Elitecore Technologies Private Limited, Ahmedabad V. The Dy.CIT, Circle-4, Ahmedabad

ITA 3546/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5822 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 17-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Business expenditure; Residential status; Double taxation relief; Wholly owned subsidiary
• Section: 143(3); 115JB; 37; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA NO. 3546/AHD/2015 (ASSES SMENT YEAR: 2010-11) M/S. ELITECORE TECHNOLOGIES PRIVATE LIMITED, 904, SILICON TOWER, B/H. PARISEEMA BUILDING, OFF C. G. ROAD, AHMEDABAD - 380006 APPELLANT VS. DY. COMMISSIONER OF INCOME-TAX, CIRCLE-4, NAVJIVAN BUILDING, AHMEDABAD 380014 RESPONDENT PAN: AAACE6815G /BY ASSESSEE : SHRI S. N. SOPARKAR, A.R. /BY REVENUE : SHRI V. K. SINGH, SR. D.R. /DATE OF HEARING : 25.01.2018 /DATE OF PRONOUNCEMENT : 20.03.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11 ARISES AGAINST THE CIT(A) -4, AHMEDABADS ORDER DATED 10.09.2015, IN CASE NO. CIT(A) -4/149/DCIT/CIR- 2(1)(2)/14/15, IN PROCEEDINGS U/S. 143(3) R.W.S. 14 4C OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. THE ASSESSEE PLEADS THE FOLLOWING SUBSTANTIVE GR OUNDS IN THE INSTANT APPEAL: 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS ERRO NEOUS AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS AND THEREFORE REQUIRES TO BE SUITABLY MODIFIED. IT IS SUBMITTED THAT IT BE SO HELD NOW. ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 2 - 2. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS I N FOLLOWING THE DECISION OF HIS PREDECESSOR IN EARLIER ASSESSMENT YEAR I.E. AY 2009 -10 AND NOT ALLOWING ENTIRE FOREIGN TAX CREDIT AMOUNTING TO RS. 29,46,449/- WHI LE CALCULATING TAX LIABILITY OF THE APPELLANT. THE LEARNED CIT(A) ERRED IN LAW A ND ON FACTS RESTRICTING THE FOREIGN TAX CREDIT TO RS. 4,36,528/- AND ALLOWING T HE BALANCE OF RS. 25,09,921/- AS DEDUCTION UNDER SECTION 37 OF THE ACT. IT IS SUB MITTED THAT LEARNED CIT(A) SHOULD HAVE GRANTED ENTIRE FOREIGN TAX CREDIT OF RS . 29,46,449/- AGAINST TAX PAYABLE BY THE APPELLANT. 2.1. THE LEARNED CIT (A) HAS ERRED IN DISREGARDING THE FACT THAT TAX CREDIT HAS BEEN CLAIMED ON THE INCOME WHICH HAS BEEN TAXED IN BOTH THE COUNTRIES I.E. SOURCE COUNTRY AND RESIDENT COUNTRY. 2.2. THE LEARNED CIT (A) HAS ERRED IN NOT CONSIDERI NG THE ALTERNATE WORKING INDICATING THE PROFITABILITY OF THE TRANSACTIONS ON WHICH THE TAX HAS BEEN DEDUCTED IN INDONESIA, UKRAINE AND USA AFTER MAKING ALLOCATION OF ALL THE EXPENSES IN THE RATIO OF SALES TURNOVER WHILE COMPU TING THE FOREIGN TAX CREDIT IN RESPECT OF DOUBLY TAXED INCOME. 2.3. THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERIN G THAT THE FOREIGN TAX CREDIT INCLUDE TDS OF RS.6,79,661 ON INTEREST INCOME EARNE D FROM ITS SUBSIDIARY COMPANY IN USA FOR WHICH THERE WERE NO BORROWINGS M ADE AND REJECTING THE CLAIM OF THE APPELLANT TO ALLOW THE ENTIRE FOREIGN TAX CREDIT ON INTEREST ON THE BASIS THAT THE CLAIM IS NOT SUPPORTED BY ANY CORROB ORATIVE EVIDENCE. 3. THE LEARNED CIT(A) HAS ERRED IN FOLLOWING T HE DECISION OF HIS PREDECESSOR IN EARLIER ASSESSMENT YEAR I.E. AY 2009-10 AND HOLDING THAT AS THE APPELLANT IS ALLOWED DEDUCTION UNDER SECTION 37 OF THE ACT IN RE SPECT OF THE FOREIGN TAX FOR WHICH THE SET OFF OF CREDIT HAS NOT BEEN GRANTED, O NLY THAT AMOUNT HAS TO BE ALLOWED AS MAT CREDIT WHICH HAS BEEN ADJUSTED AGAIN ST THE TAX PAYABLE IN INDIA. IN THE FACTS OF THE CASE AND LAW, DISALLOWAN CE OF FOREIGN TAX CREDIT IS IRRELEVANT FOR COMPUTING THE ALLOWABLE MAT CREDIT. IT IS SUBMITTED THAT IT BE SO HELD NOW AND FULL AMOUNT OF RS. 29,46,449/- BE GRAN TED AS MAT CREDIT TO THE APPELLANT. 3.1. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT M AT CREDIT BEING ALLOWED TO BE CARRIED FORWARD SHOULD BE RESTRICTED TO THE EXTENT OF RS 4,36,528/- ONLY (IN RESPECT OF FOREIGN TAX CREDIT) AND NOT ENTIRE FOREI GN TAX CREDIT OF RS. 29,46,449/-. 3. BOTH THE LEARNED REPRESENTATIVES AT THE OUTSET T AKE US TO THE CIT(A)S ORDER FOLLOWING HIS FINDINGS IN ASSESSMENT YEAR 2009-10 O N THE THREE IDENTICAL ISSUES WHILST DECIDING ASSESSEES APPEAL AS FOLLOWS: 4.3 DECISION:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE FACTS OF THE PRESE NT YEAR ARE IDENTICAL TO THAT OF THE ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 3 - ORDER PASSED BY MY PREDECESSOR CIT(A) FOR A. Y. 200 9-10, THE FINDINGS GIVEN THERE ARE ALSO BE APPLICABLE FOR THIS YEAR AS WELL. THE RELEVANT PARA OF THE DECISION IS REPRODUCED HER EUNDER: 'I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE APPELLANT HAS SOME RECEIPTS FROM THE CONTRACT IN SINGAPORE AND INDONESIA. AS PER THE RULES OF THE IN COME TAX IN THOSE COUNTRIES THE WITHHOLDING TAX HAS BEEN DEDUCTED ON THE PAYMENT. T HE APPELLANT HAS CLAIMED THE DEDUCTION ON ACCOUNT OF TAX PAID IN THOSE COUNTRIES FROM THE INCOME TAX PAYABLE ON THE INCOME IN INDIA. THE AO AFTER EXAMINING THE PROVISI ONS OF SECTION 90 AND THE RELEVANT CLAUSES OF DTAA WITH SINGAPORE AND INDONESIA, ALLOW ED ONLY PART OF THE TAX PAID AS AGAINST FULL CREDIT OF FOREIGN TAX DEDUCTED CLAIMED BY THE APPELLANT. FOR THIS PURPOSE HE COMPUTED PROPORTIONATE PROFIT ON THE RECEIPTS FROM THESE COUNTRIES AND CALCULATED THE INCOME WHICH WAS BEING TAXED AGAIN IN INDIA OR THE DOUBLY TAXED INCOME. FOR CALCULATING THE CREDIT OF FOREIGN TAX DEDUCTED HE C ALCULATED THE TAX PAYABLE ON THAT PROPORTIONATE INCOME AND ALLOWED THE CREDIT OFF THE PROPORTIONATE TAX OUT OF THE FTC. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT IT WAS NOT CLAIMING ANY REFUND. THE METHOD ADOPTED BY THE AO WAS NOT PROPER. THE APPELL ANT ALSO GAVE A SEPARATE CALCULATION OF THE INCOME EARNED OUT OF THOSE TRANS ACTIONS IN SINGAPORE AND INDONESIA AND SUBMITTED THAT THE INCOME SO CALCULATED SHOULD BE TAKEN FOR PROPORTIONATE DEDUCTION. THE TREATIES NEED TO BE INTERPRETED LIBE RALLY AND REQUIRED TO BE INTERPRETED THROUGH TECHNOLOGICAL APPROACH TO CERTAIN THE OBJEC T AND PURPOSE OF THE TREATY. THE TREATIES ENTERED BY FOREIGN DIPLOMATS WHO ARE NOT E XPERTS IN DRAFTING AND, HENCE, WHEREVER THERE IS ANOMALY HARMONIOUS INTERPRETATION WOULD BE WARRANTED. ON A CAREFUL CONSIDERATION OF ALL THE FACTS AND CIR CUMSTANCES OF THE ISSUE INVOLVED, IT IS NOTED THAT THE PROVISIONS OF DTAA AND THE PROVISION S OF SECTION 90 OF THE INCOME TAX ACT ARE VERY CLEAR. FOR THE SAKE OF CLARITY THE PRO VISIONS OF THE RELEVANT CLAUSES OF DTAA WITH INDONESIA, UKRAINE AND USA ARE REPRODUCED HERE UNDER:- PARA 2 OF ARTICLE 25- AVOIDANCE OF DOUBLE TAXATION OF DTAA BETWEEN INDIA AND SINGAPORE- 'WHERE A RESIDENT OF INDIA DERIVES INCOME WHICH, IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, MAY BE TAXED IN SINGAPORE, INDIA SH ALL ALLOW AS A DEDUCTION FROM THE FAX ON THE INCOME OF THAT RESIDENT AN AMOUNT EQUAL TO THE SINGAPORE TAX PAID, WHETHER DIRECTLY OR BY DEDUCTION. WHERE THE INCOME IS A DIV IDEND PAID BY THE COMPANY WHICH IS A RESIDENT OF INDIA AND WHICH OWNS DIRECTLY OR INDI RECTLY NOT LESS THAN 25% OF THE SHARE CAPITAL OF THE COMPANY PAYING THE DIVIDEND, THE DED UCTION SHALL TAKE INTO ACCOUNT THE SINGAPORE TAX PAID IN RESPECT OF THE PROFITS OUT OF WHICH THE DIVIDEND IS PAID. SUCH DEDUCTION IN EITHER CASE SHALL NOT, HOWEVER, EXCEED THAT PART OF THE TAX (AS COMPUTED BEFORE THE DEDUCTION IS GIVEN) WHICH IS ATTRIBUTABL E TO THE INCOME WHICH MAY BE TAXED IN SINGAPORE' PARA 2 OF ARTICLE 23- ELIMINATION OF DOUBLE TAXATIO N BETWEEN INDIA AND INDONESIA: 'THE AMOUNT OF INDONESIAN TAX INDONESIA AND IN ACCO RDANCE OF DOUBLE TAXATION OF DTAA PAYABLE, UNDER THE LAWS OF WITH THE PROVISIONS OF THIS AGREEMENT, WHETHER DIRECTLY OR BY DEDUCTION, BY A RESIDENT OF INDIA, I N RESPECT OF PROFITS OR INCOME ARISING IN INDONESIA, WHICH HAVE BEEN SUBJECTED TO TAX BOTH IN INDIA AND IN INDONESIA, SHALL BE ALLOWED AS A CREDIT AGAINST THE INDIAN TAX PAYABLE IN RESPECT OF SUCH PROFITS OR INCOME ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 4 - PROVIDED THAT SUCH CREDIT SHALL NOT EXCEED THE INDI AN TAX (AS COMPUTED BEFORE ALLOWING ANY SUCH CREDIT) WHICH IS APPROPRIATE TO THE PROFIT S OR INCOME ARISING IN INDONESIA. ' SECTION 90 OF THE INCOME TAX ACT PROVIDES THAT THE RELIEF IN RESPECT OF THE INCOME ON WHICH TAXES HAVE BEEN PAID UNDER THE INDIAN INCOME TAX ACT OF THE OTHER COUNTRY ARE TO BE GOVERNED BY THEIR AGREEMENT BETWEEN THE INDIA N GOVERNMENT AND THAT COUNTRY. A PERUSAL OF THE ABOVE CLAUSES OF DTAA WITH SINGAPORE AND INDONESIA CLEARLY SHOW THAT THE AMOUNT OF TAX PAYABLE IN RESPECT OF PROFIT OR I NCOME ARISING IN THAT COUNTRY AND SUBJECTED TO TAX BOTH IN INDIA AND THE OTHER COUNTR Y SHALL BE ALLOWED AS A CREDIT AGAINST INDIAN TAX PAYABLE IN RESPECT OF SUCH PROFITS OR IN COME IN SUCH MANNER THAT THE CREDIT SHOULD NOT EXCEED THE INDIAN TAX WHICH IS APPROPRIA TE TO THE PROFIT OR INCOME ARISING IN THE OTHER COUNTRY. THE PROVISIONS CLEARLY SHOW THAT THE CREDIT SHALL BE ALLOWED, WHICH IS PROPORTIONATE TO THE PROFIT OR INCOME ARISING IN THAT COUNTRY. THEREFORE, IN MY OPINION THE APPROACH AND METHOD OF GIVING THE CREDI T ADOPTED BY THE AO IN RESPECT OF THE TAX DEDUCTED IN SINGAPORE AND INDONESIA IS JUST IFIED AND IS IN ORDER. THE SUBMISSION OF THE APPELLANT THAT THE TREATIES ARE D RAFTED BY DIPLOMATS AND POLITICIANS THE INTERPRETATIONS SHOULD BE DONE FOR HELPING THE COMMERCIAL RELATIONS IS NOT ACCEPTABLE. THE PROVISIONS OF THE RELEVANT CLAUSES READ WITH SECTION 90 OF THE INCOME TAX ACT ARE VERY CLEAR. IN MY OPINION, THERE IS NO AMBIGUITY IN THE PROVISIONS AND THIS CANNOT BE ANY OTHER INTERPRETATION OF THE RELEVANT CLAUSES. THE USE OF WORD 'APPROPRIATE' IN THE TREATY WITH INDONESIA AND THE WORD 'ATTRIBUTABLE' CLARIFIES EVERYTHING. THE APPELLANT HAS GIVEN A WORKING INDICATING PROFIT ABILITY OF THE TRANSACTIONS ON WHICH THE TAX HAS BEEN DEDUCTED. THE WORKING GIVEN BY THE APPELLANT HAS BEEN CAREFULLY PERUSED AND EXAMINED BY ME. THE SAME CANNOT ACCEPTA BLE AS THE OVERALL PROFIT MARGIN OF THE ENTERPRISE HAS BEEN SEEN FOR ALLOWING THE CR EDIT. THE APPELLANT HAS CLAIMED THAT THE TRANSACTIONS WERE RENEWAL OF SOFTWARE LICENSE A ND SALE OF NEW SOFTWARE ON WHICH NO EXPENDITURE HAS BEEN INCURRED IN THE CURRENT YEA R AS ALL EXPENSES WERE INCURRED DURING THE PHASES OF DEVELOPMENT AND THE SAME HAVE BEEN CHARGED IN EARLIER YEAR. THE SUBMISSION IS NOT ACCEPTABLE AS WHEN THE COMPANY IS TAKING OF SEVERAL PROJECTS AT A TIME AND IT IS NOT KEEPING SEPARATE ACCOUNTING IN R ESPECT OF EACH PRODUCT PROJECT AND THE PROFITABILITY IS NOT WORKED OUT IN RESPECT OF E ACH PROJECT OR PRODUCT THE GLOBAL PROFITABILITY HAS TO BE ADOPTED FOR COMPUTING THE P ROPORTIONATE PROFIT. IN VIEW OF THESE FACTS AND CIRCUMSTANCES THE CONTENTIONS OF THE APPE LLANT CANNOT BE ACCEPTED.' SIMILARLY, IN THE YEAR UNDER CONSIDERATION, THE APP ELLANT HAS CLAIMED THAT THE TRANSACTIONS WERE SALE OF INCREMENTAL SOFTWARE LICE NSE, SALE OF NEW SOFTWARE. AMC FOR SOFTWARE AND INTEREST INCOME. AN ALTERNATE WORKING INDICATING THE PROFITABILITY OF THE TRANSACTIONS ON WHICH THE TAX HAS BEEN DEDUCTED IN INDONESIA, UKRAINE AND USA AFTER MAKING ALLOCATION OF ALL THE EXPENSES IN THE RATIO OF SALES TURNOVER HAS BEEN SUBMITTED BY THE APPELLANT. THE WORKING GIVEN BY THE APPELLANT HAS BEEN CAREFUL LY PERUSED AND EXAMINED BY ME. SINCE THE FACTS OF THE PRESENT YEAR ARE IDENTICAL T O THAT OF THE ORDER PASSED BY MY PREDECESSOR CIT(A) FOR A.Y. 2009-10, THE FINDINGS G IVEN THERE WOULD ALSO BE APPLICABLE FOR THIS YEAR AS WELL. IN VIEW OF THE AFORESAID DI SCUSSION, THE WORKING OF FOREIGN TAX CREDIT ADOPTED BY THE AO IS THEREFORE, IN ORDER AND THE SAME IS UPHELD. I WOULD LIKE TO ADD THAT DURING THE COURSE OF HEARI NG APPELLANT CONTENDED THAT FOREIGN TAX CREDIT INCLUDE TDS OF RS. 6,79,661 ON INTEREST INCOME EARNED FROM ITS SUBSIDIARY COMPANY IN USA WHICH WAS NOT THERE IN PRECEDING YEA R. IT WAS CONTENDED THAT THERE IS ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 5 - NO BORROWINGS FOR PROVIDING ADVANCES TO SUBSIDIARY COMPANY AND THEREFORE ENTIRE INTEREST IS INCLUDED IN THE INCOME AND THEREFORE FU LL CREDIT OF TDS OF RS.6,79,661 BE ALLOWED. HOWEVER, I FIND THAT THE CLAIM OF THE APP ELLANT IS NOT SUPPORTED BY ANY CORROBORATIVE EVIDENCE AND THEREFORE IN ABSENCE THE REOF CLAIM FOR FULL FOREIGN TAX CREDIT ON INTEREST IS REJECTED. FURTHER, THE APPELLANT HAS CLAIMED THAT IN CASE THE FOREIGN TAX CREDIT IS NOT ALLOWED TO HIM THE DEDUCTION SHOULD BE ALLOWED UNDER SECTION 3 7 IN RESPECT OF THE TAX FOR WHICH THE CREDIT IS NOT GIVEN BY THE AO AS IT IS A BUSINE SS EXPENDITURE FOR THE APPELLANT. IN THIS REGARDS, IT IS PERTINENT TO NOTE THAT A SIM ILAR CLAIM WAS MADE BY THE APPELLANT IN PRECEDING ASSESSMENT YEAR I.E. AY 2009-10, WHEREIN THE CIT(A) ALLOWED THE APPELLANT'S CLAIM. THE RELEVANT PARA OF THE DECISION IS REPRODU CED HEREUNDER: 'ON A CAREFUL CONSIDERATION OF THE ENTIRE FACTS OF THE CASE, IT IS NOTED THAT THE CLAIM OF THE APPELLANT THAT THE DEDUCTION SHOULD BE ALLOWED UNDER SECTION 37 IS ACCEPTABLE. THE APPELLANT HAS RIGHTLY PLACED RELIANCE ON THE JUDGEM ENT OF AHMEDABAD ITAT IN THE CASE OF MASTEK LTD IN IT A NUMBER 1883/AHMEDABAD/2005 AY . 2002-03 ORDER DATED 28/03/2012. THE HONORABLE ITAT HAS DECIDED THE ISSU E IN PARA-41 ON PAGE 25 OF THE ORDER. THE RELEVANT DISCUSSION STARTS FROM PARA-38 ONWARDS. THE HONORABLE ITAT HAS HELD THAT THE TERM 'TAX' IS DEFINED AS THE TAX PAYA BLE AS PER THE PROVISIONS OF INDIAN INCOME TAX ACT. THE TAX LEVIED BY DIFFERENT COUNTRY IS NOT A TAX ON THE PROFITS BUT A NECESSARY CONDITION PRECEDENT TO THE EARNING OF PRO FITS. ACCORDINGLY, A DEDUCTION ON ACCOUNT OF BUSINESS EXPENDITURE CLAIMED BY THE APPE LLANT SHOULD BE ALLOWED. THE FACTS OF THE APPELLANT CASE ARE ALSO SIMILAR. THE TAX HAS BEEN WITHHELD IN THE COUNTRY IN WHICH THE APPELLANT IS DOING BUSINESS AND ONLY PART CREDIT IS AVAILABLE TO THE APPELLANT TO THE PROVISIONS OF DTAA WITH THAT COUNTRY. THE TA X FOR WHICH THE APPELLANT HAS NOT BEEN ALLOWED CREDIT IN INDIA IS OBVIOUSLY A BUSINES S EXPENDITURE FOR IT AS WITHOUT WHICH IT COULD NOT HAVE EARNED THAT INCOME. ACCORDINGLY, THE CLAIM OF THE APPELLANT IS ALLOWED.' THUS, FOLLOWING MY PREDECESSORS DECISION AS REPRODU CED ABOVE, THE DECISION OF AO IN RESTRICTING THE FOREIGN TAX CREDIT TO RS. 4,36,528 IS CONFIRMED AND BALANCE OF RS. 25,09,921 IS ALLOWED AS DEDUCTION U/S 37. THIS GROUND OF APPEAL IS ACCORDINGLY, PARTLY ALLOWE D. 4. WE SOUGHT TO KNOW THE FINAL OUTCOME OF THE IDENT ICAL ISSUE IN PRECEDING ASSESSMENT YEAR 2009-10. MR. SOPARKAR FILES BEFORE US COPY OF A CO-ORDINATE BENCHS ORDER DATED 03.01.2017 IN ASSESSEES CASE R EPORTED AS (2017) 77 TAXMANN.COM 149 (AHD-TRIB) PARTLY ACCEPTING ITS GRI EVANCE AS FOLLOWS: 4. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE BEFORE US, A WHOLLY OWNED SUBSIDIARY OF A US BASED COMPANY BY TH E NAME OF ELITECORE TECHNOLOGIES INC, IS A COMPANY ENGAGED IN THE BUSIN ESS OF SOFTWARE DEVELOPMENTS AND PRODUCTS. DURING THE RELEVANT PREVIOUS YEAR, THE AS SESSEE DID NOT HAVE ANY INCOME TAXABLE UNDER THE NORMAL PROVISIONS OF THE ACT, THO UGH THE BOOK PROFITS TAXED UNDER SECTION 115JB WERE COMPUTED AT RS 47,77,950, AND, A CCORDINGLY, TAX LIABILITY, UNDER MAT (MINIMUM ALTERNATE TAX) PROVISIONS, WAS COMPUTE D AT RS 54,13,417. DURING THE ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 6 - COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED A FOREIGN TAX CREDIT OF RS 11, 12,907. THIS CREDIT WAS IN RESPECT OF THE TAXES WITHHELD ABROAD, I.E. IN SINGAPORE AND IN DONESIA. THE ASSESSEE HAD RECEIVED AN AMOUNT OF RS 47,02,0256, AFTER DEDUCTION OF TAX AT SOURCE @ 10% I.E. RS 5,41,029, FROM A SINGAPORE BASED CONCERN BY THE NAME OF IBM C ORPORATION. THE ASSESSEE HAD ALSO RECEIVED AMOUNTS AGGREGATING TO RS 31,63,551, AFTER DEDUCTION OF TAX AT SOURCE @15% I.E. RS 5,71,878, FROM AN INDONESIA BASED COMP ANY BY THE NAME OF P T TECH MAHENDRA. IT WAS THE AGGREGATE OF THESE TAX DEDUCTI ONS, WHICH COMES TO RS 11,12,907, THAT THE ASSESSEE HAD CLAIMED THE FOREIGN ITA NO.62 3/AHD/2015 ASSESSMENT YEAR: 2009-10 TAX CREDIT. THE ASSESSING OFFICER, HOWEVER, DID NOT APPROVE THE CLAIM SO MADE BY THE ASSESSEE. HE WAS OF THE VIEW THAT THE TAX CR EDIT IS TO BE ALLOWED ONLY TO THE EXTENT CORRESPONDING INCOME HAS SUFFERED TAX IN IND IA, AND THAT THE EXTENT TO WHICH INCOME HAS SUFFERED TAX IN INDIA IN RESPECT OF THES E RECEIPTS IS TO BE COMPUTED BY REFERENCE TO THE ACTUAL MAT LIABILITY BEING DIVIDED IN THE SAME RATIO AS THE RATIO OF CORRESPONDING FOREIGN RECEIPTS TO THE OVERALL TURNO VER OF THE ASSESSEE. THE AMOUNT OF ELIGIBLE TAX CREDIT WAS THUS WORKED OUT TO RS 75,93 5. WHEN THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY THE FOREIGN TAX CREDIT NOT BE RESTRICTED TO THIS AMOUNT, THE ASSESSEE CLARIFIED THAT THE GROSS RECEIPTS, WHICH I S WHAT ARE MATERIAL FOR THE PURPOSE OF COMPUTING THE TAX CREDIT EVEN IF THE RATIO OF FOREI GN RECEIPTS TO THE OVERALL RECEIPTS ARE TO BE TAKEN INTO ACCOUNT, ARE RS 90,58,514. THE ASS ESSEE THEN REFERRED TO ARTICLE 23 OF INDIA INDONESIA DOUBLE TAXATION AVOIDANCE AGREEMENT [INDIA- INDONESIA TAX TREATY, IN SHORT; (1988) 171 ITR (STAT) 27] AND ARTICLE 25 OF INDIA SINGAPORE DOUBLE TAXATION AVOIDANCE AGREEMENT [INDO SINGAPORE TAX TREATY, IN SHORT; (1994) 231 ITR ST 1]. IT WAS CONTENDED BY THE ASSESSEE THAT 'THE TAX CREDIT IS AVAILABLE IN RESPECT OF 'PROFIT OR INCOME' WHICH IS TAXED IN BOTH THE COUNTRIES AS A R ESULT OF RESIDENT COUNTRY WILL ALLOW TAX CREDIT WHICH SHOULD NOT EXCEED THE TAX OF INDIA N TAX'. IT WAS ALSO POINTED OUT THAT NONE OF THESE TAX TREATIES PRESCRIBE THE MANNER, AS ADOPTED BY THE ASSESSING OFFICER, OF DERIVING THE NET INCOME, OR, FOR THAT PURPOSE, ANY METHOD OF COMPUTING THE NET INCOME. IT WAS ALSO SUBMITTED THAT THE RELATED ARTICLE STAT E THAT TAX CREDIT WILL BE AVAILABLE FOR 'PROFIT OR INCOME' WHICH HAS BEEN SUBJECTED TO TAX IN BOTH THE COUNTRIES, AND THAT THE PROFIT, IN THIS CONTEXT, DENOTES INCOME LESS ALL RE LATED ALLOWABLE EXPENDITURE. THE ASSESSEE THE BRIEFLY SET OUT THE WELL SETTLED PRINC IPLES GOVERNING INTERPRETATION OF TAX TREATIES AND CONTENDED THAT 'ENTIRE RECEIPT SHOULD BE CONSIDERED AS DOUBLY TAXED, LOOKING TO THE INTENTION AND SCHEME OF THE TAX TREA TIES'. NONE OF THESE SUBMISSIONS IMPRESSED THE ASSESSING OFFICER. THE ONLY CHANGE HE MADE IN HIS COMPUTATION OF ADMISSIBLE TAX CREDIT WAS THAT INSTEAD OF NET RECEI PTS OF RS 79,45,607, HE ADOPTED THE GROSS RECEIPTS AT RS 90,58,514. THE MECHANISM OF CO MPUTING THE FOREIGN TAX CREDIT, HOWEVER, REMAINED THE SAME. THE ADMISSIBLE TAX CRED IT WAS THUS MARGINALLY ENHANCED, AND IT WAS FINALLY COMPUTED AT RS 86,571. AGGRIEVED , ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. W HILE CONFIRMING THE STAND OF THE ASSESSING OFFICER, LEARNED CIT(A), INTER ALIA, OBSE RVED AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE APPELLANT HAS SOME RECEIPTS FROM THE CONTRACT IN SINGAPORE AND INDONESIA. AS PER THE RULES OF THE IN COME TAX IN THOSE COUNTRIES THE WITHHOLDING TAX HAS BEEN DEDUCTED ON THE PAYMENT. T HE APPELLANT HAS CLAIMED THE DEDUCTION ON ACCOUNT OF TAX PAID IN THOSE COUNTRIES FROM THE INCOME TAX PAYABLE ON THE INCOME IN INDIA. THE AO AFTER EXAMINING THE PROVISI ONS OF SECTION 90 AND THE RELEVANT CLAUSES OF DTAA WITH SINGAPORE AND INDONESIA, ALLOW ED ONLY PART OF THE TAX PAID AS AGAINST FULL CREDIT OF FOREIGN TAX DEDUCTED CLAIMED BY THE APPELLANT. FOR THIS PURPOSE HE COMPUTED PROPORTIONATE PROFIT ON THE RECEIPTS FROM THESE COUNTRIES AND CALCULATED THE INCOME WHICH WAS BEING TAXED AGAIN IN INDIA OR THE DOUBLY TAXED INCOME. FOR ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 7 - CALCULATING THE CREDIT OF FOREIGN FAX DEDUCTED HE C ALCULATED THE TAX PAYABLE ON THAT PROPORTIONATE INCOME AND ALLOWED THE CREDIT OFF THE PROPORTIONATE TAX OUT OF THE FTC. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT IT WAS NOT CLAIMING ANY REFUND. THE METHOD ADOPTED BY THE AO WAS NOT PROPER. THE APPELL ANT ALSO GAVE A SEPARATE CALCULATION OF THE INCOME EARNED OUT OF THOSE TRANS ACTIONS IN SINGAPORE AND INDONESIA AND SUBMITTED THAT THE INCOME NO CALCULATED SHOULD BE TAKEN FOR PROPORTIONATE DEDUCTION. THE TREATIES NEED TO BE INTERPRETED LIBE RALLY AND REQUIRED TO BE INTERPRETED THROUGH TECHNOLOGICAL APPROACH TO CERTAIN THE OBJEC T AND PURPOSE OF THE TREATY. THE TREATIES ENTERED BY FOREIGN DIPLOMATS WHO ARE NOT E XPERTS IN DRAFTING AND, HENCE, WHEREVER THERE IS ANOMALY HARMONIOUS INTERPRETATION WOULD BE WARRANTED. ON A CAREFUL CONSIDERATION OF ALL THE FACTS AND CIR CUMSTANCES OF THE ISSUE INVOLVED, IT IS NOTED THAT THE PROVISIONS OF DTAA AND THE PROVISION S OF SECTION 90 OF THE INCOME TAX ACT ARE VERY CLEAR. FOR THE SAKE OF CLARITY THE PRO VISIONS OF THE RELEVANT CLAUSES OF DTAA WITH SINGAPORE AND INDONESIA ARE REPRODUCED HE RE UNDER: - . PARA 2 OF ARTICLE 25 - AVOIDANCE OF DOUBLE TAXATION OF DTAA BETWEEN INDIA AND SINGAPORE: - 'WHERE A RESIDENT OF INDIA DERIVES INCOME WHICH, IN , ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT MAY BE TAXED IN SINGAPORE, INDIA SHA LL ALLOW AS A DEDUCTION FROM THE TAX ON THE INCOME OF THAT RESIDENT AN AMOUNT EQUAL TO THE SINGAPORE TAX PAID, WHETHER DIRECTLY OR BY DEDUCTION. WHERE THE INCOME IS A DIV IDEND PAID BY A COMPANY WHICH IS A RESIDENT OF SINGAPORE TO A COMPANY WHICH IS A RESID ENT OF INDIA AND WHICH OWNS DIRECTLY OR INDIRECTLY NOT LESS THAN 25 PER CENT OF THE SHARE CAPITAL OF THE COMPANY PAYING THE DIVIDEND, THE DEDUCTION SHALL TAKE INTO ACCOUNT THE SINGAPORE TAX PAID IN RESPECT OF THE PROFITS OUT OF WHICH THE DIVIDEND IS PAID. SUCH DEDUCTION IN EITHER CASE SHALL NOT, HOWEVER, EXCEED THAT PART OF THE TAX (AS COMPUTED BEFORE THE DEDUCTION IS GIVEN) WHICH IS ATTRIBUTABLE OF THE INCOME WHICH MA Y BE FAXED IN SINGAPORE.' PARA 2 OF ARTICLE 23 - ELIMINATION OF DOUBLE TAXATION OF DTAA BETWEEN INDIA AND INDONESIA: - 'THE AMOUNT OF INDONESIAN FAX PAYABLE, UNDER THE LA WS OF INDONESIA AND IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, W HETHER DIRECTLY OR BY DEDUCTION, BY A RESIDENT OF INDIA, IN RESPECT OF PROFITS OR INCOM E ARISING IN INDONESIA, WHICH HAVE BEEN SUBJECTED TO FAX BOTH IN INDIA AND IN INDONESI A, SHALL BE ALLOWED AS A CREDIT AGAINST THE INDIAN TAX PAYABLE IN RESPECT OF SUCH P ROFITS OR INCOME PROVIDED THAT SUCH CREDIT SHALL NOT EXCEED THE INDIAN TAX (AS COMPUTED BEFORE ALLOWING ANY SUCH CREDIT) WHICH IS APPROPRIATE TO THE PROFITS OR INCOME ARISI NG IN INDONESIA.' SECTION 90 OF THE INCOME TAX ACT PROVIDES THAT THE RELIEF IN RESPECT OF THE INCOME ON WHICH TAXES HAVE BEEN PAID UNDER THE INDIAN INCOME TAX ACT AND THE I NCOME TAX ACT OF THE OTHER COUNTRY ARE TO BE GOVERNED BY THEIR AGREEMENT BETWEEN THE I NDIAN GOVERNMENT AND THAT COUNTRY, A PERUSAL OF THE ABOVE CLAUSES OF DTAA WIT H INDONESIA AND SINGAPORE CLEARLY SHOW THAT THE AMOUNT OF FAX PAYABLE IN RESPECT OF P ROFIT OR INCOME ARISING IN THAT COUNTRY AND SUBJECTED TO FAX BOTH IN INDIA AND THE OTHER COUNTRY SHALL BE ALLOWED AS A CREDIT AGAINST INDIAN TAX PAYABLE IN RESPECT OF SUC H PROFITS OR INCOME IN SUCH MANNER THAT THE CREDIT SHOULD NOT EXCEED THE INDIAN TAX WH ICH IS APPROPRIATE TO THE PROFIT OR INCOME ARISING IN THE OTHER COUNTRY. THE RELEVANT C LAUSES ARE SIMILAR FOR INDONESIA AND SINGAPORE. THE PROVISIONS CLEARLY SHOW THAT THE CRE DIT SHALL BE ALLOWED, WHICH IS PROPORTIONATE TO THE PROFIT OR INCOME ARISING IN TH AT COUNTRY. THEREFORE, IN MY OPINION THE APPROACH AND METHOD OF GIVING THE CREDIT ADOPTE D BY THE AO IN RESPECT OF THE TAX DEDUCTED IN INDONESIA AND SINGAPORE IS JUSTIFIED AN D HIS IN ORDER. THE SUBMISSION OF THE APPELLANT THAT THE TREATIES ARE DRAFTED BY DIPL OMATS AND POLITICIANS THE ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 8 - INTERPRETATIONS SHOULD BE DONE FOR HELPING THE COMM ERCIAL RELATIONS IS NOT ACCEPTABLE. THE PROVISIONS OF THE RELEVANT CLAUSES READ WITH SE CTION 90 OF THE INCOME TAX ACT ARE VERY CLEAR. IN MY OPINION, THERE IS NO AMBIGUITY IN THE PROVISIONS AND THIS CANNOT BE ANY OTHER INTERPRETATION OF THE RELEVANT CLAUSES. T HE USE OF WORD 'APPROPRIATE' IN THE TREATY WITH INDONESIA AND THE WORD 'ATTRIBUTABLE' C LARIFIES EVERYTHING. THE APPELLANT HAS ALSO GIVEN A WORKING INDICATING THE PROFITABILI TY OF THE TRANSACTIONS ON WHICH THE TAX HAS BEEN DEDUCTED. THE WORKING GIVEN BY THE APP ELLANT HAS BEEN CAREFULLY PERUSED AND EXAMINED BY ME. THE SAME CANNOT BE ACCEPTED AS THE OVERALL PROFIT MARGIN OF THE ENTERPRISE HAS BEEN SEEN FOR ALLOWING THE CREDIT. T HE APPELLANT HAS CLAIMED THAT THE TRANSACTIONS WERE RENEWAL OF SOFTWARE LICENSE AND S ALE OF SOFTWARE LICENSE ON WHICH NO EXPENDITURE HAS BEEN INCURRED IN THE CURRENT YEAR A S ALL EXPENSES WERE INCURRED DURING THE PHASES OF DEVELOPMENT AND THE SAME HAVE BEEN CH ARGED IN EARLIER YEAR. THE SUBMISSION IS NOT ACCEPTABLE WHEN THE COMPANY IS TA KING OF SEVERAL PROJECTS AT A TIME AND IT IS NOT KEEPING SEPARATE ACCOUNTING IN RESPEC T OF EACH PRODUCT PROJECT AND THE PROFITABILITY IS NOT WORKED OUT IN RESPECT OF EACH PROJECT OR PRODUCT THE GLOBAL PROFITABILITY HAS TO BE ADOPTED FOR COMPUTING THE P ROPORTIONATE PROFIT. IN VIEW OF THESE FACTS AND CIRCUMSTANCES THE CONTENTIONS OF THE APPE LLANT CANNOT BE ACCEPTED. THE WORKING OF FOREIGN TAX CREDIT ADOPTED BY THE AO IS THEREFORE, IN ORDER AND THE SAME IS UPHELD. 5. THE ASSESSEE IS NOT SATISFIED AND IS IN SECOND A PPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 7. WE FIND THAT THERE ARE TWO ASPECTS OF THE MATTER , ON WHICH THERE IS APPARENTLY NO MEETING GROUND BETWEEN THE STAND OF THE ASSESSEE AND THE STAND OF THE REVENUE AUTHORITIES, AND WHICH, THEREFORE, NEED TO BE DECID ED BY US- FIRST, THE MANNER IN WHICH THE QUANTUM OF INCOME ELIGIBLE WHICH IS REQUIRED TO BE TREATED AS TAXED IN BOTH THE COUNTRIES, AND SECOND, THE MANNER IN WHICH THE ELIG IBLE TAX CREDIT IS TO BE COMPUTED. BEFORE WE ADDRESS OURSELVES TO THESE ASPECTS, LET U S TAKE A LOOK AT THE RELEVANT PROVISIONS IN THE RELATED TAX TREATIES: INDIA INDONESIA TAX TREATY ARTICLE 23 METHODS FOR ELIMINATION OF DOUBLE TAXATION 1. WHERE A RESIDENT OF A CONTRACTING STATE DERIVES INCOME WHICH, IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, MAY BE TAXED IN THE OTHER CONTRACTING STATE, THE FIRST-MENTIONED STATE SHALL ALLOW AS DEDUCTION FROM THE TAX ON THE INCOME OF THAT RESIDENT AN AMOUNT EQUAL TO THE INCOME TAX PAID IN THAT OTHER STATE. SUCH DEDUCTION SHALL NOT, HOWEVER, EXCEED THE PART OF THE INCOME T AX AS COMPUTED BEFORE THE DEDUCTION IS GIVEN, WHICH IS ATTRIBUTABLE AS THE CASE MAY BE, TO THE INCOME WHICH MAY BE TAXED IN THAT OTHER STATE. ..... NOT RELEVANT FOR OUR PURPOSES INDIA SINGAPORE TAX TREATY ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 9 - ARTICLE 25- AVOIDANCE OF DOUBLE TAXATION 2. WHERE A RESIDENT OF INDIA DERIVES INCOME WHICH, IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, MAY BE TAXED IN SINGA PORE, INDIA SHALL ALLOW AS A DEDUCTION FROM THE TAX ON THE INCOME OF THAT RESIDE NT AN AMOUNT EQUAL TO THE SINGAPORE TAX PAID, WHETHER DIRECTLY OR BY DEDUCTION. WHERE T HE INCOME IS A DIVIDEND PAID BY A COMPANY WHICH IS A RESIDENT OF SINGAPORE TO A COMPA NY WHICH IS A RESIDENT OF INDIA AND WHICH OWNS DIRECTLY OR INDIRECTLY NOT LESS THAN 25 PER CENT OF THE SHARE CAPITAL OF THE COMPANY PAYING THE DIVIDEND, THE DEDUCTION SHAL L TAKE INTO ACCOUNT THE SINGAPORE TAX PAID IN RESPECT OF THE PROFITS OUT OF WHICH THE DIVIDEND IS PAID. SUCH DEDUCTION IN EITHER CASE SHALL NOT, HOWEVER, EXCEED THAT PART OF THE TAX (AS COMPUTED BEFORE THE DEDUCTION IS GIVEN) WHICH IS ATTRIBUTABLE TO THE IN COME WHICH MAY BE TAXED IN SINGAPORE. ........... NOT RELEVANT FOR OUR PURPOSES 8. SO FAR AS THE FIRST ISSUE THAT WE HAVE IDENTIFIE D FOR ADJUDICATION, I.E. THE MANNER IN WHICH THE QUANTUM OF INCOME ELIGIBLE WHICH IS RE QUIRED TO BE TREATED AS TAXED IN BOTH THE COUNTRIES ,IS CONCERNED, THERE IS NO GUIDA NCE AVAILABLE IN THE ITA NO.623/AHD/2015 ASSESSMENT YEAR: 2009-10 TREATIES. ALL THAT BOTH THE TREATIES STATE IS THAT THE FOREIGN TAX CREDIT SHALL NOT EXCEED THE PA RT OF THE INCOME TAX AS COMPUTED BEFORE THE DEDUCTION IS GIVEN, 'WHICH IS ATTRIBUTAB LE AS THE CASE MAY BE, TO THE INCOME WHICH MAY BE TAXED IN THAT OTHER STATE' BUT THERE I S LITTLE GUIDANCE ON HOW TO COMPUTE SUCH INCOME. HOWEVER, QUITE CLEARLY, AS THE EXPRESS ION USED IS 'INCOME', WHICH ESSENTIALLY IMPLIED 'INCOME' EMBEDDED IN THE GROSS RECEIPT, AND NOT THE 'GROSS RECEIPT' ITSELF. THIS APPROACH IS REFLECTED IN THE UN MODEL CONVENTION COMMENTARY AS WELL, WHICH, IN TURN, FOLLOWS THE APPROACH IN OECD MODEL CONVENTION COMMENTARY IN THIS REGARD. UN MODEL CONVENTION COMMENTARY (2011 UPDATE @ PAGE 333) STATES THAT 'NORMALLY THE BASIS OF CALCULATION OF INCOME TAX IS TOTAL NET INCOME, I.E. GROSS INCOME LESS ALLOWABLE DEDUCTIONS. THEREFORE, IT IS THE GRO SS INCOME DERIVED FROM THE SOURCE STATE LESS ANY ALLOWABLE DEDUCTIONS (SPECIFIC OR PR OPORTIONAL) CONNECTED WITH SUCH INCOME WHICH IS TO BE EXEMPTED'. IT IS, THEREFORE, NOT REALLY THE RIGHT APPROACH TO TAKE INTO ACCOUNT THE GROSS RECEIPTS, AS WAS CONTENDED B Y THE ASSESSEE, FOR THE PURPOSE OF COMPUTING ADMISSIBLE TAX CREDIT. THE CASE BEFORE US IS, HOWEVER, SOMEWHAT UNIQUE IN THE SENSE THAT THE MAIN BUSINESS IS CARRIED ON IN I NDIA AND ONLY SOME ISOLATED TRANSACTIONS HAVE TAKEN PLACE IN SINGAPORE AND INDO NESIA. SO FAR AS THE FIRST TWO TRANSACTIONS ARE CONCERNED, THESE ARE ONLY FOR RELE ASE OF MARGIN MONEY AND ADDITION OF A SEPARATE USER- THINGS WHICH DONOT REQUIRE ANY ACT IVITY ON THE PART OF THE ASSESSEE. IN A WAY, THEREFORE, THESE EARNINGS ARE, SO FAR AS THE PRESENT YEAR IS CONCERNED, ARE PASSIVE EARNINGS, AND NO PART OF THE COSTS INCURRED IN INDIA CAN BE ALLOCATED TO EARNINGS FROM SINGAPORE AND INDONESIA. AS REGARDS E ARNINGS FROM MAINTENANCE CONTRACT, THE ASSESSEE HAS ALLOCATED THE COSTS ON A PROPORTIONATE BASIS AND NO DEFECTS ARE POINTED OUT IN THE ALLOCATION SO MADE BY THE AS SESSEE. HOWEVER, THERE SEEMS TO BE NO LOGIC IN ALLOCATING A SHARE, IN PROPORTION OF TU RNOVER, OF ALL THE COSTS BORNE BY THE ASSESSEE TO THESE EARNINGS- AS HAS BEEN DONE BY THE ASSESSING OFFICER. WHEN THE INCOME IN RESPECT OF SUCH FOREIGN OPERATIONS IS NOT SEPARATELY COMPUTED, IT IS TO BE DONE ON A REASONABLE BASIS, AND WHAT WOULD CONSTITU TE REASONABLE BASIS WILL BE THE BASIS WHICH IS BASED ON SOUND REASONING. THE CONCEP T OF AVERAGING ON THE BASIS OF OVERALL REVENUES AND PROFITS OF THE ASSESSEE, OR ON THE BASIS OF SOME OTHER RATIO ANALYSIS, CAN ONLY COME INTO PLAY WHEN THE INCOME E LEMENT CANNOT BE WORKED OUT ON ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 10 - SOME OTHER REASONABLE BASIS ON THE FACTS OF A PARTI CULAR CASE. SO FAR AS THE FACTS OF THE PRESENT CASE ARE CONCERNED, WE HAVE ALSO NOTED THAT THE ASSESSEE HAS, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, GIVEN THE WOR KING ON THE COMPUTATION OF INCOME- A COPY OF WHICH IS PLACED AT PAGE 79 OF THE PAPER-BOOK FILED BEFORE US. THIS COMPUTATION IS AS FOLLOWS: CUSTOMER NAME COUNTRY OF CUSTOMER TRANSACTION DETAILS INCOME (RS.) EXPENSE (RS.) NET PROFIT (RS.) IBM SINGAPORE SINGAPORE SALE OF SOFTWARE LICENSE THE CONTRACT WAS AWARDED TO THE APPELLANT IN FY 2006-07. ON PERUSAL OF PURCHASE ORDER, IT IS EVIDENT THAT 85% PAYMENT WAS ON DELIVERY OF SOFTWARE IN FY 2006-07 AND BALANCE 15% WAS AFTER VALIDATION OF SOFTWARE. IT IS PERTINENT TO NOTE THAT THE COMPANY HAD INCURRED EXPENSES AT THE TIME OF SUPPLY OF SOFTWARE IN FY 2006-07 AND NO EXPENSES HAVE BEEN INCURRED FOR THE BALANCE 15% OF THE AMOUNT RECEIVED IN THE YEAR UNDER CONSIDERATION. 5,323,085 - 5,323,085 PT TECH MAHINDRA INDONESIA SALE OF INCREMENTAL SOFTWARE LICENSE PT TECH MAHINDRA HAD PURCHASED SOFTWARE FROM THE APPELLANT IN FY 2005-06. THE PAYMENT RECEIVED IS FOR THE INCREASE IN THE NUMBER OF USERS IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT DATED 17 TH FEBRUARY, 2006. THE APPELLANT DID NOT HAVE TO INCUR ANY COST FOR THE SAME IN THE YEAR OF CONSIDERATION 3,161,369 - 3,161,369 ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 11 - PT TECH MAHINDRA INDONESIA AMC FOR SOFTWARE PT TECH MAHINDRA HAD AWARDED ANNUAL MAINTENANCE CONTRACT FOR THE SOFTWARE TO THE APPELLANT. THE APPELLANT HAS A DEDICATED TEAM WHICH MANAGES AMC AND WARRANTY PROJECTS. THE COST FOR THE SAME IS APPORTIONED AND DEDUCTED FROM THE GROSS RECEIPTS OF THE APPELLANT. 574,060 149,251 424,809 TOTAL 9,058,514 8,909,263 9. WE SEE NO INFIRMITIES IN THIS COMPUTATION SHOWIN G THE ELEMENT OF INCOME EMBEDDED IN THE RECEIPTS WHICH HAVE BEEN TAXED ABRO AD AS WELL. THESE DETAILS WERE DULY FURNISHED TO THE ASSESSING OFFICER VIDE LETTER DATED 20TH MARCH 2013, A COPY OF WHICH WAS ALSO PLACED BEFORE US AT PAGES 69 ONWARD OF THE PAPER-BOOK. ON A PERUSAL OF THESE DETAILS, WE FIND THAT AS FAR AS RELEASE OF RETENTION MONEY OF RS 53,23,085, RELEASED AFTER VALIDATION OF SOFTWARE BY IBM SINGAP ORE, IS CONCERNED, WE FIND THAT IT IS UNCONTROVERTED CLAIM OF THE ASSESSEE THAT ENTIRE RE LATED EXPENSES HAVE BEEN INCURRED IN THE EARLIER YEARS AS THE SOFTWARE SUPPLY WAS COMPLE TED IN FINANCIAL YEAR 2006-07. THERE CANNOT OBVIOUSLY BE ANY INCREMENTAL COST AT T HE POINT OF TIME WHEN RETENTION MONEY OF 15% OF TOTAL CONTRACT VALUE IS RELEASED. T HE SAME IS THE ITA NO.623/AHD/2015 ASSESSMENT YEAR: 2009-10 POSITION I N RESPECT OF RECEIPT OF RS 31,61,369 FROM PT TECH MAHINDRA IS CONCERNED, WHICH IS ONLY FOR ADDITIONAL USER OF SOFTWARE ALREADY SUPPLIED TO THE CUSTOMER. WHEN AN ADDITIONAL USER IS ADDED BY THE CUSTOMER, IT DOES RESULT IN REVENUE TO THE SELLER B UT IT DOES NOT AT ALL ADD TO HIS COSTS. THERE IS THUS MERIT IN THE PLEA THAT ENTIRE RECEIPT , AS IN THE CASE OF RELEASE OF RETENTION MONEY, IS IN THE NATURE OF INCOME IN THIS YEAR. AS REGARDS RECEIPT OF RS 5,74,060, THIS IS IN RESPECT OF ANNUAL MAINTENANCE FEES BUT THEN THER E IS A DEDICATED TEAM FOR THIS PURPOSE AND THE COSTS RELATABLE TO THIS PARTICULAR RECEIPT HAVE BEEN COMPUTED BY APPORTIONING THESE COSTS. WE SEE NO INFIRMITY IN TH IS COMPUTATION EITHER. IN OUR CONSIDERED VIEW, THEREFORE, THE COMPUTATION OF INCO ME ELEMENT, AS GIVEN BY THE ASSESSE, IS FAIR AND REASONABLE AND, IN ANY EVENT, THE ASSES SING OFFICER HAS NOT POINTED OUT ANY SPECIFIC INFIRMITIES IN THE SAME. GIVEN THIS ANALYS IS, WE SEE NO NEED TO COMPUTE THE PROFIT ELEMENT BY TAKING INTO ACCOUNT THE RATIO OF ENTIRE INCOME TO ENTIRE TURNOVER OF THE ASSESSEE. SUCH A COURSE, IF AT ALL, COULD HAVE BEEN RELEVANT IF THE ASSESSEE HAD NOT FURNISHED A REASONABLE COMPUTATION OF INCOME EMBEDD ED IN THE RELATED RECEIPTS OF THE ASSESSEE. THAT IS NOT THE CASE BEFORE US. WE, THERE FORE, APPROVE THE STAND OF THE ASSESSEE ON THIS POINT. HAVING SAID THAT, WE MAY AD D THAT THIS DECISION CANNOT BE THE AUTHORITY FOR THE GENERAL PROPOSITION THAT ONLY MAR GINAL OR INCREMENTAL COSTS INCURRED IN RESPECT OF FOREIGN INCOME SHOULD BE TAKEN INTO A CCOUNT AND THE OVERHEADS CANNOT BE ALLOCATED THERETO. AS WE HAVE NOTED EARLIER, THE AL LOCATION OF PROPORTIONAL DEDUCTIONS CAN BE JUSTIFIED IN SOME SITUATIONS, SUCH AS WHEN B USINESS OPERATIONS ARE SOMEWHAT EVENLY OR EVEN IN A SIGNIFICANT MANNER, SPREAD OVER THE RESIDENCE AND SOURCE JURISDICTION, BUT THAT'S NOT THE CASE HERE. RIGHT N OW, WE ARE DEALING WITH A SITUATION IN WHICH A MAJOR PORTION OF INCOME, BY RELEASE OF RETE NTION MONEY AS ALSO BY ADDITION OF ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 12 - AN ADDITIONAL USER BY THE CUSTOMER, IS A SOMEWHAT P ASSIVE INCOME, EVEN THOUGH IN THE NATURE OF BUSINESS RECEIPT, AND AS SUCH, TO THAT EX TENT, ALLOCATION OF ALL THE EXPENSES INCURRED BY THE ASSESSEE, IN RESPECT OF SUCH EARNIN GS, WILL NOT BE JUSTIFIED. AS REGARDS THE INCOME FROM MAINTENANCE CONTRACTS, THE RELATES COSTS HAVE ALREADY BEEN ALLOCATED AND THE ASSESSING OFFICER HAS NOT POINTED OUT ANY I NFIRMITY IN THE SAME. IN THIS VIEW OF THE MATTER, QUANTIFICATION OF INCOME FOR THE PURPOS E OF COMPUTING ADMISSIBLE TAX CREDIT, AS DONE BY THE ASSESSEE AND AS REPRODUCED EARLIER, IS ACCEPTED. 10. WE HAVE NOTED THAT THE TAX CREDIT FOR BOTH THE JURISDICTIONS IS TO BE COMPUTED SEPARATELY BUT IN A SIMILAR MANNER, AS IS PROVIDED IN THE RESPECTIVE TREATIES. SO FAR AS THE TAX CREDIT IN RESPECT OF INDONESIAN RECEIPTS IS CONCERNED, AS NOTED ABOVE AND IN VIEW OF ARTICLE 23(1) OF THE APPLICABLE TAX TREATY, IT CANNOT 'EXCEED THE PART OF THE INCOME TAX AS COMPUTED BEFORE THE DEDUCTION IS GIVE N, WHICH IS ATTRIBUTABLE AS THE CASE MAY BE, TO THE INCOME WHICH MAY BE TAXED IN THAT OT HER STATE'. THE INCOME TAX IS, THEREFORE, REQUIRED TO BE COMPUTED ON PROPORTIONATE BASIS. WHAT IS, THEREFORE, TO BE COMPUTED NEXT IS THE TAX ATTRIBUTABLE TO THE INCOME WHICH IS SO TAXED IN BOTH THE ITA NO.623/AHD/2015 ASSESSMENT YEAR: 2009-10 TAX JURISD ICTIONS. THE TAX HAS BEEN PAID, IN THIS CASE, ON BOOK PROFITS. TO THE BEST OF OUR U NDERSTANDING, AND PARTICULARLY IN THE ABSENCE OF ANY OTHER METHOD HAVING BEEN POINTED OUT TO US, ONLY WAY IN WHICH BE SO DONE IS BY APPORTIONING THE ACTUAL TAX PAID UNDER M AT PROVISIONS (I.E. RS 54,13,417), IN THE SAME RATIO AS DOUBLE TAXED PROFIT TO THE OVE RALL PROFITS I.E. 35,86,178:4,77,79,403. THE AMOUNT OF TAX CREDIT IN RESPECT OF THIS INCOME THUS COMES TO RS 4,06,315, AS AGAINST THE ACTUAL DEDUCTION OF TAX AGGREGATING TO RS 5,71,878. THE TAX CREDIT CLAIM IS THUS ADMISSIBLE TO THIS EXTENT. AS FOR THE TAX CREDIT IN RESPECT OF SINGAPOREAN RECEIPTS, WHILE THE FORMULAE FOR LIMITA TION UNDER ARTICLE 25(2) OF THE INDO SINGAPORE TAX TREATY REMAINS BROADLY THE SAME AS IT IS PROVIDED THAT THE CREDIT SHALL NOT EXCEED TAX 'WHICH IS ATTRIBUTABLE TO THE INCOME WHI CH MAY BE TAXED IN SINGAPORE' BUT THE FIRST VARIABLE I.E. INCOME TAXED IN BOTH THE CO UNTRIES WOULD CHANGE. THE FIGURE OF INCOME TAXED IN SINGAPORE AS ALSO INDIA IS 53,23,08 5. THE MAT PAID, RELATABLE TO THIS INCOME, WILL BE ARRIVED AT BY DIVIDING THE SAME IN THE RATIO 53,23,085:4,77,79,403 THE AMOUNT OF TAX PAYABLE IN RESPECT OF SINGAPORE INCOM E, BY THE SAME FORMULAE, WORKS OUT TO RS 6,03,107 WHICH IS CLEARLY LESS THAN RS 5, 41,029 WHICH WAS DEDUCTED AT SOURCE IN SINGAPORE. THE TAX CREDIT OF RS 5,41,029 IN RESP ECT OF SINGAPOREAN RECEIPTS IS THUS CLEARLY ADMISSIBLE. AS AGAINST TAX CREDIT CLAIM OF RS 11,12,907, THE TAX CREDIT OF RS 9,47,344 IS THUS INDEED ADMISSIBLE. TO THIS EXTENT, THE CLAIM OF THE ASSESSEE IS UPHELD. THE CASE OF THE ASSESSEE, IN ANY EVENT, WAS NOT PRE SSED BEYOND THIS POINT. 5. THERE IS NO REBUTTAL COMING FROM THE REVENUES E ND SO FAR AS SIMILARITY OF FACTS AS WELL AS THE ISSUE(S) INVOLVED IN THE TWO A SSESSMENT YEARS ARE CONCERNED. MR. SOPARKAR SUBMITS AT THIS STAGE THAT THE ASSESSE E NEEDS TO FILE NECESSARY COMPUTATION AS PER LAW BEFORE THE ASSESSING OFFICER IN CONSEQUENTIAL PROCEEDINGS. THE REVENUE IS VERY FAIR IN NOT RAISING ANY OBJECTI ON QUA THIS PLEA SINCE THE ASSESSING AUTHORITY HAS TO FRAME ALL THE RELEVANT C ONSEQUENTIAL COMPUTATION. WE THUS ADOPT JUDICIAL CONSISTENCY IN THE IMPUGNED ASS ESSMENT YEAR IN ABSENCE OF ANY DISTINCTION IN FACTS OR LAW INVOLVED VIS--VIS THE PRECEDING ASSESSMENT YEAR. THE ITA NO. 3546/AHD/15 [M/S. ELITECORE TECHNOLOGIES PV T. LTD. VS. DCIT ] A.Y. 2010-11 - 13 - ASSESSEES INSTANT APPEAL IS THEREFORE PARTLY ACCEP TED IN ABOVE TERMS. NECESSARY COMPUTATION TO FOLLOW AS PER LAW. 6. THIS ASSESSEES APPEAL IS PARTLY ALLOWED. [PRONOUNCED IN THE OPEN COURT ON THIS T HE 20 TH DAY OF MARCH, 2018.] SD/- SD/- ( PRADIP KUMAR KEDIA ) (S. S. G ODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 20/03/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0