DCIT, Bangalore v. M/s Subex Ltd.,, Bangalore

ITA 674/BANG/2010 | 2005-2006
Pronouncement Date: 31-01-2011 | Result: Dismissed

Appeal Details

RSA Number 67421114 RSA 2010
Assessee PAN OFTHE1961A
Bench Bangalore
Appeal Number ITA 674/BANG/2010
Duration Of Justice 8 month(s) 17 day(s)
Appellant DCIT, Bangalore
Respondent M/s Subex Ltd.,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 31-01-2011
Date Of Final Hearing 06-01-2011
Next Hearing Date 06-01-2011
Assessment Year 2005-2006
Appeal Filed On 14-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE DR. O.K. NARAYANAN VICE PRESIDENT AND SMT. P. MADHAVI DEVI JUDICIAL MEMBER ITA NOS.673 & 674 (BANG)/2010 (ASSESSMENT YEARS: 2002-03 & 2005-06) DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE 12(3) BANGALORE. APPELLANT VS. M/S. SUBEX LTD. UNIT-1 ADARSH TECH PARK OUTER RING ROAD DEVARABEESANAHALLI BANGALORE-560 037. RESPONDENT AND ITA NOS.676 & 677 (BANG)/2010 (ASSESSMENT YEARS: 2002-03 & 2005-06) (BY THE ASSESSEE) REVENUE BY : SHRI G.V.GOPALA RAO. ASSESSEE BY : SHRI K.K.CHYTHANYA. O R D E R PER SMT. P. MADHAVI DEVI JM : THESE ARE CROSS APPEALS BY THE REVENUE AND THE ASSE SSEE AND ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF T HE CIT(A)-II BANGALORE DATED 18-2-2010 FOR THE ASSESSMENT YEARS 2002-03 AND 2005-06. 2. IN ALL THESE APPEALS SINCE ISSUES ARE COMMON TH EY ARE HEARD AND DISPOSED OF BY THIS COMMON AND CONSOLIDAT ED ORDER. ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 2 OF 27 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF DEVELOPM ENT AND EXPORT OF VARIOUS SOFTWARE PRODUCTS FOR TELECOMMUNI CATION INDUSTRY. ONE OF ITS BUSINESS UNITS IS REGISTERED A S A SOFTWARE TECHNOLOGY PARK (STP) AND IN RELATION TO THIS; THE ASSESSEE ALSO HAS DOMESTIC ACTIVITY WHICH IS HOWEVER NOT SIGNIF ICANT PART OF ITS OVER-ALL BUSINESS. 4. FOR THE ASSESSMENT YEAR 2002-03 THE ASSESSEE FI LED ITS RETURN OF INCOME ON 31-10-2002 DECLARING A TOTA L INCOME OF NIL AFTER CLAIMING DEDUCTION U/S 10A OF THE INCOM E-TAX ACT 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'] OF A SU M OF RS.5 05 15 560/- AND CLAIMED A REFUND OF RS.2 76 03 3/-. THE RETURN WAS INITIALLY PROCESSED U/S 143(1) AND A REF UND OF RS.2 37 716/- WAS ISSUED TO THE ASSESSEE. SUBSEQUE NTLY THE AO ISSUED A NOTICE DATED 4-8-2006 U/S 148 OF THE AC T PROPOSING TO ASSESS THE INCOME WHICH HAS ESCAPED ASSESSMENT A ND ASKED THE ASSESSEE TO FILE A RETURN OF INCOME FOR THE REL EVANT ASSESSMENT YEAR. IN REPLY TO THE SAME THE ASSESSE E FILED RETURN OF INCOME ON 18-9-2006. THEREAFTER THE AO PASSED THE ASSESSMENT ORDER U/S 143(3) R.W.S 147 BY MAKING THE FOLLOWING ADJUSTMENTS: I. TREATING RS.43 19 905/- BEING TELECOMMUNICATION AND RELATED EXPENSES AS ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA AND THEREFORE REDUCED THE SAME FROM THE EXPORT TURNOVER FOR THE PURPOSE OF CALCULATING RELIEF U/S 10A OF THE ACT. ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 3 OF 27 II. STATING RS.58 00 079/- BEING TRAVEL EXPENSES INCURRED ON ITS EMPLOYEES PROVIDING ON-SITE DEVELOPMENT TREATING THE SAME AS EXPENSES TOWARDS TECHNICAL SERVICES OUTSIDE INDIA AND REDUCING THE SAME FROM THE EXPORT TURNOVER FIGURE FOR THE PURPOS E OF CALCULATING THE DEDUCTION U/S 10A OF THE ACT. III. SETTING OFF OF LOSS OF RS.38 11 704/- PERTAINING TO THE DOMESTIC BUSINESS OF THE ASSESSEE AND ALSO RS.80 99 237/- REPRESENTING UNABSORBED BUSINESS LOSS AND DEPRECIATION BROUGHT FORWARD FROM THE EARLIER YEARS FROM THE PROFITS OF THE UNDERTAKING ENGAGED IN THE BUSINESS OF EXPORT OF COMPUTER SOFTWARE BEFORE ALLOWING DEDUCTION U/S 10A OF THE ACT. IV. REDUCING THE AMOUNT OF RS.6 36 997/- FROM THE PROFIT OF THE BUSINESS REPRESENTING OTHER INCOMES SUCH AS INTEREST ON FIXED DEPOSIT INSURANCE CLAIM RECEIPT IN RESPECT OF BUSINESS AFFAIRS PROFIT ON S ALE OF FIXED ASSETS USED FOR BUSINESS PURPOSE ETC. BY HOLDING THAT IT HAS NO DIRECT NEXUS WITH THE EXPORT OF COMPUTER SOFTWARE. AGGRIEVED BY THE SAID ASSESSMENT ORDER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO TO A LARGE EXTENT. 5. SIMILARLY FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSEE FILED ITS RETURN OF INCOME ON 29-10-2005 D ECLARING A TOTAL LOSS OF RS.9 36 429/- CLAIMING DEDUCTION U/S 10A OF THE ACT OF A SUM OF RS.24 44 29 574 AND CLAIMING A REFUND O F ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 4 OF 27 RS.6 68 661/- TOWARDS TAX DEDUCTED AT SOURCE. INIT IALLY THE RETURN WAS PROCESSED U/S 143(1) AND A REFUND OF RS. 2 27 659/- WAS ISSUED TO THE ASSESSEE. SUBSEQUENTLY THE ASSE SSMENT WAS SELECTED FOR SCRUTINY AND DURING THE ASSESSMENT PRO CEEDINGS U/S 143(3) THE AO MADE THE FOLLOWING DISALLOWANCES: I. TREATING AN AMOUNT OF RS.59 03 303/- ON AD HOC BASIS AS TELECOMMUNICATION AND INSURANCE CHARGES AND RELATED EXPENSES AS ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA AND REDUCING THE SAME FROM THE EXPORT TURNOVER FIGURE FOR THE PURPOSE OF CALCULATING RELIEF U/S 10A OF THE ACT. II. TREATING AN AMOUNT OF RS.85 08 837/- BEING TRAVEL EXPENSES INCURRED IN FOREIGN CURRENCY BY THE ASSESSEE ON ITS EMPLOYEES FOR THE ONSITE DEVELOPMEN T OF SOFTWARE AS TOWARDS PROVISION OF TECHNICAL SERVI CES OUTSIDE INDIA AND REDUCING THE SAME FROM THE EXPORT TURNOVER FOR THE PURPOSE OF CALCULATING RELIEF U/S 10A OF THE ACT. III. SETTING OFF OF DOMESTIC UNIT LOSS OF RS.9 36 429/- AGAINST INCOME FROM 10A UNIT PRIOR TO ALLOWANCE OF RELIEF. IV. DENYING THE CLAIM OF DEPRECIATION ON INTELLECTUAL PROPERTY RIGHT TO THE EXTENT OF RS.2 23 53 277/-. V. REDUCING AN AMOUNT OF RS.16 12 420/- AS BEING INCOME FROM OTHER SOURCES SUCH AS INTEREST ON FIXED DEPOSIT RENT RECEIVED FORM SUB-LEASED PREMISES ETC . ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 5 OF 27 NOT BEING DIRECTLY RELATED TO THE SOFTWARE DEVELOPMENT ACTIVITIES OF THE ASSESSEE. 6. AGGRIEVED BY THE SAME THE ASSESSEE PREFERRED AP PEAL BEFORE THE CIT(A) WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE AND CONFIRMED THE MAJOR ADDITIONS MADE BY THE AO. 7. AGGRIEVED BY THE RELIEF GIVEN BY THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US AND AGGRIEVED BY THE CONFIRMATION OF THE ADDITIONS BY THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 8. COMING TO THE REVENUES APPEALS THE REVENUE HAS ONLY CHALLENGED THE ORDER OF THE CIT(A) IN HOLDING THAT TELEPHONE COMMUNICATION EXPENSES AND FOREIGN TRAVEL EXPENDITU RE INCURRED IN FOREIGN CURRENCY FOR DELIVERY OF SOFTWA RE ARE TO BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. THIS GROUND OF APP EAL IS ALSO CONNECTED WITH THE ASSESSEES GROUND OF APPEAL NOS. 2 AND 3 FOR BOTH THE ASSESSMENT YEARS 2002-03 AND 2005-06. 9. SHRI CHYTHANYA THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE TELEPHONE COMMUNICATION EXPENSES INCLUDED THE STD AND ISTD CHARGES DOMESTIC TELEPHONE CHARGE S EPABX CHARGES MOBILE PHONES PAGER FAX AND CANADA BRANC H TELEPHONE COSTS AND OTHER BRANCHES TELEPHONE CALLS AND ALSO THE INTERNET EXPENSES AND POSTAGE EXPENSES. HE HAS GIV EN A BREAK-UP OF THE SAID EXPENDITURE IN HIS WRITTEN REP RESENTATION AND SUBMITTED THAT THESE EXPENSES ARE NOT SPECIFICA LLY INCURRED ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 6 OF 27 BY THE ASSESSEE FOR DELIVERY OF SOFTWARE OUTSIDE IN DIA. HE SUBMITTED THAT THE AO HAS ONLY PRESUMED THAT THE SA ID EXPENDITURE IS INCURRED NOT ONLY FOR INTERNAL OFFIC E AND INTRA- OFFICE COMMUNICATION BUT ALSO FOR DELIVERY OF COMPU TER SOFTWARE AND ACCORDINGLY HAS DEDUCTED THE PROPORTIONATE EXPE NDITURE FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTA TION OF DEDUCTION U/S 10A. HE SUBMITTED THAT CLAUSE (IV) O F EXPLANATION 2 TO SECTION 10A OF THE ACT WHICH DEFINES EXPORT TURNOVER DEALS WITH ITEMS OF TRADE PRACTICES OR CONTRACTUAL TERMS OR ACCOUNTING TREATMENT WHICH ARE CONSIDERED AS COMPON ENTS OF EXPORT TURNOVER BUT BY THE AFORESAID FICTION ARE NO T TO BE SO CONSIDERED. HE SUBMITTED THAT IF THE TELECOMMUNICA TION EXPENSES AND INSURANCE CHARGES HAVE NOT FORMED PART OF THE EXPORT TURNOVER THERE WAS NO NEED OF EXCLUDING THE SAME FROM THE EXPORT TURNOVER. IN SUPPORT OF HIS CONTENTION HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS: (A) R&B FALCON (A) PVT. LTD. VS. CIT (301 ITR 309)(SC) (B) M/S.MAHINDRA HOLDINGS & FINANCE LTD. VS. DCIT (2008 TIOL 588 ITAT(MUM)-TM WHEREIN IT WAS HELD THAT ANYTHING CAN BE EXCLUDED FROM AN ITEM ONLY WHEN IT IS INCLUDED IN THAT ITEM. (C) CIT VS. BRITANNIA BISCUIT CO. LTD. (182 ITR 113) WHEREIN IT IS HELD THAT WHEN SOME THING IS NOT ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 7 OF 27 INCLUDED EARLIER THERE CANNOT BE ANY EXCLUSION FROM SUCH INCOME. (D) M/S.WILLIS PROCESSING SERVICES (INDIA) PVT. LTD . VS. ACIT (2010) TIOL 576 ITAT-MUM WHEREIN IT WAS HELD THAT WHERE NO SEPARATE CHARGES ARE RECOVERED FROM THE FOREIGN COMPANY TOWARDS TELECOMMUNICATION CHARGES ARE WHICH CAN BE CONSIDERED AS AMOUNT RECOVERABLE IN FOREIGN EXCHANGE FROM THE FOREIGN PARTY THE QUESTION OF EXCLUSION FROM THE EXPORT TURNOVER ALSO DOES NOT ARISE ON THE FACTS OF THE CASE. (E) PATNI TELECOM P. LTD. VS. ITO (120 TTJ (HYD) 96 7 WHEREIN THE LOGICAL REASONS EXPLAINED BY THE CBDT VIDE ITS CIRCULAR NO. 564 DATED 5-7-1990 WAS ALSO CONSIDERED AND IT WAS HELD THAT ALL THE ASSESSEES SHOULD GET DEDUCTION U/S 10A ON CONSIDERATION RECEIVED AGAINST SUPPLY OF GOODS AT FREE ON BOARD (FOB) AND THEREFORE THE CONDITION OF DELIVERY OF GOODS AT FOB HAS BEEN PUT AND THE DEFINITION OF EXPORT TURNOVER AS PROVIDED IN CLAUSE (IV) OF EXPLANATION 2 TO SECTION 10A IS REQUIRED TO BE INTERPRETED ACCORDINGLY. ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 8 OF 27 THUS ON THE BASIS OF THE ABOVE DECISIONS THE LEAR NED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHILE COMPUTING DED UCTION U/S 10A OF THE ACT THE TELECOMMUNICATION CHARGES AND T HE INSURANCE CHARGES SHOULD NOT BE EXCLUDED FROM THE E XPORT TURNOVER. WITHOUT PREJUDICE TO THE ABOVE CONTENTIO NS IT WAS ALSO SUBMITTED THAT SINCE THE EXPENDITURE ON TELECO MMUNICATION CHARGES AND INSURANCE CHARGES HAVE NOT BEEN INCURRE D IN FOREIGN EXCHANGE THE QUESTION OF REDUCTION OF THE SAME FROM THE EXPORT TURNOVER ALSO DOES NOT ARISE. FOR THIS PROPOSITION HE PLACED RELIANCE UPON THE DECISION OF THE CHENNAI BE NCH OF THE TRIBUNAL IN THE CASE OF CALIFORNIA SOFTWARE CO. LTD. VS. ACIT (2008)118 TTJ (CHENNAI) 842. 10. SHRI G.V.GOPALA RAO THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUPPORTED THE OR DER OF THE AO AND SUBMITTED THAT THE ASSESSEE THOUGH HAS STATE D THAT THE TELECOMMUNICATION CHARGES AND INSURANCE CHARGES ARE NOT INCLUDED IN THE EXPORT TURNOVER THE ASSESSEE HAS NOT GIVEN ANY INSTANCES OR EVIDENCE TO SHOW THAT THE SAME IS NOT INCLUDED IN THE CONSIDERATION. HE SUBMITTED THAT SINCE THE ASS ESSEES SUBSTANTIAL BUSINESS IS EXPORT OF COMPUTER SOFTWARE THE TELECOMMUNICATION CHARGES AND ALSO INSURANCE CHARGE S ARE FOR THE PURPOSE OF EXPORT OF THE COMPUTER SOFTWARE ONLY AND THEREFORE THEY ARE INCLUDIBLE IN THE EXPORT TURNOVE R AND THEY HAVE THEREFORE NECESSARILY TO BE EXCLUDED WHILE COM PUTING DEDUCTION U/S 10A OF THE ACT. ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 9 OF 27 11. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS WE FIND THAT CLAUSE (IV) OF EXPLANATION 2 TO SECTION 10A HAS DEFINED EXPORT TURNOVER AND HAS C LEARLY BEEN PROVIDED THAT EXPORT TURNOVER DOES NOT INCLUDE FREI GHT TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES INCURRED IN FOREIGN EXCHANGE IN PROVIDI NG TECHNICAL SERVICES OUTSIDE INDIA. THUS FROM THE DEFINITION I T IS CLEAR THAT TELECOMMUNICATION CHARGES AND INSURANCE ARE NOT TO BE DIRECTLY INCURRED FOR THE PURPOSE OF DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA BUT IT IS SUFFICIEN T IF THE SAME IS ATTRIBUTABLE TO THE SAID PURPOSE. THE ASSESSEES BUSINESS BEING DEVELOPMENT AND EXPORT OF COMPUTER SOFTWARE ALL THE EXPENDITURE INCURRED BY IT IS ATTRIBUTABLE TO THE D ELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE IND IA. IF THE LEGISLATURE HAS INTENDED THAT THE SAID CHARGES SHOU LD BE DIRECTLY INCURRED FOR THE PURPOSE OF DELIVERY OF AR TICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA THEN THE LEGISL ATURE WOULD NOT HAVE USED THE WORD ATTRIBUTABLE BUT WOULD HAV E USED THE WORD INCURRED FOR THE DELIVERY OF ARTICLES OR THI NGS AS HAS BEEN DONE IN THE SECOND PART OF THE SAID DEFINITION WITH REGARD TO THE EXPENDITURE INCURRED IN FOREIGN EXCHANGE IN PROVIDI NG TECHNICAL SERVICES OUTSIDE INDIA. IN VIEW OF THE SAME WE AR E OF THE OPINION THAT THE TELECOMMUNICATION CHARGES AND INSU RANCE CHARGES ARE INDIRECTLY INCLUDED IN THE EXPORT TURNO VER OF THE ASSESSEE AND THEREFORE IT HAS TO BE NECESSARILY RED UCED FROM ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 10 OF 27 THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. 12. NOW COMING TO THE QUESTION AS TO WHETHER THE SA ID CHARGES ARE TO BE REDUCED FROM THE TOTAL TURNOVER A LSO WE FIND THAT THE CIT(A) HAS RIGHTLY COME TO THE CONCLUSION THAT THE SAME IS ALSO TO BE REDUCED FROM THE TOTAL TURNOVER BY FOLLOWING VARIOUS DECISIONS OF THE TRIBUNAL. WE FIND THAT TH IS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE SPECIAL BENCH (CHENNAI) IN THE CASE OF SAK SOFT LTD. (2009) 313 ITR 353)(SB) WHEREIN IT HAS BEEN HELD THAT IF A VARIABLE EXCLUDE D FROM NUMERATOR EXPORT TURNOVER THEN THE SAME HAS TO BE EXCLUDED FROM DENOMINATOR ALSO IN ORDER TO ARRIVE A T THE CORRECT PROFIT OF THE BUSINESS ELIGIBLE FOR DEDUCTION. IN VIEW OF THE SAME THE ASSESSEES GROUND NOS.2 AND 3 ARE REJECTE D AND THE REVENUES GROUNDS ARE ALSO REJECTED. IN VIEW OF TH E SAME THE REVENUES APPEALS ARE DISMISSED. 13. COMING TO GROUND NOS.4 AND 5 OF THE ASSESSEES APPEAL LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSEE HAS INCURRED TRAVEL AND OTHER EXPENSES ON ONSITE PERSONNEL FOR BOTH THE ASSESSMENT YEARS WHICH HAS B EEN DISALLOWED BY THE AO ON THE GROUND THAT IT IS FOR P ROVIDING TECHNICAL SERVICE OUTSIDE INDIA. THE LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE BEING IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF VARIOUS SOFTWARE PRODUCTS FOR TELECOMMUNICATION INDUSTRY FROM ITS OFFSHORE DEVELO PMENT CENTRE IN INDIA ALSO RENDERED ONSITE DEVELOPMENT F ROM ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 11 OF 27 LOCATIONS OUTSIDE INDIA AND THE ASSESSEE BEING ENG AGED ONLY IN THE BUSINESS OF MANUFACTURE AND SALE OF SOFTWARE PR ODUCTS IS NOT ENGAGED IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. HE ALSO REFERRED TO EXPLANATION 3 TO SECTION 10B OF TH E ACT WHICH PROVIDES THAT FOR REMOVAL OF DOUBTS IT IS HEREBY DECLARED THAT THE PROFITS AND GAINS OF BUSINESS DERIVED FROM ONSI TE DEVELOPMENT OF COMPUTER SOFTWARE (INCLUDING SERVICE S FOR DEVELOPMENT OF SOFTWARE) OUTSIDE INDIA SHALL BE DE EMED TO BE THE PROFITS AND GAINS FROM EXPORT OF COMPUTER SOFTW ARE OUTSIDE INDIA . HE SUBMITTED THAT THIS EXPLANATION HAS BEEN EXP LAINED BY THE SPECIAL BENCH (CHENNAI) OF THE TRIBUNAL IN T HE CASE OF M/S.ZYLOG SYSTEMS LTD. IN ITA NO.1138/MDS/2007 HOLD ING THAT FROM THE ABOVE EXPLANATION IT CAN BE SEEN THAT PEO PLE ARE ENCOURAGED FOR ONSITE DEVELOPMENT OF SOFTWARE. THE COMBINED READING OF EXPLANATION 2(III) AND EXPLANATION 3 AS NARRATED ABOVE WOULD SHOW THAT THE EXPENSES INCURRED BY THE ASSESSEE IN FOREIGN SOILS FOR ONSITE DEVELOPMENT IS NOTHING BUT EXPORT TURNOVER. ON THE OTHER HAND TECHNICAL SERVICES W OULD MEAN ADVISES GIVEN TO THIRD PARTY AND ANY EXPENDITURE IN CURRED ON IT . HE ALSO PLACED RELIANCE UPON THE FOLLOWING OTHER DE CISIONS IN SUPPORT OF HIS CONTENTION: A) INFOSYS TECHNOLOGIES LTD. VS. JCIT (2009) 109 TTJ (BANG) 631 B) ACIT VS. HEWLETT PACKARD GLOBAL SOFT LTD. 2008-TIOL-504-ITAT(BANG) C) ACIT VS. M/S.KSHEMA TECHNOLOGIES LTD. 2009-TIOL-440-ITAT-BANG. ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 12 OF 27 D) PATNI TELECOM (P) LTD. VS. ITO (2009) 120 ITD 105 E) ACIT VS. CHANGEPOND TECHNOLOGIES P LTD. ( 22 SOT 220) LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 14. HAVING HEARD BOTH THE PARTIES WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY EX PLANATION 2 TO SECTION 10A AND ALSO BY THE DECISIONS RELIED UPO N BY THE LEARNED COUNSEL FOR THE ASSESSEE. IN VIEW OF THE S AME THESE GROUNDS ARE ALLOWED. 15. AS REGARDS GROUND NO.6 OF THE ASSESSEES APPEAL LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS LOSSES FROM ITS TELECOM DIVISION WHILE IT HAS P ROFITS FROM STP UNIT AND THEREFORE THE ASSESSEE HAS RIGHTLY CL AIMED THE DEDUCTION U/S 10A WITH REGARD TO STP UNIT ONLY WITH OUT SETTING OFF OF LOSS OF NON-STP UNITS. HE SUBMITTED THAT TH E AO AND THE CIT(A) HAVE HELD THAT THE LOSSES OF THE NON-STP UNI T ARE TO BE SET OFF FROM THE PROFITS OF THE STP UNIT BEFORE ALL OWING DEDUCTION U/S 10A OF THE ACT. IN SUPPORT OF HIS CONTENTION T HAT THE SAME IS NOT TO BE SET OFF AGAINST THE PROFITS OF THE STP UNIT HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS: I) MADRAS MACHINE TOOLS MANUFACTURERS LTD. VS. CIT (98 ITR 119) WHEREIN THE HONBLE MADRAS HIGH COURT HAD AN OCCASION TO CONSIDER THE DISTINCTION BETWEEN A COMPANY AND ITS UNDERTAKINGS WHILE ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 13 OF 27 DECIDING THE CASE IN THE CONTEXT OF SECTION 84 DEDUCTION AND HAS HELD THAT WHEN A COMPANY OWNS MORE THAN ONE UNDERTAKING THE APPLICATION OF SECTION 84 HAS TO BE WITH RESPECT TO THE PARTICULAR UNDERTAKING AND NOT TO THE COMPANY IN GENERAL. IT IS TRUE THAT THE WORD UNDERTAKING HAS NOT BEEN DEFINED IN THE INCOME-TAX ACT BUT IN COMMON PARLANCE IT IS TAKEN AS A CONCERN STARTED OR FORME D FOR A SPECIFIC PURPOSE OR A PROJECT ENGAGED IN. II) TATA CONSULTANCY SERVICE LTD. VS. ACIT (2009- TIOL-41-ITAT-BANG WHEREIN REFERRING TO THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF P.ALIKUNJU M A NAZEER CASHEW INDUSTRIES VS. CIT (166 ITR 804) IT HAS BEEN HELD THAT THE WORD UNDERTAKING IN COMMON PARLANCE MEANS AN ENTERPRISE VENTURE ENGAGEMENT AND IT CAN AS WELL MEAN THE ACT OF ONE WHO UNDERTAKES OR ENGAGES IN A PROJECT OR BUSINESS AND CONSIDERING THE SAID DEFINITION OF UNDERTAKING IT IS CLEAR TH AT STP UNIT -1 AND STP UNIT-2 ARE DIFFERENT UNDERTAKINGS. III) M/S.KHODAY INDIA LTD. VS. CIT 2010 TIOL 732-ITAT- BANG WHEREIN IT HAS BEEN HELD THAT THE EXEMPTION/DEDUCTION U/S 10A IS UNDERTAKING SPECIFIC AND THAT THIS ISSUE IS SQUARELY COVERED B Y THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SCIENTIFIC ATLANTA TECHNOLOGY PVT. LTD. REPORTED IN 2010 TIOL 69-MADRAS. IV) GLOBAL VANTEDGE PVT. LTD. VS. DCIT 2010 TIOL-24- ITAT-DELHI WHEREIN IT HAS BEEN HELD THAT THE DEDUCTION U/S 10A IS IN RESPECT OF PROFITS AND GAIN S ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 14 OF 27 AND THE WORD SUCH MENTIONED BEFORE THE PROFIT AND GAINS REFERS TO THE PROFITS AND GAINS OF THE UNDERTAKING WHICH IS RELATED TO THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE AND HENCE BUSINESS LOSS OF OTHER UNITS WILL NOT BE SET OFF AGAINST THE PROFITS OF THE UNDERTAKING ENGAGED IN THE EXPORT OF COMPUTER SOFTWARE FOR THE PURPOSE OF DETERMINING THE ALLOWABLE DEDUCTION U/S 10A OF THE ACT. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTH ER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT BEFORE GIVING DEDUCTION U/S 10A THE TOTAL INCOME IS TO BE COMPUTED AND THEREFORE THE ACTION T AKEN BY THE AO AS WELL AS THE CIT(A) IS CORRECT. 16. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS WE FIND THAT THE ISSUE IS SQ UARELY COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNA L AND ALSO THE DECISION OF THIS BENCH IN THE CASE OF KHODAY INDIA LTD. (CITED SUPRA) TO WHICH BOTH OF US I.E. BOTH THE ACCOUNTANT MEMBER AS WELL AS THE JUDICIAL MEMBER ARE PARTIES. IN VIEW O F THE SAME THIS GROUND OF APPEAL IS ALLOWED. 17. AS REGARDS GROUND NOS.7 TO 14 FOR THE ASSESSMEN T YEARS 2002-03 AND GROUND NOS.7 TO 12 FOR THE ASSESS MENT YEAR 2005-06 RELATING TO SETTING OFF OF UNABSORBED LOSS OF EARLIER YEARS BEFORE COMPUTATION OF RELIEF U/S 10A OF THE A CT IS CONCERNED WE FIND THAT BOTH THE AO AND THE CIT(A) HAVE SET IT OFF PRIOR TO ALLOWING THE DEDUCTION U/S 10A OF THE ACT BY ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 15 OF 27 FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIG H COURT IN THE CASE OF CIT V. HIMATSINGIKE SEIDE LTD. (286 ITR 255). 17(I) LEARNED COUNSEL FOR THE ASSESSEE HAD SUBMITTE D THAT THE DEDUCTION U/S 10A FINDS ITS PLACE IN CHAPT ER III AND THE SET OFF OF UNABSORBED LOSS OR DEPRECIATION COME UND ER CHAPTER VI PERTAINING TO AGGREGATION OF INCOME AND THEREFOR E ACCORDING TO HIM THE SET OFF OF CARRY FORWARD LOSSES HAS TO BE DONE ONLY AFTER ALLOWING THE EXEMPTION U/S 10A OF THE ACT. 17(II) LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 18. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIAL ON RECORD WE FIND THAT IN THE EARLIER ISSUE OF GRANTING SETTING OFF OF LOSS OF NON-STP UNIT FROM T HE PROFITS AND GAINS OF STP UNIT WE HAVE ALREADY HELD THAT DEDUCT ION U/S 10A HAS TO BE COMPUTED ON A STAND-ALONE BASIS. FROM TH E ASSESSMENT ORDER AS WELL AS THE CIT(A)S ORDER IT IS NOT CLEAR AS TO THE YEARS FROM WHICH THE LOSSES HAVE BEEN CARRIE D FORWARD AND WHETHER THEY PERTAIN TO THE STP UNIT ONLY. AS SEEN FROM THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF HIMATSINGIKE SEIDE LTD (SUPRA) WE FIND THAT THE HONBLE HIGH COURT HAS HELD THAT THE CARRIED FORWARD LOSSES OF S TP UNIT HAVE TO BE SET OFF AGAINST EXEMPT INCOME OF STP UNIT AND NOT AGAINST OTHER TAXABLE INCOME. AS THE FACTS ARE NOT VERY CL EAR AS TO HOW THESE HAVE BEEN CARRIED FORWARD WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE FILE OF THE AO TO VERIFY TH E SAME AND IF IT IS FOUND THAT THESE LOSSES PERTAIN TO THE STP UN IT ONLY AND ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 16 OF 27 RELATE TO THE ASSESSMENT YEARS IN WHICH THE ASSESSE E IS ELIGIBLE FOR THE EXEMPTION U/S 10A OF THE ACT THE SAME HAS TO BE SET OFF AGAINST THE INCOME OF STP UNIT DURING THE RELEVANT ASSESSMENT YEAR. IN THE RESULT THE ASSESSEES GROUNDS OF APP EAL FOR BOTH THE YEARS ARE ALLOWED FOR STATISTICAL PURPOSES. 19. COMING TO GROUND NO.15 FOR THE ASSESSMENT YEAR 2002-03 WHICH RELATES TO DENIAL OF DEDUCTION U/S 10 A IN RESPECT OF (A) INTEREST EARNED ON FIXED DEPOSIT AND (B) OTH ER INCOME COMPRISING INSURANCE CLAIM RECEIVED IN RESPECT OF B USINESS ASSET THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S.GREEN AGRO PACK (P) LTD. VS. CIT (ITA NO.3112/2005 DATED 13-4-2010) WHEREIN IT HAS BEEN HELD THAT WHE N A DEPOSIT IS MADE WITH A BANK FOR THE PURPOSE OF OBTAINING A LETTER OF CREDIT AND NOT TO INVEST THE SAME TO EARN ANY INTER EST THEN THE INTEREST AMOUNT EARNED ON THE DEPOSIT HAS TO BE TRE ATED AS BUSINESS INCOME AND NOT AS INCOME EARNED FROM OTHER SOURCES. HE PLACED RELIANCE UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SPORTKING INDIA LTD . (324 ITR 283)(DEL) WHEREIN IT HAS BEEN HELD THAT THE AMOUNTS RECEIVED FROM INSURANCE COMPANY AS COMPENSATION FOR GOODS DE STROYED BY FIRE IS DERIVED FROM INDUSTRIAL UNDERTAKING AND IS TO BE INCLUDED IN THE PROFITS OF THE BUSINESS FOR PURPOSE S OF DEDUCTION. LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND PLACED RELIANCE UPON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (317 ITR 218) FOR THE ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 17 OF 27 PROPOSITION THAT ALL THE PROFITS WHICH ARE DERIVED FROM THE ELIGIBLE BUSINESS THEY CANNOT BE TREATED AS THE PRO FITS DERIVED FROM THE INDUSTRIAL UNDERTAKING U/S 80-IB. HE SUBMI TTED THAT INTEREST ON THE FIXED DEPOSIT AS WELL AS INSURANCE CLAIM RECEIPTS IN RESPECT OF THE BUSINESS ASSET CANNOT BE SAID TO HAVE BEEN DERIVED BY THE INDUSTRIAL UNDERTAKING AND THEREFORE THE SAME IS NOT ALLOWABLE TO BE CONSIDERED FOR THE COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. 20. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS WE FIND THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (CITED SUPRA) IS IN RESPECT OF DUTY DRAW BACK TO BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80-IA AND 80-IB WHEREI N THE LANGUAGE EMPLOYED IS THE PROFITS AND GAINS OF BUSI NESS DERIVED FROM THE UNDERTAKING WHEREAS IN THE PRESENT CASE W E ARE DEALING WITH THE CASE OF DEDUCTION U/S 10A WHERE TH E LANGUAGE EMPLOYED IS PROFITS AND GAINS DERIVED BY THE UNDER TAKING. HAVING REGARD TO THE LANGUAGE USED IN BOTH THE SECT IONS WE ARE OF THE OPINION THAT THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF LIBERTY INDIA (CITED SUPRA) CANNOT BE APPLIED TO THE CASE IN HAND. ON THE OTHER HAND WE FIND THAT THE DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE A RE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THEREF ORE THIS GROUND OF APPEAL IS ALLOWED. 21. IN THE RESULT THE ASSESSEES APPEAL FOR ASSESS MENT YEAR 2002-03 IS PARTLY ALLOWED. ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 18 OF 27 22. COMING TO GROUND NOS.13 TO 18 FOR THE ASSESSMEN T YEAR 2005-06 RELATING TO THE ISSUE OF DISALLOWANCE OF DEPRECIATION CLAIMED ON INTELLECTUAL PROPERTY RIGHT S BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD ACQUIRED INTE LLECTUAL PROPERTY COMPRISING OF SOFTWARE CODES AND LICENSES OF OUT SMART AND IN CHARGE FROM PRICE WATERHOUSE COOPERS I NC DURING THE FINANCIAL YEAR 2001-02 AND THE COST OF ACQUISIT ION WAS RS.15 89 56 637/- WHICH ALSO INCLUDED THE ADVISORY FEES SYNDICATE FEES AND OTHER COST. THE ENTIRE COST OF ACQUISITION WAS CAPITALIZED IN THE BOOKS OF ACCOUNT AND DEPRECI ATION WAS CLAIMED THEREON. THE AO DISALLOWED THE CLAIM OF DE PRECIATION ON THE GROUND THAT THE ASSESSEE HAS NOT CLAIMED THE SAME IN THE FIXED ASSET SCHEDULE OF RETURN OF INCOME BUT M ADE A CLAIM OF DEPRECIATION IN THE FIXED ASSET SCHEDULE UNDER T HE HEAD INTELLECTUAL PROPERTY RIGHTS (IPR) TO THE EXTENT OF RS.8 94 13 108/- AT THE END BUT HAS NOT CLAIMED THE SAME IN THE RETURN OF INCOME. AGGRIEVED BY THE SAME THE A SSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO REJECTED THE SAME OBSERVING THAT THE FACT THAT THE ASSESSEE HAS PURCH ASED THE IPRS FOR A PRICE THE COST OF THE SAME HAS BEEN WRI TTEN OFF AGAINST THE SHARE PREMIUM ACCOUNT RESULTING IN NIL COST OF ACQUISITION AND THEREFORE THE WDV OF THE SAID IPR B ECOMES NIL AND THERE ARISES NO QUESTION OF ALLOWING ANY DEPREC IATION ON THE NIL WDV. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFO RE US. 23. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 19 OF 27 YEARS 2003-04 AND 2004-05 AND THE ITAT B BENCH IN ITA NOS.94 & 95/BANG/2008 HAS CONSIDERED THE ISSUE AND IN PARAS.2.15 TO 2.18 HAS ALLOWED DEPRECIATION ON IPRS . HE DREW OUR ATTENTION TO THE RELATED PARAGRAPHS OF THE SAID ORDER. THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS NOT MADE ANY CLAIM FOR DEPREC IATION IN THE RETURN OF INCOME AND THEREFORE THE SAME IS NOT ALLOWABLE AS RIGHTLY DONE BY THE AO. 24. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS WE FIND THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2003-04 AND 2004- 05 IN ITA NOS.94 & 95/BANG/2008 AND 220 & 221/BANG/2008 DATED 23-10-2008 HAS CONSIDERED THE ISSUE AT LENGTH AS U NDER: 2.15 WE HAVE ALSO GONE THROUGH A LETTER DATED MAY 29 2001 FROM PRICEWATERHOUSECOOPERS INC ADDRESSED TO THE ASSESSEE. THIS IS WITH REFERENCE TO ACQUISITION OF THE ASSETS OF MAGARDI INC. THIS LET TER CONTAINS THE DETAILS OF ASSETS AND THE PURCHASE PRI CE. THIS ALSO REFERS TO THE STEPS TAKEN TO TRANSFER THE PURCHASED ASSETS. SUCH STEPS MENTIONED ARE ASSIGNMENT OF TRADEMARK ASSIGNMENT OF COPYRIGHT ASSIGNMENT OF ALL MATERIAL CONTRACTS OF THE CUSTOME RS ASSIGNMENT OF EQUIPMENT LEASES AND ASSIGNMENT OF DSI MASTER SOURCE CODE ESCROW AGREEMENT. PRIMA FACIE THEREFORE IT APPEARS THAT IPR REFERS TO THE COPYRIGHT AND WILL BE ELIGIBLE FOR DEPRECIATION. B UT SINCE THE AO HAS NOT CONSIDERED THIS ASPECT AND HAS ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 20 OF 27 NOT TAKEN INTO CONSIDERATION THE RELEVANT FACTS AS MENTIONED BY THE AR AND TAKEN NOTE OF BY THIS ORDER THEREFORE THE ASSESSING OFFICER WILL LOOK INTO THE SE ASPECTS AND WILL GIVE A FINDING AS TO WHETHER THE I PR AS ACQUIRED IS COVERED UNDER THE DEFINITION OF INTANGIBLE ASSETS AS GIVEN IN SECTION 32 OF THE I T ACT. SINCE THE ASSET HAS BEEN ACQUIRED FROM A COUNTRY OUTSIDE INDIA ON THE BASIS OF CONSIDERATION EXPRESS ED IN CANADIAN DOLLARS AND THEREFORE THE AO WILL HAVE TO CONSIDER THE PROVISIONS OF SECTION 43A OF THE I T A CT WHILE ASCERTAINING THE COST FOR THE PURPOSE OF DEPRECIATION. 2.16 THE LEARNED CIT(A) HAS DISALLOWED DEPRECIATION ON THE GROUND THAT THE ASSET WAS WRITT EN OF IN THE BOOKS OF ACCOUNT. INTANGIBLE ASSET IS A SEPARATE BLOCK OF ASSET AS IT IS CLEAR FROM SECTION 32(1) OF THE I T ACT. THE DEPRECIATION IS ALLOWAB LE AT SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE. THE WRITTEN DOWN VALUE HAS BEEN DEFINED IN SECTION 43(6 ) OF THE I T ACT. IN RESPECT OF ANY BLOCK OF ASSET THE WDV OF ALL THE ASSETS FALLING WITHIN THAT BLOCK OF THE ASSET AT THE BEGINNING OF THE PREVIOUS YEAR IS TO B E ADJUSTED AS UNDER:- 1. BY THE INCREASE BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK ACQUIRED DURING THE PREVIOUS YEAR; 2. BY THE REDUCTION OF THE MONEYS PAYABLE IN RESPECT OF ANY ASSET FALLING WITHIN THAT BLOCK WHICH IS SOLD OR DISCARDED OR DEMOLISHED OR DESTROYED DURING THAT PREVIOUS YEAR TOGETHER WITH THE AMOUNT OF THE SCRAP VALUE IF ANY SO HOWEVER THAT THE AMOUNT OF SUCH REDUCTION DOES NOT EXCEED THE WRITTEN DOWN VALUE AS SO INCREASED. ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 21 OF 27 ACTUAL COST HAS BEEN DEFINED IN SECTION 43(1) OF TH E IT ACT. ACTUAL COST MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE REDUCED BY THAT PORTION OF THE COST THEREOF IF ANY AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. IN TH E INSTANT CASE IT IS NOT DISPUTED THAT INTANGIBLE AS SETS WERE PURCHASED. THE PURCHASE PRICE ALONG WITH ANY INCIDENTAL EXPENSES NECESSARY FOR MAKING THAT ASSET TO BE USED IS A COST TO THE ASSESSEE. IT IS TO BE REDUCED BY THAT PORTION OF THE COST WHICH HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. SHARE PREMIUM ACCOUNT BELONGS TO THE ASSESSEE. IT IS PART OF THE RESERVE OF THE ASSESSE E COMPANY. HENCE IF THE PART OF THE COST HAS BEEN WRITTEN OF BY SHARE PREMIUM ACCOUNT THEN IT CANNOT BE SAID THAT COST TO THAT EXTENT HAS BEEN MET DIREC TLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. WE HAVE GONE THROUGH THE SHARE PREMIUM DETAILS AS AVAILABLE IN THE PAPER BOOK. THE SHARE PREMIUM HAS NOT BEEN RECEIVED FROM THE PARTY FROM WHOM INTANGIBLE ASSETS HAVE BEEN PURCHASED. HENCE IT CANNOT BE SAID THAT THE TRANSACTION TO WRITE OF THE COST OF THE INTANGIBLE ASSET FROM SHARE PREMIUM ACCOUNT WAS A SHAM TRANSACTION. WE AGREE WITH THE SUBMISSION OF THE LEARNED AR THAT ACCOUNTING ENTRY IN THE BOOKS OF ACCOUNT CANNOT BE THE CONCLUSIVE FOR DECIDING A ISSUE UNDER THE INCOME TAX ACT. IT IS T HE LAW WHICH HAS TO PREVAIL AND NOT THE TREATMENT GIVE N BY THE ASSESSEE TO A TRANSACTION IN ITS BOOKS OF ACCOUNT. 2.17 THE DELHI BENCH IN THE CASE OF DCIT V CAPITAL COST P. LTD. (DEL.) 114 IRD 286 HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF DEPRECIATI ON IN ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 22 OF 27 RESPECT OF AN ASSET WHICH WAS SHOWN UNDER THE HEAD 'BUILDING' ON THE BOOKS OF ACCOUNT. THE DELHI TRIB UNAL AFTER CONSIDERING THE PURCHASE AGREEMENT NOTICED THAT CONSIDERATION WAS FOR THE PURCHASE OF PROPERTY COMPRISING OF LAND PIECE AND BUILDING'S SUPER STRUCTURE COST. HENCE THE DEPRECIATION WAS ALLOWE D ON THAT PORTION WHICH COULD HAVE BEEN ATTRIBUTABLE TO THE BUILDING. THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT WAS NOT ACCEPTED. THE REVENUE IN THAT CASE ARGUED THAT THE TREATMENT GIVEN BY THE ASSESSEE CANNOT BE ACCEPTED AND THE FACTS ARE TO BE FOUND ON THE BASIS OF THE PURCHASE AGREEMENT. HENCE THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE BY WRITING OF THE COST OF THE INTANGIBLE A SSET AGAINST THE SHARE PREMIUM ACCOUNT IS NOT RELEVANT F OR DECIDING THE ISSUE AS TO WHETHER THE ASSESSEE IS ENTITLED TO DEPRECIATION OR NOT. IF THE ASSET HAS BEEN USED FOR THE PURPOSE OF BUSINESS THEN DEPRECIATION IS TO BE ALLOWED. SO FAR AS THE OWNERSHIP OF THE ASSE T IS CONCERNED IT IS ESTABLISHED AND DEDUCTION OF DEPRECIATION CANNOT BE DENIED ON THE GROUND THAT COST OF SUCH ASSET WAS WRITTEN OF FROM THE BOOKS OF ACCOUNT. 2.18 SINCE THE ASSET IS AN INTANGIBLE ASSET THEREFORE THE RATE OF DEPRECIATION WILL BE APPLICA BLE AS APPLICABLE TO INTANGIBLE ASSETS. RATE OF DEPRECIATION OF SOFTWARE WILL NOT BE APPLICABLE. 3. THE NEXT ISSUE BEFORE US IS IN RESPECT OF WDV ON WHICH DEPRECIATION IS TO BE ALLOWED. 3.1 THE ASSESSEE HAS NOT CLAIMED DEPRECIATION FOR THE ASST. YEAR 2002-03 IN RESPECT OF THE INTANGIBLE ASSET. THE LEARNED DR HAS ARGUED TH AT ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 23 OF 27 DEPRECIATION SHOULD BE ALLOWED AFTER CONSIDERING TH E DEPRECIATION ALLOWABLE FOR THE ASST. YEAR 2002-03 A ND THE BALANCE SHOULD BE TAKEN AS THE WDV FOR COMPUTING DEPRECIATION FOR THE ASST. YEAR 2003-04. THE LEARNED AR HAS ARGUED THAT IN CASE THE DEPRECIATION IS TO BE ALLOWED AFTER CONSIDERING THE DEPRECIATION ALLOWABLE FOR THE ASST. YEAR 2002-03 THEN A DIRECTION SHOULD BE GIVEN FOR ALLOWING DEPRECIATION FOR THE ASST. YEAR 2003-04. 3.2 WRITTEN DOWN VALUE IN CASE OF AN ASSET AS DEFINED IN SECTION 43(6) OF THE ACT IN RESPECT O F AN ASSET ACQUIRED BEFORE THE PREVIOUS YEAR IS THE ACTU AL COST TO THE ASSESSEE LESS DEPRECIATION ACTUALLY ALLOWED. THE WORD 'ACTUALLY ALLOWED' HAS BEEN CONSIDERED BY THE HON'BLE APEX COURT IN THE CASE OF CIT V MAHENDRA MILLS 243 ITR 56. THE HON'BLE APEX COURT OBSERVED THAT 'ACTUALLY ALLOWED' DOES NOT MEA N 'NOTIONALLY ALLOWED'. IF THE ASSESSEE HAS NOT CLA IMED DEDUCTION OF DEPRECIATION IN ANY PAST YEAR IT CANN OT BE SAID THAT IT WAS NOTIONALLY ALLOWED TO HIM. HEN CE IF THE DEPRECIATION HAS NOT BEEN ALLOWED FOR THE AS ST. YEAR 2002-03 THEN IT CANNOT BE CONSIDERED AS NOTIONALLY ALLOWED AND CANNOT BE REDUCED FROM THE ACTUAL COST. HOWEVER EXPLANATION 5 TO SECTION 32 WAS INSERTED BY THE FINANCE ACT 2001 WITH EFFECT FROM 1/4/2002. AS PER THIS EXPLANATION IT WAS DECLARED THAT PROVISIONS OF SECTION 32 SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATION IN COMPUTING T HE TOTAL INCOME. EXPLANATION 6 HAS ALSO BEEN INSERTED BY THE FINANCE ACT 2001 WITH EFFECT FROM 1/4/2002 TO SECTION 43(6) OF THE I T ACT. AS PER THIS EXPLANATION DEPRECIATION IS TO BE TREATED AS ALLOW ED ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 24 OF 27 IN CASE THE ASSESSEE WAS NOT REQUIRED TO COMPUTE HI S TOTAL INCOME FOR THE PURPOSE OF THE INCOME TAX ACT FOR ANY PREVIOUS YEAR OR YEARS PRECEDING THE PREVIO US YEAR RELEVANT TO THE ASST. YEAR UNDER CONSIDERATION . BOTH THESE EXPLANATIONS MAKE IT CLEAR THAT IN CASE THE ASSESSEE HAS NOT FILED THE RETURN OR HAS NOT COMPUT ED THE INCOME THEN DEPRECIATION IS TO BE TREATED AS ALLOWED AS PER EXPLANATION 6 TO SECTION 43(6). AS PER EXPLANATION 5 TO SECTION 32 DEPRECIATION IS TO BE ALLOWED IRRESPECTIVE OF THE FACT AS TO WHETHER DEPRECIATION HAS BEEN CLAIMED OR NOT. THE HON'BLE APEX COURT IN THE CASE OF JCIT V UNITED PHOSPHOROUS LTD. 299 ITR 9 HAD AN OCCASION TO CONSIDER THE FOLLOWING QUESTION OF LAW:- 'WHETHER RESPONDENT ASSESSEE HAD AN OPTION IN LAW TO CLAIM PARTIAL DEPRECIATION IN RESPECT OF ANY BLOCK OF ASSETS? THE HON'BLE APEX COURT VIDE PARA 5 OF THE DECISION OBSERVED AS UNDER:- '5. REGARDING THE QUESTION NO.(2) QUOTED ABOVE IT MAY BE NOTED THAT THE HIGH COURT HAS RELIED UPON THE JUDGMENT OF THIS COURT IN CIT V MAHENDRA MILLS (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC) IN WHICH IT HAS BEEN HELD THAT THE ASSESSEE HAS AN OPTION TO CLAIM DEPRECIATION. HOWEVER S.34(1) OF THE IT ACT 1961 (FOR SHORT '1961 ACT') HAS BEEN OMITTED W.E.F. 1ST APRIL 1988. THEREFORE WE ARE REMANDING THE MATTER TO THE HIGH COURT AFTER SETTING ASIDE THE IMPUGNED ORDER OF THE HIGH COURT ON THIS QUESTION WITH THE DIRECTION TO THE HIGH COURT TO CONSIDER: WHETHER THE ASSESSEE HAS AN OPTION IN LAW TO CLAIM PARTIAL DEPRECIATION IN RESPECT OF BLOCK OF ASSETS. IN THE CASE OF MAHENDRA MILLS (SUPRA) THE CONCEPT OF BLOCK OF ASSETS WAS NOT THERE. IN OUR VIEW SUBSTANTIAL QUESTION OF LAW DID ARISE FOR DETERMINATION BEFORE THE HIGH COURT UNDER S. 260A OF THE 1961 ACT PARTICULARLY WHEN S. 34(1) OF THE 1961 ACT STOOD OMITTED W.E.F. 1ST APRIL 1988. THE ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 25 OF 27 HIGH COURT IS ALSO REQUESTED TO CONSIDER WHETHER THE JUDGMENT OF THE COURT IN THE CASE OF MAHINDRA MILLS (SUPRA) WOULD APPLY TO THE ASSESSMENT YEARS UNDER CONSIDERATION. IN THIS CONNECTION THE HIGH COURT IS ALSO REQUESTED TO TAKE INTO ACCOUNT THE SCOPE OF EXPLN. 5 TO S. 32(1) OF THE 1961 ACT MADE BY THE FINANCE ACT 2001'. 3.3 HENCE THE ASSESSING OFFICER WILL HAVE TO APPLY HIS MIND IN RESPECT OF WDV ON WHICH THE DEPRECIATION IS TO BE ALLOWED. SINCE THIS ISSUE HA S NOT BEEN CONSIDERED EITHER BY THE AO OR BY THE LEARNED CIT(A) THEREFORE WE THINK IT PROPER TO RESTORE THIS ISSUE ON THE FILE OF THE ASSESSING OFF ICER TO GIVE A FINDING IN RESPECT OF WDV OF INTANGIBLE A SSET ON WHICH THE ASSESSEE WILL BE ENTITLED TO DEPRECIATION. 25.RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT TH E ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON IPRS AT TH E RATE APPLICABLE AND WE ALSO DIRECT THE AO TO GIVE A FIND ING IN RESPECT OF WDV OF THE INTANGIBLE ASSET ON WHICH THE ASSESSE E WILL BE ENTITLED TO DEPRECIATION. IN THE RESULT THESE GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 26. AS REGARDS GROUND NOS.19 AND 20 FOR THE ASSESS MENT YEAR 2005-06 RELATING TO THE ISSUE OF DISALLOWANCE ON LEASE RENTAL AS PART OF DEDUCTION U/S 10A BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD RECEIVED AN AMOUNT OF RS.6 17 068/- REPRESENTING RENT FROM SUB-LEASE PREMISES IN CANADA THAT WAS TAKEN FOR THE PURPOSE OF CONDUCTING THE AFFAIRS OF THE BRANCH ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 26 OF 27 OFFICE. THE ASSESSEE TREATED THE SAME AS PART OF T HE EXPORT TURNOVER. THE AO HOWEVER REDUCED THE SAME FROM T HE PROFITS AND GAINS OF THE UNDERTAKING ENGAGED IN THE BUSINES S OF COMPUTER SOFTWARE BY HOLDING THAT IT HAS NO DIRECT NEXUS WITH THE EXPORT OF COMPUTER SOFTWARE. AGGRIEVED THE AS SESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFO RE US. 27. AT THE TIME OF HEARING LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE ALSO IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 AND 2004-05 UPHOLDING THE O RDER OF THE CIT(A) HOLDING THAT THE BUILDING HAS NEVER BEE N USED FOR THE PURPOSE OF BUSINESS AND THAT IT IS NOT A TRADIN G ASSET OF THE ASSESSEE AND THEREFORE THE RENTAL INCOME ARISING CA NNOT BE ASSESSED AS BUSINESS INCOME AND IS TAXABLE AS INCO ME FROM OTHER SOURCES AND THE RENT PAID FOR THE SAID BUILD ING IS AN ALLOWABLE EXPENDITURE U/S 37 OF THE ACT. RESPECTFU LLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE ASSESS EES OWN CASE THIS GROUND OF APPEAL IS REJECTED. 28. COMING TO GROUND NO.21 RELATING TO DISALLOWANCE OF CERTAIN INCOME FOR THE COMPUTATION OF DEDUCTION U/S 10A OF THE ACT WE FIND THAT THIS ISSUE IS SIMILAR TO GROUND O F APPEAL NO.5 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2002-03 A ND RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT THESE RECEIPTS ARE ALSO ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT AS T HEY ARE ALL ITA NOS.673 674 676 & 677(BANG)/2010 PAGE 27 OF 27 RELATED TO THE ASSESSEES BUSINESS AND ARE PART OF BUSINESS INCOME. IN VIEW OF THE SAME THIS GROUND OF APPEAL IS ALLOWED. 29. GROUND OF APPEAL NOS.16 AND 22 IN THE ASSESSEE S APPEAL FOR ASSESSMENT YEAR 2002-03 AND 2005-06 RESP ECTIVELY ARE ONLY CONSEQUENTIAL AND THEREFORE NEEDS NO SPECI FIC ADJUDICATION. 30. IN THE RESULT THE ASSESSEES APPEAL FOR ASSESS MENT YEAR 2005-06 IS ALSO PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY 2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE PRESIDENT (SMT. P.MADHAVI DEVI) JUDICIAL MEMBER EKS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR ITAT BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE