TaxTMI 
TaxTMI 
2022 (6) TMI 228
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....under consideration declaring total income of Rs.102.35 crores. The AO completed the assessment determining total income at Rs.170.89 crores by making various additions and disallowances. The appeal filed by the assessee before Ld CIT(A) challenging the assessment order was partly allowed. Still aggrieved, the assessee has filed this appeal before the Tribunal. 4. The first issue relates to the disallowance of deduction claimed u/s 80JJAA of the Act. The facts are that the assessee claimed a deduction of Rs.26.87 crores u/s 80JJAA of the Act, under which additional deduction of 30% of the additional wages paid to 'new regular workmen' employed by the assessee in a previous year is allowed for three assessment years. The AO disallowed the claim holding that:- (a) the business of software development will not fall under the category of industrial undertaking. (b) assessee is not engaged in the business of manufacturing or production of articles or things. (c) the employees, being software engineers, would not fall under the definition of "workmen" as defined u/s 80JJAA of the Act. 4.1 In the appeal filed before Ld CIT(A), the first appellate authority....
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.... contention of the Revenue, the same does not require much examination by this Court inasmuch as at the first instance; the Assessing Officer had held that the Assessee's employees would not come within the purview of workman under Section 2(s) of the I.D. Act and disallowed the claim, on an appeal filed by the Assessee, the Commissioner, Income-tax (Appeals) CIT(A) accepted the Assessee's contention and held that the Assessee's employee would come within the purview of Section 2(s) of the ID Act. This aspect was not challenged by the Revenue, although the Revenue had filed an appeal against the order of the CIT(A). Having accepted the said finding of the CIT(A) and not having filed any appeal, the Revenue cannot now seek to challenge the said finding in the present appeal. 16.3. Section 2(s) of the ID Act is reproduced hereunder for easy reference: "workman" means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relatio....
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....engineer is a skilled person, a technical person who is engaged by the employer for hire or reward. Therefore, all the said persons would satisfy the requirement of being a workman in terms of Section 2(s) of the I.D. Act. In our considered view, the concept of the workman has undergone a drastic change and is no longer restricted to a blue collared person but even extends to white-collared person. A couple of decades ago, an industry would have meant only a factory, but today industry includes software and hardware industry, popularly known as the Information technology industry. Thus the undertaking of the Assessee being an industrial undertaking, the persons employed by the Assessee on this count also would satisfy the requirement of a workman under Section 2(s) of the ID Act. 16.7. Sri. Aravind, learned Senior Panel counsel of the Revenue, has strenuously argued that the period of 300 days in a year I.T.A. NO.141 OF 2020 c/w I.T.A. NO.151 OF 2020 would mean 300 days in the financial year alone, not in the calendar year or otherwise. He has submitted that if the period of 300 days is not satisfied, no such deduction could be allowed. 16.8. Admittedly, the provi....
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....blocks, i.e. the assessment year or financial year, the Assessee would be entitled to the benefit of Section 80JJ-AA in the next assessment year and so on so forthwith for a period of three years. The Income-tax Appellate Tribunal, having held to that effect, in our considered opinion, it would not be open for the Revenue to now contend otherwise, more so since the said order has attained finality on account of the Revenue not having filed an appeal. 16.12. It is sought to be contended by Sri. K V Aravind, learned Senior Panel counsel that the fact that such an interpretation could not be given is established by the curative amendment carried out in the year 2018 wherein it is clarified that an assesses whose employee completes 300 days in a second year would also be entitled to a deduction for three years therefrom. Thus he submits that the amendment having been brought into force in the year 2018 the present matter relating to the year 2007-2008, the said curative or clarificatory amendment would not come to the rescue of the Assessee and as such, the finding of the Tribunal in this regard is required to be set aside. 16.13. We are unable to agree with such a su....
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....workman within the meaning of Section 2(s) of the Industrial Disputes Act so long as the Software engineer does not discharge any supervisory role. 16.17. The period of 300 days as mentioned under Section 80JJAA of the Act could be taken into consideration both in the previous year and the succeeding year for the purpose of availing benefit under Section 80JJAA. It is not required that the workman works for entire 300 days in the previous year. 16.18. Hence, in the facts and circumstances of the case, the software engineer being workman having satisfied the period of 300 days, the assessee is entitled to claim deduction under Section 80JJAA." Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining this issue afresh. The assessee is free to raise all contentions and accordingly all contentions on this issue is left open. 5. The second issue relates to the disallowance of annual maintenance contract and software expenses. The assessee had incurred software expenditure of Rs.32.87 crores and claimed the same as revenue expenditure. The AO noticed that the above said claim consisted of Annual....
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....es, the assesseee admitted that their life is more than two years. Accordingly, with respect to the amount of Rs.1.60 crores, the Ld CIT(A) upheld its capitalisation and directed the AO allow depreciation @ 60% /30% depending upon the period of usage in this year. In respect of the amount of Rs.19.85 crores, the Ld CIT(A) directed the AO to examine the claim afresh and in this regard, he gave various directions to the AO. 5.4 We heard the parties and perused the record. The ld A.R submitted that the decision has been rendered by Hon'ble Karnataka High Court in the case of Samsung Electronics Co. Ltd on 15.10.2011 only. The year under consideration falls prior to that date and there were certain decisions of Tribunal, which had held that the tax was not required to be deducted at source. Accordingly, various Tribunals have held that the assessee could not have visualised the future decision of High Court and hence non-deduction of tax at source relying on the then ruling decisions of Tribunal would not attract provisions of sec.40(a)(i) of the Act under the doctrine of "impossibility of performance". In support of this proposition, the Ld A.R relied upon the decision rendered by ....
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.... 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 section1941/195 of the Act. Liability to deduct tax at source cannot be fastened on the assessee on the basis of retrospective amendment to the Act (Finance Act 2012 amendment the definition of royalty with retrospective effect from 01.04.1976) or a subsequent ruling of a court (the Karnataka HC IT(TP)A Nos.405 & 474/Bang/2015 in CIT v Samsung Electronics Co. Ltd. (16 taxmann.com 141) was passed on October 15,2011). Courts have consistently upheld this principle as seen in: ♦ ITO v. Clear Water Technology Services (P.) Ltd. (52 taxmann.com 115) ♦ Kerala Vision Ltd. v. ACIT (46 taxmann.com 50) ♦ Sonic Biochem Extractions (P.) Ltd. v. ITO (35 taxmann.com 463) ♦ Channel Guide India Ltd. v. ACIT (25 taxmann.com 25) ♦ DCI v. Virola International (20 14(2) TMI 653) ♦ CIT v. Kotak Securities Ltd. (20 taxmann.com 846). 26. The above decisions have been considered and discussed in the case of Ingersoll Rand (India) Ltd. ....
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....lates to application of the amount utilized for projects of Software in a sum of Rs.33,14,298/-. The Tribunal on consideration of the material on record and the rival contentions held, when the expenditure is made not only once and for all but also with a view to bringing into existence an asset or an advantage for the enduring benefit, the same can be properly classified as capital expenditure. At the same time, even though the expenses are once and for all and may give an advantage for enduring benefit but is not with a view to bringing into existence any asset, the same cannot be always classified as capital expenditure. The test to be applied is, is it a part of company's working expenses or is it expenditure laid out as a part of process of profit earning. Is it on the capital layout or is it an expenditure necessary for acquisition of property or of rights of a permanent character, possession of which is condition on carrying on trade at all. The assessee in the course of its business acquired certain application software. The amount is paid for application of software and not system software. The application software enables the assessee to carry out his busines....
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....t is in the nature of data link charges, i.e., the HII, as part of its headquarter services, charges its affiliates for management and routine maintenance of data link facility. It was also submitted that the said payment does not quality to be royalty as per Article 12 of India-US treaty and hence it is not liable for tax deduction at source. The AO, however, held that the assessee would be liable to deduct tax at source on the above said payment in terms of sec. 9(1)(vi) of the Act and accordingly disallowed the above said expenditure. 6.1 Before Ld CIT(A), the assessee submitted that the AE, M/s HII has contracted with third party vendors for providing data link services to all its affiliates. The payment for the same was made by HII and it has been cross charged to the assessee. Accordingly, it was contended that this payment would not qualify as 'royalty' and hence no tax is required to be deducted. However, the Ld CIT(A), placing reliance on the amendment made by Finance Act, 2012 to sec. 9(1)(vi) of the Act and also on the decision rendered by Hon'ble Madras High Court in the case of Verizon Communications Singapore Pte Ltd vs. ITO (2014)(361 ITR 575)(Mad) held that the i....
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....d on actual usage, is recovered from the affiliates. The Ld A.R submitted that the assessee does not possess any right or control over the equipment provided by the 3rd party vendor. The purpose of payment is towards utilisation of data link facility and not in connection with the grant of any license/use of equipment belonging to 3rd party vendor. Hence there is no use or right to use equipment. 6.4 The question about the nature of payment received for providing communication facilities by way of band width facility have been examined by the co-ordinate bench in the case of J P Coats P Ltd (supra) by Bangalore bench of Tribunal. Following the decision rendered by Hon'ble Delhi High Court in the case of Asia Satellite Telecommunication Co Ltd (197 taxmann 263) and the decision rendered by Hon'ble Bombay High Court in the case of CIT vs. Siemens Aktiongesellschaft (2009)(310 ITR 320), the Tribunal has held that the payment received for providing bandwidth facility is not taxable as equipment royalty or process royalty. The Mumbai bench of Tribunal has held in the case of Netcracker Technology Solutions LLC (2020)(116 Taxmann.com 243)(Mumbai - Trib.) that the payment received on a....
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....m do not have any nexus in India. Accordingly, it was submitted that the payments are not taxable in the hands of recipients in terms of Article 15 of the India- USA DTAA. Accordingly it was submitted that the assessee is not liable to deduct tax at source from these payments. The AO did not accept the explanations given by the assessee. He also observed that the assessee company could not furnish any agreement or any type of proof in support of its claim. He also took the view that the assessee is taking contradictory stands, i.e., initially, the assessee claimed that the payments were given for providing independent personal services and later it changed its stand and submitted that the services were rendered outside India. 7.1 Before Ld CIT(A), the assessee reiterated that the services were provided outside India and the said services were consumed outside India. It was also contended that the said services cannot be considered as "Fee for Technical Services" or "Fee for included Services". It also relied upon Article 15 of India - USA DTAA and contended that the services provided by individual or firm of individuals would not attract TDS. 7.2 However, the Ld CIT(A) took t....
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....cannot be considered as sufficient. (c) the Article 15 covers payments for performance of services in "Other contracting state" (here India). However, in the instant case, the assessee himself has admitted that the services were performed in USA. Hence Article 15 is not applicable here. Accordingly, the Ld CIT(A) confirmed the disallowance made by the AO. 7.4 We heard rival contentions on this issue and perused the record. The facts relating to this issue, as submitted by the assessee, are that the employees of the assessee have been sent to USA for undertaking projects online. The assessee is required to comply with the requirements of tax laws of USA in respect of these employees. Hence it has availed the services of the above said professional firms for complying with those requirements and the payments were made to the above said professional firms towards legal and professional fees. As submitted by the assessee before the tax authorities, the assessee has availed these services outside India and further these services have been used outside India. The assessee did not deduct tax at source from these payments. The assessee has raised many contentions with regard....
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....arried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2.-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but doe....
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....Fee for technical services" defined in sec. 9(1)(vii) of the Act, since the professional service will not fall under the category of "managerial or technical or consultancy service" mentioned in the definition of the expression "Fee for Technical services" given in Explanation 2 to sec. 9(1)(vii). In this regard, the Ld A.R placed her reliance on the decision rendered by Delhi bench of Tribunal in the case of Sh. Chander Mohal Lall vs. ACIT (ITA No.1869/Del/2019 dated 09-12- 2021). 7.9 We heard Ld D.R on this issue and perused the record. The Delhi bench of Tribunal in the case of Sh. Chander Mohan Lall (supra) has that the professional fee paid to non-resident attorneys for rendering various professional services in their respective foreign jurisdiction will not fall under the category of "Fee for technical services". The relevant discussions made by the Delhi bench are extracted below:- "11. The learned counsel for the assessee submitted, out of the total disallowance of Rs.65,94,145/-, the payment made towards reimbursement of amount recovered on behalf of the client in litigation, payment of official fee, payment for publication and trade fair services has to be del....
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....40(a)(i) can be made. Further, he submitted, only because the assessee was unable to furnish the TRC in respect of some of the payees, the Assessing Officer has disallowed part of expenditure. He submitted, non-furnishing of TRCs cannot be the sole reason for disallowing assessee's claim when the genuineness of the expenditure is not doubted. He submitted, since, the assessee has no control over issuance of TRC by foreign jurisdiction, the disallowance should not have been made, when all other evidences including Outward Telegraphic Transfer Application Form, invoices, etc. were furnished. He submitted, at no stage, the departmental authorities have examined the applicability of respective DTAAs qua the payments made. He submitted, since the beneficial provisions of DTAA would override the domestic laws in terms of section 90(2) of the Act, there is no obligation on the assessee to deduct tax at source on the payments made. In support, learned counsel relied upon the following decisions:- i. CIT vs. Dunlop Rubber Co. Ltd.: (1983) 142 ITR 493 (Cal) ii. ...................... ................... 14. Strongly relying upon the observations of the Ass....
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....d in India; (iii) income which accrues or arises in India; or (iv) income which is deemed to accrue or arise in India. 18. In the facts of the present appeal, undisputedly, the non-resident attorneys have rendered their professional services outside India in relation to following: (i) Filing of application for grant/registration of IPR; (ii) Filing of Form/responses/petitions in relation to activity leading to or in the process of grant/registration; (iii) Maintenance of such grant/registration or services in relation thereto, as required under law, such as, towards annuity payment, renewal fee, restoration of patent, etc. (iv) Undertaking compliances for effecting charge in the ownership/address etc. of such intellectual property. Thus, the nature of services rendered by the non-resident attorneys in their countries of residence make it clear that the payments received by them cannot be treated as income received in India, or deemed to be received in India, or income which accrues or arises in India. Therefore, the only category, if at all, under which the payments can be chargeable to tax is, income deemed to....
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....te Haskins & Sells Vs. ACIT (supra) No contrary decision has been brought to our notice by learned Departmental Representative. In view of the aforesaid, we hold that the payments made to non-resident attorneys being not in the nature of FTS, there was no obligation on the assessee to deduct tax at source. 21. At this stage, we must observe, learned Departmental Representative has submitted before us that the payments made by the assessee being in the nature of FTS are taxable by applying the source rule. In our view, even assuming that payments made by the assessee come within the ambit of section 9(1)(vii) of the Act, nonetheless, the exception provided under clause (b) to Section 9(1)(vii) would apply. We have already examined the nature of services provided by the foreign attorneys. It is a fact that Indian/overseas clients engage the assessee for availing certain services. In turn, assessee engages the foreign attorneys to perform certain services which are required to be performed in foreign jurisdictions. There is no privity of contract between the assessee's clients and foreign attorneys. In fact, the clients are no way concerned, whether the assessee does....