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II. Direct Taxes Case Laws:
1. CIT Vs. M/s Bagmane Developers, I.T.A. No. 157/2011, Date of Order: 03/11/2016, High Court of Karnataka
Issue:
Whether the assessee will lose the right of claiming or will be
debarred from being allowed the deduction, if the assessee fails to give
appropriate treatment in the books of accounts under some
misapprehension or mistake?
Held: No
Brief Facts:
The assessee had acquired a vast land measuring to the extent of 52
acres in C.V. Raman Nagar from Raja Bagmane in 1996. During the year
2000 the assessee intended to set up STPI for which acquired the
approval of the Union Govt. in July 2002 and STPI came into being on
subject property. The assessee had no further intention of exploitation
on the said piece of land and the same was sold. Further the contention
of the assessee was that the surplus arising out of sale of the above
piece of land was erroneously offered as ‘business income’ in its
original returns of income filed u/s 139(1) for AY 2002-03, 2003-04,
2004-05, 2005-06 and the property of land was shown as ‘stock-in-trade/
inventory’ in the books of accounts.
There
were search proceedings in the respect of the assessee in the month of
September 2006 and, thereafter, during the month of January 2007 filed
revised returns, and claimed the difference out of the sale of property
as ‘capital gain’. During assessment proceedings, the contention of the
AO was that the sale of property could only be termed as ‘business
income’ and ultimately based on the same, concluded the assessment
proceedings. The order of AO was upheld by CIT(A). However, the ITAT
accepted the contentions of the assessee. Aggrieved by which, the
revenue appealed before the High Court.
Held:
It could be seen that the subject property was acquired by the
assessee with a sole intention of investment only and setting up of a
unit for the software companies. To implement its intention of STPI
unit, it had set in motion way back in 2000 itself. It could also be
seen from the sequence of events that the sale of a piece of land from
the vast holding of total area of 52 acers was merely a coincident which
cannot, by any stretch of imagination, be construed or categorised as a
regular feature (business) of the assessee. Further, it is held that
“the assessee is entitled to a particular deduction or not will depend
on the provision of law relating thereto and not on the view which the
assessee might take of his rights nor can the existence or absence of
entries in the books of account be decisive or conclusive in the
matter.”
The appeal of revenue is denied.
(Please click here for judgment)
2. DDIT Vs. Virage Logic International, I.T.A. No. 1108/2007, Date of Judgment: 09.11.2016, High Court of Delhi
Issue:
Whether the new software developed by the branch office in India
and then transmitted to the head office situated outside India on arm’s
length price will amount to export sale under Section 10A?
Held_Yes
Brief Facts:
The assessee is engaged in the business of software development and
has established a branch office in India at Noida and New Delhi for
development of software for export. It had received approval for setting
up of 100% Export Oriented Unit (EOU) under the Software Technology
Park (STP) Scheme of the Central Government for the development of
computer software and the software so developed by it is electronically
transmitted to its head office which is located abroad. As per the terms
of agreement, the head office pays all direct and indirect cost for the
development of software with the mark up of 15% of such process. It
also received remittances from the head office towards the export/
transmission of such software and furnished the relevant clarification
which was accepted by the STPI authorities.
The
assessee filed a return seeking exemption under Section 10A of the
Income Tax Act, 1961 for A.Y. 2002-03. AO contended that assessee’s
claim was unacceptable that it had sold software to the head office as
both were the part of the same entity and head office had reimbursed the
cost only with a nominal mark up. The AO relied on the Explanation 2 to
Section 80HHC which states that at where goods and merchandise are
transferred by a unit to a branch office, warehouse or other
establishment situated outside India, and thereafter sold, such transfer
shall be deemed to be export and therefore absence of any such
explanation in Section 10A was an adverse circumstance. The order of AO
was upheld by CIT(A). However, the ITAT accepted the contentions of the
assessee. Aggrieved by which, the revenue appealed before the High
Court.
Held:
It was held that the transmission of computer software from an Indian
entity to its head office on the basis of an arm’s length price
determined for export entitled the assessee to exemption under Section
10A. Also, mere omission of a provision akin to Section 80HHC
Explanation (2) or the omission to make a provision of a similar kind to
Section 10A does not rule out the possibility of treatment of
transmission of software from the branch office to the head office as an
export. The absence of a “deemed export” provision in Section 10A
similar to the one in Section 80HHC does not logically undercut the
amplitude of the expression “transfer of goods” under Section 80-IA(8) –
which is now part of Section 10A. Such an interpretation would defeat
Section 10A(7) entirely.
Therefore, the contention of the assessee is accepted by the court.
(Please click here for judgment)
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