2007 (10) TMI 627 - AT - Income Tax

Tribunal Upholds CIT(A) Orders: No TDS on Downlink Charges; Deductions Allowed u/ss 80HHE, 10A.

Assistant Commissioner of Income-Tax, Circle II (4) Versus Infosys Technologies Ltd.

The Tribunal dismissed the revenue's appeals and upheld the CIT (A)'s orders, granting relief to the assessee on all contested issues. It confirmed that ... Liable to deduct TDS u/s 195 ? - Payments made to foreign companies - down linking (bandwidth) charges - assessee did not make any TDS on the ground that payments are not covered under the direct provisions of sec.5 or any deeming provisions of section 9 - CIT (A) granted relief to the assessee - HELD THAT:- In our view, this issue is squarely covered by the decision of this Tribunal in the case of the assessee for assessment years 1997-98 and 2001-02. Applying the same, we confirm the orders of the learned CIT(A). Disallowance of subscription payments u/s 40A(1) - such payment fall u/s 195 - AO held that by means of this payment, the assessee has got the benefit of technical consultation and therefore the payments fall within the ambit of section 195 of the IT Act - CIT(A) granted relief to the assessee - HELD THAT:- In our view, this issue is also squarely covered by the decision of this Tribunal in the case of the assessee fog assessment years 2001-02 to 2003-04 held that; ''Annual subscription was an access fee to Gartner database maintained outside India. Fee was payable even if no service was utilized. It was like a gate pass or entry fee and could not be treated as imparting of information. The payment was for obtaining data and use in the way assessee wanted it to be used. It was for use of a copyrighted article and not for transfer of right in the copyright in the article. Just as a book it is a copyright article. Purchase of the book allows use of information contained therein but does not transfer of the copyright therein. Even if the payment for use of any copyright is covered the copyright should be of a literary, artistic or scientific work and no other. '' Applying the same, we confirm the order of the learned CIT (A) . It is ordered accordingly. Deduction u/s 80HHE - Exchange variation gain in EEFC Account - assessee did not exclude expenditure in foreign currency both from export turnover as well as total turnover - HELD THAT:- This issue is also covered by the decision of this Tribunal in the case of the assessee for assessment year 1998-99 held that; ''Though it is worded as foreign exchange currency fluctuation, it is nothing but part of export turnover and a sort of additional sale price. Thus, the same is profit of the eligible undertaking for claiming deduction u/s 10B. Similarly, it cannot be treated as other receipts for excluding 90 per cent of the same u/s 80HHE. We accordingly hold that such sum being foreign exchange gain is not to be excluded while computing profit eligible for deduction u/s 10B as well as for computing profits of the business for the purpose of computing deduction u/s 80HHE. '' Therefore, applying the same, we confirm the order of the learned CIT (A). In the result, the revenue’s appeals are dismissed and the assessee’s appeals are allowed. Issues Involved:1. Payments made to foreign companies for down-linking (bandwidth) charges.2. Disallowance of subscription payments made to Gartner Group & others under section 40A(1).3. Exchange variation gain in EEFC Account.4. Exclusion of certain expenditure from export turnover and total turnover while computing deduction under section 80HHC.5. Deduction of expenses in foreign currency from export turnover for the benefit of section 10A.6. Deduction under section 80HHE.7. Provision for post-sales consumer support.8. Total turnover computation.Issue-wise Detailed Analysis:1. Payments made to foreign companies for down-linking (bandwidth) charges:The assessee did not make any TDS on payments to foreign companies M/s. AT & T and MCI Tele-communication, arguing these payments were not covered under section 5 or section 9 of the Income-tax Act, 1961. The Assessing Officer disagreed, referencing a similar decision against the assessee in earlier years. However, the CIT (A) granted relief. The Tribunal upheld this relief, referencing its previous decision in ITA Nos. 833 to 837/Bang/2003, where it was held that such services provided by telecom operators do not amount to technical service or royalty under section 9(1)(vii) of the Act. Consequently, the assessee was not treated as a defaulter under section 201(1), and no interest under section 201(1A) was leviable.2. Disallowance of subscription payments made to Gartner Group & others under section 40A(1):The assessee claimed that the subscription to Gartner Group was for licensed access to information and technical consultation, which the Assessing Officer viewed as falling under section 195 of the IT Act, leading to disallowance under section 40A(5). The CIT (A) allowed the claim, and the Tribunal confirmed this, referencing its decision in ITA Nos. 145 to 148/Bang/2004, where it was held that payments to Gartner Group for database access were not subject to TDS under section 195. The Tribunal reiterated that the payments were for copyrighted articles, not for the transfer of copyright, and were not taxable in India.3. Exchange variation gain in EEFC Account:The assessee claimed a deduction under section 80HHE without excluding foreign currency expenditure from export and total turnover. The Assessing Officer disagreed, but the CIT (A) allowed the claim. The Tribunal upheld this, citing its decision in ITA Nos. 1022/Bang/2003, which held that foreign exchange gains are part of export turnover and total turnover for the purpose of section 80HHE.4. Exclusion of certain expenditure from export turnover and total turnover while computing deduction under section 80HHC:The Assessing Officer disallowed this claim, but the CIT (A) allowed it. The Tribunal confirmed the CIT (A)'s decision, referencing its earlier decision in ITA Nos.50/Bang/2001, 793 to 795, 742 and 732 to 734/Bang/1998, which held that expenditure incurred in foreign currency should be excluded from both export and total turnover for the purpose of section 80HHE.5. Deduction of expenses in foreign currency from export turnover for the benefit of section 10A:The Assessing Officer disallowed this, but the CIT (A) granted relief. The Tribunal upheld this decision, referencing its decision in Tata Elexi Ltd. v. Asstt. CIT [IT Appeal No. 315 (Bang.) of 2006], which held that the term 'total turnover' should be consistent with 'export turnover', excluding expenses incurred in foreign currency from both.6. Deduction under section 80HHE:The assessee used total turnover relating to 80HHE units only, which the Assessing Officer disagreed with. The CIT (A) granted relief, and the Tribunal confirmed this, referencing Wipro Ltd. v. Dy. CIT [2005] 96 TTJ (Bang.) 211, which stated that the total turnover of eligible business should be considered, not the turnover of other business.7. Provision for post-sales consumer support:The Assessing Officer disallowed the provision, considering it an unascertained liability. The CIT (A) granted relief, and the Tribunal upheld this, referencing its decision in ITA No. 1022/Bang/2003, which held that provision for post-sales customer support is an accrued liability and thus allowable.8. Total turnover computation:The Tribunal addressed the issue of excluding certain expenditures from export turnover but not from total turnover. It referenced Tata Elexi Ltd. v. Asstt. CIT [IT Appeal No. 315 (Bang.) of 2006], which held that the term 'total turnover' should be consistent with 'export turnover', excluding the same expenses from both.Conclusion:The Tribunal dismissed the revenue's appeals and allowed the assessee's appeals, confirming the CIT (A)'s orders on all issues.