Cibersites India Private Limited, Bangalore V. ITO, Bangalore

ITA 1051/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7300 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 23-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI
• Assessee Lawyers: SAMPATH RAGHUNATHAN
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B, BANGALORE BEFORE SHRI GEORGE GEORGE K, JM & SHRI JASON P.BOAZ , AM ITA NO.1051/BANG/2016 : ASST.YEAR 2008-2009 M/S.CIBER SITES INDIA PRIVATE LIMITED 6 TH & 7 TH FLOOR, AQUAMARINE BLOCK, BAGMANE DEVELOPERS PRIVATE LIMITED, SEZ K.R.PURAM MARTHAHALLI RING ROAD, BANGALORE 560 048. PAN : AABCK2797E. THE INCOME TAX OFFICER WARD 11(1) BANGALORE. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI SAMPATH RAGHUNATHAN, ADVOCATE RESPONDENT BY : SMT.PADMAMEENAKSHI, JCIT DATE OF HEARING : 23.10.2017 DATE OF PRONOUNCEMENT : 03.11.2017 O R D E R PER GEORGE GEORGE K, JM THIS APPEAL AT THE INSTANCE OF THE ASSESSEE IS DIR ECTED AGAINST CIT(A)S ORDER DATED 08.03.2016. THE RELEVA NT ASSESSMENT YEAR IS 2008-2009. 2. THE LEARNED COUNSEL FOR THE ASSESSEE HAD ONLY RA ISED ARGUMENTS TO THE FOLLOWING GROUNDS, NAMELY GROUND N O.3 AND ITS SUB GROUNDS AND GROUND NO.4. GROUND NOS.3, 4 AN D ITS SUB GROUNDS READ AS FOLLOWS:- 3. DISALLOWANCE UNDER SECTION 40(A)(I)OF THE ACT. 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING PAYMENT S OF INR 2,842,202 UNDER SECTION 40(A)(I) OF THE ACT MADE BY ITA NO.1051/BANG/2016. M/S.CIBER SITES INDIA PRIVATE LIMITED. 2 THE APPELLANT TO CIBER INC. TOWARDS USAGE OF SOFTWAR E LICENCES AND THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) [CIT(A)] ERRED IN CONFIRMING THE SAID DISALLOWANCE. 3.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AFORESAID PAYMENTS ARE IN THE NATURE OF ROYALTY AND HENCE LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER S ECTION 195 OF THE ACT. 3.3 THE LEARNED AO HAS ERRED IN NOT APPRECIATING TH AT THE AFORESAID PAYMENT IS IN THE NATURE OF PURE RE- IMBURSEMENT OF EXPENSES AND THEREFORE, NOT LIABLE F OR DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT. 4. NON-ALLOWANCE OF DEDUCTION UNDER SECTION 10A ON INCREASED BUSINESS PROFIT ON ACCOUNT OF DISALLOWANC E UNDER SECTION 40(A)(I). 4.1 WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW, EVEN ASSUMING , WHILE DENYING THAT THE DISALLOWANCE OF PAYMENT MADE TOWARDS USAGE OF SOFTWARE LICENCES WAS WARRANTED, T HE LEARNED AO ERRED IN NOT CONSIDERING THE INCREASED BUSINESS PROFITS, ARISING ON ACCOUNT OF THE SAID DISALLOWANCE, WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT AND THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING ON THE SAID GROUND. 3. BRIEF FACTS IN RELATION TO GROUND NO.3 AND ITS S UB GROUNDS ARE AS FOLLOWS. 3.1 FOR THE ASSESSMENT YEAR 2008-2009, THE ASSESSEE HAD DEBITED IN ITS PROFIT & LOSS ACCOUNT, A SUM OF RS.2 8,42,202 TOWARDS SOFTWARE EXPENSES. THE ABOVE SUM WAS PAID T O CIBER INC., A NON-RESIDENT, WITHOUT DEDUCTION OF TA X AT ITA NO.1051/BANG/2016. M/S.CIBER SITES INDIA PRIVATE LIMITED. 3 SOURCE U/S 195 OF THE ACT. THE ASSESSING OFFICER DI SALLOWED THE PAYMENT U/S 40(A)(I) OF THE ACT. 3.2 AGGRIEVED BY THE DISALLOWANCE U/S 40(A)(I), THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTH ORITY. THE CIT(A) CONFIRMED THE VIEW TAKEN BY THE ASSESSING OF FICER. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOW:- THE SAID PAYMENT IS SQUARELY COVERED UNDER ROYALT Y LIABLE TO DEDUCTION OF TAX AT SOURCE U/S 195 AS HEL D BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS IN 320 ITR 209 (KAR). THE PROVISIONS OF SECTION 40(A)(I) ARE THEREFORE APPLICABLE. THE DISALLOWANCE MADE IS IN ORDER AND IS UPHELD. 3.3 AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS MADE PAYMENT T O ITS PARENT COMPANY, VIZ., CIBER INC.FOR USE OF SOFTWARE LICENCE PROCURED BY THE PARENT COMPANY. THE SAID PAYMENT IS SQUARELY COVERED UNDER THE TERM ROYALTY AND IS LI ABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. THE ISSUE OF PAYMENT FOR THE USE OF SOFTWARE LICENCE IS COVERED IN FAVOUR OF THE REVENUE BY THE JUDGMENT OF THE HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS REPOR TED IN 320 ITR 209. HENCE GROUND NO.3 AND ITS SUB GROUNDS ARE DISMISSED. ITA NO.1051/BANG/2016. M/S.CIBER SITES INDIA PRIVATE LIMITED. 4 5. IN GROUND NO.4 ASSESSEE CONTENDS THAT IF THE DISALLOWANCE IS MADE, THE CONSEQUENT INCREASE IN IT S BUSINESS PROFITS OUGHT TO BE GIVEN THE BENEFIT OF DEDUCTION U/S 10A OF THE ACT. 6. AFTER HAVING HEARD THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD, WE NOTICED THAT A SPECIFIC GROUND WAS RAISED BEFORE THE FIRST APPELLATE AUTHORITY, WHEREI N IT WAS CONTENDED THAT INCREASED BUSINESS PROFIT ON ACCOUNT OF DISALLOWANCE U/S 40(A)(I) OUGHT TO BE GIVEN THE BEN EFIT OF DEDUCTION U/S 10A OF THE ACT. THE SPECIFIC GROUND R AISED BEFORE THE CIT(A) READS AS FOLLOW:- THE ITO HAS NOT CONSIDERED THE INCREASED BUSINESS INCOME ON ACCOUNT OF DISALLOWANCE IN RELATION TO PA YMENTS MADE TOWARDS SOFTWARE LICENCES, WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 7. ON PERUSAL OF THE CIT(A)S ORDER, WE NOTICED THA T THIS SPECIFIC GROUND OF THE ASSESSEE WAS NOT ADJUDICATED . THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DICT V. GOLDMAN SACHS SERVICES (P.) LTD. [(2017) 82 TXMANN. COM 380 (BANG.TRI.)] HAD STATED THAT THE DISALLOWANCE MADE GOES TO INCREASE THE BUSINESS PROFIT AND THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF THE ENHANCED PROFITS U/S 1 0A OF THE ACT. THE CONTENTIONS RAISED BEFORE THE TRIBUNAL IN THE CSE OF GOLDMAN SACHS SERVICES (P) LTD. (SUPRA) AND ITS REL EVANT FINDING READ AS FOLLOWS:- 9. ON THE OTHER HAND, THE LD.AR OF THE ASSESSEE HAS SUBMITTED THAT THE SAID DECISION OF THE AHMEDABAD BE NCH ITA NO.1051/BANG/2016. M/S.CIBER SITES INDIA PRIVATE LIMITED. 5 OF THE TRIBUNAL RELIED UPON BY THE REVENUE HAS BEEN REVERSED BY THE HONBLE GUJARAT HIGH COURT IN CASE OF ITO V. KEVAL CONSTRUCTION [2013] 354 ITR 13/217 TAXMAN 9 6 (MAG.) / 33 TAXMANN.COM 277. THEREFORE THIS ISSUE IS COVERED BY THE DECISION OF HONBLE GUJARAT HIGH COU RT IN CASE OF KEVAL CONSTRUCTION (SUPRA) AND SUBMITTED TH AT THE HONBLE HIGH COURT HAS HELD THAT EVEN IF CERTAIN EXPENDITURE WHICH WERE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF DEVELOPING HOUSE PROJECT WAS NOT ALLOWAB LE BY VIRTUE OF SECTION 40(A)(IA) OF THE ACT FOR WANT OF TDS IT CANNOT BE DENIED THAT SUCH DISALLOWANCE WOULD ULTIM ATELY GO TO INCREASE THE ASSESSEES PROFIT FROM THE BUSIN ESS OF DEVELOPING HOUSE PROJECT AND WOULD QUALIFY FOR DEDU CTION AS PROVIDED UNDER THE LAW. 10. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD, AT THE OUTSET WE NOTE THAT THIS ISSUE OF DISALLOWANCE MADE U/S 40(A)(IA) ELIGIBLE F OR DEDUCTION OF TAX HOLIDAY UNDER LAW IS COVERED BY TH E DECISION OF HONBLE HIGH COURT HAS HELD IN PARA 5 A S UNDER: 5. HAVING HEARD COUNSEL ON BOTH THE QUESTION TODAY IN THIS APPEAL, WE FIND NO ERROR IN THE TRIBUNALS ULTIMATE CONCLUSION. EVEN IF A CERTAIN EXPENDITURE WHICH WAS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF DEVELOPING HOUSING PROJECT WAS NOT ALLOWABLE BY VIRTUE OF SECTION 40(A)(IA) OF THE ACT, SINCE THE ASSESSEE HAD NOT DEDUCTED THE TAX AT SOURCE AS REQUIRED UNDER LAW, IT CANNOT BE DENIED THAT SUCH DISALLOWANCE WOULD ULTIMATELY GO TO INCREASE THE ASSESSEES PROFIT FROM THE BUSINESS OF DEVELOPING HOUSING PROJECT. WHATEVER BE THE ULTIMAT E PROFIT OF ASSESSEE AS COMPUTED EVEN AFTER MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT, WOULD QUALIFY FOR DEDUCTION AS PROVIDED UNDER THE LAW. 11. FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT WE UPHOLD THE DIRECTIONS OF THE DRP ON THIS IS SUE. SINCE THE ALTERNATIVE CLAIM OF THE ASSESSEE IS ALLO WED ITA NO.1051/BANG/2016. M/S.CIBER SITES INDIA PRIVATE LIMITED. 6 THEREFORE WE DO NOT PROPOSE TO GO INTO THE ISSUE OF NATURE OF PAYMENT IN QUESTION. THE SAME BECOME INFRUCTUOUS . 8. IN VIEW OF THE ABOVE JUDICIAL CO-ORDINATE ORDER OF THE TRIBUNAL (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTI TLED TO THE BENEFIT OF DEDUCTION U/S 10A OF THE ACT ON THE ENHA NCED BUSINESS PROFITS, ON ACCOUNT OF DISALLOWANCE MADE U /S 40(A)(I) OF THE ACT. IT IS ORDERED ACCORDINGLY. 9. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PAR TLY ALLOWED, AS INDICATED ABOVE. ORDER PRONOUNCED ON THIS 03 RD DAY OF NOVEMBER, 20 17. SD/- SD/- (JASON P.BOAZ) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE ; DATED : 03 RD NOVEMBER, 2017. DEVDAS* COPY OF THE ORDER FORWARDED TO : TRUE COPY BY ORDER, (ASSTT. REGISTRAR) ITAT, BANGALORE 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT, BENGALURU. 4. CIT(A)-2, BENGALURU 5. DR, ITAT, BANGALORE 6. GUARD FILE.