ITO, New Delhi V. M/s ACL Wireless Ltd., New Delhi

ITA 1135/DEL/2013

• Counselvise Citation: 113520114 RSA 2013
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 27-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Deemed to accrue or arise in india; Non-deduction of tax; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH A AA A : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR, ,, , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO. .. .1135/DEL/2013 1135/DEL/2013 1135/DEL/2013 1135/DEL/2013 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2009 2009 2009 2009- -- -10 1010 10 INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, CO. WARD CO. WARD CO. WARD CO. WARD - -- -1(2), 1(2), 1(2), 1(2), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S ACL M/S ACL M/S ACL M/S ACL WIRELESS LIMITED, WIRELESS LIMITED, WIRELESS LIMITED, WIRELESS LIMITED, 104 104 104 104- -- -107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 98, NEHRU PLACE, 98, NEHRU PLACE, 98, NEHRU PLACE, 98, NEHRU PLACE, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 019. 110 019. 110 019. 110 019. PAN : AACCA7370G. PAN : AACCA7370G. PAN : AACCA7370G. PAN : AACCA7370G. (APPELLANT) (RESPONDENT) APPELLANT BY : MS. Y. KAKKAR, SR.DR. RESPONDENT BY : SHRI R.S. SINGHVI, CA. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-IV, NEW DELHI DATED 31 ST DECEMBER, 2012 FOR THE AY 2009-10. 2. GROUND NO.1 OF THE REVENUES APPEAL READS AS UNDER: - WHETHER THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF ` 26,94,840/- MADE ON ACCOUNT OF CAPITALIZATION OF SOFTWARE EXPENSES IGNORING THE FACT THAT (A) THE EXPENSES ON THE NATURE OF CAPITAL EXPENDITURE ARE NOT ALLOWED UNDER THE PROVISION OF SECTION 37(1) . (B) THE AIM OF THE EXPENDITURE INCURRED BY THE ASSESSEE IS CLEARLY IN THE NATURE OF ACQUISITION OF AN ADVANTA GE OF LASTING NATURE AND TO BRING AN ENDURING BENEFIT TO T HE BUSINESS. ITA-1135/DEL/2013 2 3. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL PLACED BEFORE US. WE FIND THIS ISSUE TO BE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR AY 2007 -08 VIDE ITA NO.1330/DEL/2012 AND AY 2008-09 VIDE ITA NO.4743/DE L/2012. THAT HON'BLE JURISDICTIONAL HIGH COURT HAS UPHELD THE ORDE R OF THE ITAT FOR AY 2007-08 VIDE JUDGMENT DATED 10 TH DECEMBER,2013 IN ITA NO.313/2013. RESPECTFULLY FOLLOWING THE SAME, WE UPH OLD THE ORDER OF LEARNED CIT(A) AND REJECT GROUND NO.1 OF THE REVENU ES APPEAL. 4. GROUND NO.2 OF THE REVENUES APPEAL READS AS UNDER: - WHETHER THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF ` 4,57,253/- MADE ON ACCOUNT OF CAPITALIZATION OF LICENSE FEE PAID TO M/S NUANCE COMMUNICATION IGNORING THE FACT THAT THE LICENSE FEE PAID BY THE ASSESSEE COMPANY TO M/S NUANCE COMMUNICATION TREATING THE SAME TO BE INTANGIBLE ASSET AND BEING IN THE NATURE OF ROYALTY. 5. WE HAVE HEARD BOTH THE SIDES AND WE FIND THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITA T IN ASSESSEES OWN CASE FOR AY 2008-09 VIDE ITA NO.4743/DEL/2012 WH EREIN THE ITAT HELD AS UNDER:- 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. LEARNED CIT(A) HAS RECORD ED THE FINDING THAT THE ASSESSEE MADE THE PAYMENT OF LICEN SE FEE OF ` 10,79,660/- TO M/S NUANCE COMMUNICATION, A BELGIAN COMPANY, AS PER THE AGREEMENT FOR PROCURING LICENSE FOR USE OF ITS VOICE SOFTWARE AND THE AGREEMEN T WAS OPERATIVE FOR ONE YEAR ONLY . THE ABOVE FACTUAL FINDING RECORDED BY LEARNED CIT(A) IN PARAGRAPH 10.1 IN HIS ORDER HAS NOT BEEN CONTROVERTED BY THE REVENUE. ONCE THE LICENSE FEE WAS PAID ONLY FOR ONE YEAR, BY NO STRETCH OF IMAGINATION, IT CAN BE TREATED AS CAPITAL EXPENDITU RE. ITA-1135/DEL/2013 3 ACCORDINGLY, THE ORDER OF LEARNED CIT(A) ON THIS POI NT IS SUSTAINED. GROUND NO.3 IS REJECTED. 6. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORD ER OF LEARNED CIT(A) ON THIS POINT AND REJECT GROUND NO.2 OF THE R EVENUES APPEAL. 7. GROUND NO.3 OF THE REVENUES APPEAL READS AS UNDER: - WHETHER THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF ` 5,92,61,418/- MADE ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) IGNORING THE FACT THAT (A) THE AO TO GIVE NECESSARY RELIEF IN THE SUBSEQUENT YEAR, IF THE TDS HAS BEEN PAID AND DEDUCTED IN THE SUBSEQUENT FINANCE YEAR. (B) THE LEGAL POSITION THAT DISALLOWANCE U/S 40(A)(IA) IS MANDATORY IN THE YEAR WHEN TDS WAS DEDUCTIBLE BUT HA S NOT BEEN DEDUCTED. THERE IS NO QUESTION OF MAKING ALLOWANCE FOR THE REASON THAT THE EXPENDITURE HAS BE EN REVERSED IN LATER YEAR. 8. AT THE TIME OF HEARING BEFORE US, IT IS STATED BY T HE LEARNED DR THAT LEARNED CIT(A) HAS ALLOWED THE RELIEF FOLLOWING HIS OWN ORDER FOR AY 2008-09 WHICH IS REVERSED BY THE ITAT IN ITA NO.4743/ DEL/2012. SHE, THEREFORE, SUBMITTED THAT THE ORDER OF LEARNED CIT(A ) ON THIS POINT SHOULD BE REVERSED. 9. LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, FAIRLY ADMITTED THAT THE ORDER OF LEARNED CIT(A) ON THIS ISS UE FOR AY 2008-09 HAS BEEN REVERSED BY THE ITAT BUT HE SUBMITTED THAT TH E FACTS OF THE YEAR UNDER APPEAL ARE ALTOGETHER DIFFERENT. IN AY 2008-09, THE ASSESSING OFFICER HAS DISPUTED THE ALLOWABILITY OF EXPEND ITURE PER SE AND IT WAS THE ASSESSEES CLAIM THAT IN THE SUBSEQUENT YE AR, THE PROVISION MADE FOR THE EXPENDITURE WAS REVERSED AND, T HEREFORE, NO DISALLOWANCE SHOULD BE MADE. THIS CLAIM OF THE ASSESSEE WAS ITA-1135/DEL/2013 4 ACCEPTED BY THE CIT(A) BUT WAS REVERSED BY THE ITAT. THEREFORE, IN AY 2008-09, THE QUESTION WAS WITH REGARD TO ALLOWABILITY OF SOME PROVISION FOR EXPENDITURE. BUT, IN THE YEAR UNDER CONSIDERATI ON, THE FACTS ARE DIFFERENT AND THE ASSESSING OFFICER HIMSELF HAS NOT DISPU TED THE ALLOWABILITY OF THE EXPENDITURE PER SE AND HE DISALLOWED THE CLAIM ON THE GROUND THAT THE ASSESSEE FAILED TO DEDUCT TDS AS PER LAW. HE SUBMITTED THAT THE ASSESSEE DEDUCTED THE TAX AND DEPOSITE D THE SAME BEFORE THE DUE DATE FOR FILING OF THE RETURN AND, T HEREFORE, LET THE MATTER BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THIS ASPECT. 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND T HAT THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN PARAGRAPH 10 OF HIS OR DER AND THE HEADING OF PARAGRAPH 10 ITSELF IS DISALLOWANCE U/S 40( A)(IA) FOR FAILURE TO DEDUCT TAX AT SOURCE. IN PARAGRAPH 10A, THE ASSESSI NG OFFICER HELD AS UNDER:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SEEN THAT TDS WAS NOT DEDUCTED ON THE ENTIRE PAYMENT OF COST OF CONTENT. ACCORDINGLY, A QUERY IN THIS REGARD WAS RAISED VIDE ORDER SHEET NOTING DT. 21.10.2011, IN RESPONSE TO WHICH, IT WAS REPLIED BY THE ASSESSEE COMPANY VIDE LETTE R DT. 21.11.2011 THAT THERE IS A NET PROVISION FOR COST OF CONTENT AS ON 31.03.2009 IS ` 6,91,84,299/-, OUT OF THIS PROVISION FOR COMMISSION OF ` 99,22,881/- ON WHICH NO TDS IS DEDUCTIBLE SINCE THE COMMISSION IS PAYABLE OUTSIDE INDIA. THUS, NET AMOUNT OF PROVISION FOR COST OF CONT ENT ON WHICH TDS HAS NOT BEEN DEDUCTED IS ` 5,92,61,418/-. 11. FROM THE ABOVE DISCUSSION, IT IS EVIDENT THAT THE ONLY REASON FOR MAKING THE DISALLOWANCE WAS FAILURE OF THE ASSESSEE TO DE DUCT THE TAX AS PER THE PROVISIONS OF SECTION 40(A)(IA). THE ASSESSEE HAS CLAIMED BEFORE THE LEARNED CIT(A) AS WELL AS BEFORE US THAT TH E ASSESSEE DID ITA-1135/DEL/2013 5 DEDUCT THE TAX AT SOURCE AND DEPOSITED THE SAME WITH T HE GOVERNMENT OF INDIA BEFORE THE DUE DATE FOR FILING OF THE RETU RN. THIS CLAIM OF THE ASSESSEE NEEDS TO BE FACTUALLY EXAMINED. WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW ON THIS POINT AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. WE DIRECT HIM TO EXAMIN E THE ASSESSEES CLAIM THAT THE TAX HAS ALREADY BEEN DEDUCTED AND PAI D BEFORE THE DUE DATE FOR FILING OF THE RETURN. IF IT IS SO, THEN, NO DISALLOWANCE SHOULD BE MADE. OTHERWISE, THE ASSESSING OFFICER WILL BE AT LIBER TY TO DISALLOW THE EXPENDITURE AS PER THE PROVISIONS OF SECTION 40(A) (IA) OF THE ACT. 12. GROUND NOS.4 & 5 OF THE REVENUES APPEAL READ AS U NDER:- 4. WHETHER THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF ` 99,22,881/- MADE ON ACCOUNT OF PROVISION FOR COMMISSION IGNORING THE FACTS THAT (A) THE SAID DISALLOWANCE HAS BEEN MADE ON THE GROUNDS OF NON-DEDUCTION OF TDS. (B) THE DISALLOWANCE HAS BEEN MADE ON THE GROUNDS OF THIS AMOUNT BEING A PURE PROVISION WHICH IS NOT ASCERTAINED. 5. WHETHER THE LD.CIT(A) HAS ERRED ON FACTS AND IN L AW IN DELETING THE ADDITION OF ` 71,37,136/- MADE ON ACCOUNT OF COMMISSION PAID TO FOREIGN PARTIES IGNORING THE FACTS T HAT THE PROVISIONS OF SECTION 9 OF THE I.T. ACT THE PAYME NTS MADE TO NON-RESIDENTS IS AN INCOME DEEMED TO ACCRUE OR ARISE IN INDIA AND THE ASSESSEE COMPANY IS LIABLE TO DEDU CT TAX ON THE SAME. 13. THE ASSESSING OFFICER HAS DISALLOWED THE SAME ON THE G ROUND THAT THE ASSESSEE FAILED TO DEDUCT THE TAX AT SOURCE ON THE COMMISSION PAID TO NON-RESIDENTS. THE LEARNED CIT(A) DECIDED TH ESE ISSUES FOLLOWING THE DECISION OF ITAT IN THE CASE OF DCIT VS. ANGELIQUE INTERNATIONAL LTD. AT THE TIME OF HEARING BEFORE U S, IT WAS POINTED OUT BY THE LEARNED COUNSEL THAT THE ABOVE DECISION OF ITA T HAS BEEN ITA-1135/DEL/2013 6 UPHELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT VS. ANGELIQUE INTERNATIONAL LTD. [ 2013] 359 ITR 9 (D ELHI), WHEREIN THEIR LORDSHIPS HELD AS UNDER:- HELD, DISMISSING THE APPEAL, THAT BY CIRCULARS NOS.23, DATED JULY 23, 1969, 163, DATED MAY 29, 1975, AND 7 86, DATED FEBRUARY 7, 2000, IT WAS CLARIFIED THAT PAYMEN TS IN THE FORM OF A COMMISSION OR DISCOUNT TO THE FOREIGN PA RTY WERE NOT CHARGEABLE TO TAX IN INDIA UNDER SECTION 9( 1)(VII) OF THE ACT. THESE CIRCULARS WERE WITHDRAWN BY CIRCUL AR NO.7 OF 2009. CIRCULAR NO.7 OF 2009 CANNOT BE CLASSI FIED AS EXPLAINING OR CLARIFYING THE EARLIER CIRCULARS ISSUED IN 1969 AND 2000. HENCE, IT DID NOT HAVE RETROSPECTIVE EFFE CT. HENCE, IN THE RELEVANT ACCOUNTING YEAR TAX DID NOT HAVE TO BE DEDUCTED. THE DELETION OF DISALLOWANCE UNDER SEC TION 40(A)(I) WAS JUSTIFIED. 14. THAT THE ASSESSMENT YEAR INVOLVED IN THE ABOVE CASE WAS ALSO AY 2009-10 WHICH IS THE ASSESSMENT YEAR IN THE CASE OF THE A SSESSEE UNDER APPEAL BEFORE US. THEREFORE, THE RATIO OF THE ABOVE DECISION WOULD BE SQUARELY APPLICABLE TO THE ASSESSEES CASE. WE, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT, UPHOLD THE ORDER OF LEARNED CIT(A) IN THIS RE GARD AND REJECT GROUND NOS.4 & 5 OF THE REVENUES APPEAL. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTL Y ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2014. SD/- SD/- ( (( (I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 31.01.2014 VK. ITA-1135/DEL/2013 7 COPY FORWARDED TO: - 1. APPELLANT : INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, CO. WARD CO. WARD CO. WARD CO. WARD - -- -1(2), NEW DELHI. 1(2), NEW DELHI. 1(2), NEW DELHI. 1(2), NEW DELHI. 2. RESPONDENT : M/S ACL WIR M/S ACL WIR M/S ACL WIR M/S ACL WIRELESS LIMITED, ELESS LIMITED, ELESS LIMITED, ELESS LIMITED, 104 104 104 104- -- -107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 98, NEHRU PLACE, NEW DELHI 98, NEHRU PLACE, NEW DELHI 98, NEHRU PLACE, NEW DELHI 98, NEHRU PLACE, NEW DELHI 110 019. 110 019. 110 019. 110 019. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR