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2020 (7) TMI 169
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.... ITA No. 5555/DEL/2014 [Assessee's appeal A.Y 2005-06] 2. Ground No. 1 relates to the disallowance made u/s 14A of the Income tax Act, 1961 [hereinafter referred to as 'The Act' for short] being 10% of dividend income earned during the financial year. 3. Facts on record show that during the year under consideration, the assessee earned dividend income of Rs. 6,12,626/-. However, no disallowance was made by the assessee u/s 14A of the Act in respect of earning this exempt income. The Assessing Officer was of the firm belief that some expenses need to be disallowed for earning this exempt income. The Assessing Officer was of the opinion that for earning dividend income, there are various administrative expenses involved, like taking the decision of investment, expenses relates to purchase/sale of the investment, like the DMAT fee, collection expenses, telephone expenses etc and other administrative expenses as well as personnel cost. 4. The Assessing Officer accordingly, disallowed by estimating 25% of the dividend income and made addition of Rs. 1,53,157/-. 5. When the matter was agitated before the ld. CIT(A), the ld. CIT(A) was of the opinion that 10% of the di....
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....elivery of computer software outside India and also details of expenditure incurred in foreign exchange in providing the technical services outside India. 13. Details were furnished by the assessee. After perusing the details, the Assessing Officer asked the assessee to explain as to why the tele-communication expenses pertaining to the delivery of the computer software not be excluded from the export turnover for the purpose of computation of deduction u/s 10A of the Act. The assessee was also asked to explain as to why the expenses incurred in foreign currency for the purposes of providing the technical services outside India not be excluded from the export turnover for the purpose of calculation of deduction u/s 10A of the Act. 14. In its reply, the assessee contended that such expenditure could only be excluded from the export turnover only when these are included in the export turnover in the first place. It was pointed out that since the aforesaid expenditure had not been included in the export income and also since no specific reimbursement was claimed in respect of these expenses, the same were not forming part of the export turnover, and accordingly, such expenditure....
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.... is the author. In the said case the relevant findings have been given in paras 21 and 22 which read as under: 21. We have considered the submissions of both the parties and carefully gone through the material available on record. It is noticed that an identical issue has been decided in favour of the assessee by the Special Bench of ITAT Chennai in the case of ITO v. Sak Soft Ltd. 313 ITR (AT) 353 (Chennai)(SB) wherein it has been held as under: "To say that in the absence of any definition of "total turnover" for the purpose of section 10B, there is no authority to exclude anything from the expression as understood in general parlance would be wrong, as there has to be an element of turnover in the receipt if it has to be included in the total turnover. That element is missing in the case of freight, telecom charges or insurance attributable to the delivery of the goods outside India and expenses incurred in foreign exchange in connection with the providing of technical services outside India. These receipts can only be received by the assessee as reimbursement of such expenses incurred by him. Mere reimbursement of expenses cannot have an element of turnover. I....
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....he assessment year 2004-05 in ITA No. 3199/Del/2007 vide order dated 23.01.2009, ITAT Delhi Bench 'C' New Delhi vide paras 8 and 9 has held as under: "8. With regard to the revenue's ground of appeal, he submitted that the issue is squarely covered by a number of decisions of the ITAT. He relied upon the order of the ITAT in the case of Binary Sematics (supra) and the order of the ITAT in the case of ACIT Vs Infoses Technologies reported in 172 Taxman 134. Similarly, he pointed out that an identical issue has been considered by the ITAT, Hyderabad Bench in the case of Patni Telecommunication (P) Ltd. Vs ITO reported in (2008) 22 SOT 26 (Hyd.). Learned DR was unable to controvert the contentions of the learned counsel for the assessee. 9. On due consideration of the facts and circumstances of the case, we find that this issue has been considered in detail by the ITAT in the above orders and it has been held that if such expenses are to be excluded from the export turnover then they are to be excluded from the total turnover also. Respectfully following the orders of the ITAT, we do not find any merit in the ground raised by the revenue. Learned CIT(Appe....
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....the opinion that the license fee debited in the profit and loss account is to be amortized over the remaining period of license and since the assessee has claimed Rs. 16,06,36,027/-, the Assessing Officer was of the opinion that 1/10th of the payment is to be allowed u/s 35ABB of the Act for expenses incurred during the year under consideration and accordingly, disallowed excess amount of Rs. 14,45,72,425/- 30. The assessee carried the matter before the ld. CIT(A) and reiterated its contentions as taken before the Assessing Officer. 31. The ld. CIT(A) found that in A.Y 2007-08, his peer has deleted the additions made by the Assessing Officer and following the same, the ld. CIT(A) deleted the addition. 32. Before us, the ld. DR strongly supporting the findings of the Assessing Officer reiterated that the expenditure is of capital in nature and there is no error in the findings of the Assessing Officer. 33. The ld. counsel for the assessee drew our attention to the decision of the co-ordinate bench. 34. We have given thoughtful consideration to the orders of the authorities below. We find force in the contention of the ld. counsel for the assessee. An identical issue w....
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....is like lease rent which is payable from time to time to be able to use the licence. The licence acquired was initially for 10 years and the term was extended under the 1999 policy to 20 years but this itself does not justify treating the licence fee paid on revenue sharing basis under the 1999 policy as a capital expense made to acquire an asset. The payment of yearly licence fee on revenue sharing basis was for carrying on business as cellular telephone operator and, thus it was a normal business expense. Read in this manner, the licence granted by the Government/authority to the assessee would be a capital asset, yet at the same time, the assessee has to make payment on yearly basis on the gross revenue to continue, to be able to operate and run the business, it would also be revenue in nature. Failure to make stipulated revenue sharing payment on yearly basis would result in forfeiting the. right to operate and in turn deny the assessee, right to do business with the aid of the capital asset. Non-payment will prevent and bar an assessee from providing services. In aforesaid circumstances, it would be appropriate and proper t....
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....wable under section 35ABB would be more than the actual payment by the assessee as licence fee for the said year. This would normally happen after the mid- term of the licence period. Section 35ABB, therefore, ensures that the capital payment is duly allowed as a deduction over the term and once the expenditure is allowed, it would be revenue or tax neutral provided the tax rates remain the same during this period." 31. The Hon'ble Jurisdictional High Court concluded as under: (i) The expenditure incurred towards licence fee is partly revenue and partly capital. Licence fee payable up to 31- 7-1999 should be treated as capital expenditure and licence fee on revenue sharing basis after 1-8-1999 should be treated as revenue expenditure. (ii) Capital expenditure will qualify for deduction as per section 35ABB. 32. Facts of the present case appears to be similar to the facts involved in the case of CIT Vs Bharti Hexacom Ltd. (Delhi) (supra), we, therefore, restored this issue to the file of the AO to be decided in accordance with the findings given by the Hon'ble Jurisdictional High Court in the case of Bharti Hexacom Ltd. (supra) an....
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....neither during the assessment proceedings nor before the first appellate authority and, therefore, the authorities below had no occasion to examine the claim of the assessee. 44. We have given thoughtful consideration to the contents of the additional ground. We find force in the contention of the ld. counsel for the assessee. The Hon'ble Supreme Court in the case of NTPC [supra] has laid down the ratio that the legal issue can be raised by way of additional ground before the appellate authorities. 45. Similar issue arose before the Tribunal in the case of Maruti Suzuki in ITA No. 961/DEL/2015 wherein the co-ordinate bench by way of an interim order held as under: "11. We have given thoughtful consideration to the submissions made by the rival representatives and have carefully considered the issues raised vide additional ground mentioned elsewhere. At the very outset, we have to state that a legal plea can be raised at any point of time. In the present case, the appeal was heard earlier, but marked as 'Part Heard' and subsequently released, which means that the appeal was never adjudicated by the Tribunal. In our considered opinion, there is no limit of time to ....
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....interpretation to be placed on Section 90 which is found in Chapter IX which deals with Double Taxation Relief. 27. Section 90 deals with agreement with foreign countries or specified territories. The present Section came into force from 01.04.2004. Earlier to that period, Section 90 read as under: "90. Agreement with foreign countries.-(1) The Central Government may enter into an agreement with the Government of any country outside India- (a) for the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country; or..." 28. The notes on clauses to Finance Bill, 2003 which explains Clause 43 seeking amendment to the Act reads as follows: "Clause 43 seeks to amend section 90 of the Income-tax Act relating to agreement with foreign countries. The existing provisions of the said section, inter alia, provide that the Central Government may enter into agreement with the Government of any country outside India for granting of relief in respect of income on which have been paid both income-tax under the Income Tax Act and income-tax in that country, or for the avoi....
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.... corresponding law in force in that country or specified territory, as the case may be, or (c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be, and may, by notification in the Official Gaxette, make such provisions as may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. (2A) Notwithstanding anything contained in sub- section (2), the provisions of Chapter X-A of ....
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....t sine qua non any more for granting the relief. This provision was introduced with the object of promoting mutual economic relations, trade and investment. In other words, it was a policy of the Government. 33. When there is a specific provision in the double taxation avoidance agreement providing for a particular mode of computation of income or granting of relief, the same should be followed irrespective of the provisions of the Act. If the agreement with the foreign country is under Clause (a)(i) for relief against double taxation and not under Clause (b) for the avoidance of double taxation; the assessee must show that the identical income has been doubly taxed and that he has paid tax both in India and in the foreign country on the same income. Section 91 makes it clear that if a person who is residing in India has paid tax in any country with which, there is no agreement under Section 90 for the relief or avoidance of double taxation, income tax if deducted or otherwise paid as per law in force in that Country, then he shall be entitled to the deduction from the Indian Income Tax payable by him in a sum computed on such doubly taxed income, at the Indian rate of tax....
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....economic development. In order to avoid such an anomalous and incongruous situation, the Governments of different countries enter into bilateral treaties, Conventions or agreements for granting relief against double taxation. Such treaties, conventions or agreements are called double taxation avoidance treaties, conventions or agreements. The power of entering into a treaty is an inherent part of sovereign power of the State. By Article 73, subject to the provisions of the Constitution, the executive power of the Union extends to the matters with respect to which the Parliament has power to make laws. Our Constitution makes no provision making legislation a condition for the entry into an international treaty in time either of war or peace. The executive power of the Union is vested in the President and is exercisable in accordance with the Constitution. The Executive is qua the State competent to represent the State in all matters international and may by agreement, convention or treaty incur obligations which in international law are binding upon the State. But the obligations arising under the agreement or treaties are not by their own force binding upon Indian....
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.... 90 (1)(a)(ii) of the Act it is not a case of the income being subjected to tax or the assessee has paid tax on the income. This applies to a case where the income of the assessee is chargeable under this Act as well as in the corresponding law in force in the other country. Though the income tax is chargeable under the Act, it is open to the Parliament to grant exemptions under the Act from payment of tax for any specified period. Normally it is done as an incentive to the assessee to carry on manufacturing activities or in providing the services. Though the Central Government may extend the said benefit to the assessee in this country, by negotiations with the other countries, they could also be requested to extend the same benefit. If the contracting country agrees to extend the said benefit, then the assessee gets the relief. In another scenario, though the said income is exempt in this country, by virtue of the agreement, the amount of tax paid in the other country could be given credit to the assessee. Thus for the payment of income tax in the foreign jurisdiction, the assessee gets the benefit of its credit in this country. 40. However, if the contracting c....
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....ch person, or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year". The proviso speaks about a person not ordinarily resident. 43. Chapter III deals with Incomes which do not form part of Total Income. One such income which does not form part of a total income is contained in Section 10A; i.e. income of newly established undertakings in free trade zone, etc. Section 10A(1) provides, "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 begins 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." 44. This provision provides for a deduction of profits or gains derived from export by an undertaking for a period of ten years. The profits and gains derived by such undertaking would form pa....
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.... termed as deduction. But for this exemption, the said income namely profits and gains derived by an undertaking, is chargeable to tax under the Act. The said exemption is only for a period of ten years. After the expiry of the said ten years the said income is taxable. When such exemption is given under the Act, but the said income is taxed in foreign jurisdiction, there is no relief to the assessee at all. Therefore, to promote mutual economic relations, trade and investment, the Act was amended by way of Finance Act, 2003 which came into force from 1.4.2004. By insertion of a new clause (ii) in subsection (1)(a) of Section 90 the Central Government has been vested with the power to enter into an agreement with the Government of any country outside India for the granting of relief in respect of income tax chargeable under the Income Tax Act or under the corresponding law in force in that country, to promote mutual economic relations, trade and investment. Therefore, the statute by itself is not granting any relief. But, by virtue of the statute, if an agreement is entered into providing for such relief, then the assessee would be entitled to such relief. 53. Rel....
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....aka High Court in Karnataka Cement Pipe Factory v. Supdt. Of Central Excise (1986 23 ELT 313) (Karn HC)), where it was decided that the words 'as being subject to a duty of excise' appearing in section 2(d) of the Act are only descriptive of the goods and do not relate to the actual levy. "Excisable goods", it was held, do not become non-excisable goods merely by reason of the exemption given under a notification.' 56. Therefore, it follows that the income under Section 10A is chargeable to tax under Section 4 and is includible in the total income under Section 5, but no tax is charged because of the exemption given under Section 10A only for a period of 10 years. Merely because the exemption has been granted in respect of the taxability of the said source of income, it cannot be postulated that the assessee is not liable to tax. The said exemption granted under the statute has the effect of suspending the collection of income tax for a period of 10 years. It does not make the said income not leviable to income tax. The said exemption granted under the statute stands revoked after a period of 10 years. Therefore, the case falls under Section 90(1)(a)(i....
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....hich is attributable to the income which is to be taxed in United States. Therefore, an embargo is prescribed for giving such tax credit. In other words, the assessee is entitled to such tax credit only in respect of that income, which is taxed in the United States. This provision became necessary because the accounting year in India varies from the accounting year in America. The accounting year in India starts from 1st of April and closes on 31st of March of the succeeding year. Whereas in America, the 1st of January is the commencement of the assessment year and ends on 31st of December of the same year. Therefore, the income derived by an Indian resident, which falls within the total income of a particular financial year when it is taxed in United States, falls within two years in India. Therefore, while claiming credit in India, the assessee would be entitled to only the tax paid for that relevant financial year in America, i.e., the income attributable to that year in America. In other words, the income tax paid in the same calendar year in United States of America is to be accounted for two financial years in India. Of course, this exercise should be done by the ass....
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....allowance to 5% of the dividend income earned by the assessee. 59. Before us, the ld. DR strongly supported the findings of the Assessing Officer. 60. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities. 61. We have given thoughtful consideration to the orders of the authorities below. It is a settled law that Rule 8D of the Rules is applicable from A.Y 2008-09 onwards. However, some reasonable expenditure needs to be disallowed for earning exempt income. Since the ld. CIT(A) has considered the reasonableness and restricted the disallowance to 5% of dividend income, we do not find any error or infirmity in the findings of the ld. CIT(A). Ground No. 1 is accordingly, dismissed. 62. Ground Nos. 2 and 3 relate to the deletion of addition of Rs. 14,08,85,409/- on account of license fee paid to DOT which was treated as capital expenditure by the Assessing Officer. 63. An identical issue has been considered and decided by us hereinabove in ITA No. 5924/DEL/2014 [supra] vide Ground Nos. 2 and 3. For our detailed discussion given therein, Ground Nos. 2 and 3 are dismissed. 64. Ground Nos. 4 and 5 relate to the determin....
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.... year under consideration itself which means that the opening and closing balance of these investments is zero on account of being purchased and sold during the year. 73. We are of the considered view that the disallowance u/s 14A r.w.r 8D of the Rules is in relation to the income which does not form part of the total income and this can be done by taking into consideration the investment which has given rise to exempt income which does not form part of the total income. 74. We find that the Tribunal in assessee's own case for A.Y 2011-12 has held that wherein dividend was received from investments made in mutual funds which were brought and sold during the year and since there was no opening and closing balance of investments from mutual funds, it is impossible to determine the average value of investments for the purpose of Rule 8D(2)(ii) of the Rule and accordingly, disallowance made u/s 14A of the Act r.w.r 8D of the Rules was deleted. 75. Respectfully following the findings of the co-ordinate bench in assessee's own case, the additions are deleted. Ground No. 1 is allowed. 76. Ground Nos. 2, 3 and 4 relate to determination of deduction u/s 10A of the Act in respect....
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.... of the Tribunal in the case of Vodafone Mobile Services Ltd ITA No. 4722/DEL/2013 wherein it has been held that WPC paid to DOT on quarterly basis as a percentage of revenue was payment necessary for running business and the assessee could not run the business without making these payments on quarterly basis and, thus, this could not be held as capital in nature. The ld. counsel for the assessee prayed for deletion of Rs. 25.69 lakhs. 87. Per contra, the ld. DR strongly supported the findings of the authorities below. It is the say of the ld. DR that at the most, the claim of Rs. 25.69 lakhs is prior period expenses and, therefore, being prior period expenses cannot be allowed in the year under consideration and should have been claimed in the relevant A.Y. 88. We have given thoughtful consideration to the orders of the authorities below. It is not in dispute that Rs. 25.69 lakhs were paid to DOT as advance recoverable from DOT. The assessee may have taken wrong stand while claiming it as advance recoverable from DOT, but, at the same time, write off during the year under consideration cannot be brushed aside lightly as in case the same has to be considered as business loss.....