ACIT, CHENNAI V. KG Information Systems (p) Ltd., Coimbatore

ITA 1547/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81161 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 15-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: R MAHADEVAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI . , , ! ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / I.T.A. NO. 1547/MDS/2013 / ASSESSMENT YEAR : 2009-10 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(2), COIMBATORE ( # /APPELLANT) VS KG INFORMATION SYSTEMS (P) LTD., 365, KG CAMPUS, THUDIYALUR ROAD, SARAVANAMPATTI, COIMBATORE-35 [PAN: AABCK 1447 M] ( $% # /RESPONDENT) REVENUE BY : SHRI GURU BHASHYAM, JCIT ASSESSEE BY : SHRI R. MAHADEVAN, CA / DATE OF HEARING : 05-08-2014 / DATE OF PRONOUNCEMENT : 26-09-2014 & / O R D E R PER VIKAS AWASTHY, J.M: THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS)-I, COIMBATOR E DATED 02-04-2013 RELEVANT TO THE ASSESSMENT YEAR (AY) 200 9-10. IN APPEAL, THE REVENUE HAS ASSAILED THE FINDINGS OF CI T(APPEALS) FOR ITA NO. 1547/MDS/2013 2 DELETING DIS-ALLOWANCE OF DEDUCTION CLAIMED U/S.10A OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT ) ON ACCOUNT OF: I. EXPENDITURE ON COMMISSION PAID TO M/S.MARINCORP SOLUTIONS, USA FOR PROCURING ORDERS; II. PAYMENTS MADE FOR PURCHASE OF LEADS WHICH CONS ISTS OF NAME, ADDRESS AND TELEPHONE NUMBERS OF THE PROSPECTIVE BUYERS; AND III. PROFESSIONAL AND LEGAL CHARGES PAID FOR DRAFTI NG AGREEMENTS. THE ASSESSING OFFICER HELD THE AFORESAID PAYMENTS A S FEE FOR TECHNICAL SERVICES. THE REVENUE HAS ALSO ASSAILED THE FINDINGS OF CIT(APPEALS) IN DIRECTING THE ASSESSING OFFICER TO DEDUCT THE EXPENDITURE THAT HAS BEEN DEDUCTED FROM EXPORT TURN OVER, FROM THE TOTAL TURNOVER AS WELL. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF EXPORT OF SOFTWARE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY UNDER CONSIDERATION ON 26-09-2009 DECLARING INCO ME OF ` 27,85,500/-. THE ASSESSEE CLAIMED DEDUCTION U/S.10 A OF THE ACT TO THE TUNE OF ` 2,76,38,496/- OF EXPORT BUSINESS. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE ITA NO. 1547/MDS/2013 3 ACT WAS ISSUED TO THE ASSESSEE ON 30-08-2010. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HE LD THAT COMMISSION PAYMENTS FOR PROCURING BUSINESS ORDERS, PURCHASE OF LEADS VIZ., NAME, ADDRESS, TELEPHONE NUMBERS OF THE PROSPECTIVE BUYERS, CONFERENCE CALLS TRANSCRIPTS AND PROFESSION AL AND LEGAL CHARGES ARE IN THE NATURE OF FEE FOR TECHNICAL SERV ICES AND THUS DIS-ALLOWED THE SAME FOR COMPUTING DEDUCTION U/S.10 A OF THE ACT. THE ASSESSING OFFICER FURTHER RE-COMPUTED THE TURNO VER BY DEDUCTING EXPENDITURE ON EXPORTS FROM EXPORT TURNOV ER ONLY WITHOUT DEDUCTING THE SAME FROM TOTAL TURNOVER. AGGRIEVED BY THE ASSESSMENT ORDER DATED 28-12-2011 , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS ). THE CIT(APPEALS) VIDE IMPUGNED ORDER ACCEPTED ALL THE C ONTENTIONS OF THE ASSESSEE EXCEPT FOR PAYMENT MADE TOWARDS EDITIN G OF CONFERENCE CALL TRANSCRIPTS. WITH REGARD TO EXCLUSI ON OF EXPENDITURE FROM TOTAL TURNOVER, THE CIT(APPEALS) PLACED RELIAN CE ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF ITO VS. SAKSOFT LTD., REPORTED AS 313 ITR 353 AND THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. TATA ELAXI LTD., REPORTED AS 349 ITR 98. THE CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO REDUCE EXPENDITURE FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/ S.10A IN RESPECT ITA NO. 1547/MDS/2013 4 OF ELIGIBLE UNDERTAKING. NOW, THE REVENUE HAS COME IN APPEAL ASSAILING THE ORDER OF CIT(APPEALS) BEFORE THE TRIB UNAL. 3. SHRI GURU BHASHYAM, APPEARING ON BEHALF OF THE R EVENUE SUBMITTED THAT EXPENDITURE ON PAYMENT OF COMMISSION TO M/S.MARINCORP SOLUTIONS FOR PROCURING ORDERS FOR TH E ASSESSEES BUSINESS, PURCHASE OF LEADS AND PROFESSIONAL AND LE GAL CHARGES FOR DRAFTING AGREEMENTS ARE IN THE FORM OF TECHNICAL FE E. THE LD.DR VEHEMENTLY SUPPORTING THE ASSESSMENT ORDER PRAYED F OR SETTING ASIDE THE IMPUGNED ORDER. 4. ON THE OTHER HAND, SHRI R.MAHADEVAN, APPEARING O N BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF CIT(APPEA LS). 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RIVAL PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. T HE FIRST ISSUE IN APPEAL IS - WHETHER THE PAYMENT OF COMMISSION FOR PROCURING ORDERS, PURCHASE OF LEADS AND PROFESSIONAL AND LEGAL CHARGE S FOR DRAFTING AGREEMENTS FALLS UNDER THE DEFINITION OF FEE FOR T ECHNICAL SERVICES U/S.9(1)(VII)? ITA NO. 1547/MDS/2013 5 FEE FOR TECHNICAL SERVICES HAS BEEN DEFINED IN EXPL ANATION-2 TO SECTION 9(1)(VII) OF THE ACT. THE SAME IS RE-PRODU CED HEREIN BELOW: EXPLANATION [2].FOR THE PURPOSES OF THIS CLAUSE, ' FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MA NAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATIO N WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER T HE HEAD 'SALARIES'. 5.1 THE ASSESSEE HAS PAID COMMISSION TO M/S.MARINCO RP SOLUTIONS FOR PROCURING ORDERS FOR THE ASSESSEES B USINESS OF CALL CENTRE, FOR PROCURING SUCH ORDERS, NO TECHNICAL, MA NAGERIAL OR CONSULTANCY SERVICES ARE RENDERED. M/S.MARINCORP S OLUTIONS HAS BROUGHT BUSINESS FOR ASSESSEE IN LIEU OF COMMISSION . THEREFORE, THE COMMISSION PAYMENTS MADE TO FOREIGN AGENTS FOR PROCURING BUSINESS FOR ASSESSEE CANNOT BE TREATED AS FEE FOR PROVIDING TECHNICAL SERVICES. 5.2 THE EXPENDITURE INCURRED BY THE ASSESSEE FOR PU RCHASE OF BUSINESS LEADS WHICH CONSISTS OF NAMES, ADDRESS AND TELEPHONE NUMBERS OF PROSPECTIVE CUSTOMERS AGAIN DO NOT FALL WITHIN THE ITA NO. 1547/MDS/2013 6 AMBIT OF DEFINITION OF FEE FOR TECHNICAL OR MANAGER IAL SERVICES. A PERUSAL OF THE IMPUGNED ORDER SHOWS THAT THE ASSESS EE HAD MADE EXPENDITURE IN THE NATURE OF SUBSCRIPTION TO SALES GENIE ONLINE PRODUCT WHICH PROVIDES WITH THE NAMES AND ADDRESSES ALONG WITH THE TELEPHONE NUMBERS OF THE BUYERS IN US FOR CALL CENTRE OPERATIONS. THE ASSESSEE HAS INCURRED EXPENDITURE ON ACQUIRING DATA BANK OF TARGET CUSTOMERS. THESE EXPENSES WERE INCURRED FOR THE PURPOSE OF SECURING BUSINESS AND ENLARGING CUST OMER BASE. THUS, THE CIT(APPEALS) HAS RIGHTLY HELD THAT THE PA YMENTS FOR PURCHASING LEADS DOES NOT AMOUNT TO TECHNICAL SERVI CES. 5.3 PROFESSIONAL AND LEGAL SERVICES FOR DRAFTING OF AGREEMENTS IN OUR CONSIDERED OPINION DOES NOT CONSTITUTE TECHNICA L, MANAGERIAL OR CONSULTANCY SERVICE. THUS, THE PAYMENT OF LEGAL CHARGES FOR DRAFTING AGREEMENT IS OUTSIDE THE PURVIEW OF EXPLAN ATION 2 TO SEC.9(1)(VII) OF THE ACT. WE DO NOT FIND ANY ERROR IN THE FINDINGS OF CIT(APP EALS) TO EXCLUDE ALL THE ABOVE THREE EXPENDITURES FROM THE A MBIT OF FEE FOR TECHNICAL SERVICES. 6. THE NEXT ISSUE RAISED IN THE APPEAL BY THE REVEN UE IS WITH REGARD TO EXCLUSION OF EXPENDITURE FROM TOTAL TURNO VER AS WELL AS ITA NO. 1547/MDS/2013 7 EXPORT TURNOVER. THE HON'BLE COURT HELD THAT THE CO MPONENTS OF EXPORT TURNOVER IN NUMERATOR AND DENOMINATOR CANNOT BE DIFFERENT. THE ISSUE IN APPEAL IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNA L IN THE CASE OF ITO VS. SAKSOFT LTD., (SUPRA) AND THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. TATA ELAXI LTD., (SUPRA). WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(AP PEALS). THE APPEAL OF THE REVENUE IS DISMISSED BEING DEVOID OF MERIT. ORDER PRONOUNCED ON FRIDAY, THE 26 TH SEPTEMBER, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER (VIKAS AWASTHY) ! / JUDICIAL MEMBER /CHENNAI, /DATED: 26 TH SEPTEMBER, 2014 TNMM ! ' #$ %$ /COPY TO: 1. &' /APPELLANT 2. '(&' /RESPONDENT 3. ) () /CIT(A) 4. ) /CIT 5. $,- ' . /DR 6. -/ 0 /GF