TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 1701
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....rocessed under section 143(1) of Income Tax Act, 1961 ( hereinafter referred to as 'the Act') and the case was taken up for scrutiny. The assessment was completed by an order under section 143(3) r.w.s. 92CA of the Act dt.26.12.2011 wherein the income of the assessee was determined at Rs. 1,74,96,584 since the following additions / disallowances were made :- i) Deduction under section 10A was restricted to Rs. 2,96,26,025 as against Rs. 3,30,28,510 claimed by the assessee. ii) Disallowance under section 40(a)(ia) : Rs. 1,38,36,518. 2.2 Aggrieved by the order of assessment for Assessment Year 2008-09 dt.26.12.2011, the assessee preferred an appeal before the CIT(Appeals) - I, Bangalore, which was disposed off by order dt.28.9.2012 allowing the assessee partial relief as under :- (i) the assessee claim for deduction under section 10A of the Act was allowed, directing the Assessing Officer to reduce the expenses of Rs. 54,73,725 and Rs. 1,90,88,594 relating to internet connectivity and travelling incurred in foreign currency from both export turnover and total turnover while calculating the deduction under section 10A of the Act, and (ii) the disallowance under section 40(a)(i....
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....manner increase the profits derived from the exports. 9. The CIT (Appeals) erred in not appreciating that the disallowance under section 40(a)(i) is of a technical nature wherein the genuineness of the expenditure is not doubted to increase the profits and that the assessee gets the deduction of the amount so disallowed in the subsequent year(s) in which such sum has been deducted and remitted to the Central Government account. 10. The CIT (Appeals) erred in not appreciating that allowing the deduction under section 10A on the amount so disallowed under section 40(a)(i) and then again allowing deduction in the year of deduction and remittance would result in double benefit to the assessee and such double benefit was never intended by the legislature. 11. For these and such other grounds that maybe urged at the time of hearing, it is humbly prayed that the order of the CIT (Appeals) be reversed and that of the Assessing Officer be restored. 12. The appellant craves leave to add, to alter, to amend or to delete any of the grounds that maybe urged at the time of hearing of the appeal." 3.2 The assessee has also raised the following cross objections against the order of the CIT(Ap....
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....duction under section 10A of the Act after reducing the aforesaid expenses both from the export turnover as well as the total turnover following the decision of the Hon'ble Karnataka High court in the case of Tata Elxsi& Others (supra) which has not been accepted by the Department who have filed an SLP against the Courts order before the Hon'ble Apex Court which is pending disposal. The learned Departmental Representative placed support on the order of the Assessing Officer. 5.3 Per contra, the learned Authorised Representative supported the order of the learned CIT (Appeals) and contended that there was no error therein, that required the interference of the Tribunal, since the learned CIT (Appeals) followed the binding decision of the jurisdictional High Court of Karnataka in the case of Tata Elxsi& Others (supra) which covers the issue in favour of the assessee. The learned Authorised Representative submits that in view of the above, revenue's appeal is liable to be dismissed. 5.4 We have heard both sides and perused and carefully considered the material on record and the judicial decision cited. On perusal thereof we find that the issue before us for adjudication i.e.....
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.... expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore in computing the export turnover the legislature has made a specific exclusion of freight and insurance charges. The submission which has been urged on behalf of the revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the revenue, however, misses the point that the expression "total turnover" has not been defined at all by Parliament for the 8 IT(I.T.)A No.1640/Bang/12 & C.O. No.63/Bang/2013 purposes of s.10A. However, the expression "export turnover" has been defined. The definition of "export turnover" excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression....
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....rt business and domestic business, the legislature intended to have a formula to ascertain the profits from export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of section 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in section 10A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. The export turnover would be a component or part of a denominator, the other component being the domestic turnover. In other words, to the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. In view of the commonality, the understanding should also be the same. In other words, if the export turnover in the numerator is to be arrived at after ex....
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....forementioned decision of the Hon'ble High Court of Karnataka in the case of Tata Elxsi Ltd. (supra), we uphold the order of the learned CIT (Appeals) in directing the Assessing Officer to reduce the expenditure incurred on interest connectivity charges of Rs. 54,73,725 and expenditure incurred on travel in foreign currency amounting to Rs. 1,90,88,594 from both export turnover and total turnover for 11 IT(I.T.)A No.1640/Bang/12 & C.O. No.63/Bang/2013 the purpose of computing the deduction under section 10A of the Act in the case on hand. Consequently the grounds raised at S.Nos.2 to 4 by revenue are dismissed. 5.5 In view of our finding at para 5.4 of this order (supra), the assessee's grievance in respect of the deduction under section 10A of the Act is addressed. In this view of the matter, the Cross Objection raised by the assessee at S.No.2 raising an alternate argument under section 10A of the Act need not be adjudicated upon. Disallowance under section 40(a)(ia) of the Act - Rs. 1,38,36,518 6.1 In the grounds raised atS.Nos.5 to 10, revenue challenges the order of the learned CIT (Appeals) in directing the Assessing Officer to recalculate the deduction under section 10A of ....
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.... such payments and failure to do so has made the aforesaid payments amounting to Rs. 1,38,36,518 liable for disallowance under section 40(a)(ia) of the Act. 13 IT(I.T.)A No.1640/Bang/12 & C.O. No.63/Bang/2013 6.4.2 After upholding the disallowance under section 40(a)(ia) of the Act, the learned CIT (Appeals) agreed with the contention of the assessee that the deduction under section 10A of the Act shall be granted on the income as enhanced by the amount of disallowance of Rs. 1,38,36,518. 6.5 Revenue is in appeal against the decision of the learned CIT (Appeals) in allowing enhanced deduction under section 10A of the Act on the amount of Rs. 1,38,36,518 disallowed under section 40(a)(ia) of the Act. The assessee, on the other hand, has filed cross objections at S.Nos.3 & 4 against the decision of the learned CIT (Appeals) in confirming the Assessing Officer's action in disallowing Rs. 1,38,36,518under section 40(a)(ia) of the Act. In the course of appellate proceedings, both the learned Departmental Representative for revenue and learned Authorised Representative of the assessee were heard, filed submissions and placed reliance on various judicial decisions in support of their re....
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....nal in the case of Abbey Business Services (India) (P) Ltd in ITA No.1141/Bang/2010 dt.18.7.2012 for Assessment Year 2005-06. In this decision, the co-ordinate bench of this Tribunal held that the Indian Company which has effective control on the employees was the real employer. In coming to this finding, the co-ordinate bench of this Tribunal had relied on the decision of the another co-ordinate bench of this Tribunal in the case of IDS Software Solutions India Pvt. Ltd. V ITO reported in 122 TTJ 410 wherein it was held that the Indian Company should be regarded as the real and economic employer of the secondees and the payments made by the assessee in that case were in the nature of reimbursement of salary and other costs. It was also held that reimbursements made to foreign company under secondment are not liable for deduction of tax at source. In para 12.9 of the decision of the co-ordinate bench of the Tribunal in the case of Abbey Business Services (India) Pvt. Ltd. (supra), it has been observed as under : 12.9 We have heard both parties and have carefully perused and considered the contention and submissions of both the parties and the material on record and are of the con....
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....the case of Abbey Business Services (India) Pvt. Ltd. (supra), it has been observed as under : "15.3 Section 9(1)(vii) of the Act is attracted if there is a rendering of service for which a consideration should follow. In the instant case, it was specifically agreed by the parties that Abbey National Plc, UK would only second staff to the assessee as per the secondment agreement. No services were rendered by it to the assessee. 'Fees for technical services' as per section 9(1)(vii) means any 'consideration' for rendering of managerial, technical or consultancy services (including the provision of services of technical or other personnel). Consideration means something given in return for obtaining OR getting a thing. In the instant case, what was paid to Abbey National Plc. UK by the assessee was reimbursement of salary costs and other administration costs, relating to seconded personnel/staff, which was initially paid by Abbey National Plc, UK. This arrangement was compelled out of social security and other reasons. The reimbursement of salary costs and other administration costs did not contain any mark up as clearly brought out in the clause 4.1 of the secondment agreement whic....