AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 1805
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...., the Assessing Officer disallowed expenditure on ESOP, addition of unearned income and made disallowances u/s. 40(a)(ia), on networking cost, content development cost, direct cost and legal and professional charges. Aggrieved, the assessee filed appeals and the CIT(A) allowed the assessee's appeals. 3. Aggrieved against those orders, the Revenue filed these appeals with the common grounds of appeal. One of the common grounds is extracted as under: "1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2 The learned CIT(A) ought to have appreciated that the difference in issue price of ESOPs partakes the character of share premium and the shortfall is akin to short receipt of premium and hence not an allowable item of expenditure. 3. The CIT(A) erred in deleting the addition of Unearned income to the tune of Rs. 35.48 Crores made by the Assessing Officer. 3.1 The CIT(A) erred in not appreciating the fact that the assessee used to raise invoices against services to be rendered and once the invoices are raised that constitutes a sale to be recognised. The assessee is following mercantile system of account....
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....f hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored." 4. The Ld. DR presented the case on the lines of the grounds of appeal. Per contra, the Ld. AR submitted that this Hon'ble Tribunal decided all the above issues in its favour in the orders in DCIT vs Sify Technologies Ltd in ITA No. 1076/Mds/2011 dated 04.10.2013 for assessment year 2008-09 and in ITA Nos. 435,439 & 859/Mds/2010 dated 08.06.2016 for assessment years 2001-02, 2006-07 & 2007-08, respectively. So, he pleaded that on the same reasons these appeals may be allowed. 5. We heard the rival submissions and gone through the relevant material. The relevant portions of the orders, supra, issue wise are extracted as under: "5.1 On Employees Stock Option Plan: "24. We heard the rival submissions, perused the material on record and judicial decisions cited. The only contention of the Department that the expenditure is in the nature of capital in nature and the decision relied by the Commissioner of Income Tax (Appeals) has not attained finality. The ld. Authorised Representative argued on the purpose of issue of ESOP and also the types ....
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....R could not point out any distinguishing feature and only pleaded that the said order is yet to become final. 7. We have heard both parties and also perused the relevant findings as well as case law cited. The only bone of contention between the parties is that the assessee has treated the amount in question as unearned income, whereas; per Revenue, section 145(2) of the "Act" is applicable and he amount in question has to be treated as income of the current year. We find that the same very issue had arisen in assessment year 2003-04 in I.T.A. No. 1954/Mds/2007 (supra), wherein the Coordinate Bench had decided it in favour of the assessee as under: "Ground No. 4 4.1 The learned CIT(A) erred in directing the assessing officer to delete the addition of Rs. 39,68,208 recorded in the assessee's books for the relevant previous year as 'unearned income'. 4.2 The learned CIT(A) ought to have noted that the impugned income had accrued to the assessee, as the assessee was following mercantile system of accounting. 4.3 The learned CIT(A) ought to have seen that the assessee adopted a device to postpone the income for the purpose of Income Tax o....
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....resent appeal. 34. We have considered the rival submissions in the light of material on record. It was explained by the learned AR that the software development was the major source of income. In the written submission filed by the AR before the CIT(A) the breakup of receipts was shown as under. Sl.No Particulars Amount (Rs. In lacs) c The major service income are as under:- Income from software development (IDC) LMNK 1175 Income from software development non LMNK 162 Income from IT training 48 Income from software services LMS 3 Income from - LL 2 Miscellaneous others 4 Total 1394 35. The CIT(A) has deleted the addition for the reasons given in paragraph 4.3 of his order. He has, interalia, observed that the revenue earned by the assessee from software and consultancy services was recognized on delivery of goods / services, that as per the existing scheme, M/s. Satyam Education Services Limited was assigned the responsibility to 'sign off' on completion of the project in the case of all customers, that the as....
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...."6. I have carefully considered the facts of the case and the rival submissions and also examined the issues carefully with reference to applicability of sec. 195, which has been denied by the appellant. The appellant company is engaged in the business of providing networking and e-commerce services by way of internet. In order to carry out its business of providing broadband internet connectivity the appellant company has entered into agreements with certain non-resident companies. The assessee therefore made certain remittances in foreign currency towards connectivity charges and bandwidth charges which are called telecommunication charges without deduction of tax at source. The Assessing Officer examined the matter and found that the equipments used by the appellant company through which connectivity was provided are used by the assessee. Therefore, it treated the payment as royalty for the use of the equipments. Consequently, the Assessing Officer held that the appellant committed default u/s 195 in so far as it had not deducted tax at source. He therefore, worked out short deduction of tax u/s. 201(1) at Rs. 3,45,99,751/- and Rs. 3,33,39,659/- for A.Ys. 2002-03and 2003-04 resp....
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....n parties would fall within the purview of sec. 195(1) which requires deduction of tax at source. Bandwidth is bought and sold to consumers and it acts as a conduit only. In the appellant's case there are no equipments installed in its premises and the contract entered with the foreign parties is only for the services. Mere use of equipment in providing bandwidth services would not amount to transfer of right to use. As a matter of fact there are no goods involved in the transaction and the payments are made only for the use of services. The word "royalty" and its meaning was introduced vide Finance Act, 1976 and was defined under explanation 2 to sec. 9(1)(i) which was further expanded to include 'the right to use any industrial commercial or scientific equipment but not including the amounts referred to in sec,. 44B. The amendment was made by Finance Act, 2001 by incorporating c1ause (iv a) w.e.f. 01-04-2002 i.e., applicable for A.Y. 2002-03. In simple words, therefore, royalty means the payment of any kind received as a consideration for the use of' or the right to use, any copy right of literary artistic or scientific work but, does not include the words 'use....
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....ame requires to be followed by us. Our view finds support from the decision of the Hon'ble Bombay High Court in CIT Vs. Godavari Devi Saraf [Smt] [1978] 113 ITR 589 [Bom] We, therefore, confirm the order of the ld. CIT(A) and dismiss the grounds of appeals of the Revenue. 8. In the result, both the appeals of the Revenue are dismissed." After going through the operative portion above said, there is no iota of doubt that the payments in question made by the assessee cannot be subjected to the applicability of TDS provisions contained in the "Act". Therefore, in view of the same and in order to maintain consistency, we rely on the above said order of the ITAT and decide the grounds against the Revenue''. We respectfully following the above decision, we upheld the order of the Commissioner of Income Tax (Appeals) and dismiss the Revenue appeal." 5.4 On Content Development Costs: "53. We have considered the facts and submissions made by the ld. Authorised Representative and Departmental Representative, on similar issue was adjudicated by us for the assessment year 2001-02 in ITA No.435/Mds/2010 at para 13 and we dismiss the ground of the Revenue." ....