JDIT, New Delhi V. M/s. Virage Logic International (India Branch Office), Noida

ITA 5068/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58847 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 21-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 14-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHNISH VERMADR
• Assessee Lawyers: RAVI SHARMAAR
• Keywords: Wholly owned subsidiary
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI H BENC H 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 V/S . M/S VIRAGE LOGIC INTERNATIONAL (INDIA BRANCH OFFICE), A-75, SECTOR-57, NOIDA (U.P.) [PAN:AABCV 8275 E] (APPELLANT) (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 AGA INST 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 ASSE SSEE BY NOT DISTINGUISHING BETWEEN ACTUAL EXPORT AND MERE TRANSFER TO HEAD OFFICE AS THE ASSESSEE HAS MEREL Y TRANSMITTED THE SOFTWARE TO ITS HEAD OFFICE WHICH C ANNOT 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 LEG ISLATURE FOR BRINGING PROVISIONS OF SECTION 10A(3) TO THE STATUT E WHICH STIPULATES BRINGING IN OF PREVIOUS FOREIGN EXCHANGE INTO THE COUNTRY WHEREAS IN CASE OF THE ASSESSEE BEING A FOR EIGN 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, M ODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE T HE HEARING OF THE APPEAL. ITA NO.5068/DEL./2011 2 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T 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). DU RING 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 HI S FINDINGS IN THE AYS 2001-02 TO 2006-07, THE AO RE JECTED 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 DECISIO N DATED 5.01.2007 OF THE ITAT IN I.T.A. NO.2183/D/2006 FOR THE AY 2002-0 3 AND ORDER DATED 19.02.2009 IN I.T.A. NO.77/D/2005 FOR THE AY 2001-0 2 ,FOLLOWED IN SUBSEQUENT AYS 2003-04 TO 2005-06,ALLOWED THE CLAIM OF THE ASS ESSEE IN THE FOLLOWING TERMS:- 6 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLA NT. IT HAS BEEN ADMITTED IN PARA 5 OF THE ASSESSMENT ORDER THA T THE FACTS OF THE CASE OF YEAR UNDER APPEAL ARE SIMILAR TO THE FA CTS 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 LE ARNED 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 YE AR 2001-02, RESPECTIVELY. THE APPELLANTS CLAIM FOR THE ASSESS MENT YEARS 2003- 04, 2004-05 AND 2005-06 HAS ALSO BEEN ALLOWED BY TH E ITAT DISMISSING THE APPEALS FILED BY THE DEPARTMENT. TH E LEARNED AR HAS PLACED COPIES OF THE ORDERS OF THE LEARNED ITAT ON RECORD. 6.1 WHILE COMING TO THIS CONCLUSION, THE LEARNED IT AT HAS RELIED UPON SUB-SECTION (7) OF SECTION 10 WHICH ARE AS UND ER: (7) THE PROVISIONS OF SUB-SECTION (8) AND SUB-SECT ION 80-IA SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE UNDERTAK ING REFERRED TO IN THIS SECTION AS THEY APPLY FOR THE PURPOSES OF THE UNDERTAKING REFERRED TO IN SECTION 80-IA. ITA NO.5068/DEL./2011 3 THE PROVISIONS OF SUB-SECTION (8) OF SECTION 80IA R EADS AS UNDER: (8) WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSI NESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS OR SERVICES HEL D FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE AS SESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDE D 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 TRANSF ER, THEN, FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, THE P ROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF T HE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF S UCH GOODS OR SERVICE AS ON THAT DATE. 7. PLAIN READING OF ABOVE PROVISIONS MAKES IT ABUND ANTLY CLEAR THAT FOR THE PURPOSES OF SECTION 10A, THE ELIGIBLE BUSINESS (APPELLANTS BRANCH OFFICE IN THIS CASE) IS TO BE C ONSIDERED 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 A N UNRELATED THIRD PARTY. THEREFORE, SUPPLY OF SOFTWA RE BY APPELLANTS BRANCH OFFICE TO APPELLANTS HEAD OFFIC E IS TO BE CONSIDERED AS EXPORT TO AN UNRELATED THIRD PARTY AN D 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 RESPE CTFULLY 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 DATE D 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 AS SESSEE;S OWN CASE. THE ASSESSEES CLAIM FOR THE AYS 2003-04 TO 2005-06 HAS ALSO BEEN ALLOWED BY THE ITAT BY DISMISSING THE APPEALS FILED BY THE DEPARTM ENT IN I.T.A. NOS. 3096 TO 3098/D/09 . ITA NO.5068/DEL./2011 4 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS OF THE ITAT. INDISPUTABLY, THE FACTS & CIRCUMSTANCES IN THE YEAR UNDER CONSIDERATION ARE S IMILAR TO THE FACTS AND CIRCUMSTANCES IN THE PRECEDING YEARS WE FIND THA T 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 IT A 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) HAV E 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 MATER IAL 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, T HIS 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 O FFICE) A-75, SECTOR-57, NOIDA, U.P. ITA NO.5068/DEL./2011 5 2. JT.DIT, CIRCLE-2(2),INTERNATIONAL 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