M/s AON Specialist Services Pvt. Ltd., Bangalore V. ITO, Bangalore

ITA 1530/BANG/2014

• Counselvise Citation: 153021114 RSA 2014
• Duration Of Justice: 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 28-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P DINESH
• Assessee Lawyers: DR D V PRADEEP KUMAR
• Keywords: Deemed to accrue or arise in india
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IT(TP)A NO.1375/BANG/2014 ASSESSMENT YEAR : 2009-10 THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. VS. M/S. AON SPECIALIST SERVICES PVT. LTD., 4 TH FLOOR, TOWER 2, SJRI PARK, 13/14/15 EPIP INDUSTRIAL AREA, 1 ST PHASE, WHITEFIELD, BANGALORE 560 004 PAN: AAFCA 9306H APPELLANT RESPONDENT IT(TP)A NO.1530/BANG/2014 ASSESSMENT YEAR : 2009-10 M/S. AON SPECIALIST SERVICES PVT. LTD., BANGALORE 560 004 PAN: AAFCA 9306H VS. THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : DR. D.V. PRADEEP KUMAR, ADDL. CIT(DR) RESPONDENT BY : SHRI P. DINESH, ADVOCATE DATE OF HEARING : 15.10.2015 DATE OF PRONOUNCEMENT : 16.10.2015 IT(TP)A NO.1375 & 1530/BANG/2014 PAGE 2 OF 8 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THESE ARE CROSS APPEALS BY THE REVENUE AND THE AS SESSEE AGAINST THE ORDER DATED 01.08.2014 OF THE CIT(APPEALS)-I, B ANGALORE RELATING TO ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS A COMPANY ENGAGED IN PROVIDING T ECHNOLOGY ENABLED ANALYTICAL SERVICES AS WELL AS PRODUCT RESE ARCH AND SUPPORT SERVICES. IT FILED ITS RETURN OF INCOME FOR THE AY 2009-10 ON 3/9/2009, DECLARING THE TOTAL INCOME AT RS.86,060 AFTER CLAIM ING A DEDUCTION U/S 10A OF THE ACT AMOUNTING TO RS.7,90,17,736. INITIALLY T HE RETURN WAS PROCESSED U/S 143(1) AND THEN SELECTED. IN THE ASSESSMENT CON CLUDED U/S 143(3) VIDE ORDER DATED 15/3/2013, THE TOTAL INCOME HAS BEEN DE TERMINED AT RS.1,59,32,981 UNDER THE NORMAL PROVISIONS AND THE BOOK PROFITS HAVE BEEN ADOPTED AT RS.7,73,85,681 U/S 115JB OF THE ACT. 3. WITH RESPECT TO THE FIRST ISSUE REGARDING DEDUCT ION U/S. 10A, IN THE RETURN OF INCOME, THE ASSESSEE HAD CLAIMED DEDUCTIO N U/S 10A OF THE ACT AT RS.7,90,17,736 OUT OF WHICH THE AO REDUCED A SUM OF RS.20,51,418. THE ASSESSEE HAD REDUCED THE AMOUNTS OF RS.5,94,908, RS .87,91,121 AND RS.2,16,652 FROM BOTH EXPORT TURNOVER AND TOTAL TUR NOVER WHILE CALCULATING THE DEDUCTION U/S 10A OF THE ACT. BUT THE AO TREATE D THE AMOUNT OF RS.5,94,908 AS ATTRIBUTABLE TO THE DELIVERY OF ARTI CLES OR THINGS OR COMPUTER IT(TP)A NO.1375 & 1530/BANG/2014 PAGE 3 OF 8 SOFTWARE OUTSIDE INDIA, RS.87,91,121 AS ATTRIBUTABL E TO PROVIDING TECHNICAL SERVICES OUTSIDE INDIA IN RESPECT OF EXPORT AND RS. 2,16,652 AS ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER S OFTWARE OUTSIDE INDIA. THE AO, THEREFORE, REDUCED THE AGGREGATE AMOUNT OF RS.9 6,02,681 ONLY FROM THE EXPORT TURNOVER, WITHOUT MAKING A CORRESPONDING REDUCTION FROM THE TOTAL TURNOVER, RESULTING IN REDUCING THE ALLOWANCE U/S 10A BY RS.20,51,418. 4. THE CIT(APPEALS) HELD THAT THE LAW IS NOW WELL-S ETTLED IN FAVOUR OF THE TAX-PAYER IN REGARD TO THE DEDUCTION OF EXPENSE S FROM EXPORT TURNOVER VIS-A-VIS TOTAL TURNOVER FOR PURPOSES OF CALCULATIN G THE DEDUCTION U/S L0B OF THE ACT. THE HONBLE HIGH COURT OF KARNATAKA IN TATA ELXSI LTD. V. ACIT (349 ITR 98) HAS HELD THAT, WHERE CERTAIN EXPENSES ARE EXCLUDED FROM THE EXPORT TURNOVER FOR PURPOSES OF CALCULATING DEDUCTI ONS ADMISSIBLE UNDER THE ACT, SUCH EXPENSES SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER AS THE EXPORT TURNOVER FORMS PART OF THE TOTAL TURNOVER. I N THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT REFERRED TO ABOVE, TH E AO WAS DIRECTED TO EXCLUDE THE SAID EXPENSES FROM THE TOTAL TURNOVER A LSO IF THEY ARE SOUGHT TO BE EXCLUDED FROM THE EXPORT TURNOVER. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US RA ISING GROUNDS NO.2 & 3 WHICH READ AS FOLLOWS:- 2. THE CIT(A) ERRED IN FOLLOWING THE RATIO LAID D OWN BY THE HONBLE COURT IN THE CASE OF TATA ELXSI LIMITED 349 ITR 98 AND IN DIRECTING THE AO TO EXCLUDE LEASELINE CHARGES OF RS. 5,94,908/- AND FOREIGN TRAVEL EXPENSES OF RS. 87,91,121/- AND OTHER EXPENSES OF RS.2,16,652/- FROM THE TOTAL TURNOVER ALSO WHILE COMPUTING THE IT(TP)A NO.1375 & 1530/BANG/2014 PAGE 4 OF 8 DEDUCTION U/S 10A OF THE I.T. ACT AS THE DECISION O F THE HIGH COURT IS BINDING, WITHOUT APPRECIATING THE FACT THA T THERE IS NO PROVISION IN SECTION 10A THAT SUCH EXPENSES SHOULD BE REDUCED FROM THE TOTAL TURNOVER ALSO, AS CLAUSE (IV) OF THE EXPLANATION TO SECTION 10A PROVIDES THAT SUCH EXPENSES ARE TO BE R EDUCED ONLY FROM THE EXPORT TURNOVER. 3. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT T HAT THE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF TATA ELXSI LIMITED 349 ITR 98 HAS NOT BEEN ACCEPTED BY THE DEP ARTMENT AND AN APPEAL HAS BEEN FILED BEFORE THE HONBLE SUPREME COURT. 6. WE HAVE HEARD BOTH THE PARTIES. WE ARE IN CONFO RMITY WITH THE ORDER OF THE CIT(APPEALS) SINCE THE CIT(APPEALS) HAS ONLY FOLLOWED THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD. (349 ITR 98) AND WE ARE BOUND TO FOLLOW THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT. GROUNDS NO.2 & 3 BY THE REVENUE ARE T HUS DISMISSED. 7. THE NEXT ISSUE IS WITH RESPECT TO DISALLOWANCE U/S 40(A)(IA) OF RS.1,37,95,503. THE AO NOTED THAT THE ASSESSEE HAD REMITTED SALARY AMOUNTING TO RS.1,37,95,503 TO AN EMPLOYEE OF THE A SSESSEE AND CROSS- CHARGED TO THE ASSESSEE. THOUGH THE ASSESSEE CLAIME D THAT IT HAD DEDUCTED TAX AT SOURCE ON THIS AMOUNT AND DEPOSITED THE SAME U/S 192 OF THE ACT, THE AO TREATED THE CROSS-CHARGING OF SALAR Y PAYMENT TO M/S AON LIMITED OF UK AS FEES FOR TECHNICAL SERVICES AND DI SALLOWED THE AMOUNT U/S 40(A)(IA) ON THE GROUND THAT NO TAX HAD BEEN DEDUCT ED AT SOURCE FROM THE SAID PAYMENT TREATED AS TECHNICAL FEES. IT(TP)A NO.1375 & 1530/BANG/2014 PAGE 5 OF 8 8. BEFORE THE CIT(APPEALS), THE ASSESSEE VIDE ITS W RITTEN SUBMISSION DATED 09 TH JULY 2014, IN PARA 2.4 SUBMITTED THAT DURING THE F INANCIAL YEAR 2008-09, AON LIMITED, UK HAS REMITTED SALARY TO THE EXTENT OF RS. 1,37,95,503 TO AN EMPLOYEE OF THE APPELLANT AND HAS CROSS CHARGED THE SAME TO THE APPELLANT. THE APPELLANT HAS DEDUCTED A ND DEPOSITED TAX DEDUCTED AT SOURCE (TDS) ON SALARY REMITTED BY AO N LIMITED, UK, UNDER SECTION 192 OF THE ACT. THE AO HAS TREATED CROSS-CH ARGE OF SALARY PAYMENT OF RS. 1,37,95,503 TO AON LIMITED, UK AS FEES FOR T ECHNICAL SERVICES (FTS) UNDER THE ACT. THE AO HAS DISALLOWED THE AB OVE AMOUNT UNDER SECTION 40(A)(I) OF THE ACT AS NO TAX HAD BEEN DEDU CTED AT SOURCE (TDS) UNDER SECTION 195 OF THE ACT. 9. THE CIT(APPEALS) OBSERVED THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE ITAT, BANGALORE IN ASSESSEES OWN CASE FOR A.Y. 2008-09 IN ITA NO. 1640/BANG/2012 DATED 30.06.2014, AND REPRODUCED THE RELEVANT PARAS AS FOLLOWS: - 7.2 AS THE FACTS OF THE CASE AS HAND ARE SIMILAR, WE ARE OF THE VIEW THAT THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF IDS SOFTWARE SOLUTIONS INDIA P. LTD. (SUPRA) SQUARELY A PPLIES TO THE ASSESSEE IN THE CASE ON HAND. ON CONSIDERATION AND APPRECIATION OF THE FACTS OF THE CASE ON HAND, THE MATERIAL ON R ECORD AND THE DISCUSSION IN 6.1 TO 7.1 OF THE ORDER (SUPRA), WE A RE OF THE CONSIDERED OPINION THAT THE ASSESSEE SHOULD BE CONS IDERED AS THE REAL AND ECONOMIC EMPLOYER OF THE PERSONS, SECONDED BY THE UK COMPANY AND WORKING FOR THE ASSESSEE. IT, THEREFORE , FOLLOWS THAT THE ASSESSEE IS RESPONSIBLE FOR THE PAYMENT RELATED TO SERVICES RENDERED BY THE EMPLOYEES TO THE ASSESSEE NECESSITA TING THE REIMBURSEMENT OF CHARGES. IT(TP)A NO.1375 & 1530/BANG/2014 PAGE 6 OF 8 8.0 THE ISSUE AT (II) IS OF WHETHER THE PAYMENTS M ADE BY THE ASSESSEE TO THE UK COMPANY WERE PURE REIMBURSEMENT OF EXPENSES AND WHETHER THE SAID REIMBURSEMENTS CONSTI TUTED INCOME IN THE HANDS OF THE UK COMPANY. ON THIS ISSU E, WHICH WAS CONSIDERED BY THE SPECIAL BENCH OF THE, MUMBAI TRIBUNAL IN THE CASE OF MAHINDRA & MAHINDRA LTD. (2009) 313 ITR (AT) 263 THE BENCH HELD THAT REIMBURSEMENTS MADE TO FOREIGN COMPANY WERE NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE. THI S DECISION WAS FOLLOWED BY THE COORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF ABBEY BUSINESS SERVICES (INDIA) (P) LTD. (SUPRA) WH EREIN AT PARA 14.6 THEREOF, IT HAS BEEN HELD AS UNDER: 14.6 THE SPECIAL BENCH OF THE ITA T MUMBAI IN THE CASE OF MAHINDRA & MAHINDRA LTD VS. DCIT(2009) 313 ITR (AT) 263 HELD WHEN A PARTICULAR AMOUNT OF EXPENDITURE IS INCURRED AND THAT SUM IS REIMBURSED AS SUCH, THAT CANNOT BE CONSIDERED AS HAVING ANY PART OF IT IN THE NATURE OF INCOME. ANY PAYMENT, IN ORDER TO BE B ROUGHT WITHIN THE SCOPE OF INCOME BY WAY OF FEES FOR TECHN ICAL SERVICES UNDER SECTION 9(1) (VII), SHOULD BE OR HAV E AT LEAST SOME ELEMENT OF INCOME IN IT. SUCH PAYMENT SHOULD INVOLVE SOME COMPENSATION FOR THE RENDERING OF ANY SERVICES, WHICH CAN BE DESCRIBED AS INCOME IN THE H ANDS OF THE RECIPIENT. IN OTHER WORDS THE COMPONENT OF INCO ME MUST BE PRESENT IN THE TOTAL AMOUNT OF FEES PAID FO R TECHNICAL SERVICES TO CONSTITUTE AS AN ITEM FALLING UNDER SECTION 9(1)(VII). WHEN THE EXPENDITURE INCURRED IS REIMBURSED AS SUCH WITHOUT HAVING ANY ELEMENT OF IN COME IN THE HANDS OF THE RECIPIENT, IT CANNOT ASSUME THE CHARACTER OF INCOME DEEMED TO ACCRUE OR ARISE IN IN DIA. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPIN ION THAT REIMBURSEMENTS MADE BY THE ASSESSEE TO THE UK COMPA NY DO NOT CONSTITUTE INCOME IN THE HANDS OF THE UK COMPANY. 10. FOLLOWING THE DECISION OF THE ITAT BANGALORE IN ASSESSEES OWN CASE FOR THE A.Y. 2008-09, THE CIT(APPEALS) DIRECTE D THE AO TO ALLOW THE EXPENSES OF RS.1,37,95,503. IT(TP)A NO.1375 & 1530/BANG/2014 PAGE 7 OF 8 11. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US O N THE FOLLOWING GROUNDS:- 4. THE CIT(A) ERRED IN DELETING THE ADDITION OF RS . 1,37,95,503 MADE BY INVOKING THE PROVISION OF SECTI ON .40(A)(I) OF THE ACT FOR NON DEDUCTION OF TAX U/S 195 BY RELY ING ON THE JUDGEMENT OF HONBLE ITAT IN ASSESSEES OWN CASE FO R THE AY 2008-09 IN ITA NO. 1640/BANG/2012 DATED 30-06-2014, WITHOUT APPRECIATING THE FACT THAT THE PAYMENT MADE TO THE AON LIMITED, UK IS FEES FOR TECHNICAL SERVICES FOR THE SERVICES RENDERED BY THE EMPLOYEES WHICH IS CONSIDERED AS TECHNICAL SERV ICES AND THE PROVISIONS OF SECTION 40(A)(I) ARE APPLICABLE. 5. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR THE AY 2008-09 IN ITA NO.1640/BANG/2012 DATED 30.1.2014 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL HAS BEEN FILED BEFO RE THE HIGH COURT. 12. WE HAVE HEARD BOTH THE PARTIES. THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y. 20 08-09 IN ITA NO.1640/BANG/2012 DATED 30.6.2014 HAS HELD THAT WHE N EXPENDITURE INCURRED IS REIMBURSED AS SUCH WITHOUT HAVING ANY E LEMENT OF INCOME IN THE HANDS OF THE RECIPIENT, IT CANNOT ASSUME THE CHARAC TER OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. RESPECTFULLY FOLLOWING T HE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL, WE DISMISS GROUN DS NO.4 & 5 RAISED BY THE REVENUE. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. IT(TP)A NO.1375 & 1530/BANG/2014 PAGE 8 OF 8 14. THE ASSESSEES APPEAL IN ITA NO.1503/BANG/2014 IS ONLY SUPPORTIVE OF THE ORDER OF CIT(APPEALS) AND SINCE WE HAVE ALRE ADY DECIDED THE DEPARTMENTAL APPEAL IN ITA NO.1375/BANG/2014 HEREIN ABOVE, THE ASSESSEES APPEAL HAS BECOME INFRUCTUOUS AND THE SA ME IS THEREFORE DISMISSED. 15. IN THE RESULT, THE APPEALS BY THE REVENUE AND T HE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF OCTOBER, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 16 TH OCTOBER, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.