ITO, V. M/s Clear Water Technology Services Pvt. Ltd.,

ITA 1146/BANG/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7006 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 18-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L V BHASKAR REDDY JT
• Keywords: Business income; Depreciation; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Question of law; Unabsorbed depreciation
• Section: 260A; 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1146/BANG/2013 ASSESSMENT YEAR : 2010-11 THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. VS. M/S. CLEAR WATER TECHNOLOGY SERVICES PVT. LTD., NO.17, 100 FT. ROAD, BTM 1 ST STAGE, BANGALORE 560 076. PAN : AABCC 8515A APPELLANT RESPONDENT APPELLANT BY : SHRI L.V. BHASKAR REDDY, JT. CIT(DR) RESPONDENT BY : SHRI S. PARTHASARATHI, ADVOCATE DATE OF HEARING : 28.8.2014 DATE OF PRONOUNCEMENT : 12.09.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORD ER DATED 13.5.2013 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESS MENT YEAR 2010-11. 2. GROUND NOS. 1, 6 & 7 ARE GENERAL IN NATURE AND C ALL FOR NO SPECIFIC ADJUDICATION. ITA NO.1146/BANG/2013 PAGE 2 OF 19 3. GROUND NOS. 2 & 3 RAISED BY THE ASSESSEE READS A S FOLLOWS:- 2. THE CIT(A) ERRED IN ALLOWING THE APPEAL BY PLAC ING RELIANCE ON THE JUDGEMENT IN CIT V. YOKOGAWA INDIA LTD. (KAR) AND THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE IN ITA NO. 1297/BANG/2011 DATED 28/09/2011 WITHOUT APPRECI ATING THE FACT THAT THE DECISIONS HAVE NOT REACHED A FINALITY AND A SLP AND AN APPEAL UNDER SECTION 260A RESPECTIVELY HAVE BEEN PREFERRED. 3. THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLO W DEDUCTION UNDER SECTION 10B BEFORE SETTING OF THE B ROUGHT FORWARD BUSINESS LOSSES AGAINST THE PROFITS OF THE YEAR WITHOUT APPRECIATING THE FACT THAT AS PER THE AMENDED PROVI SIONS OF SECTION 10B W.E.F. 1.4.2001, THE DEDUCTION U/S 10B HAS TO BE FINALLY ALLOWED FROM THE TOTAL INCOME OF THE ASSESS EE AND TOTAL INCOME IS COMPUTED AFTER AGGREGATION OF THE PROFITS / LOSSES OF VARIOUS UNITS AND AFTER SETTING OFF B/F LOSS/UNABSO RBED DEPRECIATION RELATING TO THE EARLIER ASSESSMENT YEA RS. 4. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN RUN NING IT ENABLED SERVICES. THE ASSESSEE CLAIMED DEDUCTION U/S. 10B O F THE ACT ON THE PROFITS OF EXPORT ORIENTED UNIT (EOU) OF RS.74,50,513. TH E AO WAS OF THE VIEW THAT THE DEDUCTION U/S. 10B WAS NOT AN EXEMPTION PR OVISION AND THEREFORE BROUGHT FORWARD LOSSES FOR THE A.YS. 2003-04 & 200 4-05 HAD TO BE SET OFF AGAINST THE PROFITS OF 10B UNIT AND ONLY ON THE REM AINDER, DEDUCTION U/S. 10B HAS TO BE ALLOWED. ACCORDINGLY, DEDUCTION U/S. 10B WAS ALLOWED AS FOLLOWS:- TOTAL BUSINESS PROFIT RS.74,55,513/- LESS: BROUGHT FORWARD LOSSES FOR ASSESSMENT YEAR 2003-04 RS. 8,17,767 ASSESSMENT YEAR 2004-05 RS.33,87,978 RS.42,05,745/- BALANCE PROFIT ELIGIBLE FOR DEDUCTION U/S 10B RS. 32,49,768/- LESS: DEDUCTION U/S 10B RS.32,49,768/- ITA NO.1146/BANG/2013 PAGE 3 OF 19 5. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS), FO LLOWING THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF YOKOGAWA INDIA LTD., 341 ITR 385 (KARN.), AS ALSO THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE A.Y. 2008-09 IN ITA NO. 1297/BANG/2007 DATED 28.9.2012 , HELD THAT THE DEDUCTION U/S. 10B WAS AN EXEMPTION PROVISION AND THEREFORE DEDUCTION HAS TO BE ALLOWED BEFORE SET OFF OF BROUGHT FORWARD BUSINESS LOSSES OF THE ASSESSEE FOR THE A.YS. 2003-04 & 2004-05. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE HAS PREFERRED GROUND NOS.2 & 3 BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING OF THE APPEAL, THE LEARN ED DR PLACED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT DECISION IN THE CASE OF CIT VS. HIMATASINGIKE SEIDE LTD 286 ITR 255 WHEREIN IT WAS HELD THAT DEDUCTION U/S.10A OF THE ACT HAS TO BE ALLOWED ONLY AFTER SET OFF OF CARRIED FORWARD OF BUSINESS LOSS. HE POINTED OUT T HAT THE SAID DECISION HAS SINCE BEEN APPROVED BY THE HONBLE SUPREME COURT. T HE LEARNED COUNSEL FOR THE ASSESSEE FIRSTLY BROUGHT TO OUR NOTICE THAT SEC.10A(4) OF THE ACT, WHICH IS THE BASIS FOR COMPUTATION OF DEDUCTION U/S .10A OF THE ACT, READS AS FOLLOWS : '10A(4) FOR THE PURPOSES OF SUB-SECTION (1) AND (1A ), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUT ER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF T HE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFT WARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING.' ITA NO.1146/BANG/2013 PAGE 4 OF 19 HE SUBMITTED BEFORE US THAT THE DEDUCTION U/S.10A(4 ) IS COMPUTED ON THE BASIS OF A FORMULA AND THERE IS NO SCOPE FOR SETTIN G OFF OF BROUGHT FORWARD LOSSES. SECONDLY, IT WAS SUBMITTED BY HIM THAT THE PROVISIONS OF SEC.10A OF THE ACT HAVE BEEN HELD TO BE EXEMPTION PROVISION BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD., (341 ITR 385) . THIRDLY, IT WAS BROUGHT TO OUR NOTICE THAT RECENTLY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. BIOCON IN ITA.248, 368 TO 371 & 1206/BANG/2010, ORDER DT 30.04.2014 HAD AN OCCASION TO CONSIDER THE SET OFF OF EARLIER YEAR'S BUSINESS LOSS WHILE A LLOWING DEDUCTION U/S.10A OF THE ACT IN THE LIGHT OF THE CIRCULAR ISSUED BY T HE CBDT, NAMELY CIRCULAR NO.7, DT 16.07.2013, AS WELL AS THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDE LTD (286 ITR 255) , WHICH WAS LATER CONFIRMED BY THE HON'BLE SUPREME COURT. IT WAS POINTED OUT BY HIM THAT THE TRIBUNAL IN THE AFORESAID DECISION FIN ALLY CAME TO THE CONCLUSION THAT THE PROVISIONS OF SEC.10A OF THE AC T, ARE EXEMPTION PROVISIONS AND THEREFORE THE INCOME OF 10A UNIT HAS TO BE EXCLUDED AT THE SOURCE. THEREFORE THE QUESTION OF SET OFF OF THE C URRENT YEAR AND BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION A GAINST SEC.10A PROFITS DOES NOT ARISE. 7. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIV AL SUBMISSIONS. A SIMILAR ISSUE AND SIMILAR ARGUMENTS ON THAT ISSUE H AD BEEN CONSIDERED BY ITA NO.1146/BANG/2013 PAGE 5 OF 19 THIS TRIBUNAL IN THE CASE OF DCIT VS. BIOCON ( SUPRA ). THIS TRIBUNAL ON AN IDENTICAL ISSUE HELD AS FOLLOWS: 23. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE ISSUE RAISED BY THE ASSESSEE IN G ROUND NO.21 IS IDENTICAL TO THE GROUND RAISED BY THE ASSESSEE IN B IOCON (SUPRA). THE FACTS OF THE CASE BEFORE THE TRIBUNAL IN THE CA SE OF BIOCON (SUPRA) WERE THAT THE ASSESSEE DURING THE PREVIOUS YEAR HAD FOUR UNITS WHICH WERE ENTITLED TO CLAIM DEDUCTION U/S. 1 0B OF THE ACT VIZ., CMZ UNIT, SAP UNIT, RHI UNIT AND IFP UNIT. TH E ASSESSEE HAD CLAIMED DEDUCTION U/S. 10B OF THE ACT IN RESPEC T OF THE AFORESAID UNITS TOTALING RS.157,22,33,066 WHICH IS THE SUM TOTAL OF DEDUCTION U/S. 10B FOR THE FOUR UNITS AS FOLLOWS :- (1) CMZ UNIT : 6,87,70,229 (2) SAP UNIT : 76,60,29,880 (3) RHI UNIT : 52,42,56,278 (4) IFP UNIT : 21,31,76,679 TOTAL 157,22,33,066 THE ASSESSEE HAD NON-10B UNITS AS WELL. IN THOSE NO N-10B UNITS, THERE WAS A LOSS OF RS.105,92,19,172. IN THE RETURN OF INCOME FILED BY THE ASSESSEE, THE ASSESSEE SOUGHT TO CARRY FORWARD THE LOSS OF NON-10B UNITS FOR SET OFF AGAINST THE PROFITS OF NON-10B UNITS IN THE SUBSEQUENT ASSESSMENT YEARS. THE AO FIRSTLY NOTICED THAT THERE WAS INCOME FROM OTHER SOURCES TO THE EXTENT O F RS.4,71,15,896 AND SUCH HAD TO BE SET OFF AGAINST T HE LOSS OF THE NON-10B UNITS. ACCORDINGLY, THE AO HELD THAT THE LO SS OF THE NON- 10B UNITS THAT HAD TO BE CONSIDERED FOR CARRY FORWA RD WOULD BE RS.101,21,03,280. THEREAFTER, THE AO WAS OF THE VIE W THAT INCOME OF THE 10B UNITS HAD TO BE SET OFF AGAINST T HE LOSS OF THE NON-10B UNITS AND IF IT IS SO SET OFF, THERE WILL B E NO LOSS THAT NEEDS TO BE CARRIED FORWARD. IN COMING TO THE AFORE SAID CONCLUSION, THE AO EXPRESSED THE OPINION THAT PROVI SIONS OF SECTION 10B ARE DEDUCTION PROVISIONS AND THEREFORE EFFECT WILL HAVE TO BE GIVEN TO THE PROVISIONS OF SECTION 72 OF THE ACT, EVEN IN RESPECT OF PROFITS OF THE 10B UNIT. ACCORDINGLY, THE CLAIM OF THE ASSESSEE FOR CARRY FORWARD OF LOSS OF NON-10B UNIT WAS NOT ALLOWED BY THE AO. ON APPEAL BY THE ASSESSEE, IT W AS CONTENDED THAT THE PROVISIONS OF SECTION 10A AND SECTION 10B ARE EXEMPTION ITA NO.1146/BANG/2013 PAGE 6 OF 19 PROVISIONS AND THEREFORE THE PROFIT OF 10A AND 10B UNITS WILL NOT ENTER THE COMPUTATION OF TOTAL INCOME AT ALL AND TH EREFORE THE PROFITS OF THESE UNITS NEED NOT BE SET OFF AGAINST THE LOSS OF NON- 10B UNIT BY INVOKING THE PROVISIONS OF SECTION 72 O F THE ACT. THE CIT(APPEALS) DID NOT AGREE WITH THE CONTENTION OF T HE ASSESSEE AND IN DOING SO, HE PLACED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. HIMATSIN GIKE SEIDE LTD., 286 ITR 255 (KAR). IN THE AFORESAID DECISION, THE HONBLE HIGH COURT HAS TAKEN THE VIEW THAT DEDUCTION U/S. 1 0B HAS TO BE ALLOWED AFTER SET OFF OF UNABSORBED DEPRECIATION AN D UNABSORBED INVESTMENT ALLOWANCE. THE HONBLE COURT TOOK THE VI EW THAT THE AFORESAID PROVISION WAS ONLY AN EXEMPTION PROVISION . THE CIT(APPEALS) NOTICED THAT THE AFORESAID DECISION WA S FOLLOWED BY THE ITAT BANGALORE BENCH IN THE CASE OF INTELNET TE CHNOLOGIES INDIA PVT. LTD. V. ITO, ITA NO.1021/BANG/2009 DATED 12.3.2010. SIMILAR VIEW EXPRESSED BY THE DELHI BENCH OF THE TR IBUNAL IN THE CASE OF GLOBAL VANTAGE PVT. LTD. V. DCIT, 2010 TIOL 24 ITAT (DEL) WAS ALSO REFERRED TO BY THE CIT(A). A CONTRAR Y VIEW WAS EXPRESSED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF KPIT CUMMINS INFO SYSTEMS (BANGALORE) PVT. LTD. V. ACIT, 120 TTJ 956. THE CIT(A) FOUND THAT IN THE CASE OF GLOBA L VANTAGE PVT. LTD. (SUPRA) DECIDED BY THE DELHI TRIBUNAL THI S DECISION HAS BEEN HELD TO BE NOT IN TUNE WITH THE DECISION OF T HE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF HIMATSINGIKE SEID E LTD. (SUPRA). THE CIT(A) ALSO REFERRED TO THE DECISION O F THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF SWORD GLOBAL I NDIA PVT. LTD. V. ITO, 306 ITR 286 (AT), WHEREIN THE PROVISIONS OF SECTION 10A AND 10B HAVE BEEN HELD TO BE DEDUCTION PROVISIONS A ND NOT EXEMPTION PROVISIONS. FOR ALL THE ABOVE REASONS, TH E CIT(APPEALS) CONFIRMED THE ORDER OF THE ASSESSING O FFICER. AGAINST THE ORDER OF THE CIT(A), THE ASSESSEE WAS I N APPEAL BEFORE THE TRIBUNAL. 25. THIS TRIBUNAL DEALT WITH THE ISSUE IN THE FOLL OWING WORDS : 63. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIV AL SUBMISSIONS. THE ISSUE AS TO WHETHER THE PROVISIONS O F SEC.10B OF THE ACT ARE DEDUCTION PROVISIONS OR EXEMPTION PROVISIONS WILL ASSUME GREAT IMPORTANCE. THE REASON IS THAT IF THE PROVISIONS ARE CONSIDERED AS EXEMPTION PROVISIONS THEN THEY WILL NOT ENTER THE COMPUTATION OF TOTAL INCOME AND THEREFORE THE LOSS OF ITA NO.1146/BANG/2013 PAGE 7 OF 19 THE ELIGIBLE UNIT CANNOT BE SET OFF AGAINST THE PROFITS OF THE NON-ELIGIBLE UNIT. THIS ISSUE HAS ALREADY BEEN SETTLED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA). THE HONBLE KARNATAK A HIGH COURT IN THE CASE OF YOKOGAWA (SUPRA) HAD TO DEAL WITH TWO SUBSTANTIAL QUESTION OF LAW. THE FIRST SUBSTANTIAL QUESTION OF LAW WAS ON THE RIGHT OF SET OFF OF LOSS OF NON-ELIGIBLE UNIT AGAINST THE PROFIT OF THE E LIGIBLE UNIT ON WHICH DEDUCTION U/S.10B WAS TO BE ALLOWED. TH E HONBLE COURT IN PARA 10 TO 20 OF ITS JUDGMENT DEALT WITH THE ISSUE. THE HONBLE COURT NOTICED THAT SEC.10- A(1) OF THE ACT (WHICH IS IN PARI MATERIA WITH SEC.10-B OF THE ACT) READ AS FOLLOWS: 10B. SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED UNDERTAKING IN FREE TRADE ZONE ETC.,-(1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY 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 UNDER-TAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSE E : (EMPHASIS SUPPLIED) 64. THE EXPRESSION DEDUCTION AND SHALL BE ALLOWE D FROM THE TOTAL INCOME OF THE ASSESSEE USED IN THE AFORESAID PROVISIONS WAS CONSIDERED BY THE HONBLE HIGH COURT AND IT HELD IN PARA 13 TO 15 OF ITS JUDG MENT THAT THE EXPRESSION SHALL BE ALLOWED FROM THE TOT AL INCOME OF THE ASSESSEE DOES NOT MEAN TOTAL INCOME AS DEFINED U/S.2(45) OF THE ACT BUT THAT EXPRESSION ME ANS PROFITS AND GAINS OF THE STP UNDERTAKING AS UNDERS TOOD IN ITS COMMERCIAL SENSE OR THE TOTAL INCOME OF THE STP UNIT. THUS THE VIEW EXPRESSED IS THAT INCOME OF THE STP ITA NO.1146/BANG/2013 PAGE 8 OF 19 UNDERTAKING GETS QUARANTINED AND WILL NOT BE ALLOWE D TO BE SET OFF AGAINST LOSS OF EITHER ANOTHER STP UNDER TAKING OR A NON STP UNDERTAKING. THE HONBLE COURT THEREAF TER HELD THAT THOUGH THE EXPRESSION USED IN SEC.10A WAS DEDUCTION BUT IN EFFECT IT WAS ONLY AN EXEMPTION SECTION. THESE CONCLUSIONS CLEARLY EMANATE FROM PAR A 17 OF THE HONBLE COURTS JUDGMENT. 65. THE SITUATION WITH WHICH WE ARE CONCERNED IN TH E PRESENT CASE IS A SITUATION WHERE THERE IS POSITIVE INCOME OF THE ELIGIBLE UNIT THEN THE SAME SHOULD BE ALLOWE D DEDUCTION U/S.10B OF THE ACT WITHOUT SETTING OF THE LOSS OF NON-ELIGIBLE UNIT. THE HONBLE KARNATAKA HIGH CO URT IN THE CASE OF YOKOGAWA (SUPRA) WAS CONCERNED WITH SIMILAR SITUATION AS SET OUT ABOVE. IN VIEW OF THE AFORESAID DECISION OF THE HONBLE KARNATAKA HIGH CO URT, WE ARE OF THE VIEW THAT THE CLAIM AS MADE BY THE ASSESSEE FOR CARRY FORWARD OF LOSS OF THE NON-ELIGI BLE UNIT HAD TO BE ALLOWED WITHOUT SET OFF OF PROFITS O F THE 10A/10B UNIT. WE HOLD ACCORDINGLY AND ALLOW THE RELEVANT GROUNDS OF APPEAL OF THE ASSESSEE. 66. WE MAY ALSO OBSERVE THAT THE HONBLE KARNATAKA HIGH COURTS DECISION IN THE CASE OF HIMATASINGIKE SEIDE (SUPRA) HAS HELD THAT UNABSORBED DEPRECIATION (AND BUSINESS LOSS) OF SAME (S. 10A/10B) UNIT BROUGHT FORWARD FROM EARLIER YEARS HAVE TO BE SET OFF AGAIN ST THE PROFITS BEFORE COMPUTING EXEMPT PROFITS. THE ASSESS EE IN THAT CASE SET UP A 100% EOU IN AY 1988-89. FOR WANT OF PROFITS IT DID NOT CLAIM BENEFITS U/S 10B IN AYS 1988- 89 TO 1990-91. FROM AY 1992-93 IT CLAIMED THE SAID BENEFITS FOR A CONNECTIVE PERIOD OF 5 YEARS. IN AY 1994- 95, THE ASSESSEE COMPUTED THE PROFITS OF THE EOU WITHOUT ADJUSTING THE BROUGHT FORWARD UNABSORBED DEPRECIATION OF AY 1988-89. IT CLAIMED THAT AS S. 1 0B CONFERRED EXEMPTION FOR THE PROFITS OF THE EOU, T HE SAID BROUGHT FORWARD DEPRECIATION COULD NOT BE SET- OFF FROM THE PROFITS OF THE EOU BUT WAS AVAILABLE TO BE SET- OFF AGAINST INCOME FROM OTHER SOURCES. IT WAS ALSO CLAIMED THAT THE PROFITS HAD TO BE COMPUTED ON A COMMERCIAL BASIS. THE AO ACCEPTED THE CLAIM THOUG H THE CIT REVISED HIS ORDER U/S 263 AND DIRECTED THAT THE ITA NO.1146/BANG/2013 PAGE 9 OF 19 EXEMPTION BE COMPUTED AFTER SET-OFF. ON APPEAL BY T HE ASSESSEE, THE TRIBUNAL REVERSED THE ORDER OF THE CI T. ON APPEAL BY THE DEPARTMENT, THE HIGH COURT IN CIT VS. HIMATASINGIKE SEIDE LTD. 286 ITR 255 (KAR) REVERSED THE ORDER OF THE TRIBUNAL AND HELD THAT THE BROUGHT FORWARD DEPRECIATION HAD TO BE ADJUSTED AGAINST THE PROFITS OF THE EOU BEFORE COMPUTING THE EXEMPTION ALLOWABLE U/S 10B. IN CIVIL APPEAL NO.1501 OF 2008 DATED 19.9.2013 AGAINST THE AFORESAID DECISION OF T HE HONBLE KARNATAKA HIGH COURT, THE HONBLE SUPREME COURT OBSERVED AS FOLLOWS WHILE DISMISSING THE APPE AL:- HAVING PERUSED THE RECORDS AND IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF OPINION THAT THE CIVIL APPEAL BEING DEVOID OF ANY MERIT DESERVES TO BE DISMISSED AND IS DISMISSED ACCORDINGLY. 67. THUS THE RATIO HAS TO BE CONFINED TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE AFORESAID OBSERVATIO NS HAVE TO BE CONFINED TO THE FACTS OF THAT CASE AND A S APPLICABLE TO A CASE WHERE BROUGHT FORWARD LOSSES A ND DEPRECIATION OF THE VERY SAME STP UNDERTAKING ARE N OT ADJUSTED WHILE ARRIVING AT THE PROFITS OF THE 10B UNIT FOR ALLOWING DEDUCTION U/S.10A/10B OF THE ACT AND NOT I N RESPECT OF BROUGHT FORWARD LOSSES AND DEPRECIATION OF OTHER UNDERTAKINGS/NON-10A/10B UNITS. S. 10A/10B(6) AS AMENDED BY THE FA 2003 W.R.E.F. 1.4.2001 PROVIDE S THAT DEPRECIATION AND BUSINESS LOSS OF THE ELIGIBLE UNIT RELATING TO THE AY 2001-02 & ONWARDS IS ELIGIBLE FO R SET- OFF & CARRY FORWARD FOR SET-OFF AGAINST INCOME POST TAX HOLIDAY WHICH MEANS THAT THEY NEED NOT BE SO SET OF F AS MANDATED IN THE DECISION OF THE HONBLE KARNATAKA H IGH COURT IN THE CASE OF HIMATASINGIKE SEIDE LTD. (SUPR A). AS WE HAVE ALREADY SEEN, IN YOKOGAWA INDIA LTD. 341 ITR 385 (KAR), IT WAS HELD THAT EVEN AFTER S. 10A/1 0B WERE CONVERTED INTO A DEDUCTION PROVISION W.E.F 1.4.2001, THE BENEFIT OF RELIEF U/S 10A/10B IS IN T HE NATURE OF EXEMPTION WITH REFERENCE TO COMMERCIAL PROFITS AND THAT AS THE INCOME OF THE S. 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, THE QUESTION OF SETTING OFF THE LOSS OF THE CURRENT YEARS OR THE BROUGHT FORWARD BUSINESS LOSS (AND ITA NO.1146/BANG/2013 PAGE 10 OF 19 UNABSORBED DEPRECIATION) AGAINST THE S. 10A PROFITS DOES NOT ARISE. THEREFORE THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDE (SUPRA) WILL NOT APPLY TO THE FACTS OF THE PR ESENT CASE. 26. IN VIEW OF THE AFORESAID DECISION, WE ARE OF TH E VIEW THAT THE CLAIM MADE BY THE ASSESSEE DESERVES TO BE ACCEP TED. WE MAY ALSO OBSERVE THAT CBDT CIRCULAR NO.7 DATED 16.07.20 13, ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE IS NOT A BENEVOLENT CIRCULAR VIS--VIS, THE ASSESSEE, AND THEREFORE THE DECISION TO THE CONTRARY OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA (SUPRA) WILL CONTINUE TO APPLY. FOR THE REASONS GIVEN ABOVE, WE DIRECT THE ASSESSING OFFICER TO ACC EPT THE CLAIM OF THE ASSESSEE, AS RAISED IN GROUND NO.21. 8. THE REASONING GIVEN BY THE TRIBUNAL FOR ALLOWING THE CLAIM OF THE ASSESSEE AS SET OUT ABOVE WILL EQUALLY APPLY TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. WE THEREFORE FO LLOWING THE AFORESAID DECISION, FIND NO GROUNDS TO INTERFERE WITH THE ORD ER OF THE CIT(A). GROUNDS NO.2 & 3 RAISED BY THE REVENUE ARE ACCORDINGLY DISM ISSED. 9. GROUND NOS. 4 & 5 RAISED BY THE REVENUE READ AS FOLLOWS:- 4. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 48,28,382 U/S 40(A)(I) RELATING TO THE PAYMENT MADE TO M/S NOVATEL OF THE USA FOLLOWING THE DECISION OF THE IT AT IN THE ASSESSES OWN CASE FOR THE ASSESSMENT YEAR 20089-09 IN ITA NO. 1297/BANG/2011 DATED 28/09/2011 WITHOUT APPRECIATIN G THE FACT THAT ACCORDING TO SECTION 5(2)(B) TOTAL INCOME INCLUDES INCOME DEEMED TO ACCRUE OR ARISE IN INDIA AND THE SOURCE OF SUCH PAYMENT BEING IN INDIA AND THE SOURCE RULE REIGNING OVER THE SITUS RULE THE SAME IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT. ITA NO.1146/BANG/2013 PAGE 11 OF 19 5. THE CIT(A) ERRED IN NOT TAKING COGNIZANCE OF TH E NEWLY INSERTED EXPLANATION 2 TO SECTION 195 INSERTED WITH RETROSPECTIVE EFFECT FROM 1.04.1962 BY THE FINANCE ACT, 2012 WHIC H CLARIFIES THAT SUB-SECTION (1) APPLIES AND EXTENDS TO ALL PER SONS, RESIDENTS OR NON-RESIDENT AND WHETHER OR NOT THE NON-RESIDENT PERSON HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS IN INDIA OR ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA AND THE BENEFITS OF THE INSERTION OF THIS EXPLANATION WAS NOT AVAILABLE TO THE ITAT WHILE MAKING ITS ORDER DATED 28.09.2011 IN ITA NO. 1297/BANG/2011. 10. THE FACTUAL BACKGROUND WITH REFERENCE TO THE A FORESAID GROUNDS OF APPEAL ARE AS FOLLOWS. THE AO NOTICED THAT THE ASS ESSEE HAD PAID A SUM OF RS.42,28,382/- TO M/S NOVATEL, USA. ACCORDING TO THE ASSESSEE THE PAYMENT TO M/S. NOVATEL, USA WAS MADE FOR UTILIZING TELECOM VOICE SERVICES IN USA AND THE SAID PAYMENT DID NOT CONSTI TUTE FEE FOR TECHNICAL SERVICES BUT WAS IN THE NATURE OF BUSINESS INCOME O F THE NON-RESIDENT M/S. NOVATEL, USA. SINCE THE NON-RESIDENT DID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA, INCOME FROM BUSINESS IS NOT CHARGEABLE TO TAX IN THE HANDS OF THE NON-RESIDENT IN INDIA AND THEREFORE TH ERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. THE AO HOWEVER TOOK THE VIEW THAT THE PAYMENT IN QUESTION WAS FEE FOR TECHN ICAL SERVICES RENDERED BY THE NON-RESIDENT AND WAS THEREFORE CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE NON-RESIDENT AND THEREFORE THE ASSESSE E WAS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE. SINCE THE ASSE SSEE FAILED TO DO SO, THE AO INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF PAYMENTS MAD E TO THE NON-RESIDENT ITA NO.1146/BANG/2013 PAGE 12 OF 19 WHICH WAS OTHERWISE AN EXPENDITURE DEDUCTIBLE WHILE COMPUTING TOTAL INCOME OF THE ASSESSEE. THE TOTAL INCOME OF THE A SSESSEE CAME TO BE DETERMINED AT RS.48,28,382/- DUE TO THIS DISALLOWAN CE. 11. ON APPEAL BY THE ASSESSEE, THE CIT(A) FOUND TH AT THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO.1297/BANG/2011 ORDER DATED 28.9.2012 IN RESPECT OF AN IDENTICAL PAYMENT TO M/S. NOVATEL, USA, HELD THAT THE PAYMENT WAS NOT FEES FOR TECHNICAL SERVICES RENDERED BY THE NON-RESIDENT BUT WAS BUSINESS INCOME IN THE HANDS OF THE NON-RESIDENT AND SINCE THE NON- RESIDENT DID NOT HAVE A PERMANENT RESIDENCE IN INDIA, THE SAME IS NOT CHARG EABLE TO TAX IN THE HANDS OF THE NON-RESIDENT IN INDIA. THE TRIBUNAL T HEREFORE HELD THAT THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DE DUCT TAX AT SOURCE. CONSEQUENTLY THE DISALLOWANCE U/S.40(A)(IA) OF THE ACT WAS DELETED BY THE CIT(A). 12. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVE NUE HAS RAISED GROUND NO.4 & 5 BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARNED DR RELIED ON THE ORDER OF THE AO AND TH E GROUNDS OF APPEAL RAISED BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FO R THE ASSESSEE RELIED ON THE ORDER OF THE ITAT IN ASSESSEES OWN CASE IN AY 08-09. IT WAS ALSO SUBMITTED BY HIM THAT THE RETROSPECTIVE AMENDMENT T O SEC.195 WHICH HAS BEEN POINTED OUT BY THE REVENUE IN GROUND NO.5 OF T HE GROUNDS OF APPEAL WILL NOT HAVE THE EFFECT OF FASTENING OBLIGATION TO DEDUCT TAX AT SOURCE AT THE ITA NO.1146/BANG/2013 PAGE 13 OF 19 TIME WHEN THE ASSESSEE MADE PAYMENT TO THE NON-RESI DENT. IN THIS REGARD IT WAS SUBMITTED BY HIM THAT OBLIGATION TO DEDUCT T AX AT SOURCE ARISES WHEN PAYMENT IS MADE. IF AS ON THE DATE OF PAYMENT THER E IS NO OBLIGATION TO DEDUCT TAX AT SOURCE THEN NO DISALLOWANCE CAN BE MA DE U/S.40(A)(IA) OF THE ACT. IF CONSEQUENT TO A RETROSPECTIVE AMENDMENT AN OBLIGATION TO DEDUCT TAX AT SOURCE IS FASTENED ON AN ASSESSEE THEN THE O BLIGATION BECOMES INCAPABLE OF PERFORMANCE. IN THIS REGARD HE PLACED RELIANCE ON THE DECISION OF THE BANGALORE ITAT IN THE CASE OF TTK PRESTIGE L TD. VS. ACIT ITA NO.1257/BANG/2011 ORDER DATED 11.4.2014 WHEREIN THI S TRIBUNAL HELD THAT LIABILITY TO DEDUCT TAX SOURCE CANNOT BE FASTENED O N THE BASIS OF A RETROSPECTIVE AMENDMENT TO LAW WHICH DID NOT EXIST WHEN PAYMENT WAS MADE. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO.1297/BANG/2011 ORDER DATED 28.9.2012 IN RESPECT OF AN IDENTICAL PAYMENT TO M/S. NOVATEL, USA, THE TRIBUNAL HELD THA T THE PAYMENT WAS NOT FEES FOR TECHNICAL SERVICES RENDERED BY THE NON-RES IDENT BUT WAS BUSINESS INCOME IN THE HANDS OF THE NON-RESIDENT AND SINCE T HE NON-RESIDENT DID NOT HAVE A PERMANENT RESIDENCE IN INDIA, THE SAME IS NO T CHARGEABLE TO TAX IN THE HANDS OF THE NON-RESIDENT IN INDIA. THE TRIBUN AL THEREFORE HELD THAT THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL. ITA NO.1146/BANG/2013 PAGE 14 OF 19 4.16 ALSO THE HONBLE SUPREME COURT IN THE CASE O F GE INDIA TECHNOLOGY CENTRE (P) LTD. V. CIT & ANR REPORTED IN 327 ITR 456 (SC) HAS MADE IT IMPLICIT THAT THE MOST IMPORT ANT EXPRESSION IN S. 195(1) CONSISTS OF THE WORDS CHAR GEABLE UNDER THE PROVISIONS OF THE ACT. A PERSON PAYING INTERES T OR ANY OTHER SUM TO A NON-RESIDENT IS NOT LIABLE TO DEDUCT TAX, IF SUCH SUM IS NOT CHARGEABLE TO TAX UNDER THE I.T.ACT. 4.17 MOREOVER, THE HONBLE EARLIER BENCH OF THIS TR IBUNAL HAD CONSIDERED A SIMILAR ISSUE IN THE CASE OF INFOSYS T ECHNOLOGIES LTD. V. DCIT IN ITA.NO.1140/BANGI2009 DATED 21.1.20 11. AFTER DUE CONSIDERATION OF THE ISSUE AND ALSO IN CONFORMI TY WITH THE RULING OF THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD. V. DCIT REPORTED IN 327 I TR 456(SC), THE HONBLE EARLIER BENCH HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE FINDINGS OF T HE HONBLE BENCH IS REPRODUCED AS UNDER: 4.9 THE PAYMENTS MADE TO SERVICE PROVIDERS SUCH AS AT AND T OR MCI TELECOMMUNICATIONS ARE FOR THE USE OF BANDWIDTH PROVIDED FOR DOWN LINKING SIGNALS IN THE UNITED STATES. THE PAYMENTS MADE ARE NOT IN THE NATURE OF MANAGERIAL, CONSULTANCY OR TECHNICAL SERVICES NOR IS IT FOR THE USE OF OR RIGH T TO USE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. THE SERVICE PROVIDERS SUCH AS MCI TELECOMMUNICATIONS OR AT AND T ONLY ENSURES THAT THE SUFFICIENT BANDWIDTH IS AVAILABLE ON AN ONGOING BASIS TO THE ULTIMATE USERS TO UPLINK AND DOWNLINK THE SIGNALS. 4.10 THE MADRAS HIGH COURT IN THE CASE OF SKY CELL COMMUNICATION SERVICES LTD. V. DCIT MANU/TN/0461/2001 2521 ITR 53 HAS HELD THAT PAYMENT FOR USE OF MOBILE PHONE SERVICES WOULD NOT CONSTITUTE ROYALTIES OR FEES FOR TECHNICAL SERVICES. PAYMENTS MADE FOR BANDWIDTH ARE AKIN TO THE PAYMENTS FOR USE OF MOBILE PHONE SERVICES. 4.11 THE BANGALORE BENCH OF THE ITAT IN THE CASE OF WIPRO LTD. V. ITO 80 TTJ 191 HAS HELD THAT PAYMENT FOR BANDWIDTH WOULD CONSTITUTE NEITHER ROYALTIES NOR FEES FOR TECHNICAL SERVICES EITHER UN DER ITA NO.1146/BANG/2013 PAGE 15 OF 19 THE ACT OR UNDER THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION WITH USA. THIS DECISION WAS FOLLOWED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE [ITA.NO.532 AND 533/BANG/2002 AND ITA.NO.365 AND 367/BANG/2003 DATED 12.8.2005]. MOREOVER, THE RECENT DECISIONS OF THE AAR IN THE FOLLOWING CASES HAVE DECIDED IN FAVOUR OF THE ASSESSEE. DELL INTERNATIONAL SERVICES (P) LTD. V. CIT MANU/APJ2002/2008 305 ITR 37 ISRO SATELLITE CENTRE (ISAC) V. DIT MANU/AP./0010/2008 307 ITR 59; AND CABLE AND WIRELESS NETWORKS INDIA (P) LTD. V. DIT MANU/AR/0018/2009 72. 4.18 IN THE OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AND ALSO IN CONFORMITY WITH JUDICIAL VIEW S REFERRED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE ASSES SEE HAD NO OBLIGATION WHATSOEVER TO DEDUCT TAX AT SOURCE WHEN THE PAYMENTS MADE TO NOVATEL AND AS SUCH, NO DISALLOWANCE U/S 40 (A)(IA) OF THE ACT WAS CALLED FOR. IT IS ORDER ORDERED ACCORDINGLY . 14. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE ITAT CITED ABOVE IN THE APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR 2008-09, WE UPHOLD THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) OF THE ACT RELATING TO THE PAYMENT MADE T O M/S NOVATEL OF THE USA IS DELETED. 15. AS FAR AS GROUND NO.5 BY THE REVENUE IS CONCER NED, THE REVENUE SEEKS TO RELY UPON THE EXPLANATION INSERTED AS EXPL ANATION 2 TO SECTION 195 BY THE FINANCE ACT OF 2002 W.R.E.F 1-4-1961. THE A FORESAID AMENDMENT LAYS DOWN THAT EVEN IF THE PAYMENT BY A RESIDENT IN INDIA TO A NON-RESIDENT ITA NO.1146/BANG/2013 PAGE 16 OF 19 CONSTITUTES BUSINESS INCOME IN THE HANDS OF THE NON -RESIDENT THEN IRRESPECTIVE OF THE EXISTENCE OR NON-EXISTENCE OF A PERMANENT ESTABLISHMENT OF THE NON-RESIDENT IN INDIA, TAX IS LIABLE TO THE DEDUCTED AT SOURCE BY THE RESIDENT IN INDIA MAKING PAYMENT TO N ON-RESIDENT. ADMITTEDLY, FOR THE A.Y. 2010-11, SUCH PROVISION DI D NOT EXIST. AT THE TIME WHEN THE ASSESSEE MADE PAYMENTS TO THE NON-RESIDENT SUCH A PROVISION DID NOT EXIST. IT IS NOT POSSIBLE FOR THE ASSESSEE TO FORESEE AN OBLIGATION TO DEDUCT TAX AT SOURCE BY A RETROSPECTIVE AMENDMENT T O THE LAW. IN SUCH CIRCUMSTANCES, THE QUESTION THAT ARISES FOR CONSIDE RATION IS AS TO, WHETHER A LIABILITY TO DEDUCT TAX AT SOURCE CAN BE FASTENED O N AN ASSESSEE ON THE BASIS OF A RETROSPECTIVE AMENDMENT TO THE LAW. THE AMENDMENT BROUGHT IN BY THE FINANCE ACT WITH RETROSPECTIVE EFFECT, WHICH WAS PASSED IN THE YEAR SUBSEQUENT TO THE YEAR UNDER CONSIDERATION, SHOULD NOT BE CONSIDERED FOR PENALIZING THE ASSESSEE BY WAY OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 16. IN THE CASE OF KERALA VISION LTD. VS. ASSTT. CIT (ITAT COCHIN) , ITAT NO. 794/COCH/2013, ORDER DATED 06.06.2014 QU ESTION THAT CAME UP FOR CONSIDERATION WAS WHETHER THE RETROSPEC TIVE AMENDMENT TO SEC.195 CAN FASTEN OBLIGATION TO DEDUCT TAX AT SOUR CE. THE TRIBUNAL FOUND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD VS. DIT (332 ITR 340) HAD TAKEN THE VIEW THAT THE TRANSMISSION OF TELEVISION SIGNALS TH ROUGH SATELLITE / TRANSPONDERS WOULD NOT FALL IN THE CATEGORY OF ROY ALTY AS DEFINED UNDER ITA NO.1146/BANG/2013 PAGE 17 OF 19 EXPLANATION 2 TO SEC. 9(1) OF THE ACT. SUBSEQUENTLY EXPLANATION 6, WHICH EXPANDED THE SCOPE OF THE EXPRESSION PROCESS WAS INSERTED BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT, TO NUL LIFY THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT. THE ASSESSEE SUBMI TTED BEFORE THE TRIBUNAL THAT THE VIEW ENTERTAINED BY THE ASSESSEE THAT THE PAYMENT OF PAY CHANNEL CHARGES WILL NOT FALL IN THE CATEGORY OF ROYALTY, WAS SUPPORTED BY THE DECISION OF HONBLE DELHI HIGH COURT REFERRE D ABOVE. ACCORDINGLY THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE U/S 40(A)( IA) SHOULD NOT BE MADE ON THE BASIS OF SUBSEQUENT AMENDMENT MADE WITH RETR OSPECTIVE EFFECT. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE FO LLOWING DECISIONS:- (A) SONATA INFORMATION TECHNOLOGY LTD VS. DCIT (2012)(TAXCORP (INTL)4659 (MUMBAI-TRIB) (B) INFOTECH ENTERPRISES LIMITED VS. ADDL. CIT ( 2014) TAXCORP (INTL) 6945 (ITAT HYDERABAD) (C) CHANNEL GUIDE INDIA LIMITED VS. ACIT (2013) TA XCORP (INTL) 6702 (ITAT-MUM) THE COCHIN BENCH OF ITAT FOLLOWING THE RULING IN TH E DECISIONS REFERRED TO ABOVE HELD THAT THE ASSESSEE CANNOT BE HELD TO BE LIABLE TO DEDUCT TAX AT SOURCE RELYING ON THE SUBSEQUENT AMENDMENTS MADE IN THE ACT WITH RETROSPECTIVE EFFECT. THE TRIBUNAL HELD THAT THE V IEW ENTERTAINED BY THE ASSESSEE THAT THE PAY CHANNEL CHARGES CANNOT BE CONSIDERED AS ROYALTY IN FACT GETS SUPPORT FROM THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATION CO. LTD. ITA NO.1146/BANG/2013 PAGE 18 OF 19 ( SUPRA ). THOUGH THE EXPLANATION 6 TO SEC. 9(1)(VI) INSERT ED BY FINANCE ACT, 2012 IS CLARIFICATORY IN NATURE, YET IN VIEW OF THE FACT THAT THE VIEW ENTERTAINED BY THE ASSESSEE GETS SUPPORT FROM THE D ECISION OF DELHI HIGH COURT, THE TRIBUNAL HELD THAT THE ASSESSEE CANNOT B E HELD TO BE LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAY CHANNEL CHARGES. THE TRIBUNAL HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOW ING THE CLAIM OF PAY CHANNEL CHARGES BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. ACCORDINGLY, THE ORDER OF LD CIT(A) ON THE ISSUE WA S SET ASIDE AND THE AO WAS DIRECTED TO DELETE THE IMPUGNED DISALLOWANCE. SIMILAR VIEW HAS ALSO BEEN EXPRESSED BY THE ITAT BANGALORE BENCH IN THE C ASE OF TTK PRESTIGE LTD. (SUPRA). RESPECTFULLY FOLLOWING THE DECISIONS REFERRED TO ABOVE, WE HOLD THAT THERE IS NO MERIT IN GR.NO.5 RAISED BY TH E REVENUE. 10. GROUNDS NO.4 & 5 ARE ACCORDINGLY DISMISSED. 11. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF SEPTEMBER , 2014 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 12 TH SEPTEMBER , 2014 . /D S/ ITA NO.1146/BANG/2013 PAGE 19 OF 19 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.