DIRECT TAX ALERT..!
IT INDUSTRY – CBDT CIRCULAR..!
The Central Board of Direct Taxes (CBDT) has issued Circular F.No.178 / 84 / 2012-ITA-1 dated 17.01.2013 clarifying a number of issues which are being faced by the software companies claiming benefits under Section 10 A, 10 AA and 10 B. The broad gist of the Circular is given below:-
On-site development of computer software..!
The CBDT has clarified that software developed abroad at client’s place would be eligible for benefits under the respective provisions as they would amount to deemed export and tax benefits would not be denied merely on this ground.
However, since the benefits can be availed only by units or / undertakings set up under specified schemes in India, there must be a direct and intimate nexus or connection of the development of software done abroad with eligible units set up in India.
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| K. VAITHEESWARAN, Advocate & Tax Consultant |
Further the development of software should be pursuant to a contract between the client and the eligible unit.
Deputation of technical manpower for onsite software development..!
CBDT has clarified that profits earned as a result of deployment of technical manpower at client’s place specifically for software development work should not be denied benefits under Section 10A, 10AA & 10B provided such deputation of manpower is for the development of such software and all the prescribed conditions are fulfilled.
Master Service Agreement (MSA) and Individual Statement of Work (SOW)..!
Board has clarified that tax benefits under Section 10A, 10AA and 10B would not be denied merely on the ground that separate and specific MSA does not exist for each SOW.
SOW would normally prevail over the MSA in determining eligibility of tax benefit unless the assessing officer is able to establish that there is splitting up or reconstruction of existing business or non-fulfillment of any other prescribed condition.
Research & Development..!
The Board has clarified that any research and development activity embedded in the engineering and design would also be covered under the definition of ‘computer software’ referred to in Explanation-2 to Section 10A and 10B.
Slump Sale..!
Board has clarified that it is important to ensure that slump sale would not result in splitting or re-construction of existing business. The exemption cannot be denied to an otherwise eligible undertaking on the sole ground of change in ownership of an undertaking and the tax holiday can be availed for the unexpired period at the rates applicable for the remaining years subject to fulfillment of prescribed conditions.
Separate Books of Accounts..~!
The Board has clarified that there is no requirement in law to maintain separate books of account for an assessee in respect of its eligible units claiming tax benefits under Section 10A and Section 10B.
The Assessing Officer may call for details or information pertaining to different units to verify the claim and quantum of exemption if required.
Transfer of SEZ Unit..!
Tax holiday should not be denied merely on the ground of physical relocation of an eligible SEZ unit from one SEZ to another in accordance with Instruction No.59 of the Department of Commerce and if all the prescribed conditions are satisfied under the Income Tax Act.
The relocated unit will be eligible to avail the tax benefit for the unexpired period at the rates applicable to such years.
Whether a new unit in the same location amounts to expansion.!
CBDT Board has clarified that setting up of a fresh unit in itself would not make the unit ineligible for tax benefits as long as the unit is set up after obtaining necessary approvals from the competent authorities and has not been formed by splitting or reconstruction of an existing business.
Disclaimer:- This note is in the form of an alert for the purpose of information and is based on the Circular issued of even date. The position can change if there are any modifications or amendments to the relevant Circular or decisions to the contrary. The Note does not constitute a legal opinion or advisory. If any clarifications are required, professional advice will have to be sought.
Contact:
Mr. K. VAITHEESWARAN,
Advocate & Tax Consultant
No.9, Thanikachalam Road, T. Nagar, Chennai – 600 017.
Tel.: 2433 1029, 2433 4048, Mob.: 98400 96876
Email: vaithilegal@yahoo.co.in, askvaithi@yahoo.co.uk
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