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DDIT International Taxation, Circle-2 (2), A-75, New Delhi Vs. Virage Logic International India Branch Office Sector-57 Noida
June, 10th 2015
               (DELHI BENCH "H" NEW DELHI)


                       ITA NO. 516 /DEL/2013
                     (Assessment Year: 2001-02)

 DDIT                          Vs.     Virage Logic International India
 International Taxation,               Branch Office
 Circle-2 (2),                         A-75, Sector-57
 New Delhi                             Noida
                                        PAN : AACFV3976E
(Appellant)                               (Respondent)

          Appellant by : Sh. P.Dam Kanunjna, Sr. Dr
    Respondent by : Sh. Pawan Kumar, Adv. Sh. P. Gupta, CA

              Date of hearing : 01/06/2015
              Date of pronouncement : 03 /06/2015

Per N.K.Saini, A. M.       :

     This is an appeal by the department against the order dated

19/11/2012 of CIT(A)- XXV, New Delhi.
                                      2               ITA No. 516/ Del/2013

     2.     Following grounds have been raised in this appeal :-

             "1. Whether on the facts and circumstances of the
             case, the CIT(A) has erred in allowing deduction u/s
             10A to the assessee by not distinguishing between
             actual `Export' and mere `Transfer to Head Office' as
             the assessee has merely transmitted the software to its
             head office which cannot be termed as `Export' in the
             sense as used in Section 10A of the Income Tax Act,
             2.      Whether on the facts and circumstances of the
             case the CIT(A) has erred in interpreting the true
             intention of legislature for bringing provisions of Sec.
             10A(3) to the statute which stipulates bringing in of
             precious foreign exchange into the country whereas in
             case of the assessee being a foreign 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
             3.      The appellant prays for leave to add, amend,
             modify or alter any grounds of appeal at the time or
             before the hearing of the appeal."

3.        The only grievance of the department in this appeal relates to

the deduction u/s 10A of the IT Act 1961 (hereinafter referred to as

the Act).

4.        Facts of the case in brief are that the assessee filed its return

of income on 30.10.2001 declaring nil income. The assessee had

shown income of Rs. 10,877,823/- however, claimed the same as
                                   3               ITA No. 516/ Del/2013

exempt u/s 10A of the IT Act, 1961(hereinafter referred to as the Act).

The AO framed the assessment u/s 143(3) of the Act on 19.3.2004 at

a total taxable income of Rs. 6,64,57.670/- and the exemption

claimed u/s 10A was denied. Against the said order, the assessee

preferred an appeal to the Ld. CIT(A) who confirmed the finding of

AO in respect of denial of exemption claimed u/s 10A of the Act.

Against the said order, the assessee preferred an appeal to the ITAT

wherein vide order dated 16.12.2005, the matter relating to transfer

pricing was restored to the AO, who again framed the assessment

on 19.12.2006 and allowed the cost incurred at Indian Branch which

was Rs. 2,44,47,140/-. The AO did not allow exemption u/s 10A of

the Act by observing that the revenue was earned for the parent

company from royalty and licensing of the software and that the

software developed in India were never sold. He further observed

that only right to use was granted to various customers, therefore, it

cannot be said that the software were sold or exported out of India".

5.    In the meanwhile, assessee referred Miscellaneous Application

no. 135/Del/2008 against the order dated 16.12.2005 passed by the

ITAT in ITA no. 77/Del/2005 and the ITAT vide order dated

11.07.2008 recalled the order dated 16.12.2005 and subsequently
                                     4                ITA No. 516/ Del/2013

disposed off the appeal by allowing full deduction u/s10A of the Act

vide order dated 19.02.2009. When the assessee preferred an appeal

to the Ld. CIT(A) against the order dated 19.12.2006 passed by the

AO. The Ld. CIT(A) directed the A.O. to allow the deduction u/s 10A

by observing in para 3.3. of the impugned order as under :-

        "3.3.     I have considered the order of the AO and the
        submissions of the assessee and I find considerable merit in
        the submission of the assessee that the Hon'ble Tribunal
        has allowed full deduction u/s 10A and as such the case of
        the assessee is covered by the order of the Hon'ble Tribunal
        vide Para No. 6 of ITA No. 77/Del/2005 dated 19/12/2009. It
        is also apparent that the provisions of TP in Chapter-10 has
        been introduced w.e.f. AY 2002-03 and as such the AO is
        not justified to invoke the provisions of TP. After considering
        all the case facts and circumstances of the case, I am of the
        view that there is considerable merit in the submissions of
        the assessee that the case of the assessee is covered by
        the assessee's own case of the Hon'ble Tribunal and
        accordingly, the assessee is allowed deduction u/s 10A as
        allowed by the Hon'ble Tribunal and as such the addition
        made by the AO is deleted."

     Now, the department is in appeal.

6.     The Ld. DR strongly supported the order of the AO but failed to

rebut the findings given by the Ld. CIT(A) in the impugned order. In

his rival submissions, the Ld. Counsel for the assessee submitted

that since the issue has been decided by the ITAT vide order dated
                                   5               ITA No. 516/ Del/2013

19.02.2009 for the assessment year under consideration and the ld.

CIT(A) has followed the said order of the ITAT, therefore, the appeal

of the department deserves to be dismissed.

7.    We have considered the submissions of both the parties and

carefully gone through the material available on the record. In the

present case, it is noticed that the Ld. CIT(A) directed the AO to allow

the claim of the assessee by following the decision dated 19.02.2009

of the ITAT in assessee's own case. Copy of the said order is placed

at page no. 50 ­ 58 of the assessee's paper book and the relevant

findings have been given in para 5.3, 5.4 and 6 of the order dated

19th February, 2009 which read as under :-

         "5.3 On examining the orders of tax authorities below, we
      find that they have refused the deduction u/s 10A to the
      assessee mainly on the reasoning that the assessee has not
      made any export sale to a third party rather all the work has
      been transferred to HO, so, it could not be said that
      assessee exported software within the meaning of Sec. 10A.
      Similarly in A.Y. 2002-03 on almost same reasoning
      deduction u/s 10A was refused to the assessee by the tax
      authorities below and the Tribunal allowing the appeal of the
      assessee vide order (supra) directed the AO to allow the
      assessee's claim of exemption u/s 10A of the Act while
      observing at page 16 of the order as under.
     " The only reason assigned by the Revenue authorities for
      denying exemption u/s 10A of the Act is that there has been
      no export sale by the assessee since the computer software
      was transmitted to head office and since the assessee and
       its head office were one entity, there was no sale to any
      third party. This approach of the revenue authorities were
                                    6               ITA No. 516/ Del/2013

       not correct in view of the provisions of S.10-A(7) of the Act.
      The legal fiction of treating an assessee as a separate entity
      vis-à-vis sale by it or transfer by it from an eligible business
      or to an eligible business has been recognized u/s 10-A(7)
      of the Act."
      5.4. Similarly, in the case of Moser Baer (I) ltd. (supra) their
      Lordships while upholding the order of the Tribunal wherein
      the Tribunal allowed the clause u/s 10A, observed as under.
      "The matter was looked at by the ITAT from two stand
      points. The first being from the stand point of its earlier
      decision in the case of Virage Logic International vs. DDIT
      wherein, under similar circumstances, the Tribunal was of
      the view that the transmission of computer software from the
      Indian entity to its head office situated outside, since it was
      an arms length price amount to export, entitled the assessee
      therein to claim exemption u/s 10A of the said Act. Following
      this decision, the Tribunal agreed with the plea raised by the
      assessee and rejected the revenues contention that the
      assessee was not entitled to exemptions u/s 10A / 10B of
      the Act."
      6.In this view of the matter, since the identical issue
      regarding claim of exemption u/s 10A of IT Act as involved
      in the ground no. 1 of the instant appeal of the assessee,
      now stands covered in favour of the assessee, we are
      required to follow the decisions (supra) as no decision
      contrary to the same has been cited before us by ld. DR for
      the revenue. Respectfully following the decisions (supra) it is
      held that assessee is entitled to claim the deduction u/s 10A
      of I.T.Act. Consequently the order of CIT(A) declining the
      deduction claimed u/s 10A by the assessee is set aside. The
      ground no. 1 of the appeal of the assessee is allowed."

8.   We therefore, considering the totality of the facts as discussed

hereinabove do not see any merit in this appeal of the department.

9.   In the result, appeal of the department is dismissed.
                                      7              ITA No. 516/ Del/2013

          (Order pronounced in open court on 03 June, 2015.)

                   Sd/-                             Sd/-
                (George George K)                (N.K.Saini)
               Judicial Member                Accountant Member

      Dated 03 June, 2015

     Copy forwarded to
3.     CIT
4.     CIT (A)
5.     CIT (ITAT), New Delhi.
                                                AR, ITAT

                                                 N. Delhi
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