2019 (2) TMI 1401 - AT - Income Tax

Appellate Tribunal affirms exclusion of charges from turnover and allows deduction for license fees

The Deputy Commissioner of Income-tax, Circle-7 (1) (1), Bengaluru Versus M/s. Teleradiology Solutions P. Ltd.

The Appellate Tribunal upheld the CIT(A)'s decisions in a case involving the exclusion of telecommunication and insurance charges from turnover and the ... Deduction u/s 10A computation - exclusion of telecommunication and insurance charges from the total turnover and the export turnover - CIT(A) had adjudicated these issues following the judgment of the jurisdictional High Court in the case of Tata Elxsi Ltd., Vs. CIT [2015 (3) TMI 1220 - ITAT BANGALORE] in which it has been categorically held that if any expenditure is excluded from the export turnover, the same should be excluded from the total turnover. Since the CIT(A) has adjudicated the issue in the light of the judgment of the Hon’ble High Court, we find no infirmity in the order of the CIT(A). Accordingly, we confirm the same. Disallowance of licence fees paid to Consultant/Doctors abroad - AO had disallowed licence fees paid by the assessee having observed that the licence fees paid and claimed as an expenditure by the appellant company ought to have been borne by the Consultant/Doctors abroad - HELD THAT:- It is an arrangement between the appellant and the consultant doctors with regard to remunerations and the licence fees to be paid. If the appellant takes the responsibilities of making the payment of licence fee on behalf of the Doctors and paid a lesser remuneration, this arrangement should not have been doubted by the Revenue authorities unless and until the arrangement is held to be in contravention to the provisions of law. We therefore find no infirmity in the order of the CIT(A) who has rightly allowed the claim of the assessee. Accordingly, we confirm the order of the CIT(A). - Decided against revenue. Issues:1. Exclusion of telecommunication and insurance charges from total turnover and export turnover.2. Disallowance of license fees paid to Consultant/Doctors abroad.Issue 1: Exclusion of telecommunication and insurance charges:The Revenue appealed against the CIT(A)'s orders on common grounds related to the exclusion of telecommunication and insurance charges from the total turnover and export turnover. The Revenue argued that the CIT(A) erred in directing the Assessing Officer (AO) to exclude these charges only if they were recovered and included in the export turnover. The Revenue contended that the export turnover should not include freight, telecommunication charges, and insurance related to the delivery of computer software outside India. However, the CIT(A) based its decision on the judgment of the jurisdictional High Court in the case of Tata Elxsi Ltd., which stated that if any expenditure is excluded from the export turnover, it should also be excluded from the total turnover. The Appellate Tribunal found no fault in the CIT(A)'s order and upheld it.Issue 2: Disallowance of license fees paid to Consultant/Doctors abroad:The AO disallowed the license fees paid by the assessee, stating that such fees should have been borne by the Consultant/Doctors abroad, not the assessee. The CIT(A) re-evaluated the claim and, upon being convinced by the assessee's explanations, deleted the addition. The Revenue argued that the license fee was the liability of the Doctors, not the assessee, and therefore, the deduction should not be allowed. The assessee contended that the payment of license fees was part of a business arrangement with the consultants/doctors, and if the assessee did not pay, additional compensation would be required for services. The Appellate Tribunal agreed with the CIT(A), stating that it was a valid business arrangement between the assessee and the consultant doctors, and as long as the arrangement did not violate any laws, the deduction was permissible. Consequently, the Tribunal confirmed the CIT(A)'s decision to allow the deduction of license fees.In conclusion, the Appellate Tribunal dismissed both appeals of the Revenue, upholding the CIT(A)'s decisions in both issues.