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2016 (1) TMI 1334
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....A(4) provides that profits derived from export of computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of computer software bears to the total turnover of the business carried on by the undertaking. Expln.(2) to Sec.10A of the Act defines Export turnover to mean the consideration in respect of export by the undertaking of computer software received in, or brought into, India by the Assessee in convertible foreign exchange, but does not include freight, telecommunication charges or insurance attributable to delivery of the computer software outside India or expenses, if any, incurred in foreign exchange in providing technical services outside India. 4. In computing the deduction, the assessee had not reduced telecommunication expenses of Rs. 2,84,24,850/- and expenses incurred in foreign currency of Rs. 3,86,21,949/- from the export turnover, as according to the Assessee, no part of the expenditure was attributable to the delivery of software outside India or for providing technical services outside India. The Assessing Officer, however, proceeded to re-compute the deduction by r....
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....f the revenue as projected in the aforesaid grounds is without any substance. The fact that the revenue is likely to prefer appeal against the decision of the Hon'ble Karnataka High Court by filing a Special Leave Petition before the Hon'ble Supreme Court under Article 136 of the Constitution of India, cannot be the basis not to follow the decision of the jurisidictional High Court. We therefore dismiss ground No.2 to 4 raised by the revenue. 8. Ground No.5 to 8 raised by the revenue reads as follows: "5. The learned CIT(Appeals) has erred in deleting the addition of Rs. 3,87,19,625/- made by invoking the provisions of section 40(a)(ia) of the Act without appreciating the facts and circumstances of the case. 6. The learned CIT(Appeals) has erred in arriving at his findings that these payments are mere reimbursement of expenses and not liable for TDS, without examining into nature of the transaction and nature of the payment made by the assessee. 7. The learned CIT(Appeals) has erred in deleting the addition without appreciating the findings recorded by the AO to the effect that these expenses would fall under 'fees for technical services' that on such ....
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....d out that in so far as reimbursement of salaries paid by Cerner US is concerned, the Assessee had deducted tax at source on such salaries u/s.192 of the Act. The Assessee pointed out that there was no obligation to deduct tax at source on the payment made to Cerner US u/s.195 of the Act as there was no income in the aforesaid payment which is chargeable to tax in India. The Assessee also took a stand that the payment in question cannot be said to be a payment of fees for technical services (FTS) rendered by Cerner US to the Assessee within the meaning of Sec.9(1)(vii) of the Act. Even assuming that the payment in question is in the nature of FTS, there was no obligation to deduct tax at source because as per Article 12(4) of the India-US DTAA, FTS is chargeable to tax in India only if such services make available technical knowledge, experience, skill, know-how or processes or consists of the development or transfer of a technical plan or technical design. The Assessee thus pleaded that the payment in question cannot be disallowed u/s.40(a)(ia) of the Act for non-deduction of tax at source. 10. The AO however held that the payment in question was made to employees of Cerner US ....
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....n this regard: "5. The ground No.4 is relating to the disallowance of Rs. 3,87,19,625/- relating to certain expenses u/s 40(a)(ia) of the Act. During the course of the assessment proceedings, the AO found that certain expenses which were in the nature of corporate credit card payments, medical insurance expenses, professional fees, relocating expenses, salary payable to expatriates and other expenses amounting to Rs. 3,87,19,625/-payable to Cerner Corporation, USA claimed as deduction. When the A.O. proposed to invoke Sec.40(a)(i) as there was no TDS made on these payments, the appellant objected on the ground that these expenses were mere reimbursement of expenses and not liable for TDS. However, the A.O. examined the claim in detail with reference to the double taxation agreement (DTAA) with USA and held that these expenses would fall under 'fees for technical services' and thus chargeable under the provisions of Indian Income tax Act. Therefore, the A.O. considered the said amount for disallowance u/s.40(a)(i) of the Act. During the appeal proceedings, the appellant seriously contested the said disallowance in their detailed submissions by way of letter dated 02....
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.....Pvt.Ltd. 52 ITR 763 (Mad) ii. CIT Vs. Edward Keventer (successors)Pvt.Ltd. 123 ITR 200 (Del) iii. CIT Vs.Bhumraddi (T.M) 33 ITR 82 (Mum) iv. Marolia and sons Vs. CIT 129 ITR 475 (All) v. Dy.CIT Vs. Hind Industries Ltd. 14 DTR 561 (Del)(ITAT) vi. CIT Vs. Gilbert and Barker Manufacturing Co.USA 11 ITR 529 (Mum) vii. CIT Vs. Mahalakshmi Textile Mills Ltd. 66 ITR 710 (SC) viii. CIT Vs. Nelliappan 66 ITR 722 ix. ACIT Vs. M/S.Bank of Tokyo-Mitsubishi UJF Ltd. (2009-TIOL- 51-ITAT-DEL) 14. On merits of the ground raised in the application under Rule 27 of the ITAT Rules, the learned counsel for the Assessee submitted that as per section 10A(1) of the Act "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 beings 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 ........
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....n derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed related to the manufacturing activity. The disallowance of the Provident Fund/ESIC payments has been made because of the statutory provisions - Section 438 in the case of the employer's contribution and Section 36(v) read with section 2(24)(x) in the case of the employees contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the Revenue that in computing the deduction under Section 10A, the additional made on account of the disallowance of the Provident Fund/ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain conseq,ience of the disallowance made by the Assessing Officer must follow." It was pointed out that similar views have been held by the Mumbai Tribunal in the cast of International Gold Co Ltd vs ITO (ITA No 597/ MUM/2010/2006-07), the Delhi Tribunal in the case of ITO vs Sahasra Electronics Pvt Ltd (ITA No.1951/Del/200....
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....ant the exemption u/s.10A of the Act on the assessed income, which was enhanced due to disallowance of employer's as well as employee's contribution towards PF / ESIC;" The Hon'ble Bombay High Court held on the above question of law as follows: "12. By reason of the judgment of the Supreme Court in Commissioner of Income Tax v. Alom Extrusions Limited the employer's contribution was liable to be allowed, since it was deposited by the due date for the filing of the return. The peculiar position, however, as it obtains in the present case arises out of the fact that the disallowance which was effected by the Assessing Officer has not, the Court is informed, been challenged by the assessee. As a matter of fact the question of law which is formulated by the Revenue proceeds on the basis that the assessed income was enhanced due to the disallowance of the employer's as well as the employees' contribution towards Provident Fund /ESIC and the only question which is canvassed on behalf of the Revenue is whether on that basis the Tribunal was justified in directing the Assessing Officer to grant the exemption under Section 10A. On this position, in the presen....