TaxTMI 
TaxTMI 
2020 (1) TMI 1011
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....isions of section 40(a)(ia) do not restrict its application 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&....
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....sallowance under section 14A is warranted, the same is to be restricted to 5% of salary paid to SVP - Finance and 50% of salary paid to an employee 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/- ....
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....hat assessee had total turnover of Rs. 649,56,53,722/- against which 10A exemption of Rs. 149,79,41,360/- was claimed in respect of 3 STPI units being Bangalore unit 1, Bangalore unit to and Pune unit. Ld.AO observed that assessee incurred foreign currency expenditure to the extent of Rs. 79,82,10,344/-, 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 amou....
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....0A. In the light of aforestated submissions, we dismiss these grounds raised by revenue. 8. Ground No. 6 is in respect of allowing deduction under section 10A before setting off brought forward losses and unabsorbed depreciation by Ld.CIT (A). Admittedly, it has been submitted that this issue stands settled in favour of assessee by 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 ....
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....s juncture Ld. CIT DR submitted that from the explanation offered by assessee, it is clear that expenditure incurred in foreign currency do not relate to "computer software" as submitted by Ld.AR. Placing reliance upon definition of "computer software" provided in Explanation 2 to section 10 A, Ld.CIT DR submitted that, computer software means, any computer 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 advanc....
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....sically marketing professional involved in finding prospective customers for business process service for the company. They make effective presentation about how best the company can offer services to the client in reducing its cost and in improving efficiency in its business operations. Once the client satisfies, he will invite for process study and analysis by the experts of the company in the relevant industry segment before entering into business 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 a....
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....on account of deferred revenue amounting to Rs. 11,69,38,859/-. It has been submitted that deferred revenue was in respect of those customers which were legally enforceable contract and has been offered to tax in the subsequent assessment year. Ld.AR submitted that addition made during year under consideration is revenue neutral and hence should be deleted. Ld.AR submitted that, Assessing Officer treated referred revenue as chargeable to tax for year under consideration and deduction 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/....
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....oto disallowance has been made by assessee, we direct Ld.AO to restrict disallowance under section 14 A to the extent of Rs. 10,000 only. Accordingly this ground raised by assessee stands partly allowed. 18. Ground No. 5 Ld.AR vide written submission dated 16/07/19 has submitted as under: It is submitted that authorities below has disallowed software expenses of Rs. 7,66,68,466/- under section 40(a), for non deduction of TDS. Ld.AR submitted that software expenses were incurred/paid during FY 2006-07 relevant 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 'roya....
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....is a highly debatable issue and various High Courts have taken divergent views on this issue. The co-ordinate Bench of this Tribunal in the case of ACIT Vs. Aurigene Discovery Technologies (P) Ltd. (supra) has considered an identical issue in paras 3 to 5 as under : " 03. We heard the rival submissions and gone through the relevant orders. The assessee resubmitted the plea taken before the lower authorities and placed on the ruling of the Hon'ble Bangalore ITAT in Sonata Information Technology Ltd v. ACIT (103 ITD 324) which had held that payments for software licenses do not constitute royalty 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 a....
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....is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax-deductor cannot be expected to have clairvoyance of knowing how the law will change in future." Further, software payment was included in definition of royalty only vide Explanation to section 9(1)(vi)inserted retrospectively vide Finance Act, 2012 and when the purchase was made, the appellant did not have the benefit of clarification brought by the retrospective amendment. It is impossible to fasten liability for deducting tax at source retrospectively as tax is to be deducted at source at the time when the payment is credited or made. This view has 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 ....
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....enefit of the clarification brought about b y the retrospective amendment. The contention of the appellant is correct that the software payment disallowed by the AO did not warrant withholding of the tax u/s 40(a)(ia) and 40(a)(ia) (by an order of corrigendum dt 20.11.2015) of the Act. Therefore disallowance made by the AO on account of software payment want of withholding of tax is hereby deleted." 05.The CIT(A) followed the decision of this Tribunal in M/s WS Atkins India Pvt. Ltd, supra, which referred the decisions of Hyderabad Bench of the Tribunal in Infotech Enterprises Ltd in ITA 115/HYD/2011 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 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 favou....
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....te at the time of foreign currency transaction takes place. He submitted that this may result in profit or loss as the case may be. Ld.AR submitted that during the year it was loss from forward contract amounting to Rs. 1,72,86,687/- that was set of income Putin income under the head income from other sources. He also submitted that forward contract and option contracts were entered into by assessee in respect of all 5 STPI unit, as a whole, and not at undertaking level, and therefore said loss could not be identified to any particular undertaking. It was thus submitted that loss that arose from such contract was to be set off in computing income under the head income from other sources. Ld.AR submitted that, for assessment year 2006-07, 2008-09 and 2010-11 to 2011-12, revenue authorities 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 submitt....
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....f Part-II in paper book), called upon assessee to explain loss incurred due to forward contracts, and to furnish documents/correspondences, relevant bank statement etc., in respect of the same. Assessee wide letter dated 10/11/09 (placed at page 27 Part-II in paper book) filed reply (which is placed at page 40 of Part-II in paper book) as under: "Explanation for setting off of loss on forward contracts against income from other sources Infosys BPO Ltd generates 98% of the revenue from exporting the BPO services to USA and European countries. The company covers currency fluctuation risk through entering the forward contract with the authorised dealer. During the year under consideration company has incurred Rs. 1.72 crores the loss on forward contracts. The company is not in the business of trading in 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 th....
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....tands partly allowed. 24. Ground No. 7 is in respect of brand building expenses claimed by assessee. The authorities below has held the brand building to be capital in nature as assessee has derived enduring benefits. However depreciation at 25% has been granted to assessee in respect of the same. Ld.AR submitted that expenses were shown to be incurred on advertisements, sales and marketing, seminars and exhibitions etc which has been held to be brand building expenses. He placed reliance upon decisions of: • Hon'ble Delhi High Court in case of DCIT vs Seagram Manufacturing Pvt.Ltd., reported in (2017) 78 Taxmann.com 293; • Hon'ble Bombay High Court in case of CIT vs Asian paints India Ltd reported in (2016) 75 Taxmann.com 152 • Coordinate bench of Mumbai Tribunal in case of Fine Jewellary India Ltd vs ACIT reported in (2014) 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....