TaxTMI 
TaxTMI 
TaxTMI 
2020 (1) TMI 1011
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.... to the outstanding amounts as at the end of the previous year but to all such payments made or credited during the year, without deduction of tax at source. 3. The CIT(A) erred in not appreciating that the Visakapatnam Special bench of the ITAT has made an attempt to write its own statute rather than interpret the statute. 4. The CIT(A) erred in directing the AO to follow the ratio laid down by the Hon'ble Court in the case of Tata Elxsi Limited 349 ITR 98 and exclude the telecommunication charges incurred in foreign currency from the total turnover also while computing the deduction u/s 10A of the I.T. Act, without appreciating the fact that there is no provision in Section 10A that such expenses should be reduced from the total turnover also, as clause (iv) of the explanation to Section 10A provides that such expenses are to be reduced only from the export turnover. 5. The CIT(A) erred in not appreciating the fact that the jurisdictional High Court's decision in the case of Tata Elxsi Limited 349 ITR 98 has not been accepted by the department and an appeal has been filed before the Hon'ble Supreme Court. 6. The CIT(A) erred in directing the AO to follow the r....
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....ee handling treasury functions respectively. 5.The learned CIT(A) erred in not giving any finding as to whether software expenses of Rs. 7,66,68,466/- is liable for disallowance or not as made by the learned assessing officer in the order passed under section 143(3). 6.The learned CIT(A) erred in confirming the action of the learned assessing officer that - losses from forward and option contracts amounting to Rs. 1,72,86,687/- is to be set off while computing business income as against the contention of the appellant that the said losses should be set off while computing the income under the head 'Income from other sources'. 7. The learned CIT(A) erred in confirming the action of the learned assessing disallowing the brand building expenses of Rs. 55,93,402/- as capital in nature. 8.The learned CIT(A) erred in not adjudicating the additional ground of appeal filed by the appellant regarding the allowability of foreign tax credit claimed in the return of income amounting to Rs. 1,10,183/- 9.The learned CIT(A) has erred in confirming the levy of interest under section 234B and 234D of the Income tax Act, 1961. The appellant denies its liability to pay interest unde....
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.... which has not been excluded from export turnover as per definition contained in provisions of section 10 A. Ld.AO observed that assessee incurred expenditure of Rs. 15,67,08,619/- towards telecommunication charges attributable to delivery of software outside India, which was excluded from both export turnover and total turnover for computation of deduction under section 10A of relevant undertaking. Ld.AO observed that sum of Rs. 11,69,38,859/- was treated as deferred revenue not considered in profit and loss account as certain procedural aspects by client in pursuance of contract with them was not fulfilled. Ld.AO disallowed said sum by holding that, assessee is deemed to have received said amount, from its client, and the same is to be recognised in its books of accounts as income for year under consideration. Ld.AO observed that assessee earned non-taxable income amounting to Rs. 7,08,50,379/- for which no voluntary disallowance was computed under section 14A. Ld.AO thus computed a sum of Rs. 23,58,820/- by invoking section 14 A read with Rule 8D of the Act. Assessing Officer observed that assessee incurred software expenses amounting to Rs. 9,36,51,134/-, but in respect of ....
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.... decision of Hon'able Supreme Court in case of CIT vs Yokogawa India Ltd reported in (2017) 391 ITR 274 and CIT vs JP Morgan services India Pvt.Ltd., reported in (2017) 393 ITR 24 wherein it has been held that deductions under section 10 A, 10 B should be allowed in respect of current year profits of the undertaking before setting off brought forward losses and unabsorbed depreciation. In the light of aforestated submissions we dismiss these grounds raised by revenue. In the result appeal filed by revenue stands partly allowed. 9. ITA No. 1367/B/2014 (assessee's appeal) It has been submitted that Ground No.1 and 10 is general in nature and therefore do not require any adjudication. 10. Ground No. 2 is in respect of upholding reduction of foreign currency expenses from export turnover by Ld.CIT (A). Ld.AR submitted that expenses incurred in foreign currency amounting to Rs. 79,82,10,344/- should not be reduced from export turnover while computing deduction under section 10A, as assessee is not engaged in business of information technology enabled services and is engaged in business of export of computer software outside India. Placing reliance upon the definition of computer s....
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....er program recorded on any disk, tape, perforated media or other information storage device or any customised electronic data or any product or services of similar nature as may be notified by the board, which is transmitted or exported from India to any place outside India by any means. She thus distinguished decisions relied upon by Ld.AR passed by Hon'ble Karnataka High Court and submitted that, ratio is not applicable to facts of present case, as assessee is not rendering services/activities, as defined to be "computer software". She thus vehemently supported view taken by Ld. CIT (A). However Ld. CIT DR did not object for same to be excluded from total turnover as held by decision of Hon'ble Supreme Court in case of CIT vs HCL Technologies Ltd., reported in (2018) 404 ITR 719. 12. We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that Explanation 2 (i) defines "Computer Software" to mean; (a) any computer program recorded on any disk, tape, perforated media or other information storage device; or (b) any customised electronic Tata or any product or service of similar nature, as may be notified by the board, ....
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....iness process outsourcing agreement between the client and the company. * Process study and analysis by the experts of the company who visit the client location: The experts (professional) based on the invitation by the client, visit the client's place and conduct process study on the client's business activities and submit a report to the client. For this study, the company charges the clients. Once the client satisfies based on the process study that the company will be benefitted by outsourcing the business process to the company, the client will call for transition which is somewhat similar to training of the employees of the company. * Transition: This is a process whereby some of the employees of the company are giving training with regard to the business process of the client so that the said trained employees come back to India and handle the client's business process in India. The company charges the clients for undergoing training by the employees of the company. During the course of transition, negotiations will be conducted for signing Master Service Agreement. On completion of transition, the trained employees come back to India and handle the process independently....
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....n under section 10A was allowed in respect of the same. It has been submitted that before Ld.CIT (A), alternative argument was raised of reducing the same from turnover of 2008-09, in the event the same is treated to be deferred revenue for year under consideration, since assessee credited the said amount in P&L account for year ending 31/03/08. Ld.CIT DR submitted that issue may be set-aside to Ld.AO for verification as submitted by Ld.AR. 14. We have perused submissions advanced by both sides in light of records placed before us. 15.1 Ld.AR placed reliance upon decision of Co-ordinate Bench of this Tribunal in case of Schneider Electric IT business India Pvt. Ltd., vs JCIT in ITA No. 299/B/2014 vide order dated 30/04/19 and decision of Hon'ble Supreme Court in case of Bilahari Investment Pvt. Ltd reported in (2008) 299 ITR 1. Ld.AR vide his written submission dated 16/07/19, submitted that Assessing Officer in earlier years accepted accounting of deferred revenue and addition has been made by Ld. AO only for assessment years 2007-08 and 2008-09. He placed reliance upon customer wise breakup of deferred revenue along with date of revenue recognition during financial year 2007-....
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....levant to AY 2007-08. He submitted that decision of Hon'ble Karnataka High Court in CIT v Samsung Electronics Co Ltd reported in [2010] 320 ITR 209 was set aside by Hon'ble Supreme Court in GE India Technology Centre (P) Ltd v CIT reported in [2010] 327 ITR 456. And that, subsequently, vide another decision in CIT v Samsung Electronics Co Ltd reported in [2012] 345 ITR 494, it was held by the Hon'ble Karnataka High Court that software payments are in the nature of 'royalty' and hence liable for TDS. Independently, Hon'ble Karnataka High Court in CIT v Synopsys International Old Ltd reported in 28 taxmann.com 162 held that software payments constituted 'royalty' and liable for TDS. 19. It is submitted that, before aforesaid decisions of Karnataka High Court, ITAT Bangalore bench in following decisions placed at Page 583 to 657 of case law compilation held that software payments cannot he treated as 'royalty'. * Lucent Technologies Hindustan Ltd v ITO [2005] 92 ITD 366 (Bangalore) dt.31.10.2003 * Samsung Electronics Co Ltd v ITO [2005] 94 ITD 91 (Bang) dt. 18.2.2005 * Sonata Software Ltd v ITO [2006] 6 SOT 700 (Bang) dt. 28.4.2005 * Mphasis BFL Ltd v....
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.... under the provisions of the Act and hence disallowance under section 40(a) (ia) of the Act would not be applicable. The change in the legal position on taxation of computer software was on account of the ruling of the Karnataka High Court in CIT v. Samsung Electronics Co. Ltd. (320 ITR 209), which was pronounced on 15.10.11 that is much later than the closure of the FY 2010-11. Subsequently, the Finance Act 2012 also introduced, retrospectively, Explanation 4 to section 9(1 (vi) of the Act to clarify that payments for, inter alia. license to use computer software would qualify as royalty. During the FY 10-11, the assessee did not have the benefit of clarification brought by the respective amendment. As such, for the FY 2010-11, in light of the provisions of section 9(1)(vi) of the Act read with judicial guidance on the taxation of computer software payments, tax was not required to be deducted at source. Given the practice in prior assessment years, the assessee was of the bona fide view that the payment of software license fee was not subject to tax deduction at source under section 194J/195 of the Act. It is submitted that liability to deduct tax at source cannot be fastened on ....
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....s been upheld by the Bangalore Tribunal in the case of DCIT vs M/s WS Atkins India Pvt Ltd (ITA No 14671Bang12014 and the Mumbai Tribunal in the case of Channel Guide India Ltd. vs ACIT ([2012] 25 taxmann.com 25). 5.2 The ITAT 'C' Bench in the case M/s WS Atkins India Pvt. Ltd and in the case of Infotech Enterprises Ltd of the Hyderabad Bench of the Tribunal wherein it has been held that section 40(a)(ia) would not apply to disallow payments when TDS was not done and subsequently become taxable on account o f a retrospective legislation. It has also referred to in the case of Sonic Biochem Extractions Pvt. Ltd. (supra), identical issue was considered and decided by the Mumbai Tribunal. Following were the relevant observations:- "The assessee purchased software, capitalized the payment to the computers account as the software came along with the hardware of computers and claimed depreciation. On the ground that purchase of software is essentially purchase of copyright which attracts tax deduction at source under section 194J, the Assessing Officer involved the provisions of section 40(a)(ia) and disallowed the depreciation claimed. The Commissioner (Appeals), confirmed t....
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....nt o f a retrospective legislation. It has also referred to the decisions of the Delhi & Mumbai Tribunal in SMS Demag Pvt Ltd , 132 ITJ 498 & Sonic Biochem Extractions Pvt. Ltd. 23 ITR (Trib) 447, respectively. We uphold the decision of the CIT(A) and dismiss the grounds raised by the Revenue." Thus it is clear that the co-ordinate Bench of this Tribunal while deciding this issue has taken note of various decisions in favour of the assessee on the point that the payment for purchase of software does not fall in the definition of royalty. Respectfully following the decision of co-ordinate Bench of this Tribunal, we delete the di sallowance made by the Assessing Officer". Article 141 lays downs binding nature of decisions of Hon'ble High Courts. It is a settled position that when Hon'ble High Courts gives decision on question of law, it should be followed by Co-ordinate Benchs, as well as by lower courts. It is implicit in power of supervision conferred on Tribunal that Tribunals subject to Jurisdictional High Court, would confirm to law laid down by Jurisdictional High Court. This view has been expressed by Hon'ble Supreme Court in case of East India Commercial Co. Ltd. v. Collec....
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....orities accepted gain/loss on forward contracts to be income from other sources. He placed reliance upon the chart at page 341 of paper book wherein, details of assessment order passed under section 143(3) for these assessment years have been given. Assessee also placed assessment orders in paper book at pages 343-419 of paper book in support of consistent view taken by Ld.AO. It has been submitted that, there is no nexus between gain or loss earned by assessee from forward contract with eligible unit under section 10A, and therefore, cannot be part for purpose of computing deduction under section 10A of the Act. He placed reliance upon decision of Hon'ble Bombay High Court in case of Zandhu Pharmaceuticals Works Ltd vs CIT reported in 350 ITR 366, wherein, it has been held that, expenses which do not relate to an industrial undertaking/unit under consideration, and they relate to other units or to head office of assessee, such expenses cannot be taken into consideration while computing deduction under the said provisions. He also placed reliance upon decision of Hon'ble Karnataka High Court in case of Wipro Ltd vs DCIT reported in 382 ITR 179, wherein, it has been held that, expe....
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.... forward contracts, the profit or loss on such contracts in foreign exchange is not considered as derived from the business of the undertaking. Forward contracts in foreign exchange partakes the character of treasury operations. In accordance with the internationally accepted accounting standards. The company obliged to value the outstanding contracts as at the end on Mark-to-market basis and recognise the income/loss accordingly. The net profit/loss from such transactions are offered to tax under the income from other sources." Authorities below rejected submissions of assessee and held it to be business loss. Admittedly, assessee is not a dealer in foreign exchange. What is necessary to be analysed is, dominant purpose for entering into forward contract and option contracts. As we analyse reply filed by assessee on query raised by Ld. AO(referred to herein above), it is observed that forward contract was entered into by assessee in respect of all 5 units as a whole, to hedge against currency fluctuation in respect of receipts (98%) in view of services rendered by assessee to USA and European countries. It has been submitted in written submission dated 16/07/19 by Ld.AR that s....
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....48 Taxmann.com 16 Ld.AR submitted that in all the aforestated decisions expenditure incurred on brand building was allowed as business expenditure. He also submitted that as per 26 A-S and intangible assets should be recognized, if and only if, it is probable that future economic benefits that are attributable to assets will flow into the enterprise and cost of asset can be measured reliably. It has been submitted by Ld.AR that in present facts of case expenditure was of revenue in nature and did not result in acquisition or creation of any asset or brand as contended by authorities below. Ld. CIT DR placed reliance upon observations of Ld.CIT (A) in para 8.5 that assessee had not furnished any details as how expenses have been incurred on intangible assets if not acquired. It has been submitted that in absence of complete details Ld. CIT (A) upheld disallowance by Ld.AO. 25. We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that the expenditure incurred towards advertisements, sales and marketing, holding various seminars and exhibitions are in relation to ongoing business of assessee. As held by Hon'ble Bombay Hig....