S. 10(38) was inserted with the object to grant exemption to LTCG as tax has already been levied on a different footing (STT). The revenue’s contention that long term capital loss should be adjusted against exempt LTCG will be contrary to the intention, object and purpose of enacting s. 10 (38). Further, the revenue’s view will result in absurdity if the facts are reversed because then LTCG earned before 1.10.2004 (which is taxable) will be eligible for set off against (exempt) long term capital loss suffered after 1.10.2004. This will result in a loss from an exempt source being set off against taxable gain which is contrary to law.

S. 10A allows a deduction of the “profits and gains derived by the undertaking from the export of computer software” “from the total income of the assessee”. The effect is that the deduction has to be made at the stage of computing the income under head “Profits & gains” and not at the stage of computing the gross total income. Consequently, the losses of a non-eligible unit cannot be set off against the profits of an eligible unit and are eligible to be set-off against other income or to be carried forward.

In Circular No. 23 of 1969 dated 23rd July 1969 the CBDT has held that if a non resident’s sales to Indian customers are secured through the services of an agent in India, the assessment in India of the income arising out of the transaction will be limited to the amount of profit which is attributable to the agent’s services provided that non-resident’s business activities in India are wholly channeled through its agent, the contracts to sell are made outside India and sales are made on a principle-to-principle basis. It has been held that in the assessment of the amount of profits, a deduction will be given for the expenses incurred, including the agent’s commission. Accordingly, if the agent’s commission fully represents the value of the profit attributable to his service, nothing further can be assessed in the hands of the non-resident

The argument that notional interest income cannot be assessed is not acceptable in the context of transfer pricing. S 92(1) provides that any income arising from an international transaction has to be computed having regard to the arm’s length price. S. 92B (1) defines an “international transaction” to mean “a transaction between two or more associated enterprises … in the nature of … lending or borrowing money …” In considering the “arms length” price of a loan, the rate of interest has to be considered and income on account of interest can be attributed

S. 153A does not authorize the making of a de novo assessment. While under the 1st Proviso, the AO is empowered to frame assessment for six years, under the 2nd Proviso, only the assessments which are pending on the date of initiation of search abate. The effect is that completed assessments do not abate. There can be two assessments for the same assessment year. Assessments which are not pending on the date of search but are pending before an appellate authority will survive.