The assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising on reinstatement of a forward contract, whose underlying assets is a revenue item, then the said loss cannot be considered as speculative loss and also not a notional loss. We notice that the details of underlying assets in respect of outstanding forward contracts are not available on record. There should not be any doubt that the value of underlying assets (in the form of debtors, creditors and other monetary assets) as on the balance sheet date, against which the outstanding forward contracts have been taken, should be more than the value of outstanding forward contracts. In that case, the loss arising on restatement of forward contract is fully allowable as deduction. Since the AO has not examined this aspect, we are of the view that this issue needs to be restored to the file of the AO for the limited purpose of examining as to whether the value of underlying assets is more than the value of the forward contracts. Since the AO has disallowed the loss in AY 2009-10, 2011-12 and 2012-13, this issue is restored to the file of AO in the above said three years alone. The assessee is directed to furnish relevant details to prove that the value of underlying assets is more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own case for the Assessment Year 2007-08 has again decided this issue in para 7.4 as under : "7.4 We have heard both parties and perused and carefully considered the material on record. We find that the identical issue was considered by a co-ordinate bench of the Tribunal in the assessee's own case for Assessment Year 2004-05 in ITA Na1072/Bang/2007 (supra), wherein the Tribunal confirming the finding of the learned CI (A), at para 16.4 on pages 29 and 30 thereof, held as under : "16.4. We have carefully considered the contentions of the either parties and also carefully perused the order of the Hon'ble Tribunal While deciding an identical issue, the Hon'ble Tribunal cited the following decisions - (1) [12.5.] ITA No: 669 & 804/Ban/05 dated: 22.3.2006 for the AY-2000-01 in the case of assessee company wherein it was concluded that we direct the AO to allow set off of loss from 10A units against the other business income of the assessee or income from other sources." (2) ITA NO.248 & 249/Bang/07 dated2711.2007in the case of IGate Global Solutions Ltd v. ACIT wherein the issue was decided in favour of the assessee. (3) ITA No.387/Bang/06 dated: 26.6.2007 in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law No.14: "Whether the Tribunal was right in directing that losses of a section 10A unit, which are already set off against other business income of the appellant, should be again carried forward and setoff against eligible profits of the same unit in a subsequent year?" "Whether the Tribunal was correct in holding that income of each undertaking should be taken independently and losses of section 10A units cannot be set off against profits of section 10A units, when computing deduction under section 10A of the Act?" "Whether the appellate authorities failing to take into consideration the amendment provision of section 10A(6)(ii) of the Act, which clearly contemplated that the loss of the undertaking can be carried forward and adjusted against other income?" "Whether the appellate authorities were correct in holding that the finding recorded by the Assessing Officer that in view of the amendment to section 10A(6)(ii) with effect from April 1, 2001 the loss of the STP units should be carried forward at the end of the 10 years, tax holiday period under section 10A of the Act and should be set off against profits in respect of Madivala R&D unit by treating the cost of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 464 of 2017, the High Court had made following observations : "14. At this stage, learned counsel for the revenue submits that all the remaining issues covered by decisions of this Court in M/s. WIPRO Ltd. v. DCIT [2016] 383 ITR 179 (Kar) and Commissioner of Income-tax & Another v. TATA Elxsi Ltd., 382 ITR 654 (Kar) are pending adjudication at the instance of the revenue before the Supreme Court. In view of the aforesaid submission needless to state that the Assessing Officer shall decide the issues in accordance with the decision which may be rendered by the Supreme Court. 15. For yet another reason, at this stage, no interference is called for with the order passed by the tribunal. The Supreme Court in Radhasoami Satsang v. Commissioner of Income Tax, (1992) 60 Taxman 248 (SC) has held that even though principles of res judicata do not apply to income tax proceedings, but where a fundamental aspect permeating through the different Assessment Years has been found as the fact one way or the other and the parties have allowed the position to be sustained by not challenge the order, it would not be at all appropriate to allow the position to be changed in subsequent year. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd accordingly estimated income from these centres and correspondingly reduced the said profit from the units eligible for deduction u/s 10A/10AA/10B of the Act. An identical issue has been examined by the co-ordinate bench in the assessee's own case in Ay 200910 to 2014-15 and it was adjudicated as under:- "23.3 We heard the parties on this issue and perused the record. We notice that the coordinate bench has considered an identical issue in assessment year 2008-09 and matter was restored to the file of the A.O. with the following observations: "18. Ground no.11 & 12 are regarding computation of profit of overseas software development centre. 19. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset, we note that an identical issue has been considered in assessee's own case for the Assessment year 2004-05 and again for the Assessment year 2007-08. For the Assessment Year 2007-08, the Tribunal has decided this issue in para 10.4 as under: "10.4 We have heard both parties and have carefully perused and considered the material on record. We have perused the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws paper - 0.90 crores Other income 25.42 crores 26.32 crores 31. During the course of assessment proceedings the details of unit wise Miscellaneous income was furnished. The assessee submitted that the sale of- scrap/newspapers are covered in favour of the assessee by the judgement of Hon'ble Karnataka High Court in ITA No. 507/2002 for the AY 1997-98 but the AO observed that the revenue has filed appeal before the Hon'ble SC against the judgement of the Hon'ble High Court and he did not allow the claim of the assess. Further in respect of Other income reported above the AO noticed that the these income have no nexus with software development activity of the units . In this regards the assessee submitted that these includes refunds/write back of costs and liability recorded in earlier years. Further the assessee submitted that since the costs have reduced the net profits of the SEZ units in the past, the reversal of the same cost in AY 2016-17 must be considered as part of the SEZ income. The AO noted that the assessee has not furnished detailed break-up with respect to the expenses debited in earlier years relating to these items, accordingly he redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the file of the AO for examining the nature of receipt and decide the same accordingly. The observations made by the Tribunal in AY 2007-08 are extracted below:- "......However, since we find that no details are available with regard to 'other income' of Rs. 3,48,524/-, we deem it fit to remit the matter back to the file of the Assessing Officer with a direction to examine the matter afresh and decide the issue on merits." Following the same, we restore the issue relating to "Other income" to the file of the AO with similar directions." 32. Following the above said decision rendered by the co-ordinate bench in the assessee's own case, we hold that the income generated on sale of scrap/newspaper should be included in the profits of the undertaking eligible for deduction u/s 10AA of the Act. In this year also, the break-up details of "Other income" are not available. Accordingly, we restore this issue to the file of AO with the direction to examine the break-up details of other income which were debited into the profit & loss account in earlier years and decide the issue in accordance with the discussions made supra. Accordingly this issue is partly allowed for statistical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The contention of the assessee is that these fixed deposits have been made out of loan funds as well as surplus funds generated through operations of SEZ units and hence they form part of "profits of business". Hence they are eligible for deduction u/s 10A/10AA/10B of the Act. However, the AO took the view that the impugned interest income is not related to the software development activity. Further, the AO also took the view that the surplus funds is fully fungible and hence surplus funds relating to SEZ division could not be separately identified, if all the surpluses of all divisions (both 10A/10AA/10B units and non-10A/non-10AA/non-10B units) are put together. Accordingly, the AO rejected the claim of the assessee. The Ld DRP also confirmed the same. ...................... 6.5 From the foregoing discussions, we notice that the principle enunciated by Hon'ble Karnataka High Court in the case of Motorola India Electronics (P) Ltd (supra) is that the deduction u/s 10B is allowable if there is direct nexus between interest income and the income of the business of the undertaking. The co-ordinate benches in the earlier years have also followed the decision rendered by Hon'ble De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking. We have noticed earlier that the AO has taken the view that the surplus funds of undertaking located in SEZ are put into common bank account. Accordingly, the AO has observed that the surplus funds relating to SEZ division could not be separately identified, if all the surpluses of all divisions are put together, meaning thereby, it is the case of the AO that there is no nexus between interest income and income of business undertaking. In our view, the assessee may be given an opportunity to show that the nexus between SEZ/STPI divisions and the fixed deposits from which interest income was earned. If the assessee is able to show the nexus to the satisfaction of the AO, then the interest income to that extent should be eligible for deduction u/s 10A/10AA/10B of the Act. 6.9 With these observations, we restore this issue to the file of the AO for examining it afresh in the light of discussions made supra." 34. Respectfully following the above said decision, we restore this issue to the file of AO for examining it afresh with similar directions. This ground is allowed for statistical purpose. 35. Ground No. 12 relates to the eligibility of the assessee to claim deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough others. It provides that a EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through another exporter or any other EOU/EHTP/STP/SEZ unit subject to the conditions mentioned in paragraph 6.19 of Handbook. The conditions to be fulfilled if a Unit has to export through other exporters is as under: "6.19 An EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through other exporter or any other EOU/EHTP/STP/SEZ/BTP unit subject to condition that: a) Goods shall be produced in EOU/SHTP/STP/BTP unit concerned. b) Level of NFE or any other conditions relating to imports and exports as prescribed shall continue to be discharged by EOU/EHTP/STP unit concerned. c) Export orders so procured shall be executed within parameters of EOU/EHTP/STP/BTP schemes and goods shall be directly transferred from unit to port of shipment. d) Fulfillment of NFE by EO U/EHTP/STP/BTP units in regard to such exports shall be reckoned on basis of price at which goods are supplied by EOUs to other Exporter or other EOU/EHTP/STP/BTP/SEZ unit. e) All export entitlements, including recognition as Status Holder would accrue to exporter in whose name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act is attracted and such exporter is entitled to benefit of deduction of such profits and gains derived from such export from payment of income tax. Therefore, the finding of the authorities that the assessee has not directly exported the computer software outside country and because it supplied the software to another STP unit, which though exported and foreign exchange received was not treated as an export and was held to be not entitled to the benefit is unsustainable in law. The substantial question of law is answered in favour of the assessee and against the revenue. The appeal is allowed. The impugned orders are set-aside. The assessee is held to be entitled to deduction of such profits and gains derived from the export of the computer software." 7.7 In view of the binding decision of the jurisdictional Karnataka High Court, we direct the A.O. to include deemed exports as part of turnover while computing deduction u/s 10A/10AA/10B of the Act." 36. Respectfully following the above said decision of the coordinate bench and also the binding decision of the jurisdictional Hon'ble Karnataka High Court, we direct the AO to include deemed exports to SEZ as part of turnover whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bursements (d) Incentive rewards and other reimbursements. 15.2 The co-ordinate bench has rendered its decision on each type of reimbursements as under:- "20.5 We shall first examine the amount received as asset reimbursement. From the submissions made by the assessee, we notice that the assessee has purchased certain specialized equipment on the specific request of the customers, who had also agreed to reimburse the cost of the equipment. The assessee has debited the profit & loss account with the cost of purchase of assets and credited the profit & loss account with the amounts reimbursed by the customers. From the facts, we notice that the cost so incurred cannot be categorised as direct cost related to the development of software. Since it is an expenditure incurred at the request of customer for which reimbursement was also received, there is no revenue element involved in it. Accordingly, we are of the view that this amount should not be considered as either expenditure or part of export turnover, i.e., the receipt should be netted off against the expenditure. We hold accordingly. 20.6 We shall next examine the nature of payment received by way of incentive awards. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g through the entire submissions and order of the authorities below we observe that the expenditure incurred outside India for onsite development of computer software is not to be deducted from export turnover. Only the expenditure on telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any incurred in foreign currency in providing technical services outside India also are required to be excluded from the export turnover. Further , if any amount excluded from the export turnover is required to be deducted from total turnover. An identical issue was examined by the coordinate bench in the assessee's own case in AY 2009-10 to 2014-15 and it was decided as under:- "19.2 The facts relating to this issue are stated in brief. The A.O. noticed that the assessee has incurred various expenses in foreign currency under different heads. The issue is whether these expenses are required to be deducted from "export turnover" as required under the definition of the term "Export turnover" for the purpose of computing deduction u/s 10A/10AA/10B of the Act. ... ...... 19.3 ..................The AO took the view that, as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusion of above sums of communication link and other reimbursements, VAT/GST, telecommunication expenses and expenditure in foreign currency as carried out by the AO be vacated. 15.1. After critically analyzing the rival submissions and also drew strength from his earlier decision on a similar issue, the Ld.CIT(A) has held that no exclusion was required on this issue and, accordingly, directed the Ld. AO to re-compute the deduction u/s 10A. 15.2. Protesting against the action of the Ld. CIT(A), the Revenue has brought up this issue before us for redressal. It was the case of the Revenue that the Ld.CIT(A) has grossly erred in deciding the issue in favour of the assessee by following the decision of Hon'ble Tribunal in the case of Infosys Technologies Limited which has been challenged before the Hon'ble High Court. Another point on which the Revenue found fault with the CIT(A) was that the decision relied on by him was rendered with regard to deduction u/s 80HHC whereas the issue before him was the claim u/s 10A of the Act. It was, further, submitted that the assessee had filed annual returns before the STPI authorities showing the assessee had earned export income t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort as the same was paid pursuant to the contract of sale of computer software. Alternatively, if it is held that the said sum does not form part of sale proceeds of export turnover then similar amount should be reduced from the total turnover also as held by Bombay High Court in Sudarshan Chemicals reported in 245 769. Alternatively, the AO should have consistently applied the rationale that what is not turnover in the first place cannot be part of either export turnover or total turnover." 14.1, After considering the rival submissions, the Ld. CIT(A) took a view that this issue was covered by his decision for the AYs 01-02 and 02-03 and holds good for the AY under dispute also and, accordingly, directed the AO to consider the reimbursements as part of export turnover for the purpose of computing deduction u/s 10A. 14.2. In respect of Telecommunication expenses, the Ld. AO retied on the definition of the export turnover to exclude of the said expenses as expenses attributable to delivery of computer software and excluded the said sum from export turnover. 14.3. The assessee company in its submission was of the view that - "17.1 ................This is erroneously excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. in ITA No:767/Bang/2007 vide order dated 16th May 2008 has also held that the on-site expenses for development of computer software is not in the nature of technical services. It will be useful to reproduce para 14 and 15 from that order:- "14. During the course of proceedings before us, the learned AR submitted that the issue stands decided in favour of the assessee by the Tribunal in the case of - 1. ACIT v. M/s.Infosys Ltd.653 & 969(B)/2006 2. M/s.TataElxsi Ltd. 315(B)/2006 dt 16.10.2007 3. M/s.I-Gate Global Solutions Ltd. v.ACIT (Supra) 15. We have heard both the parties. Deduction u/s 10A is available in respect of profit or gains derived from an undertaking from the export of articles or things or computer software. One has to understand the meaning of computer software with reference to the fact that it is preceded by articles or things. Deduction u/s 10A was allowed if export proceeds are from the export of articles or things or computer software. It means that such export proceeds must relate to the goods and no for the services. Computer software is developed by providing off site expenses and onsite expenses. The amount receivable in respect of computer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of software are to be excluded. No effort has been made by the assessing officer to ascertain the telecommunication expenses relating to the delivery of the software. This Bench in the case of I-Gate Global Sales held that 80% of unlinking charges should be reduced from the export turnover. Such finding of the learned CIT(A) was confirmed on the basis of the fact that the learned CIT(A) discussed the software development with a number of representatives of various companies and noticed that 80% of the uplinking charges are incurred for the delivery of software. We are not having the details of the unlinking charges, hence, the issue of disallowance of telecommunication expenses relating to the delivery of software is restored on the file of the assessing officer. The assessing officer will give opportunity to the assessee to furnish the details in respect of telecommunication expenses for the delivery of software." 14.7. As similar issues have been decided by the Hon'ble Tribunal for the AYs 01-02 & 02-03 in the assessee's own case, we respectfully follow the said decision in toto which holds good for the AY under dispute also. Accordingly, this issue is remitted back on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in providing technical services outside India' as mentioned in the definition. Accordingly, we are of the view that the expenditure incurred in development of software and which forms part of "direct cost of development of software" would not fall under the category of "technical services" or "services" rendered outside India, as contemplated in the definition of Export turnover. Hence the same is not required to be excluded from export turnover. Accordingly, what is required to be excluded is the expenses specifically mentioned in the definition of "export turnover", viz., the expenditure incurred on freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any incurred in foreign exchange in providing technical services outside India alone are required to be excluded from the export turnover. 19.10 Further, if any amount is excluded from "export turnover", the same is required to be excluded from "total turnover" also, as held by Hon'ble Karnataka High Court in the case of Tata Elixi Ltd (2012)(204 Taxman 321) and by Hon'ble Supreme Court in the case of CIT vs. HCL Technologies Ltd (CA No.848 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us year. It was the submission of the assessee that it has made applications to RBI through the authorized dealer for extension of time for receipt of profits on export turnover. It was submitted that the amounts were collected subsequently after the expiry of the period of 6 months. Accordingly, during the course of assessment proceedings, the assessee made a claim before A.O. to include the sale amount, for which extension applications were submitted to RBI through the authorized dealers in the amount of "export turnover", for the purpose of computing deduction. However, the A.O. rejected the claim of the assessee on the reasoning that mere submission of application by the assessee to RBI is not sufficient to infer that RBI has allowed extension of time for realizing sale proceeds in foreign exchange. Accordingly, he rejected the claim of the assessee. Ld. DRP also confirmed the order of A.O. in all the years under consideration except in assessment year 2011-12, wherein Ld. DRP directed the A.O. to include the turnover covered by the application filed to RBI as part of export turnover. 8.3 We heard the parties on this issue and perused the record. We notice that an identical i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit and allowability of State Taxes paid. The contentions raised by the assessee in this year is two-fold. The first contention relates to the allowability of quantum of foreign tax credit. The second contention is that the foreign tax & State Taxes paid, if not fully allowed, then the difference amount should be allowed as business expenditure. A similar issue has been decided by the co-ordinate bench of the Tribunal in assessee's own case for the AY 2015-16 which is as under:- "18.1 With regard to the first contention, we notice that an identical issue was examined by the co-ordinate bench in the assessee's own case in AY 2009-10 to 2014-15 in respect of tax credit and it was decided as under:- "9.10 We notice that the issue relating to foreign tax credit has been examined in detail for Hon'ble High Court of Karnataka in the assessee's own case. For the sake of convenience, we extract below the relevant observations made by the Hon'ble High Court of Karnataka on this issue. 37. It is in this background, when we notice section 90 of the Act-relief from double taxation is granted in the following circumstances. Firstly, section 90(1)(b) of the Act speaks about avoidance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement and probably in terms of the exemption granted, the assessee would be entitled to benefit only in this country on account of the exemption and the benefit in the other country is not extended. Thus when exemption is granted in respect of the income chargeable to tax under this Act in respect of which no benefit is granted in the corresponding country the assessee gets no benefit. However, if the benefit is extended to a portion of the income say for example 90 per cent. and 10 per cent. is subjected to tax then to that extent the assessee would be entitled to benefit of tax credit as he has paid tax in the foreign jurisdiction as per section 90(1)(a)(i) of the Act. 41. In this connection, it is contended on behalf of the Revenue that if the income is chargeable to tax in India, then only the assessee can have the benefit of tax credit in respect of the tax paid in foreign jurisdiction. In respect of exemption under section 10A, the income derived is not included in the total income. It is not charged to Income-tax. Therefore, section 90 of the Act has no application at all. .......... 52. Section 10A(1) speaks of "deduction". The deduction is of profits and gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged because of the exemption given under section 10A only for a period of 10 years. Merely because the exemption has been granted in respect of the taxability of the said source of income, it cannot be postulated that the assessee is not liable to tax. The said exemption granted under the statute has the effect of suspending the collection of Income-tax for a period of 10 years. It does not make the said income not leviable to Income-tax. The said exemption granted under the statute stands revoked after a period of 10 years. Therefore, the case falls under section 90(1)(a)(ii). 57. In the background of this legal position, we have to look into the Double Taxation Agreements entered into between India and United States, Canada. (1) Indo-US Agreement : 58. Article 25 of the Indo-US Double Taxation Agreement deals with relief from double taxation. Clause 2(a) is the relevant provision. It reads as under (see [1991]187 ITR (St.) 102, 124) : "2(a) Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the same year. Therefore, the income derived by an Indian resident, which falls within the total income of a particular financial year when it is taxed in the United States, falls within two years in India. Therefore, while claiming credit in India, the assessee would be entitled to only the tax paid for that relevant financial year in America, i.e., the income attributable to that year in America. In other words, the Income-tax paid in the same calendar year in the United States of America is to be accounted for two financial years in India. Of course, this exercise should be done by the assessing authority on the basis of the material to be produced by the assessee. (2) Indo-Canada agreement : 60. In so far as the Indo-Canada Double Taxation Agreement is concerned, article 23 deals with elimination of double taxation. It provides that the laws in force in either of the Contracting States will continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this agreement. In the case of India, double taxation should be eliminated as follows (see [1998] 229 ITR (St.) 44, 64): "3(a) The amount of Canadian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit against the Indian tax paid in respect of such income. If the entire income assessed by the assessee under section 10A is exempted in India, then, the aforesaid clause does not confer any benefit on the assessee. However, notwithstanding the aforesaid provision, if any portion of the income falling under section 10A is subjected to tax then, by virtue of aforesaid provision, the tax paid in Canada corresponding to the income subjected to tax in India, the assessee would be entitled to credit of the tax paid in Canada. However, this exercise has to be done by the assessing authority on the basis of materials to be produced by the assessee and after giving effect to the formulae prescribed under section 10A(4) of the Act. (3) No agreement with states : 64. Whether the assessee is entitled to the aforesaid benefit when India has no agreement with the States where tax is levied on the income of the assessee. 65. Section 91 of the Act specifically deals with the said question. The afore said section reads as under : "91. Countries with which no agreement exists.-(1) If any person who is resident in India in any previous year proves that, in respect of his income which accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... citly makes it clear that Income-tax in relation to any country includes the Income-tax paid to the Government of any part of that country or a local authority in that country. Therefore, even though, India has not entered into any agreement with the State of a country and if the assessee has paid Income-tax to that State, the Income-tax paid in relation to that State is also eligible for being given credit to the assessee in India. Therefore, the argument that in the absence of an agreement between India and the State, the benefit of section 90 is not available to the assessee is ex-facie illegal and requires to be set aside. We notice that the Hon'ble High Court has accepted all the contentions of the assessee on various aspects discussed above. 9.11 We are also of the view that the expressions used in sec. 90(1)(a)(i) and (ii) and in sec.91 would also merit attention in this regard. Section 90(1)(a)(i) uses the expression "income on which have been paid both income tax....". Section 91(1) uses the expression "If any person who is resident in India in any previous year proves that in respect of his income which accrued or arose during the previous year outside India (and whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e India and such tax is allowable u/s 28 of the Act. A plain reading of the aforesaid provision makes it abundantly clear that foreign taxes paid on profits or gains is not deductible only to the extent relief is eligible u/s 90 or deduction is eligible u/s 91. To the extent relief u/s 90 or deduction u/s 91 is denied as ineligible, the company is eligible for deduction u/s 37 or as a loss u/s 28 of the Act. Further, we wish to submit that the said amount shall also be allowed as a deduction from the book profits as "taxes levied under any Act other than Income Tax Act" is not covered in the inclusion given in Explanation - 2 u/s 115JB. We wish to reproduce the definition of income tax as provided in Explanation - 2: « Explanation 2.-For the purposes of clause (a) of Explanation 1, the amount of income-tax shall include- (i) any tax on distributed profits under section 115-O or on distributed income under section 115R; (ii) any interest charged under this Act; (iii) surcharge, if any, as levied by the Central Acts from time to time; (iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The main part of Section 40(a)(ii) of the Act does not allow deduction in computing the income i.e. profits and gains of business chargeable to tax to the extent, the tax is levied/ paid on the profits/ gains of business. Therefore, it was on the aforesaid general principle, universally accepted, that this Court answered the question posed to it in S. Inder Singh Gill (supra) in favour of the Revenue. (l) We would have answered the question posed for our consideration by following the decision of this Court in S. Inder Singh Gill (supra). However, we notice that the decision of this Court in S. Inder Singh Gill (supra) was rendered under the Indian Income Tax Act, 1922 and not under the Act. We further note that just as Section 40(a)(ii) of the Act does not allow deduction on tax paid on profit and/or gain of business. The Indian Income Tax Act, 1922 Act also contains a similar provision in Section 10(4) thereof. However, the Indian Income Tax Act, 1922 contains no definition of "tax" as provided in 2(43) of the Act. Consequently, the tax paid on income/profits and gains of business/profession anywhere in the world would not be allowed as deduction for determining the profits/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the tax payable in India on the global income to the extent the tax has been paid outside India under Sections 90 or 91 of the Act, were also claiming deduction of the tax paid abroad as it was not tax under the Act. In view of the above, Explanation inserted in 2006 to Section 40(a)(ii) of the Act, would require in the context thereof that the definition of the word "tax" under the Act to mean also the tax which is eligible to the benefit of Sections 90 and 91 of the Act. However, this departure from the meaning of the word "tax" as defined in the Act is only restricted to the above and gives no license to widen the meaning of the word "tax" as defined in the Act to include all taxes on income/profits paid abroad. (o) Therefore, on the Explanation being inserted in Section 40(a)(ii) of the Act, the tax paid in Saudi Arabia on income which has accrued and/or arisen in India is not eligible to deduction under Section 91 of the Act. Therefore, not hit by Section 40(a)(ii) of the Act. Section 91 of the Act, itself excludes income which is deemed to accrue or arise in India. Thus, the benefit of the Explanation would now be available and on application of real income theory, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss income of the assessee from the respective units. 45. Ground No. 17 to 17.2 relates to disallowance of payment made to M/s. Gartner Group u/s 40(a)(i) of the Act for non-deduction of tax at source at Rs. 10.23 crores. During the year the assessee paid Rs. 10.23 Crores to M/s Gartner group and no TDS was deducted. The assessee submitted that it is covered under exclusion clause of royalty as per section 9(1)(vi) wherein royalty paid for the purpose of business or profession carried outside India or for the purpose of making or earning any income from any source outside India is not regarded as royalty. The ld. AR of the assessee alternatively submitted that the undertaking is eligible for deduction u/s 10AA, therefore the deduction should be allowed on the enhanced profit of the eligible undertakings. Considering the rival submissions we notice that an identical issue has been decided against the assessee by the co-ordinate bench in AY 2015-16 in which it has been held as under:- We notice that an identical issue was decided against the assessee by the co-ordinate bench in AY 2010-11 to 2014-15. The facts relating to this issue has been discussed as under by the coordinate ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(i) of the Act. 32.7 The assessee has raised one more alternative contention to press that the amount disallowed u/s 40(a)(i) of the Act would go to increase the profits of the undertakings and hence the eligible deduction u/s 10A/10AA/10Bof the Act would also get increased correspondingly. The Ld. A.R. submitted that the alternative contention of the assessee gets support from the circular issued by CBDT. We notice that the alternative contention of the assessee was not considered by the AO and in view of the submissions made by Ld A.R, the same requires examination at the end of AO. Accordingly, we restore the above said alternative contention to the file of the A.O. in all the years i.e. assessment years 2010-11 to 2014-15 for examining it by following the circular of CBDT referred by Ld. A.R." 19.1 In AY 2010-11 to 2014-15, the Tribunal confirmed the disallowance made u/s 40(a)(i) of the Act for non-deduction of tax at source, following the decision rendered by the jurisdictional High Court in the assessee's own case. Since the assessee raised an alternative contention that the "profits of undertaking" eligible for deduction u/s 10A/10AA/10B of the Act will go to increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gartner group and there is no requirement to deduct tax at source, then there is no requirement of making any disallowance u/s 40(a)(i) of the Act. However, if the AO comes to the conclusion that the above said decision of Hon'ble Supreme Court is not applicable and the assessee is liable to deduct tax at source, then the AO shall grant enhanced deduction u/s 10A/10AA/10B of the Act by increasing the profits of undertaking by the amount of disallowance so made. The assessee is given liberty to raise all contentions in this regard before the AO. 46. Respectfully following the above judgement of the co-ordinate bench of the Tribunal in assessee's own case cited supra we also send back to the file of the in above terms. The assessee is given liberty to raise all contentions in this regard before the AO. 47. The ground No. 18 to 18.1 relates to the disallowance of interest expenditure incurred on investment in Foreign Subsidiary u/s 115BBD of the Act of Rs. 9.22 crores. An identical issue has been examined by the co-ordinate bench in AY 2012-13 to 2014-15 and it was decided as under:- "29.1 The facts relating to the issue are stated in brief. The A.O. noticed that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DRP also confirmed the disallowance of interest expenditure incurred on ECB Loan. However, in the final assessment order passed for assessment year 2012-13, the A.O. disallowed the interest expenditure by invoking provisions of section 115BBD of the Act only. The AO did not mention about the reasoning of 'acquiring of controlling interest" or sec. 57(iii) of the Act, while making the disallowance. Hence, we confine ourselves to the applicability or otherwise of sec.115BBD of the Act. 29.4 We heard the parties on this issue and perused the record. The provisions of section 115BBD of the Act reads as under:- "115BBD. (1) Where the total income of an assessee, being an Indian company, for the previous year relevant to the assessment year beginning on the 1st day of April, 2012 28[or beginning on the 1st day of April, 2013] 28a[or beginning on the 1st day of April, 2014] includes any income by way of dividends declared, distributed or paid by a specified foreign company, the incometax payable shall be the aggregate of- (a) the amount of income-tax calculated on the income by way of such dividends, at the rate of fifteen per cent; and (b) the amount of income-tax with which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied for invoking section 115BBD of the Act is that the total income of the assessee should include any dividend income received/declared from/by a specified foreign company. There is no dispute with regard to the fact that the total income of the assessee for the years under consideration does not include any dividend income received/declared from/by a specified foreign company. Hence, the question of invoking provisions of section 115BBD of the Act does not arise. The decision rendered by Hon'ble Delhi High Court in the case of Chem invest Ltd. (supra), though rendered in the context of sec.14A of the Act, brings out the principle of interpretation of a provision. For the sake of convenience, we extract below the following observations made by Hon'ble Delhi High Court in the above said case. "23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression does not form part of the total income" in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertains to the DRP's direction that foreign taxes in the nature of VAT or GST have not been added back to the Export Turnover while computing the deduction under S.10AA which has however not been given effect to by the AO in the final assessment order. On examining the DRP's directions, we find that such a direction was in fact issued by the DRP vide para 13 at page 61 of the directions. However, we find that while computing the deduction allowable under S.10AA, the said direction of the DRP has not been given effect to. We, therefore, direct the AO to comply with the aforesaid direction of the DRP vide para 13.1 at page 61 of the directions and to, accordingly, recompute the deduction allowable to the assessee under S.10AA of the Act. 53. Ground No. 21 relates to claim for credit of TDS credit on the basis of additional TDS certificates. The AO did not grant TDS credit on the reasoning that the said TDS amount were not reflected in Form 26AS and the ld. DRP has also rejected the objection filed before them. If the deductor of TDS has filed the Statement of TDS with the Income tax department, then the said TDS will automatically reflect in Form 26AS. If there is failure on the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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