TaxTMI 
TaxTMI 
2017 (11) TMI 1675
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.... In view of the international transactions reported by the assessee, the Assessing Officer made a reference under Section 92CA of the Act to the Transfer Pricing Officer (TPO) for determination of the Arm's Length Price (ALP) thereof. The TPO passed the order under Section 92CA of the Act wherein no Transfer Pricing Adjustment was made. The assessment was concluded under Section 143(3) of the Act vide order dt.11.12.2009, wherein the income of the assessee was determined at Rs. 479,02,19,330 in view of certain additions / disallowances made by the Assessing Officer. 2.2 Aggrieved by the order of assessment dt.11.12.2009 for Assessment Year 2006-07, the assessee filed an appeal before the CIT (Appeals)-3, Bangalore. The learned CIT (Appeals) disposed off the appeal vide order dt.31.03.2015, allowing the assessee partial relief. 3. Aggrieved by the order of CIT (Appeals) for Assessment Year 2006-07 dt.31.3.2015, both the assessee and revenue have preferred appeals in respect of findings rendered against them in the impugned order. We now proceed to dispose off these cross appeals in seriatum hereunder : Assessee's appeal in IT(TP)A No.799/Bang/2015 for A.Y. 2006-07. 4. In the....
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....,90,949/- under section 40(a)(ia) of the Income tax Act, 1961. 4.2 The learned AO and CIT(A) has erred in not appreciating that in respect of software payments made to residents amounting to Rs. 55,90,949/- there was no liability to deduct tax at source under section 194J since the term 'royalty' was introduced into section 194J by the Taxation Laws (Amendment) Act, 2006 w.e.f. 13.7.2006. 4.3 On facts and circumstances of the case and law applicable, there was no liability to deduct tax at source in respect of the impugned payments during the previous year, and hence the said payments cannot to be disallowed under section 40(a)(ia). 4.4 Even otherwise, software expenses actually paid during the relevant previous year cannot be disallowed under section 40(a)(ia) of the Act. Disallowance of brand building expenses 5.1 The learned Commissioner of Income tax (Appeals) - 3, Bangalore has erred in confirming the disallowance of brand building expenses amounting to Rs. 30,36,80,000/- for the impugned reason that the same constitutes 'deferred revenue expenditure'. 5.2 On facts and in the circumstances of the case and law applicable, brand building expenses of Rs. 30,36,80,000/- ....
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....15.10.2011 in the assessee's own case (supra), we uphold the disallowance under Section 40(a)(i) of the Act of the payments made by the assessee to Forrester Research Inc., USA and Meta for non-deduction of tax at source under Section 195 of the Act. Finding no merit in this Ground No.2.1 to 2.4 raised by the assessee, we dismiss the same. 7. Ground No.3.1 to 3.4 - Software expenses paid to overseas entities. 7.1 These grounds are raised in respect of the disallowance of software expenses paid to overseas entities amounting to Rs. 10,21,856 under Section 40(a)(i) of the Act for failure to deduct tax at source thereon under Section 195 of the Act. 7.2.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the Hon'ble High Court of Karnataka in the case of CIT Vs. Synopsys International Old Ltd. (2012) 28 taxmann.com 162 (Kar) and CIT Vs. Samsung Electronics Co. Ltd. (2011) 16 taxmann.com 141 dt.15.10.2011 has elaborately discussed this issue and held that payments made for import of software constitute 'Royalty' and hence liable for TDS under Section 195 of the Act; thereby ....
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....d held that they were to be allowed over a period of five years as he was of the view that these expenses result in long term enduring benefit which is not limited to the year under consideration alone. On appeal, the learned CIT (Appeals) upheld the Assessing Officer's order in treating the brand building expenses as 'deferred revenue expenditure'. 10.2.1 We have heard the rival contentions, perused and carefully considered the material on record. From a perusal of the break up of brand building expenditure, it is seen that they are incurred in respect of subscription charges, sponsorship fees, retainer charges, publishing charges, marketing fees, consulting fees, global meets, trade show fees, exhibition stall space, etc. In our view, this expenditure incurred is in the course of and for the purpose of assessee's business and it cannot be said that the said expenditure has resulted in the acquisition of any 'asset'; which finding is not borne out by the facts on record. 10.2.2 On a perusal of the orders of the authorities below, it appears to us that the Assessing Officer and learned CIT (Appeals) in coming to their views have merely gone by the nomenclature 'brand building....
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....he assessee and upheld the Assessing Officer's view that the aforesaid rental incomes are not eligible for deduction under Section 10A of the Act. 11.2.1 We have heard the rival contentions, perused and carefully considered the material on record. The issue as to whether interest income, income from sale of scrap, export incentive, rental income, etc. are eligible for deduction under Section 10A of the Act has been considered by the Hon'ble High Court of Karnataka in the case of Subex Ltd. Vs. ITO in ITA Nos.46 & 47 of 2009 dt.2.10.2014 and it was held that rental income by virtue of sub-section (4) of Section 10 of the Act is deemed to be business of the undertaking for the purpose of extending the benefit of deduction under Section 10A of the Act. At paras 8 & 9 thereof, the Hon'ble Court, explaining the interplay of section 10A(1) and 10A(4) of the Act, has held as under : 11.2.2 Similarly, the Hon'ble High Court of Karnataka in the case of Wipro Ltd. Vs. DCIT in its order reported in (2016) 382 ITR 179 before whom the substantial question of law No.16 for consideration was in respect of income from sale of scrap, export incentive, rent received, interest inc....
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....ase of Wipro Limited Vs. DCIT dt.25.3.2015 (2016) 382 ITR 179." 13. We have heard the rival contentions in respect of the admission of the aforesaid additional grounds of appeal raised by the assessee (supra). Taking into account the facts and circumstances involved and the principles laid down in the decision of Hon'ble Apex Court in the case of NTPC Ltd. Vs. CIT (1998) 229 ITR 383, which has held that the ITAT has jurisdiction to examine additional grounds of appeal raised for the first time involving question of law and having a bearing on tax liability of the assessee, we, in the interest of justice and equity, admit the aforesaid additional grounds raised by the assessee for consideration in this appeal. 14. Additional Ground No.1. We have heard the rival contentions on this issue and perused the material on record. In respect of this additional ground, we deem it appropriate to remand the same to the file of the Assessing Officer for verification of details and documents in respect of the issue of whether allowability of foreign tax credit in respect of income eligible for deduction under Section 10A of the Act is also allowable under Section 90 of the Act in the light....
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....ase of Reliance Infrastructure Ltd. (supra) and to adjudicate thereon. Needless to add, the assessee shall be afforded adequate opportunity of being heard and to submit details / submissions required, which shall be duly considered before coming to a decision in the matter. The Assessing Officer is accordingly directed. Consequently, additional ground No.2 is treated as allowed for statistical purposes. 16. In the result, the assessee's appeal for Assessment Year 2005-06 is partly allowed. Revenue's appeal in IT(TP)A No.942/Bang/2015 for A.Y. 2006-07. 17. The Grounds raised in Revenue's appeal are as under : "1. The order of the learned CIT (Appeals) is opposed to law and facts of the case. 18. Grounds at S.Nos.1, 7 & 8. 18.1 Grounds at S.Nos.1, 7 & 8 (supra) being general in nature, no adjudication is called for thereon. 19. Ground No.2 - Disallowance u/s. 14A of the Act. 19.1 In this ground (supra), Revenue assails the action of the learned CIT (Appeals) in directing the Assessing Officer to disallow expenditure incurred for earning of exempt income under Section 14A of the Act as per the estimation proposed by the Assessing Officer rather than in following the proce....
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....No.7 of 2009 dt.22.10.2009, the assessee could not place reliance on these circulars any more. On appeal, the learned CIT (Appeals) held that Circular No.786 was in force when the said commission was paid in the year under consideration and withdrawal of the Circular No.786 w.e.f. 22.10.2009 cannot be held to be retrospective. The CIT (Appeals) at paras 11.1 and 11.2 of the impugned order also placed reliance on the directions issued by the DRP in assessee's own case for Assessment Year 2010-11 to hold that commission paid to non-residents were not liable for TDS under Section 195 of the Act and consequently not liable for disallowance under Section 40(a)(i) of the Act. 20.3.1 We have heard the rival contentions, perused and carefully considered the material on record. There is no dispute that the services rendered by the non-resident commission agents outside India was to procure new business and to strengthen existing business of the assessee from overseas clients. CBDT Circular No.23 dt.23.7.1969 (copy placed at pages 835 to 838 of compilation of decisions) held that a foreign agent of Indian exporter operates in his own country and no part of his income arises in India. ; ....
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....TR 456/193 Taxman 234/7 taxmann.com 18 (SC), once the income was not exigible or chargeable to tax, TDS was not required to be deducted. Money paid to the third parties, who did not have any office or permanent establishment in India, was exempt and not chargeable to tax. Thus on the said payments or income, TDS was not required to be deducted. We also note that the payments in question were made prior to circular No. 7/2009. On this aspect, there is no dispute. We, therefore, do not find any reason to interfere with the order passed by the tribunal deleting the addition made by the Assessing Officer under Section 40(a)(i) of the Act. The appeal, being devoid of merit, is dismissed." 20.3.2 Respectfully following the decision of the Hon'ble High Court of Delhi in the case of CIT Vs. Angelique International Limited (supra), we uphold the finding of the learned CIT (Appeals) that in the year under consideration the commission paid to non-residents was not liable for TDS and therefore not liable for disallowance under Section 40(a)(i) of the Act. Consequently, Ground No.3 of Revenue's appeal is dismissed. 21. Ground No.4 - Computation of deduction u/s. 10A of the Act. 21.1 In t....
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.... Section 80HHE at para 19 of its order held that expenses incurred in foreign exchange for rendering of technical services in connection with the development and production of computer software outside India cannot be excluded in computing the export turnover as it formed part of export turnover. Para 19, the operative portion of the aforesaid order is extracted hereunder : " 19. If the assessee is engaged in the business of providing technical services outside India in connection with the development or production of computer software then expenses if any incurred in foreign exchange in providing technical services outside India is liable to be deducted out of export turnover. The said provision has no application in the case of export out of India of computer software or its transmission from India to a place outside India by any means. The law makes a distinction between technical services rendered in connection with export of computer software and export of technical services for the purpose of development or production of computer software outside India. If the technical services rendered by the assessee's Engineers is in connection with the export of computer software fo....
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....erein it was held, in the context of Section 10B of the Act, that expenditure incurred in foreign currency for development and providing software development services outside India should not be reduced from export turnover for the purposes of computing deduction under Section 10B of the Act. 21.6 Subsequently, the Hon'ble Karnataka High Court in the case of CIT Vs. Kshema Technologies Ltd. (2016) 66 taxmann.com 165 (Kar) dt.8.1.2016 in the context of computation of deduction under Section 10A of the Act, following its decision in the case of Motor Industries Co. Ltd. (supra) has held that the expenditure incurred in foreign exchange for rendering of technical services for development and export of computer software services outside India cannot be excluded from export turnover. At paras 12 to 14 thereof the Hon'ble High Court has held as under : " 12. On substantial question No. 1, the Assessing Authority has extensively considered whether the activity carried on by the assessee is software development or technical service. It is an admitted fact, as per the assessment order, the role of the assessee is of developer of software and not a consultant to any project. It is....
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....ding services for the development of such software outside India is deemed to be the profits and gains derived from the export of computer software outside India. In other words, the services rendered by the assessee relating to the development of computer software is deemed to be part of export turnover of computer software outside India. 14. An identical issue relating to section 80HHE of the Act was considered by this court in the case of CIT v. Motor Industries Co. Ltd. [2015] 55 taxmann.com 377 (Kar.) and this court has held that though the services rendered in deputing the software engineers abroad who among other things have to do testing, installation and monitoring of software supplied to the client, appears to be technical in nature, it does not fall within the clause of providing technical service outside India in connection with the development or production of computer software and accordingly such expenditure cannot be excluded in computing export turnover. To decide the question on hand, the Tribunal has placed reliance on the Judgment passed by the Tribunal in the case of Mphasis Ltd. (supra). The very same Judgment was subjected to judicial scrutiny before ....