DDIT, New Delhi V. M/s. Virage Logic International, Noida

ITA 3097/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9820 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-09-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 03-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K AGGARWAL
• Keywords: Transfer pricing; Double taxation relief; Competent authority

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D DELHI BEFORE SHRI K.G. BANSAL AND SHRI GEORGE MATHAN I.T.A. NOS. 3096 TO 3098(DEL)/2009 ASSESSMENT YEARS: 2003-04, 2004-05 & 2005-06 DY. DIRECTOR OF INCOME-TAX, M/ S VIRAGE LOGIC INTERNATIONAL, CIRCLE 2(2), NEW DELHI. VS. A -75, SECTOR-57, NOIDA. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR, CIT, DR RESPONDENT BY : SHRI S.K. AGGARWAL, FCA ORDER PER K.G. BANSAL : AM ALL THESE APPEALS OF THE REVENUE RAISE A COMMON GROUND TO THE EFFECT THAT ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE LD. CIT(APPEALS) ERRED IN HOLDING THAT THE ASSES SEE IS ENTITLED TO DEDUCTION U/S 10A OF THE INCOME-TAX ACT, 1961. BE FORE US, IT WAS THE COMMON GROUND OF BOTH THE PARTIES THAT THE ISSUE STANDS COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSE SSEE FOR ASSESSMENT YEAR 2002-03 IN ITA NO. 2183(DEL)/2006 DATED 5.1.2 007. THE ISSUE ALSO STANDS COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 IN ITA NO. 77(DEL)/2005 DATED 19.2.2009. COPIES OF THESE ORDERS ARE PLACED IN THE PAPER BOOK ON ITA NOS. 3096 TO 3098(DEL)/2009 2 PAGES 171 TO 198. THE RELEVANT PORTION OF THE ORDER FOR ASSESSMENT YEAR 2002-03 IS CONTAINED IN PARAGRAPHS 12 TO 15, WHICH ARE REPRODUCED BELOW:- 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIO NS. THE RELEVANT PROVISIONS OF SECTION 10A OF THE ACT IN SO FAR AS THEY ARE NECESSARY FOR ADJUDICATING THE DISPUT E IN THE PRESENT APPEAL ARE AS FOLLOWS:- 10A SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UN DERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUT ER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PRE VIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE: (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY: I) IT HAS BEGUN OR BEGINS TO MANUFACTURE OR PR ODUCE ARTICLES OR THINGS OR COMPUTE SOFTWARE DURING TH E PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR. A) COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1981, IN ANY FREE TRADE ZONE; OR B) COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1994, IN ANY ELECTRONIC HARDWARE TECHNOLOGY PARK, OR, A S THE CASE MAY BE, SOFTWARE TECHNOLOGY PARK; ITA NOS. 3096 TO 3098(DEL)/2009 3 (C) COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 2001 IN ANY SPECIAL ECONOMIC ZONE; (II )IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN PERIOD SPECIFIED IN THA T SECTION; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPO SE. EXPLANATION: THE PROVISIONS OF EXPLANATION I AND EXPLANATION 2 TO SUB-SECTION (2) OF SECTION 80-I SHALL APPLY FOR THE PURPOSES OF CLAUSE (III) OF THIS SUB-SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE (II) OF THAT SUB-SECTION. (3) THIS SECTION APPLIES TO THE UNDERTAKING, IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EX PORTED OUT OF INDIA ARE RECEIVED IN, OR BROUGHT INTO, INDIA BY TH E ASSESSEES IN CONVERTIBLE FOREIGN EXCHANGE, WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, WITHIN S UCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. EXPLANATION I: FOR THE PURPOSES OF THIS SUB-SEC TION, THE EXPRESSION COMPETENT AUTHORITY MEANS THE RESERV E BANK OF INDIA OR SUCH OTHER AUTHORITY AS AUTHORIZED UNDER ANY LAW FOR THE TIME BEING IN FORCE FOR REGULATING PAYMEN TS AND DEALINGS IN FOREIGN EXCHANGE. EXPLANATION 2: THE SALE PROCEEDS REFERRED TO IN THIS SUB-SECTION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDI A WHERE SUCH SALE PROCEEDS ARE CREDITED TO A SEPARATE AC COUNT MAINTAINED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPROVAL OF THE RESERVE BANK OF INDIA. ITA NOS. 3096 TO 3098(DEL)/2009 4 (4) TO (6). . . . . (7) THE PROVISIONS OF SUB-SECTION (8) AND SUB -SECTION (10) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE UNDERTAKING REFERRED TO IN THIS SECTION A S THEY APPLY FOR THE PURPOSES OF THE UNDERTAKING REFERRED TO IN SEC TION 80-IA. . EXPLANATION 2: FOR THE PURPOSES OF THIS SECTIO N, (I) COMPUTER SOFTWARE MEANS, (A) ANY COMPUTER PROGRAMME RECORDED ON ANY DIS C, TAPE, PERFORATED MEDIA OR OFFER INFORMATION STORAGE DE VICE; OR (B) ANY CUSTOMIZED ELECTRONIC DATA OR ANY PROD UCE OR SERVICE OF SIMILAR NATURE, AS MAY BE NOTIFIED BY THE BOARD, WHICH IS TRANSMITTED OR EXPORTED FROM INDIA TO ANY PLACE OUTSIDE INDIA BY ANY MEANS; 13. IN THE PRESENT CASE THERE IS NO DIS PUTE THAT THE ASSESSEE DEVELOPED COMPUTER SOFTWARE AND TRANSMITTED ELECTRONICALLY TO ITS HEAD OFFICE. THE ASSESSEE IS AN APPROVED 1 00% EXPORT ORIENTED UNIT FOR DEVELOPMENT OF COMPUTER SOFTWARE D ULY APPROVED BY THE STP OF INDIA. THE EXPORT OF SOFTWARE DURING TH E PREVIOUS YEAR IS EVIDENCED BY THE SOFTEX FROM DULY CERTIFIED B Y THE COMPETENT OFFICER OF STPI. THE CONSIDERATION HAS BEEN R ECEIVED BY THE ASSESSEE IN THE FORM OF CONVERTIBLE FOREIGN EX CHANGE. THE ONLY REASON ASSIGNED BY THE REVENUE AUTHORITIES F OR DENYING EXEMPTION UNDER SECTION 10A OF THE ACT IS THAT THERE HAS BEEN NO EXPORT SALE BY THE ASSESSEE SINCE THE COMPUTER SOFTWARE WAS TRANSMITTED TO HEAD OFFICE AND SINCE THE ASS ESSEE AND ITS HEAD OFFICE WERE ONE ENTITY, THERE WAS NO SALE TO ANY THIRD PARTY. THIS APPROACH OF THE REVENUE AUTHORITIES WERE NO T CORRECT IN VIEW OF THE PROVISIONS OF SECTION 10A(7) OF THE ACT. TH E LEGAL FICTION OF TREATING AN ASSESSEE AS A SEPARATE ENTITY V IS--VIS SALE BY IT OR TRANSFER BY IT FROM AN ELIGIBLE BUSINESS OR TO AN ELIGIBLE BUSINESS HAS BEEN RECOGNIZED UNDER SECTION 10A(7) OF THE ACT. A PLAIN ITA NOS. 3096 TO 3098(DEL)/2009 5 READING OF THE PROVISIONS OF SECTION 10A(7) T OGETHER WITH THE PROVISIONS OF SECTION 80IA(8) OF THE ACT, WHICH READS AS FOLLOWS, REVEALS STATUTORY RECOGNITION OF SUCH LEGAL FI CTION: 10A SPECIAL PROVISION IN RESPECT OF NEWSLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC. (1) TO (6) . (7) THE PROVISIONS OF SUB-SECTION (8) OF SUB- SECTION (10) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE UNDERTAKING REFERRED TO IN THIS SECTION A S THEY APPLY FOR THE PURPOSES OF THE UNDERTAKING REFERRED TO IN SECTION 80-IA. 80-IA DEDUCTIONS IN RESPECT OF PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKINGS OR ENTERPRISES ENGAGED IN INFRASTRUCTURE DEVELOPMENT. ETC. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSES SEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKI NG OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COM PUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMO UNT EQUAL TO HUNDRED PER CENT OF PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS. (2) TO (7) (8) WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY O THER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF ANY OTHER BUSINES S CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBL E BUSINESS AND, ITA NOS. 3096 TO 3098(DEL)/2009 6 IN EITHER CASE, THE CONSIDERATION, IF ANY, FO R SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSI NESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF THE TRANSFER, THEN, FOR THE P URPOSES OF THE DEDUCTION UNDER THIS SECTION, THE PROFITS AND G AINS 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 ASSES SING OFFICER, THE COMPUTATION OF THE PROFITS AND GAINS OF THE E LIGIBLE BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES, THE ASSESSING OFFICE R MAY COMPUTE SUCH PROFITS AND GAINS ON SUCH REASONABLE BASI S AS HE MAY DEEM FIT. EXPLANATION: FOR THE PURPOSES OF THIS SUB-SEC TION, MARKET VALUE, IN RELATION TO ANY GOODS OR SERVICES, M EANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FE TCH ON SALE IN THE OPEN MARKET. 14. IN THE PRESENT CASE THERE CANNOT BE ANY D OUBT ABOUT THE MARKET PRICE ALSO SINCE THE TRANSFER PRIC ING OFFICER HAS ALREADY HELD THAT THE PRICE AT WHICH THE ASSE SSEE TRANSMITTED THE COMPUTER SOFTWARE TO ITS HEAD OFFICE WAS AT ARMS LENGTH PRICE. ON THIS BASIS THE CLAIM OF THE ASSESSEE DESERVES TO BE ACCEPTED. 15. IN VIEW OF THE ABOVE CONCLUSION, WE DEEM IT UNNECESSARY TO DEAL WITH THE OTHER ARGUMENTS RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE REGARDING RECOGNIT ION OF SEPARATE ENTITY CONCEPT VIS--VIS AN INDIAN PE AND THE FOREIGN ENTERPRISE UNDER THE DTAA BETWEEN INDIA AND USA, THE BOARD CIRCULARS AS WELL AS THE DE CISION OF THE SPECIAL BENCH IN THE CASE OF ABN AMBRO (SUPRA) ITA NOS. 3096 TO 3098(DEL)/2009 7 RESPECTFULLY FOLLOWING THE AFORESAID ORDER, IT I S HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10A OF TH E ACT. THEREFORE, THE AO IS DIRECTED TO ALLOW THE DEDUCTION. 2. IN THE RESULT, ALL THE THREE APPEALS ARE DI SMISSED. 3. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11TH SEPT.,2009. SD/- SD/- (GEORGE MATHAN) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 11TH SEPT.,2009. COPY OF THE ORDER FORWARDED TO:- VIRAGE LOGIC INTERNATIONAL, NOIDA. DEPUTY DIRECTOR OF IT, CIRCLE 2(2), NEW DELH I. CIT CIT(A) THE DR, ITAT, NEW DELHI. ASSISTANT REGIST RAR.