As per sec 10A eligible business is to be treated as separate entity if the transfer made from an unrelated party

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI ‘H’ BENCH

BEFORE SHRI A.N. PAHUJA, AM AND SHRI C.M. GARG,JM

ITA No.5068/D/2011

Assessment year: 2007-08

Jt. Director of Income-tax,

International Taxation,

Circle-2(2),

New Delhi

(Appellant)

V/s.

M/s Virage Logic International

(India Branch Of f ice), A-75,

Sector -57, Noida (U.P.)

[PAN: AABCV 8275 E]

 (Respondent)

Assessee by: Shri Ravi Sharma,AR

Revenue by: Shri Mohnish Verma,DR

Date of hearing 21-03-2012

Date of pronouncement 21-03-2012

O R D E R

A.N.Pahuja:-

This appeal filed on 14.11.2011 by the Revenue against an order dated 07.07.2011 of the ld. CIT(A)-XXIX, New Delhi, raises the following grounds:-

1“Whether on facts and circumstances of the case, the CIT(A) has erred in allowing deduction u/s 10A to the assessee by not distinguishing between actual ‘Export’ and mere ‘Transfer to head office’ as the assessee has merely transmitted the software to its head office which cannot be termed as ‘Export’ in the sense as used in Section 10A of the Income-tax Act, 1961.

2 Whether on facts and circumstances of the case, the CIT(A) has erred in interpreting the true intention of legislature for bringing provisions of section 10A(3) to the statute which  stipulates bringing in of previous foreign exchange into the country whereas in case of the assessee being a foreign company the sale proceeds would not be retained in India but only the tax on a fraction of the profit which is attributable to Indian branch of the foreign company that would be retained in India.

3 The appellant prays for leave to add, to amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal.”

2. Facts, in brief, as per relevant orders are that e-return declaring income of ``11,62,383/- filed on 31.10.2007 by the assessee, a company incorporated in USA and a 100% subsidiary of Virage Logic Corporation, was selected for scrutiny with the service of a notice u/s 143 (2) of the Income-tax Act, 1961 (hereinafter referred to as the Act). During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee claimed deduction of ``2,18,00,194/- u/s 10A of the Act. Relying upon his findings in the AYs 2001-02 to 2006-07, the AO rejected the claim for deduction u/s 10A of the Act on the ground that the assessee merely transferred software to its head office.

3. On appeal, the ld. CIT(A),following the decision dated 5.01.2007 of the ITAT in I.T.A. No.2183/D/2006 for the AY 2002-03 and order dated 19.02.2009 in I.T.A. No.77/D/2005 for the AY 2001-02 ,followed in subsequent AYs 2003-04 to 2005-06,allowed the claim of the assessee in the following terms:-

“6 I have considered the submissions of the appellant. It has been admitted in Para 5 of the assessment order that the facts of the case of year under appeal are similar to the facts for the assessment years 2001-02 to 2006-07. The action of the Assessing Officer was confirmed for the assessment years 2001-02 and 2002-03 by the learned CIT(A). However, the learned ITAT has reversed the order of CIT(A) vide order dated 5.1.2007 in I.T.A. No.2183/D/06 for assessment year 2002-03 and order dated 19.02.2009 in I.T.A. No.77/D/2005 for assessment year 2001-02, respectively. The appellant’s claim for the assessment years 2003- 04, 2004-05 and 2005-06 has also been allowed by the ITAT dismissing the appeals filed by the department. The learned AR has placed copies of the orders of the learned ITAT on record.

6.1 While coming to this conclusion, the learned ITAT has relied upon sub-section (7) of section 10 which are as under:

“(7) The provisions of sub-section (8) and sub-section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA.”

The provisions of Sub-section (8) of section 80IA reads as under:

“(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market 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 service as on that date.”

7. Plain reading of above provisions makes it abundantly clear that for the purposes of section 10A, the eligible business (appellant’s branch office in this case) is to be considered as a separate entity and transfer of goods or services by eligible business to/from other business of the assessee are to be treated as if such transfer has been made to/from an unrelated third party. Therefore, supply of software by appellant’s branch office to appellant’s head office is to be considered as export to an unrelated third party and profits derived by appellant from such export are eligible for exemption u/s 10A of the Act.

8. In view of the discussion above and respectfully following the orders of the ITAT, the AO is directed to allow the claim of the appellant in respect of exemption u/s 10A on account of software supplied by it to its parent entity in USA.”

4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).At the outset, both the parties are agreed that the issue is squarely covered by the aforesaid decision dated 5.1.2007 in I.T.A. No.2183/D/06 for assessment year 2002-03 and order dated 19.02.2009 in I.T.A. No.77/D/2005 for assessment year 2001-02, in the assessee;s own case. The assessee’s claim for the AYs 2003-04 to 2005-06 has also been allowed by the ITAT by dismissing the appeals filed by the Department in I.T.A. nos. 3096 to 3098/D/09 .

5. We have heard both the parties and gone through the facts of the case as also the aforesaid decisions of the ITAT. Indisputably, the facts & circumstances in the year under consideration are similar to the facts and circumstances in the preceding years We find that the ITAT in their order dated 5.1.2007 in I.T.A. No.2183/D/06 for the assessment year 2002-03 allowed a similar claim of the assessee u/s 10A of the Act. The said decision was followed by the ITAT in their decision dated 19.2.2009 in ITA no. 77/Del./2005 for the AY 2001-02 and decision dated 11.9.2009 in I.T.A. nos. 3096 to 3098/D/09 for the AYs 2003-04 to 2005-06 as also in decision dated 01.04.2010 for the AY 2006- 07 in I.T.A. no.494/D/2010.Since the ld. CIT(A) have merely followed the decisions of the ITAT in the preceding years while the Revenue have not placed before us any contrary decision nor any other material so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground nos. 1 & 2 in the appeal are dismissed.

6. No additional ground having been raised before us in terms of residuary ground no.3 in the appeal, accordingly, this ground is also dismissed.

7. No other plea or argument was made before us.

8. In result, appeal is dismissed.

Order pronounced in Open Court

                                                    Sd/-                                 Sd/-

                                            (C.M. GARG)               (A.N. PAHUJA)

                                     JUDICIAL MEMBER    ACCOUNTANT MEMBER

NS

Copy of the Order forwarded to:-

1. M/s Virage Logic international, (India Branch Office) A-75, Sector-57, Noida, U.P.

2. Jt .DIT, Ci rcle-2(2), Internat ional Taxation New Delhi

3. The DIT International Taxation

4.  CIT (Appeals)-XXIX, New Delhi.

5. The DR, ITAT,’H’ Bench, New Delhi

6. Guard File.

By Order,

Deputy/Asstt.Registrar

ITAT, Delhi