TaxTMI 
TaxTMI 
2014 (9) TMI 45
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....Act, 1961 (herein after referred to as 'the Act'). The assessee filed a revised return of income on 30.3.2010 declaring income of Rs. 58,48,05,807 which was on account of claiming deduction u/s.80JJAA of the Act to the tune of Rs. 48,30,929. The case was selected for scrutiny and the assessment was completed by an order under section 143(3) of the Act dt.30.12.2010 wherein the income of the assessee was determined at Rs. 70,98,59,466 by virtue of various additions/disallowances made by the Assessing Officer. 2.2 Aggrieved by the order of assessment for Assessment Year 2008-09 dt.30.12.2010, the assessee preferred an appeal before the CIT (Appeals) - III, Bangalore. The learned CIT (Appeals) disposed the assessee's appeal by order dt.27.6.2012 granting the assessee partial relief. 3. Aggrieved by the order of the CIT (Appeals) - III, Bangalore dt.27.6.2012 for Assessment Year 2008-09, both the assessee and revenue are in appeal before this Tribunal raising various grounds. 3.1 In its appeal, revenue has raised the following grounds: "1. The order of the learned CIT (Appeals) is opposed to law and facts of the case. &nb....
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.... an amount of Rs. 1,96,32,131 paid towards legal and professional charges for conducting due diligence for acquisition of Vox Mobili, France is capital in nature. b. The learned CIT (Appeals) erred in not appreciating that the acquisition of Vox mobile, France was not in the nature of an investment for future gains, but for integrating the business of Vox Mobili with the business of the appellant. The learned CIT (Appeals) erred in not appreciating that the acquisition of Vox Mobili did not increase the production capacity of the appellant. In view of the above, the same ought to have been considered as revenue expenditure. c. Without prejudice to the above, the learned CIT (Appeals) erred in not appreciating our alternative ground, for allowing deduction under section 35D of the Income Tax Act, 1961. d. The learned CIT (Appeals) erred in holding out that deduction under section 35D will not be available for techno-financial analysis made upon acquiring an existing business. 1.B. Legal and professional charges for filing pat....
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....sue is very clear that expenses incurred for the issue of fresh share capital is capital expenditure. 5.2 In the course of assessment proceedings, the Assessing Officer observed that out of legal and professional charges, out of stamp duty debited to the extent of Rs. 50,74,350, an amount of Rs. 38,50,000 pertained to stamp duty paid for increasing the assessee's authorized share capital by issue of both bonus and fresh issue of shares through IPO. The Assessing Officer on examination of the same allowed deduction of the expenditure claimed towards the stamp duty related to the issue of bonus shares, but however, disallowed the portion of the stamp duty relating to the issue of fresh share capital through the IPO amounting to Rs. 6,87,770. 5.3 On appeal, the learned CIT (Appeals) upheld the disallowance of the entire amount of stamp duty amounting to Rs. 6,87,720 paid for increasing the authorized share capital of the assessee company through issue of bonus shares and the IPO as capital in nature. With regard to the assessee's alternate clause for deduction of the said expenses under section 35D of the Act, the learned CIT (Appeals) allowed amortisation of the same un....
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.... the allowability as revenue, of expenditure incurred in connection with the issue of bonus shares. In support of its claim, the assessee placed reliance on the following decisions: i) CIT (Appeals) V Shree Synthetics Ltd. (162 ITR 819) (M.P); ii) Amtrex Appliances Ltd. V DCIT (94 TTJ 396). 5.6.1 We have heard the rival contentions and perused and carefully considered the material on record including the judicial decisions cited by both parties. Admittedly, the stamp duty charges claimed as deduction by the assessee included the charges pertaining to both the issue of bonus shares and the IPO. It is settled law that the expenditure related to the issue of bonus shares is revenue expenditure as held by the Hon'ble Apex Court in the case of General Insurance Corporation (supra). In this view of the matter, the Assessing Officer's action in allowing the stamp duty charges related to the issue of bonus shares as revenue expenditure is in order. 5.6.2 As pointed out by the learned Departmental Representative, the decision of the learned CIT (Appeals) in disallowing the entire stamp duty charges by holding it to be capital in natu....
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....High Court held as under: "...Clause (c) of sub-section (2) of section 35D starts with the words "where the assessee is a company, also expenditure," which if read with sub-clause (iv) "in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus" would indicate that the word "being" used here is "illustrative and not restrict." On the contrary, if after the words "also expenditure", sub-clause (iv) would have started with the words "being underwriting commission, brokerage and charges for drafting, typing printing and advertisement of the prospectus, in connection with the issue, for public subscription of shares in or debentures of the company", the submission of learned counsel for the Revenue would have some force because this word "being" as it stands today in the section cannot be read backwards, but has to be read as a whole. Therefore, we are of the opinion that the word "being" has been used here by way of illustration and is not restricted only to the words " underwriting commission, brokerage an....
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....A.R of the assessee were heard. The learned D.R. relied on the order of the A.O. to argue that the decision of the ld. CIT(A) be reversed. Per contra, the learned A.R. strongly supported the decision of the ld. CIT(A) and submitted that the decision of the co-ordinate bench of this Tribunal in the case of ACIT V Texas Instruments India (P) Ltd. (2006) 115 TTJ 476 is squarely applicable to the facts of the issue under consideration. 6.5.1 We have heard the rival consideration and perused and carefully considered the material on record, including the judicial decisions cited. Section 80JJAA of the Act allows for deduction of additional wages paid to new workmen for an industrial undertaking. While the term "industrial undertaking" has not been defined in section 80JJAA of the Act, it has been defined in other provisions of the Act; like section 10(15) and 72A so as to include undertaking which is engaged, inter alia, in: - the manufacture of computer software - the manufacture of computer software or recording of programme on any disc, tape, perforated media or other information device. 6.5.2 It is seen that the co-ordinate bench of t....
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....oyment of workmen having technical skill but excludes any workmen in managerial or administrative or supervisory capacity. In the case on hand, the persons in respect of which deduction u/s.80JJAA of the Act is being claimed would fall within the above definition of the term "workmen" as defined in the Industrial Disputes Act, 1947. 6.5.5 A co-ordinate bench of this Tribunal in the case of Texas Instruments India (P) Ltd. (supra) at para 7 thereof has held that the assessee would be eligible for deduction u/s.80JJAA in respect of salary paid to the software engineers not employed in the supervisory role by holding that: "7. As stated earlier the assessee had filed the details of the software engineers employed during the years under consideration containing the names of the employees, designation and date of joining. Further, in the same list the details of total number of employees joined during both the assessment years, number of employees without supervisory roles, workmen joined, number of supervisors joined and workmen joined and relieved during the years under consideration. A cursory perusal of this list shows that the assessee had claimed deduction....
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.....10A of the Act: Rs. 55,61,880. 7.1 In the ground raised at S.No.4, revenue has challenged the decision of the learned CIT (A) in allowing deduction u/s.10A of the Act holding that the assessee is not engaged in the manufacture of article or thing. Whereas in contrast while deciding the issue of depreciation, the learned CIT (A) has held that the assessee is engaged in telecom services which are not in the nature of IT Enabled Services to claim deduction u/s.10A of the Act. It is contended that the learned CIT (A) merely relied on the words "content management" in the Notification of the CBDT on IT Enabled Services. While that content management was in conjunction with data processing, the assessee's content development was in the context of telecom services. 7.2 The facts of the case on this issue are that the assessee had claimed deduction of an amount of Rs. 55,61,880 u/s.10A of the Act. The A.O. disallowed the assessee's claim for deduction u/s.10A of the Act for the following reasons: i) Mobile Value added services are telecom services and not IT Enabled Services; ii) The assessee is not engaged in the manufacture of an....
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.... regard to the segregation of costs of STP, the A.O. has come to rather abrupt finding, based on a narrative observation upon the nature of the assessee's business. No specific discrepancies are pointed out, whereas the assessee has demonstrated that it was duly maintaining split financials. 7.4.1 We have heard the rival contentions and perused and carefully considered the material on record. In this regard, it would be relevant to extract and examine the provisions of section 10A of the Act: "10A. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a 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 such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee: (1A)..... (1B)....... (1C)...... &nbs....
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....loped in - house and procured by the assessee is processed to a customized format to make it compatible for deployment. The assessee also develops its own content (viz. music ring tones, caller tunes, etc.) in its studio. The assessee also uses its studios for the content development. The studio of the assessee is equipped with dedicated computer systems loaded with the required software. The assessee also uses multiple softwares like Protocols v7.4, M- Powered, Adobe Audition, etc. The assessee also uses other advanced equipments which includes several hardware and systems like Sound Cards, Monitors, MIDI Controllers, Microphones, etc. which are used for development of content. These equipments, both hardware and software systems, are used for processing before it is made available for use by the customers. Once all the activities in the process are complete, the mobile compatible content is uploaded on the software platforms in the servers. From the above, it is clear that the assessee's activity of "developing content" and "conversion of the procured content into mobile readable format" would qualify to be classified as "Content Development" or "Data Processing" specified in....
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....ssee had claimed an amount of Rs. 6,68,98,726 as expenditure incurred as "legal and professional charges" in its profit and loss account. Out of this, the Assessing Officer disallowed an amount of Rs. 2,20,40,131 comprising of; (i) Legal & Professional charges incurred in connection with the acquisition of a company by name Vox Mobili in France - Rs. 1,96,32,131 and (ii) Legal and Professional charges to file patent application: Rs. 24,08,000. On examination thereof, the Assessing Officer was of the view that these payments have been made in connection with the acquisition of a foreign company and are therefore in the nature of capital expenditure. The Assessing Officer also held that the expenses incurred for patent registration is also capital in nature since the patent is a capital asset of the company. 9.4.1 On appeal, the learned CIT (Appeals) confirmed the aforesaid disallowance made by the Assessing Officer with the following observations: (i) The assessee may expand their existing business by acquiring new assets either within the country or globally. The fact of the matter is that a foreign company has....
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.... it is in the nature of revenue expenditure. The said expenditure may or may not result in the investment being finally made. It is only a preliminary step to determine the feasibility of undertaking a particular project and is purely revenue in nature. In support of its arguments, the assessee placed reliance on the following judicial pronouncements: i) Intercontinental Hotels Group India P. Ltd. (2013) 33 Taxman.com 153. ii) Kesoram Industries & Cotton Mills Ltd. V CIT (196 ITR 845) (Cal) (iii) CIT V Priya Village Roadshows Ltd. 332 ITR 594 (Del) (iv) Maharaja Shri Umaid Mills Ltd. V CIT (175 ITR 72) (Raj) (v) Jay Engineering Works Ltd. V CIT 166 Taxmann 115 (Del) 9.5.2 The learned Authorised Representative also put forth the assessee's alternate plea, that if the aforesaid expenditure is not allowed as revenue expenditure, then it should be allowed as a deduction in accordance with the provisions of section 35D of the Act. 9.6 Per contra, the learned Departmental Representative supported the orders of the authorities below. 9.7 We have heard both parties and....
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.... the case of CIT V Finlay Mill Ltd. (supra) wherein it has been held as under: "In our opinion, the contention urged on behalf of the appellant must fail. It is not contended that by the Trade Marks Act a new asset has come into existence. It was con- tended that an advantage of an enduring nature had come into existence. It was argued that just as machinery may attain a higher value by an implementation causing greater productive capacity, in the present case the trade mark which existed before the Trade Marks Act acquired an advantage of an enduring nature by reason of the Trade Marks Act and the fees paid for registration there under were in the nature of capital expenditure. In our opinion, this analogy is fallacious. The machinery which acquires a greater productive capacity by reason of its improvement by the inclusion of some new invention naturally becomes a new and altered asset by that process. So long as the machinery lasts, the improvement continues to the advantage of the owner of the machinery. The replacement of a dilapidated roof. by a more substantial roof stands on the same footing. The result however of the Trade Marks Act is only two-fold. ....
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....red the material on record including the judicial decisions referred. The facts of the matter on this issue are not in dispute. The Assessing Officer was however of the view that this expenditure incurred for filing the patent application is for registration of patent and the same is capital expenditure since the patent is a capital asset of the assessee company. As held by the Hon'ble Apex Court in the case of Finlay Mill Ltd. (supra) in respect of trademarks; expenses incurred for the purpose of registration of trademarks goes to protect the trademark and not create the trademark per se, we are of the considered opinion that the same analogy would apply in the case on hand to expenses incurred for filing patent application; i.e. that such expenditure would go to protect the patent and not create the patent per se. In this view of the matter, we hold that the expenditure of Rs. 24,08,000 incurred as legal charges for filing the patent application is revenue expenditure incurred in the course of the assessee's business and is to be allowed as a deduction. It is accordingly ordered. The grounds raised by the assessee at 1B(a) & (b) are accordingly allowed. 10. Adjustment ....
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....hat does not automatically make it a 'computer part' and it continues to remain what it was always intended to be, i.e. a piece of telecommunication equipment. The computer server only provides the common platform for the telecommunication card to function, interact with others and deliver its customized offering; (vi) As analogy can be drawn to the basic need for transportation which fuelled R&D of the internal combustion engine in the last decade of the 19th century. That engine, which has been further developed and modified till the present day, has been utilized to power aircraft, ships, vehicles, industrial machinery, agricultural equipment, electricity generation plants, mining machinery and such like gadgets and equipment which can be named ad-infinituim. (vii) None of these mechanical marvels and gadgets could have been possible without the basic platform of the internal combustion engine, from which they derived their primary requirement of energy. However, this fact by itself does not make for the classification of these myriad technological innovations as internal combustion engines; (viii) An airc....
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....of "telecommunication equipment" rather than a mere plain - vanilla computer system. 10.4.1 The learned Authorised Representative was heard in support of the grounds raised. It was contended that the learned Authorised Representative, that the MRBs cannot be classified as 'plant and machinery' and the only classification possible for MRBs is under 'computers.' It was submitted that MRBs provide port capabilities as to support a variety of functions like voice play/record, tone detection/generation, echo cancellation and voice compression, as well as trunking, fax, conferencing and VOIP functions in a single PCI, compact PCI or PCI Express slot. It eliminates the need to use multiple specialized boards, provides easy access to all supported features and reduces the time spent on configuration and development. 10.4.2 The learned Authorised Representative also submitted that the MRBs can be used only in computer servers and do not have any alternate use. The MRBs form part of the computer servers, similar to modems, and help in interpreting calls and conversion of calls from digital form to voice and vice-versa. These are connected to the computer servers and hel....
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.... the light of the above definition of 'Computer System', the functions of MRBs require to be examined. From the details on record, it appears that the function of MRBs is to support a combination of functions, performed in conjunction with the computer and servers. The MRBs are boards which are connected to computer servers which assist in receiving calls and would function only when attached to the computer. The MRBs increase the working capacity of the computers to the extent the computers receive calls and convert them into digital form. The MRBs work in conjunction with and as a part of the computer servers and cannot, in any way, be called as 'telecom equipment'. We also find that the facts of this issue in the case on hand, is similar to the facts of the case DCIT V Datacraft India Ltd. (2010) 40 SOT 295 (Mum) (SB) wherein the Special Bench of the Mumbai Tribunal of this order held as under: "31. Now we have to consider whether a 'router' can be considered as "computer hardware" or a "computer component". Computer hardware refers to the physical parts of a computer and related devices. Internal hardware devices include motherboard....
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....mines its classification. Only if the Computer software, resides in a computer, then it become a part and parcel of a computer and, as long as it is as integral part of a computer, it is classified as a 'Computer'. 31.4. In view of the above discussion, we are of the considered view that router and switches can be classified as a computer Hardware when they are used along with a computer and when their functions are integrated with a 'computer' In other words, when a device is used as part of the computer in its functions, then it would be termed as a computer. 32. Now we will advert to the decisions relied on by the rival parties. We have set out above the cases decided by various Benches of the Tribunal in favour of the assessee. The lead order is in the case of Samiran Majumdar (supra) which has been followed, directly or indirectly, in most of the subsequent cases. We will take up this case for discussion, in which the question was whether printer and scanner could be allowed a higher rate of depreciation as applicable to computers. The Bench noticed that the printer and scanner cannot be used without computer. It was ....
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....n earlier paras, we are inclined to agree with the view taken by the Kolkata Bench in Samiran Majumdar (supra). 34. We therefore answer the question referred to this Special Bench in affirmative by holding that the routers and switches in the circumstances of the case, are to be included in the block of 'Computer' entitled to depreciation at the rate of 60%." 10.6.3 The above decision of the ITAT, Mumbai Special Bench in the case of Datacraft India Ltd. (supra) has been followed by the Delhi Tribunal in the case of DCIT V Microsoft Corpn. India (P) Ltd., reported in 139 TTJ 40 wherein at para 16 of the order, it was held that: "16....it is clear that the above equipment primarily include the routers, switches, modems, etc. which are in the nature of input and output support devices which performs the functions including communication and control and, thus, they are computer hardware when they are used along with computer and when their functions are integrated with 'computer.' Such devices used as part of the computer in its functions and, thus, it can be termed as 'computer' only, therefore, eligible for deprec....