TATA CONSULTANCY SERVICES LTD,MUMBAI vs. ASST CIT LTU-1, MUMBAI

PER SANDEEP SINGH KARHAIL, J.M.

The present appeals have been filed by the assessee and Revenue challenging final assessment orders dated 25.10.2010 and 29.01.2016, passed by the Assessing Officer under section 143(3) r/w section 144C(13) Income Tax Act, 1961 ("the Act") for assessment year 2006-07 and 2011- 12, respectively.

ITA no.1650/Mum./2016 Assessee’s Appeal – A.Y. 2011–12

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 4. The assessee is a Public Limited Company and is engaged in the business of export of computer software providing e–solutions, BPO activities and other management consultancy activities. During the relevant assessment year, the assessee company filed its return of income electronically on 23.11.2011, declaring total income of Rs.19,98,64,93,014. The book profit under section 115JB of the Act was declared at Rs.48,49,54,27,020. The assessee was assessed to tax under the normal provisions of the Act.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 The assessee further submitted that the term ―tax‖ as defined under section 2(43) of the Act would only include taxes chargeable under the Act. The Assessing Officer, vide draft assessment order dated 16.02.2015, passed under section 143(3) r/w section 144C(1) of the Act did not agree with the submissions of the assessee and disallowed the deduction claimed on State / local taxes paid overseas under section 40(a)(ii) of the Act. Being aggrieved, the assessee filed detailed objections before the Dispute Resolution Panel (―the DRP‖). The DRP, vide its directions dated 16.11.2015, issued under section 144C(5) of the Act, inter–alia, rejected the objections filed by the assessee following the order passed by the Co– ordinate Bench of the Tribunal in assessee‟s own case for the assessment year 2005–06. In conformity with the directions issued by the DRP, the A.O. has passed the impugned final assessment order. Being aggrieved, the assessee is in appeal before us.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 8. On the other hand, Ms. Vatsalaa Jha, the learned Departmental Representative (―learned D.R.‖) vehemently relied upon the orders passed by the lower authorities.

―6. We have considered the rival submissions and perused the material on record. From the stage of the assessment proceeding itself, it is the claim of the assessee that the term ―tax‖, as defined under section 2(43) of the Act would only include taxes chargeable under the Indian Income Tax Act. It is the further case of the assessee that since in respect of the State taxes paid overseas, the assessee is not eligible to claim relief under section 90 or 91 of the Act, it will not be covered under section 40(a)(ii) of the Act. On a perusal of provisions of sub–section (43) of section 2 of the Act, it becomes clear that the term ―tax‖ has been defined to mean any tax paid under the provisions of the Act. Section 40(a)(ii) of the Act says that any rate or taxes levied on the profits or gain in any business or profession would not be allowable as deduction. Explanation–1 to section 40(a)(ii) of the Act inserted by the Finance Act, 2006, w.e.f. 1st April 2006, further clarifies that any sum eligible for relief of tax either under section 90 or 91 of the Act would not be allowable as deduction under section 40(a)(ii) of the Act. It is the say of the assessee that the tax eligible for relief under section 90 of the Act are only those taxes which are levied by Federal / Central Government and not by any local authority of State, City or County. Thus, it is ineligible for any relief under section 90 of the Act. The aforesaid submissions of leaned Sr. Counsel for the assessee, prima facie, is acceptable if one has to strictly go by the meaning of ―tax‖, defined under section 2(43) of the Act, as it only refers to tax paid under the provisions of the Act. It is also worth mentioning, the State taxes paid by the assessee in DTAA countries are not eligible for relief under section 90 of the Act. Therefore, the issue which arises is, whether it can be allowed as deduction under section 37 of the Act. No doubt, in assessee‘s own case in assessment year 2005–06, the Tribunal in the order referred to above

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 following its own decision in DCIT v/s Tata Sons Ltd., [2011] 43 SOT 27 (Mum.), has held that the State taxes paid overseas cannot be allowed as deduction in view of the provisions of section 40(a)(ii) of the Act. However, the aforesaid legal position has substantially changed after the decision of the Hon'ble Jurisdictional High Court in Reliance Infrastructure Ltd. (supra). While interpreting the provisions of section 2(43) of the Act, vis–a–vis section 40(a)(ii) of the Act, the Hon‘ble Court held that the tax which has been paid abroad would not be covered within the meaning of section 40(a)(ii) of the Act, since, the meaning of the word ―tax‖ as defined under section 2(43) of the Act would mean only the tax chargeable under the Act. Thus, as per the aforesaid decision of the Hon'ble Jurisdictional High Court, taxes levied overseas which are not eligible for relief either under section 90 or 91 of the Act, would not come within the purview of section 40(a)(ii) of the Act. It is the specific plea of the assessee that the State tax is not covered either under Indo–US or Indo–Canada tax treaty, hence, not eligible for any relief under section 90 of the Act. Pertinently, unlike section 91 read with Explanation–(iv), section 90 does not provide for inclusion of tax levied by any State/ local authority of that country within the expression ‗income tax‘. In view of the aforesaid, we direct the Assessing Officer to verify whether the State taxes paid by the assessee overseas are eligible for any relief under section 90 of the Act and if it is not found to be so, assessee‘s claim of deduction should be allowed. In view of our decision above, no separate adjudication of grounds no.1.2 is required.‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 ground no.2 raised in assessee‟s appeal is allowed for statistical purpose. Consequently, no separate adjudication of ground no.2.1, raised in assessee‟s appeal is required.

i) Software for internal use Rs. 77,44,41,142 ii) Rs. 50,21,70,495 Software for trading purpose –––––––––––––––– Rs.127,66,11,637 =========== 14. During the course of assessment proceedings, the assessee was asked to show cause as to why the expenditure incurred on import of software should not be disallowed under section 40(a)(i) of the Act as tax at source was not deducted from the payments made to overseas vendors. In reply thereto, the assessee submitted that payment for purchase of

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 software cannot be considered as payment of royalty under section 9(1)(vi) of the Act. Further, the assessee submitted that the payment for purchase of software is also not covered under the restrictive definition of the word ―Royalty” provided in DTAA entered into by India with foreign countries. Thus, the assessee submitted that there was no withholding tax obligation on the assessee on the payments made to the non–residents as no income was chargeable to tax in India. The Assessing Officer, vide draft assessment order dated 16.02.2015, held that the payment made for import of software is in the nature of royalty within the meaning of section 9(1)(vi) of the Act. The Assessing Officer also referred to Explanation–3 to section 9(1)(vi) of the Act as well as CBDT Circular no.621 dated 09.12.1991, in support of its conclusion. Accordingly, the Assessing Officer disallowed payment of Rs.127,66,11,637 [i.e., Rs.77,44,41,142 (+) Rs.50,21,70,495] under section 40(a)(i) of the Act for non–deduction of tax at source under section 195 of the Act.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 18. At this stage it is pertinent to note that the Co-ordinate Bench‟s order dated 04.11.2015 in ITA No.7513/Mum/2010 for assessment year 2005-06 on this issue was subsequently recalled vide order passed in M.A. No. 93 of 2016 and the matter was reheard and adjudicated afresh. Pursuant to the recall order, the Co-ordinate Bench of Tribunal vide order dated 23.03.2017 passed in ITA No. 7513/Mum/2010 in assessee‟s own case for assessment year 2005-06 dismissed the appeal filed by the Revenue on the similar issue and held that payment for import of software would not fall within the definition of „royalty‟ and no TDS was required to be deducted. Thus, we are of the view that DRP‟s direction based on the Tribunal‟s order dated 04.11.2015, which was subsequently recalled, is not correct in law and cannot be sustained. Therefore, the final assessment order to the extent expenditure on import of software was capitalised and deprecation was allowed, in conformity with aforesaid directions of DRP, is directed to be set aside.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 Assessing Officer has not at all deliberated on the factual aspect of the issue and has not considered the agreements entered into by the assessee with vendors for import of software and merely by relying upon certain judicial precedents and statutory provisions have come to the conclusion that the payment made by the assessee for import of software is in the nature of „royalty‟ under section 9(1)(vi) of the Act and thus assessee was liable to deduct tax at source under section 195 of the Act. Though it has been submitted by the assessee that the payment for purchase of software is for acquiring of copyrighted article and not for transfer of any right in the copyright and payment cannot be construed as „royalty‟ under section 9(1)(vi) of the Act. However, no factual verification vis-a-vis relevant clauses of agreements entered into by the assessee for import of software was done by the Assessing Officer or the DRP. There is no iota of doubt that payment for transfer of „copyrighted article‟ as against the payment for transfer of „copyright‟ does not qualify as „royalty‟ and thus the same is not taxable in India in the absence of PE of the seller. However, each case is decided on its own facts. It is also pertinent to note that the conclusion in favour of the taxpayer by the Hon‟ble Supreme Court in Engineering Analysis Centre for Excellence Pvt. Ltd. (supra) was also reached after considering relevant clauses of End User License Agreement. However, in the present case as is evident from the orders passed by the Assessing Officer and DRP, such factual aspects were not considered and claim of the assessee was denied merely by referring to judicial precedents and CBDT circular.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 other overheads for earning exempt income and offered the same for disallowance under section 14A of the Act. The assessee further submitted that there was no direct expenditure which was incurred by the assessee to earn the exempted dividend income and accordingly the assessee has allocated indirect expenditure incurred for earning the exempt income. As per the assessee, the Treasury Department of the assessee carries on the activities of forex management, investment management, cash management, retrial fund management. As investment being one of the activities of the Treasury Department among all the four activities, salary cost of persons who were overseeing investment functions and 25% of the other expenditure of Treasury Department can be reasonably attributed for earning the exempt dividend income. Accordingly, the assessee offered a total expenditure of Rs.71,98,280, for disallowance under section 14A of the Act. As regards the interest expenditure incurred by the assessee during the relevant assessment year, the assessee submitted that the same had no nexus direct or indirect with earning of exempt income. The Assessing Officer vide draft assessment order dated 16.02.2015, held that the expenditure suo–motu offered for disallowance under section 14A of the Act by the assessee for earning the exempt income are very meager. Accordingly, the Assessing Officer made a further disallowance of Rs. 14,51,69,647, in addition to the disallowance offered by the assessee under section 14A of the Act, by treating 0.5% of average value of investment income towards expenditure for earning the exempt income and also interest not directly attributable to any particular income. The DRP

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 vide directions dated 16.11.2015, upheld the disallowance made in the draft assessment order on this issue. Being aggrieved, the assessee is in appeal before us.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 under section 14A and the exempt income earned by the assessee. We find that in similar facts and circumstances, the Co–ordinate Bench of the Tribunal in assessee‟s own case vide order dated 18.08.2020, passed in DCIT v/s Tata Consultancy Services Ltd., ITA no.1207/Mum./2018, for the assessment year 2010–11, dismissed the appeal filed by the Revenue against the order passed by the learned CIT(A) deleting the disallowance made by the Assessing Officer under section 14A of the Act by observing as under:–

―30. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. The AO after invoking the provisions of Rule 8D made disallowance of Rs.14,12,77,945/-, which consist disallowance under Rule 8D(2)(i) of Rs. 53,18,829/- (suo moto offered by assessee), under Rule 8D(2)(ii) of Rs. 14,391/- and Rule 8D(2)(iii) of Rs.13,59,44,725/-. We have noted that the assessee furnished the working of suo moto disallowance of Rs.53,18,829/-, which consist of Rs. 35,92,649/- (salary of the employee who is looking after investment functions) and Rs. 17,26,180/- (overhead expenses other than his salary). The AO has not examined the correctness of the claim of the assessee. No reason as to why the AO is not satisfied with the working of the assessee except recording that the expenses are very meager. The ld CIT(A) after considering the submissions and the material placed before him directed to delete the disallowance including the disallowance of Rule 8D(iii). The ld DR for the revenue failed to bring any material in our notice to take the other view, no contrary decision is also brought to our notice. Thus, we affirm the order of ld CIT(A). In the result this ground of appeal is dismissed.‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 assessee under section 14A of the Act. Accordingly, ground no.4, raised in assessee‟s appeal is allowed.

Amount Particulars Rs.7,72,95,691 Advertisement in Newspaper / Magazine Rs.40,77,42,998 Event/Seminar/Conferences/Exhibitions Rs.2,25,76,886 Experience Certainty Rs.1,59,83,676 Advertisement at Airport Rs.1,25,39,488 Market Related Research and other expenses Rs.53,61,38,738 Total:– 30. These expenditures were incurred by the assessee for advertisement in newspaper, marketing of its products, etc., in respect of its on–going business. During the course of assessment proceedings, the assessee was asked to show cause as to why the said expenditure should not be treated

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 as capital in nature. In reply, the assessee submitted that the expenditure was routinely incurred by the assessee for advertisement in newspaper, marketing of its products, etc. in respect of its on–going business. Thus, the same was submitted not to be in the nature of brand building expenditure and thus not capital in nature. The Assessing Officer vide draft assessment order dated 16.02.2015, treated the amount of Rs. 49,74,90,893, as brand building expenditure having enduring benefit to the assessee and accordingly, treated the same as capital in nature. The Assessing Officer also granted depreciation @ 25% amounting to Rs.12,43,72,723.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 33. On the other hand, the learned Departmental Representative vehemently relied upon the orders passed by the authorities below.

―23. We have considered rival submissions and perused the material on record. We have also carefully examined the case laws cited before us. On a detailed analysis of facts on record, we have noted that the reasoning of the Assessing Officer that the expenditure was incurred for brand building is without any basis. It is to be noted, before the Departmental Authorities the assessee had demonstrated that in no way it is connected with development of Tata brand. The details of expenditure incurred clearly demonstrate that they were basically for the purpose of advertising assessee‘s products in print media or through seminar, conferences, etc. As rightly observed by learned Commissioner (Appeals), the Assessing Officer has brought no material on record to establish that the expenditure is for brand building. As observed earlier, the expenditure relates to advertisement in newspaper, magazine, events, seminars, conferences, exhibitions, etc. Thus, the nature of expenditure incurred by the assessee clearly indicates that it was for promoting its own business. Further, considering the turnover of the assessee, the expenditure incurred on advertisement does not appear to be unusually high. That being the case, the expenditure incurred on advertisement cannot be treated to be in the nature of capital expenditure and amortized over a period of five years. To that extent, we agree with the decision of learned Commissioner (Appeals) on the issue. However, as regards experience certainty expenditure amounting to Rs.5.28 crore, it appears that learned Commissioner (Appeals) has held it to be of capital nature on the basis that the assessee itself admitted so. However, before us, leaned Sr. Counsel for the assessee has vehemently argued that no such admission was made by the assessee before learned Commissioner (Appeals) and under a misconception, learned 18

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 Commissioner (Appeals) has come to such conclusion. The leaned Sr. Counsel submitted, the experience certainty campaign was also for the purpose of advertisement only and in this context, he has furnished before us the details of such expenditure through additional evidences. Since, the additional evidences furnished by the assessee will have a crucial bearing in determining the nature of expenditure, we are inclined to admit the additional evidences. However, considering the fact that these evidences were not furnished before the Departmental Authorities, to afford a fair opportunity to the Department to verify the authenticity of assessee‘s claim vis–a–vis the additional evidences furnished before us, we restore the issue to the Assessing Officer for de novo adjudication after providing reasonable opportunity of being heard to the assessee. We make it clear, our aforesaid direction is only with regard to the experience certainty expenditure of Rs. 5.28 crore. The decision of learned Commissioner (Appeals) on this issue is modified to this extent only.‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 the business name, for organizing corporate identity and brand promotion activities and campaigns etc. and thus the payment was towards the brand building which will give enduring benefit to the assessee. The Assessing Officer, accordingly, treated the payment to be capital in nature and allowed depreciation @ 25% to the assessee. The DRP upheld the disallowance made in the draft assessment order on this issue. Being aggrieved, the assessee is in appeal before us.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 a pool of sharable resources of the Tata Group to the assessee and provide assistance in accessing the network of domestic and international business contacts and also permit the assessee to use the business name. All the activities were predominantly the activities carried out or to be carried out by Tata Sons Limited to enhance the value of TATA Brand, which is owned by Tata Sons Limited and for same expenses were incurred by Tata Sons Limited and accounted in its books of account. 40. In the case of sister concern of assessee, the Co-ordinate Bench of Tribunal in ACIT v/s M/s Rallis India Ltd.: ITA No. 5701/Mum/2008 vide order dated 30.08.2011 dismissed the appeal filed by the Revenue against the allowance of similar contribution to Tata Sons Limited under the Brand Equity and Business Promotion Scheme. In another sister concern‟s case, the Co-ordinate Bench of Tribunal in M/s Tata Autocomp Systems Ltd. v/s ACIT: ITA No. 7596/Mum/2012 vide order dated 12.06.2013, following the earlier decision in Rallis India Ltd. (supra), deleted the disallowance on account of similar subscription paid to Tata Sons Ltd. towards brand equity and promotion scheme. The Co-ordinate Bench also noted that department has accepted the decision in Rallis India Ltd. (supra) and no appeal has been filed by the department against the same. Further, in the present case, nothing has been brought on record to suggest that the subscription fee paid by the assessee to Tata Sons Limited under the „Tata Brand Equity and Business Promotion Agreement‟ is different in nature from the one considered in aforesaid decisions. Thus, respectfully following the judicial precedence in case of sister concerns, we direct the Assessing Officer to

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 delete the disallowance on account of subscription fees paid by the assessee to Tata Sons Limited. Accordingly, ground no. 6 raised in assessee‟s appeal is allowed.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 43. During the course of hearing, learned Senior Counsel submitted that the payment of commission to non-resident agents are not chargeable to tax in India under section 5 read with section 9 of the Act as the non- resident agents operated outside India and the commission was remitted directly outside India. Thus assessee was not liable to deduct TDS under section 195 of the Act. On the other hand, learned D.R. vehemently placed reliance on the orders passed by lower authorities.

“5. We have considered rival submissions and perused the material on record. The facts on record clearly reveal that commission has been paid to non–resident agents located in their respective countries towards services rendered by them in those countries in relation to obtaining export contracts for the assessee. No material has been brought on record by the Assessing Officer to demonstrate that the non–resident agents either have any business connection in India or have PE in India so as to bring the commission payment within the tax net. The factual finding recorded by learned Commissioner (Appeals) that the non–resident agents have rendered the services in their respective countries and do not have either any business connection in India or any PE in India has not been controverted by the Revenue. Further, the nature of payment viz. commission has also not been disputed by the Revenue. That being the case, since the commission paid to the non–resident agents is not chargeable to tax in India at their hands, there is no necessity for the assessee to withhold tax under section 195(1) of the Act on such payment. Accordingly, we uphold the decision of learned Commissioner (Appeals) on this issue.‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 45. As there is no change in facts and circumstances in relevant assessment year and learned D.R. could not show us any reason to deviate from the aforesaid order, respectfully following the decision of the Co– ordinate Bench rendered in assessee‟s own case cited supra, we direct the Assessing Officer to delete the disallowance made under section 40(a)(i) of the Act in respect of commission paid by assessee to non–resident agents. Accordingly, ground no.7 raised in assessee‟s appeal is allowed.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 the Act for the first time during the assessment year 2007–08. The relevant assessment year is the fifth year of deduction claimed on SEZ units under section 10AA of the Act. During the relevant assessment year, the assessee had claimed deduction under section 10AA of the Act in respect of SEZ units which had commenced its operation during the earlier assessment year i.e., A.Y. 2008–09, 2009–10 and 2010–11. In addition, the assessee had commenced operation in respect of below mentioned new SEZ units in respect of which deduction under section 10AA of the Act was claimed by the assessee.

Sr. Name of Unit Approval Number no. 1. Chennai–EB3–Siruseri–Unit–II–SEZ STPIC/SEZ/D001/U084/10–11/267 2. Chennai – Chennai One – Unit–II – SEZ STPIC/SEZ/D003/U072/09–10/803 Powai – Kensington–B Wing–Phase III – 3. SEZ/IT/UTES/ER/U–12/ 2008–351 Hirnandani – SEZ Kolkata–Infospace – Unitech Hi–tech SEZ/HIRA–MM/(15)/LOA–15/2009–10 4. Structures – SEZ /25/5524 Vaverock–AP II C, Nanakramguda – SEZ(IT/ITES/TCS/AOUUC–TSI/(HYD)/ 5. Hyderabad – SEZ 0019/2009–10/19210

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 assessment year. The assessee also submitted that the number of new recruits at the enterprise level (i.e., 35,185 employees) during the year was far more than the number of employees comprising both new and old employees engaged during the year in the new SEZ units (i.e., 10,778 employees). The assessee accordingly submitted that the employees engaged in the new SEZ units were not at the cost of reducing the strength of the employees working in the existing units of the company and, therefore, there was no splitting up or re–construction of the existing business. The assessee submitted that unlike in the case of plant and machinery where not more than 20% of the plant and machinery which were already existing can be re–allocated there is no such restriction on re–location of employees under section 10AA(4) of the Act. The assessee also by referring to Circular no.14/2014, issued by the CBDT on 08.10.2014, submitted that the assessee had fulfilled the alternative condition provided in the aforesaid circular of addition of new technical manpower in all the units of the assessee exceeding 50% of the total technical manpower of the new SEZ unit during the previous year. The Assessing Officer vide draft assessment order dated 16.02.2015, came to the conclusion that during the relevant assessment year, more than 3/4th of the employees of the existing business of the assessee were relocated to the SEZ units which is nothing but re–construction of the business and thus, the assessee is not entitled to deduction under section 10AA of the Act. The Assessing Officer further held that over the years there have been substantial increase in employees and corresponding increase in revenue of

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 SEZ units as compared to other units of the assessee. Accordingly, the Assessing Officer denied the deduction under section 10AA of the Act in respect of SEZ unit which have already commenced operation prior to relevant assessment year.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 commenced its operations in earlier assessment year i.e., A.Y. 2007–08. Thus, it has not been denied that in respect of all the units the relevant assessment year is not the first year of operation. Section 10AA of the Act allows deduction to the SEZ unit which begins to manufacture or produce articles or things or provide any service during the previous year relevant to any assessment year commencing on/or after 1st Day of April 2006, but before the 1st Day of April 2021. Sub–section (4) of section 10AA of the Act lays down certain conditions upon fulfillment of which the SEZ units shall be entitled to claim deduction under section 10AA of the Act. Section 10AA(4) of the Act reads as under:–

―(4) This section applies to any undertaking, being the Unit, which fulfils all the following conditions, namely:— (i) it has begun or begins to manufacture or produce articles or things or provide services during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any undertaking, being the Unit, which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business, of machinery or plant previously used for any purpose. Explanation.—The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section.‖

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―No doubt, certain qualifications are required only in the initial assessment year, e.g. requirements of initial constitution of the undertaking. Clause 2 limits eligibility only to those undertakings as are not formed by splitting up of existing business, transfer to a new business of machinery or plant previously used. Certain other qualifications have to continue to exist for claiming the incentive such as employment of particular number of workers as per sub-clause 4(i) of Clause 2 in an assessment year. For industrial undertakings other than small scale industrial undertakings, not manufacturing or producing an article or things specified in 8th Schedule is a requirement of continuing nature.‖ [emphasis supplied]

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 claimed on SEZ unit under section 10AA of the Act. Thus, to this extent, we endorse the conclusion of the DRP and accordingly the Assessing Officer is directed to allow the deduction under section 10AA of the Act in respect of SEZ units commenced during the assessment years 2008–09, 2009–10 and 2010–11 as the same has already been allowed in the preceding assessment years. Thus, grounds no.9 and 10, raised in assessee‟s appeal are allowed.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 under section 10A/10AA of the India. In support of the additional ground of objection, the assessee placed reliance on the decision of Hon‟ble Karnataka High Court in Wipro Limited v/s DCIT, [2016] 382 ITR 179. The DRP vide directions dated 16.11.2015 refused to render any directions on the additional ground of objection on the basis that the issue doesn‟t relate to the variation of the income and further is not emanating from the draft assessment order. Being aggrieved the assessee is in appeal before us.

―56. Therefore, it follows that the income under Section 10A is chargeable to tax under Section 4 and is includible in the total income under Section 5, but no tax is charged because of the exemption given under Section 10A only for a period of 10 years. Merely because the exemption has been granted in respect of the taxability of the said source of income, it cannot be postulated that the assessee is not liable to tax. The said exemption granted under the statute has the effect of suspending the collection of income tax for a period of 10 years. It does not make the said income not leviable to income tax. The said exemption granted under the statute stands revoked after a period of 10 years. Therefore, the case falls under Section 90(1)(a)(ii).‖

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Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016

(a) Deduction on account of education cess paid by the assessee; (b) Allowability of deduction under section 10AA on ―commercial profit‖ instead of income from business and professional.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 CIT, [1998] 229 ITR 383 (SC). Accordingly, the additional grounds of appeal raised by the assessee are hereby admitted for adjudication on merit.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016

―Accordingly in the background of aforesaid discussion and the precedent from the Hon'ble Supreme Court we direct the Assessing Officer to grant the deduction under section 10AA with reference to the profit and gains as

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 determined by the honourable Supreme Court in the case of Vijay Industries (supra).‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 letters dated 25.05.2018 and 17.12.2018 on the remaining transfer pricing additions. We have considered aforesaid revised grounds of appeal filed by the assessee.

 Lease of Officer Premises  Purchase of Fixed asset  Provision of Software, Technical and Consultancy Services  Availing of services  Interest received on account of loan outstanding  Reimbursement of Expenses 80. As per the transfer pricing study conducted by the assessee in respect international transaction of provision of software, technical & consultancy services, its subsidiaries outside India act as marketing and

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 sales companies of the assessee. The subsidiaries serve as a hub for realization of the international projects. Client service are carried out by the assessee and its subsidiaries. The assessee has rendered software development, technical and consultancy services to it‟s A.Es. on the basis of specific requests received from them. The charges for the services rendered were determined on the basis of mutual negotiation between the parties. Based on the functional analysis presented in the TP report, the assessee has selected itself as a tested party, Transactional Net Margin Method (―TNMM‖) as the most appropriate method with OP/OC as profit level indicator (―PLI‖) for benchmarking receipts from A.Es. for provision of software, technical and consultancy services rendered. 81. The Assessing Officer made reference to Transfer Pricing Officer (―the TPO‖) for the determination of ALP of the international transactions entered into by the assessee. The TPO vide order dated 23.01.2015 passed under section 92CA(3) of the Act noted that the facts of the relevant assessment year are almost identical with those of preceding assessment year i.e. 2010-11. Thus, following the approach adopted in assessment year 2010- 11, TPO issued show cause notice to the assessee, inter-alia, asking as to why the operating margins of foreign comparables as selected by the TPO for benchmarking in the order for last assessment year should not be applied with net cost plus as the PLI. The TPO following approach adopted in earlier assessment years treated A.Es. as tested parties. The TPO further held that the cost incurred by the A.Es. on payment of transfer price to the assessee should not be taken into consideration because such cost, being

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 in the nature of pass through cost, does not represent the functions performed by A.Es. and only the costs incurred by the A.Es. for the functions performed by them should be considered. TPO selected the comparables following the approach as in assessment year 2010-11 and made an adjustment of Rs. 1328.50 crore to the international transaction of provision of software, technical & consultancy services. The Assessing Officer passed the draft assessment order dated 16.02.2015, inter-alia, on the basis of adjustment proposed by the TPO. The DRP vide directions dated 16.11.2015, inter-alia, rejected the objections filed by the assessee treating the approach of the TPO to be consistent. Being aggrieved, the assessee is in appeal before us.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 83. We have considered the rival submissions and perused the material available on record. It has not been disputed by the Revenue that the facts of the relevant assessment year are similar to preceding assessment years. Further, the TPO has also followed the approach adopted in assessment year 2010-11 while selecting the tested party, PLI and comparables for benchmarking the international transaction. We find that the Co-ordinate Bench of the Tribunal in assessee‟s own case in DCIT v. Tata Consultancy Services Ltd., ITA No. 1207/Mum/2018 for assessment year 2010-11 vide order dated 18.08.2020 dismissed the appeal filed by the Revenue and upheld the order passed by the CIT(A) observing as under:

―44. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. We have also deliberated on the decision of Tribunal in AY 2009-10. During the TP assessment proceeding the TPO rejected the basis of the PLI shown by the assessee by taking view that the cost incurred by the AEs on the payment of price to assessee are in the nature of past through cost. The TPO held that the PLI to compute the margin would be operating profit/ value added expenditure (OP/VAE). The ld CIT(A) granted relief to the assessee by following the order of his predecessor/ ld CIT(A) for AY 2009-10. We have noted that the order of ld CIT(A) for AY 2009-10 has been affirmed by the Tribunal by passing the following order; ―20. We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. From the grounds raised by the Revenue, the following three issues arise for consideration – (i) what should be the appropriate PLI; (ii) whether cost of outsourcing / sub– contracting to the TCS should be considered for computing the margin; and (iii) whether the alternative benchmarking furnished by the assessee by treating the AEs as tested party with comparables in the same geographical locations is acceptable. On a careful perusal of the facts on record as well as submissions of the learned Counsel for the parties in the course of hearing as well as in the written note, we are of the view that the decision of learned Commissioner (Appeals) on the aforesaid issues are unassailable. As regards the issue of appropriate PLI, we are of the view that considering the nature of activity performed by the assessee as well as the AEs, it cannot be said that the A.Es are not bearing any risk. Rather the facts on record reveal that the AEs performed the role of risk bearing distributors. It is well brought out by learned Commissioner (Appeals) in his order that the AEs are bearing credit risk and

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 risk of default by client. In fact, the assessee through proper evidences has demonstrated instances where the credit risk with reference to part cancellation of contract has been borne by the AEs without compensation from the assessee. The documentary evidences in this regard furnished by the assessee were thoroughly examined not only by learned Commissioner (Appeals) but they were also produced before us. Thus, from the aforesaid facts, it becomes clear that significant marketing functions are being performed and distribution and marketing risk are being taken by the AEs. On examination of the financials of the subsidiaries it is revealed that some subsidiaries are still making loss at net level which signifies that some risk is being borne by the AEs. It has further been brought on record that the manpower base of AEs performed various functions relating to marketing as well as client co– ordination. The AEs have developed sufficient competency to handle the marketing work independently. The entire contract related work is performed by the AEs, though, in cooperation with the assessee. Thus, it is quite natural that for being a sufficiently motivated work force, the AEs are compensated at return on sales and not merely on value added costs. Therefore, learned Commissioner (Appeals) was justified in directing the Transfer Pricing Officer to adopt the PLI of gross margin on sales. As regards consideration by the Transfer Pricing Officer, the outsourcing / sub– contracting cost to assessee as a pass through cost, learned Commissioner (Appeals) was absolutely correct in observing that the decision of the Transfer Pricing Officer to exclude such costs while computing the margin of the AEs is incorrect. When similar cost incurred by the comparables were not excluded while computing their margin, a different treatment cannot be given to such costs in case of the AEs. Certainly, the aforesaid approach of the Transfer Pricing Officer has resulted in distorting the correct PLI of the AEs. In the aforesaid context, the observations of learned Commissioner (Appeals) are appreciable, wherein, he has observed that the PLI of the AEs and PLI of comparables have not been computed on similar lines by the Transfer Pricing Officer, hence, comparability condition fails. It is further relevant to observe, the alternative benchmarking furnished by the assessee before the Transfer Pricing Officer by considering the AEs in different geographic locations as tested parties with the comparables selected on the basis of the respective geographic locations furnished before the Transfer Pricing Officer were not properly considered. However, in course of appeal proceedings, the learned Commissioner (Appeals) examined them in detail and after a detailed analysis approved some comparables selected by the assessee and also added some new comparables. Whereas, the comparable selected by the Transfer Pricing Officer were not on the basis of any detailed search process. At least, no such analysis is either forthcoming from the order of the Transfer Pricing Officer or could be brought to our notice by learned Departmental Representative. On the contrary, on a thorough and careful reading of the impugned order of learned Commissioner (Appeals), we are of the view that learned Commissioner (Appeals) has taken pains to examine in detail the alternative benchmarking done by the assessee with foreign comparables and after detailed analysis has shortlisted the final comparables to be considered for comparability analysis. No convincing argument or evidence has been brought on record by the learned Departmental Representative to persuade us to disturb the finding of learned Commissioner (Appeals) on these issues. In view of the aforesaid, we do not find any merit in the grounds raised by the Revenue on the issues. Accordingly, grounds are dismissed.‖ 45. Considering the decision of Tribunal in appeal for AY 2009-10 on identical grounds of appeal, wherein all the contentions as raised by the ld DR for the revenue before us, has been considered by the Tribunal, while affirming the order of ld CIT(A). No variation in facts nor any contrary law is

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 brought to our notice, hence, we uphold the order of ld CIT(A) on this ground of appeal. In the result this ground of appeals raised by revenue are dismissed.‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 various tenors on behalf of different A.Es. Accordingly, after considering the details sought during the course of TP proceedings, TPO vide order dated 23.01.2015 held that the guarantee given by the assessee on behalf of its A.Es. as an international transaction. The TPO applying a rate of 3% on the basis of information gathered from SBI and adding a further mark up made a total adjustment of Rs.37,31,65,344/- to the international transaction of provision of guarantee. The Assessing Officer passed the draft assessment order dated 16.02.2015, inter-alia, on the basis of adjustment proposed by the TPO. The DRP vide directions dated 16.11.2015, inter-alia, rejected the objections filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 Assessing Officer to charge guarantee commission @ 0.5% per annum by observing as under:

―43. We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. Insofar as the contention of learned Sr. Counsel for the assessee that provision of guarantee is not an international transaction as per section 92B of the Act, we are unable to accept such contention. In our considered opinion, after introduction of Explanation–(i)(c) to section 92B of the Act, with retrospective effect from 1st April 2002, provision of guarantee to AEs has to be considered as an international transaction. Different Benches of the Tribunal have also expressed similar view on the issue. Therefore, we hold that the provision of guarantee to the AEs is an international transaction. In fact, the aforesaid view has been expressed by the Co–ordinate Bench in WNS Global Services Pvt. Ltd. (supra). Therefore, following the aforesaid decision of the Co–ordinate Bench and the decision of the Hon'ble Jurisdictional High Court in Everest Canto Cylinders Ltd. (supra), we direct the Assessing Officer to charge guarantee commission @ 0.5% per annum both on performance / lease guarantee as well as financial guarantee.‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 assessee‟s appeal is general in nature and need no separate adjudication in view of our aforesaid findings in assessee‟s appeal.

ITA no.1054/Mum./2016 Revenue’s Appeal – A.Y. 2011–12

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 expense cannot be reduced from the total turnover while computing the deduction under section 10A of the Act.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016

 TCS Iberoamerica S.A.  TCS FNS Pty. Ltd.  TCS Morocco SARL AU

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 The Assessing Officer passed the draft assessment order dated 16.02.2015, inter-alia, on the basis of adjustment proposed by the TPO. The DRP vide directions dated 16.11.2015 issued under section 144C(5) of the Act rejected the objections filed by the assessee and upheld the findings of TPO to the extent of benchmarking the transaction by applying the interest rate. However, the DRP, following the decision of the Co-ordinate Bench of the Tribunal in VVF Ltd. v/s DCIT (2012) 31 CCH 0474 MumTrib, observed as under:

―In the present case, the assessee has charged interest on loans in the range of 4% to 5% by calculating applying the principle of LIBOR plus 300 to 400 basis points. In view of these circumstances, the TPO is directed not to make any further adjustment on this issue. Thus, this ground of objection of the assessee company is accepted and the AO/TPO is directed to modify the draft assessment order accordingly.‖

―17.8 However, the issue regarding quantum of spread over LIBOR rate is to be decided on the basis of peculiar facts of each case, after

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 evaluating the terms of the loan i.e. period of loan, quantum of loan currency, creditworthiness of the borrower before borrowing, collateral( secured/unsecured loans). The rate of interest is clearly depended upon all these factors and it can be seen from the public data (like Bloomberg data) available that banks / financial institutions / corporate lend loans at interest rates, which increases with increase in tenure and amount and it also increases with decrease in creditworthiness of borrowing entity. The interest rate increases at very fast rate with creditworthiness of the borrower, as it goes down from "AAA" rating to "C" rating. The interest rate also increases in the case of unsecured loans or where no guarantees for loans have been made available, beside that every bank/financial institution charges markup/service charge over labor rate ranging from 100 basis points to 200 basis points.‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 105. In the result, appeal by the Revenue is partially allowed for statistical purpose.

ITA no.17/Mum./2011 Assessee’s Appeal – A.Y. 2006–07 106. In this appeal, the assessee has raised grounds pertaining to the additions made by the Assessing Officer in corporate tax as well as transfer pricing. We will first deal with the issues relating to corporate tax additions.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 delayed overseas return filing and delayed payment of overseas advance tax. As the aforesaid payment was not disallowed by the assessee while computing its total income, the assessee was asked to justify such claim. In reply, the assessee submitted that the payment was neither on account of any offence committed or for any purpose which is prohibited by law and such payment was on account of compensatory penalty / interest due to delay in complying tax laws and, hence, was claimed as business expenses. The Assessing Officer, vide draft assessment order dated 29.12.2009, passed under section 143(3) r/w section 144C(1) of the Act disallowed the claim of the assessee.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016

iii) Software for internal use Rs. 13,44,29,183 iv) Rs. 8,11,24,788 Software for trading purpose ––––––––––––––– Rs.21,55,53,971 ========== 117. During the course of assessment proceedings, the assessee was asked to show cause as to why the expenditure incurred on import of software should not be disallowed under section 40(a)(i) of the Act as tax at source was not deducted from the payments made to overseas vendors.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 In reply thereto, the assessee submitted that payment for purchase of software cannot be considered as payment of royalty under section 9(1)(vi) of the Act. Thus, the assessee submitted that there was no withholding tax obligation on the assessee on the payments made to the non–residents as no income was chargeable to tax in India. The Assessing Officer, vide draft assessment order dated 29.12.2009, held that the payment made for import of software is in the nature of royalty within the meaning of section 9(1)(vi) of the Act. The Assessing Officer also referred to Explanation–3 to section 9(1)(vi) of the Act as well as CBDT Circular no.621 dated 09.12.1991, in support of its conclusion. Accordingly, the Assessing Officer disallowed payment of Rs. 21,55,53,971 [i.e., Rs. 13,44,29,183 (+) Rs. 8,11,24,788] under section 40(a)(i) of the Act for non–deduction of tax at source under section 195 of the Act.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 with the meaning of section 9(1)(vi) of the Act. In support of its conclusion the Assessing Officer also placed reliance on Explanation–3 to section 9(1)(vi) of the Act as well as CBDT Circular no.621 dated 09.12.1991. In further proceedings, the DRP rejected the objections filed by the assessee and upheld the draft assessment order. As in assessment year 2011-12, in the relevant assessment year also the Assessing Officer has not at all deliberated on the factual aspect of the issue and has not considered the agreements entered into by the assessee with vendors for import of software and merely by relying upon certain judicial precedents and statutory provisions have come to the conclusion that the payment made by the assessee for import of software is in the nature of „royalty‟ under section 9(1)(vi) of the Act and thus assessee was liable to deduct tax at source under section 195 of the Act. Though it has been submitted by the assessee that the payment for purchase of software is for acquiring of copyrighted article and not for transfer of any right in the copyright and payment cannot be construed as „royalty‟ under section 9(1)(vi) of the Act. However, no factual verification vis-a-vis relevant clauses of agreements entered into by the assessee for import of software was done by the Assessing Officer or the DRP and claim of the assessee was denied merely by referring to judicial precedents and CBDT circular. 121. Thus, in view of the above, in present appeal also we deem it appropriate to restore this issue to the file of Assessing Officer for de novo adjudication after examination of the agreements entered into by the assessee for import of software in light of the law laid down by the Hon‟ble

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 Supreme Court in Engineering Analysis Centre for Excellence Pvt. Ltd. (supra). Further, if it is found by the Assessing Officer that the assessee‟s case falls within the parameters laid down by the Hon‟ble Supreme Court in the aforesaid judgment then payment for import of software be allowed. Needless to mention that before passing the order on this issue adequate opportunity of hearing shall be granted to the assessee. In view of the above, ground no.3 raised in assessee‟s appeal is allowed for statistical purpose.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 which refer to „expenditure‟ incurred in relation to income, which does not form part of total income. The Assessing Officer vide draft assessment order dated 29.12.2009 did not agree with the submissions of the assessee and held that the set off of losses of section 10A units cannot be allowed under section 70 of the Act. The Assessing Officer further held that the provision of section 10A of the Act does not come under Chapter IV under which total income is computed. Accordingly, disallowed the claim of loss of Rs. 44,99,46,311 as claimed by the assessee in respect of STP units and added the same to the income of the assessee. The DRP vide directions dated 29.09.2010 rejected the objections filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 ―38. With regard to this issue, it is seen that in "Hindustan Unilever Ltd." (supra), the jurisdictional High Court, while dealing with the provisions of section 10B of the Act, the provisions whereof are like those of section 10A, were amended by the Finance Act, 2000, held, that the provisions, post amendment, are for deduction and that u/s 10B, loss in an eligible unit could be set off against the profits of business. The provisions of section 10A and those of section 10B are, mutatis mutandis, undisputedly pari-materia inter- se. Therefore, "Hindustan Unilever Ltd." is squarely applicable to the facts of the present case also. No decision contrary to this jurisdictional High Court judgment has been placed before us. Further, in "Galaxy Surfactants Ltd." (supra), again rendered by the jurisdictional High Court and in the context of section 10B of the Act, it has been held that loss in an eligible unit can be set off against the profits of business. "Hindustan Unilever Ltd." was referred to. 39. Besides, "Yokogawa India Ltd." (supra), according to the assessee, is the assessee's own case, the decision wherein has been rendered by the Hon'ble Karnataka High Court. Therein, the scope of section 10A of the Act has been considered. "Hindustan Unilever Ltd." (supra) has been referred to. It has been held that the principle in "Hindustan Unilever Ltd." (supra), qua section 10B of the Act, equally applies to a case falling u/s 10A of the Act. 40. Since none of the above decisions, besides the other ones referred to by the assessee, has been countered by any decision in favour of the department, the grievance of the assessee is accepted. 41. The assessee has further contended that the term "loss" is different from the "expenditure" referred to section 14A of the Act and that, therefore, section 14A is not applicable to the present case. The following case laws have been relied on : "i. "Hindustan Unilever Ltd.", 325 ITR 102 (Bom. HC) ii. "Galaxy Surfactants Ltd.", 343 ITR 108 (Bom. HC) iii. Assessee's Own case being "Yokogawa India Ltd. and other connected appeals", 341 ITR 385 (Kar. HC) iv) "Black and Veatch Consulting Pvt. Ltd.", 348 ITR 72 (Bom.HC) v) "Scientific Atlanta India Technology Pvt. Ltd.", 2 ITR (T) 66 (Chennai Tribunal - SB). vi) "Navin Bharat Industries", 90 ITD 1 (Mumbai ITAT) vii) "Capgenimi India (P) Limited", 141 TTJ 33 (Mumbai ITAT) 42. In this regard, a co-ordinate Bench of the Tribunal in "Navin Bharat Industries" (supra), has held that where expenditure is incurred in relation to income not includible in the total income, loss cannot be construed to be expenditure and section 14A of the Act is applicable qua expenditure and not qua loss. 43. Then, in "Capgenimi India (P) Limited", (supra), again, a co- ordinate Bench of this Tribunal, through one of us, i.e. the ld. AM, has held that in case of loss of units, eligible for deduction u/s 10A, section

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 10A is a deduction provision and not an exemption provision after its amendment with effect from the assessment year 2001-02 and that, therefore, the loss from the section 10A unit has to be adjusted against the taxable profits of other units after deduction u/s 10A has been allowed in respect of each eligible unit. The other case laws relied on by the assessee also hold that set off of loss of the eligible unit is allowable against the other taxable income. 44. For the above discussion, this grievance of the assessee is accepted.‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 Sl. Name of the undertaking No. 1. SEEPZ ODC I 2. Chennai Sholinganallur STP 3. Delhi Gurgaon-II STP 4. Delhi Noida I STP

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 attempt to extend the period of tax holiday by exercising the option to claim deduction under section 10A instead of continuing under section 80HHE of the Act. Learned Sr. Counsel also submitted that the CBDT Circular 1 of 20005 dated 06.01.2005 clarified that an undertaking set up in Domestic Tariff Area and deriving profit from export of computer software and which is subsequently converted in EOU, shall be eligible for deduction under section 10B for the remaining period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce computer software as a DTA unit. On the other hand, learned D.R. vehemently relied upon the orders passed by the lower authorities.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 Bench was dismissed by the Hon‟ble Jurisdictional High Court in ITA No. 1778 of 2016 vide judgment dated 18.03.2019 by observing as under:

―6. Section 80HHE of the Act pertains to deduction in respect of profits from export of computer software etc. Sub-section (5) of section 80HHE provides that where deduction under said section is claimed and allowed in respect of the profits of the business referred in sub-section (1) for any assessment year, no deduction shall be allowed in relation to such profits under any other provision of the Act for the same or any other assessment year. What sub-section (5) of section 80HHE thus prohibits is the claim of deduction allowed under section 80HHE under any other provision, be it in the same assessment year or in other assessment year. In the present case, it is not even the ground of the revenue that the deduction under section 10A of the Act claimed by the assessee in the present year is in relation to profit for which the assessee was granted deduction under section 80HHE. Sub- section 5 of section 80HHE of the Act, therefore, in the present case would have no applicability. We are fortified in our view by a division bench judgement of Delhi High Court in the case of CIT v. Damco Solutions (P.) Ltd. [2011] 11 taxmann.com 365/200 Taxman 26 (Mag.) in which it was observed as under:- "2. This stand of the Assessing Officer was repelled by the CIT (A) holding that the purpose of sub-section (5) of section 80HHE was to avoid double benefit and that would not mean that if the assessee for a particular assessment year wanted relief only under section 10A of the Act that would be denied to the assessee. The only embargo was not to give relief under both the provisions." 7. Coming to the revenue's second objection to the assessee's claim of deduction under section 10A of the Act, we may recall, that the assessee had admittedly started manufacturing computer software for export prior to 1st April 2001, when section 10A was substituted by the Finance Act of 2000. It was under this amendment that the profit and gains derived by an undertaking from export of computer software came to be covered for deduction under section 10A. The revenue contends that this benefit would not be available to an industry which was already existing and engaged in such activity. However, the interpretation of the revenue would render the first proviso to sub-section (1) of section 10A wholly redundant. This proviso reads as under:— "10A(1) .... Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years." 8. As per this proviso, therefore, while computing total income of the undertaking for any assessment year, the profit and gain which had not been included prior to the introduction of Finance Act, 2000, such an undertaking would be entitled to deduction as per sub-section (1) only for the unexpired period of 10 consecutive assessment years. In plain terms,

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 therefore, this proviso would apply to an industry which was already in existence, engaged in manufacturing and export of computer software when the said amendment was made in section 10A. However, such an industry would be eligible to claim that deduction in relation to profit and gain arising out of such activity only for remainder of the period of 10 assessment years, which could be claimed for consequent assessment years alone. 9. If the revenue's interpretation of sub-section (1) of section 10 were to be accepted, then, this proviso would be rendered redundant.‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 135. The issue arising in ground no.12 in assessee‟s appeal is with regard to charging of interest under section 234B of the Act before grant of credit of taxes paid under section 90 / 91 of the Act.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 ........... (ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India; (iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section; (iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and.....‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 142. We have considered the rival submissions and perused the material available on record. As the issue raised by the assessee by way of additional ground of appeal are legal in nature which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon'ble Supreme Court in National Thermal Power Co. Ltd. v/s CIT, [1998] 229 ITR 383 (SC). Accordingly, the additional ground of appeal raised by the assessee is hereby admitted for adjudication on merit.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 have been accepted by the assessee. Accordingly, grounds of appeal in respect of transfer pricing adjustment covered under the MAP were withdrawn and consequently assessee filed revised grounds of appeal vide letters dated 25.05.2018 and 17.12.2018 on the remaining transfer pricing additions. We have considered aforesaid revised grounds of appeal filed by the assessee.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 said acquisitions, the assessee would be entitled to dividends as and when the same are declared and the same would be taxed in India. It would also have been liable to capital gains tax on sale of shares in future. By advance the monies as a interest free loan, the assessee is shifted the profits outside India. The overseas AEs in the instant case would enjoy the dividend income and capital gain income which would not be taxed in India.‖

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 153. We have considered the rival submissions and perused the material available on record. The assessee acquired certain Australian companies / group and for this purpose, the assessee set up FNS, Australia as its 100% subsidiary as the special purpose vehicle for such acquisition. The assessee remitted the amount of AUD 36,258,815 (equivalent to Rs. 122,71,11,028) to FNS, Australia so that FNS, Australia could disburse the acquisition price to the erstwhile shareholders of the target companies/group. Similarly, the assessee acquired Swedish company through its wholly owned subsidiary TCS Sverige AB, Sewden. For this purpose, the assessee remitted the amount of USD 4.5 millions (equivalent to Rs.19,58,85,000) to its subsidiary so that same can be disbursed as a acquisition price to the erstwhile shareholders of acquired Swedish company. 154. While dealing with facts for the assessment year 2011-12, we noticed that the assessee received the interest on account of loan outstanding from its various A.Es., including TCS FNS Pty. Ltd., Australia. It was also noticed from the facts on record for assessment year 2011-12 that the loan was granted in prior years to the said subsidiary, inter-alia, for purpose of acquisition of downstream subsidiaries. The assessee, on a without prejudice basis, charged interest at a rate which was derived by considering the prevailing LIBOR and added a mark-up on same for various risks. Ultimately, said benchmarking, by applying LIBOR and adding a mark-up, in respect of loans was accepted by the DRP and no further adjustment was directed to be made. We, while deciding the Revenue‟s appeal being ITA No. 1054/Mum/2016 for assessment year 2011-12, have

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 upheld the aforesaid conclusion reached by the DRP and dismissed the appeal filed by the Revenue. At the outset, we are of the view that the adjustment made by TPO by adopting rate of interest of 6% based on loan given by the assessee itself to another A.E. is not a valid CUP as the transaction is also between the related parties, thus to this extent order passed by the TPO and upheld by the DRP is set aside. Further, as we have already upheld the benchmarking of this transaction of loan to the A.Es., inter-alia, for the purpose of acquisition of downstream subsidiaries, for assessment year 2011-12 by applying the principle of LIBOR plus 300 to 400 basis points, we direct the TPO / Assessing Officer to compute the adjustment in respect of loan to A.Es. for the relevant assessment year by applying rate of interest of LIBOR, which will further be marked up with basis points. We further direct that the quantification of markup shall be done by the TPO / Assessing Officer after hearing the assessee. As a result, ground no.11 raised in assessee‟s appeal is allowed for statistical purpose.

Tata Consultancy Services Ltd. ITA No. 17/Mum./2011 ITA no.1650/Mum./2016 ITA no.1054/Mum./2016 157. In the result, appeal by the assessee is partly allowed for statistical purpose.

Sd/- Sd/- PRASHANT MAHARISHI SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 06/04/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai