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

ITA 1640/BANG/2012

• Counselvise Citation: 164021114 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 19-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india; Question of law
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T (I.T) .A. NO. 1640 /BANG/201 2 (ASSESSMENT YEAR : 2008-09) 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 INDL. PARK, 1 ST PHASE, WHITEFIELD, BANGALORE-560 066 APPELLANT RESPONDENT C.O.NO.63/BANG/2013 (IN IT(T.T.)A NO.1640/BANG/2012) (BY ASSESSEE) ASSESSEE / C.O. BY : SHRI VIKRAM VIJAY RAGHAVAN. RESPONDENT BY : SHRI BIJOY KUMAR PANDA. DATE OF HEARING : 03.12.2013. DATE OF PRONOUNCEMENT : 30.01.2014. O R D E R PER SHRI JASON P. BOAZ, A.M. : THIS APPEAL BY REVENUE AND THE CROSS OBJECTIONS ( C.O. IN SHORT) BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) I, BANGALORE DT.28.9.2012 FOR ASSESSMENT YEAR 2008-09. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE, A COMPANY ENGAGED IN PROVIDING TE CHNOLOGY ENABLED ANALYTICAL SERVICES AS WELL AS PRODUCT RESEARCH AND SUPPORT SERVICES, F ILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2008-09 ON 30.9.2008 DECLARING INCO ME OF RS.2,57,582 AFTER CLAIMING 2 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 DEDUCTION UNDER SECTION 10A OF THE ACT AMOUNTING TO RS.3,30,28,510 ON THE PROFITS OF THE BUSINESS CONDUCTED FROM ITS STPI UNIT. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS ' THE ACT') AND THE CASE WAS TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED BY AN O RDER UNDER SECTION 143(3) R.W.S. 92CA OF THE ACT DT.26.12.2011 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.1,74,96,584 SINCE THE FOLLOWING ADDITIONS / DISA LLOWANCES WERE MADE :- I) DEDUCTION UNDER SECTION 10A WAS RESTRICTED TO RS .2,96,26,025 AS AGAINST RS.3,30,28,510 CLAIMED BY THE ASSESSEE. II) DISALLOWANCE UNDER SECTION 40(A)(IA) : RS.1,38 ,36,518. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESS MENT YEAR 2008-09 DT.26.12.2011, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APP EALS) I, BANGALORE, WHICH WAS DISPOSED OFF BY ORDER DT.28.9.2012 ALLOWING THE ASS ESSEE PARTIAL RELIEF AS UNDER :- (I) THE ASSESSEE CLAIM FOR DEDUCTION UNDER SECTION 10A OF THE ACT WAS ALLOWED, DIRECTING THE ASSESSING OFFICER TO REDUCE THE EXPENSES OF RS. 54,73,725 AND RS.1,90,88,594 RELATING TO INTERNET CONNECTIVITY AND TRAVELLING INCURRED IN FOREIGN CURRENCY FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER WHILE CALCULATING THE DEDUCTION UNDER SECTION 10A OF THE ACT, AND (II) THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF TH E ACT TO THE EXTENT OF RS.1,38,36,518 WAS UPHELD. 3 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 3.1 AGGRIEVED BY THE ORDER OF THE CIT(APPEALS) I, BANGALORE FOR ASSESSMENT YEARS 2008-09 DT.28.9.2012, REVENUE IS IN APPEAL BEFORE T HIS TRIBUNAL RAISING THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED CIT (APPEALS), IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACT S AND CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEALS) WAS NOT JUSTIFIED IN DIRECTIN G THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION UNDER SECTION 10A AFTER RED UCING THE EXPENSES FROM THE TOTAL TURNOVER ALSO. 3. THE CIT (APPEALS) OUGHT TO HAVE APPRECIATED TH AT THERE IS NO PROVISION IN THE ACT WHICH REQUIRES THE CONCERNED EXPENSES TO BE REDUCED FROM THE TOTAL TURNOVER, WITHOUT APPRECIATING THE FACTS AND CIRCUM STANCES OF THE CASE. 4. THE LEARNED CIT (APPEALS) ERRED IN ALLOWING THE RELIEF, RELYING ON THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF C IT VS. TATA ELXSI AND OTHERS IN THE CONSOLIDATED ORDER DT.30.8.2011 IN IT A NO.70/2009 & OTHERS (2012) 247 CTR 334, WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND SLP HAS BEEN FILED BEFORE THE HON'BLE SUPREME COURT AGA INST SUCH ORDER. 5. THE LEARNED CIT (APPEALS) HAS ERRED IN DIREC TING THE ASSESSING OFFICER TO RECALCULATE THE DEDUCTION UNDER SECTION 10A ON THE GROUND THAT THE APPELLANT COMPANY WAS ENTITLED TO DEDUCTION UNDER SECTION 10A ON THE TOTAL INCOME AS ENHANCED BY THE DISALLOWANCE OF RS.1,38,36,518 UNDE R SECTION 40(A)(I) WITHOUT APPRECIATING THAT DEDUCTION IS ADMISSIBLE ON THE PR OFITS OF BUSINESS OF UNDERTAKING AND THE DISALLOWANCE OF TECHNICAL NATUR E IN TERMS OF SECTION 40(A)(I) DOES NOT INCREASE THE PROFITS OF BUSINESS OF THE UNDERTAKING. 6. THE LEARNED CIT (APPEALS) HAS ERRED IN DIREC TING THE ASSESSING OFFICER TO CONSIDER THE ENHANCED PROFITS FOR THE PURPOSES OF C OMPUTING DEDUCTION UNDER SECTION10A, WHEN FORM 56F CANNOT BE REVISED AFTER F ILING OF THE RETURN AND ANY FAILURE TO FURNISH THE FORM WILL DISENTITLE THE ASS ESSEE FROM THE BENEFIT OF SECTION 10A. 7. THE CIT (APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE DEDUCTION UNDER SECTION 10A IS ADMISSIBLE ONLY ON T HE PROFITS AND GAINS AS DERIVED BY AN UNDERTAKING FROM EXPORTS AND TECHNICA L DISALLOWANCE DOES NOT ENHANCE THE PROFITS DERIVED FROM THE EXPORTS. 8. THE CIT (APPEALS) ERRED IN NOT APPRECIATING THAT THE DISALLOWANCE UNDER SECTION 40(A)(I) DOES NOT IN ANY MANNER INCRE ASE THE PROFITS DERIVED FROM THE EXPORTS. 9. THE CIT (APPEALS) ERRED IN NOT APPRECIATING THAT THE DISALLOWANCE UNDER SECTION 40(A)(I) IS OF A TECHNICAL NATURE WHE REIN THE GENUINENESS OF THE EXPENDITURE IS NOT DOUBTED TO INCREASE THE PROFITS AND THAT THE ASSESSEE GETS 4 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 THE DEDUCTION OF THE AMOUNT SO DISALLOWED IN THE SU BSEQUENT YEAR(S) IN WHICH SUCH SUM HAS BEEN DEDUCTED AND REMITTED TO THE CENT RAL GOVERNMENT ACCOUNT. 10. THE CIT (APPEALS) ERRED IN NOT APPRECIATING THA T ALLOWING THE DEDUCTION UNDER SECTION 10A ON THE AMOUNT SO DISALL OWED UNDER SECTION 40(A)(I) AND THEN AGAIN ALLOWING DEDUCTION IN THE YEAR OF DE DUCTION AND REMITTANCE WOULD RESULT IN DOUBLE BENEFIT TO THE ASSESSEE AND SUCH D OUBLE BENEFIT WAS NEVER INTENDED BY THE LEGISLATURE. 11. FOR THESE AND SUCH OTHER GROUNDS THAT MAYBE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT (APPEALS) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 12. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR TO DELETE ANY OF THE GROUNDS THAT MAYBE URGED AT THE TIME OF HEAR ING OF THE APPEAL. 3.2 THE ASSESSEE HAS ALSO RAISED THE FOLLOWING CROS S OBJECTIONS AGAINST THE ORDER OF THE CIT(APPEALS) :- 1. THE ORDER OF THE CIT (APPEALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEALS) ERRED IN HOLDING THAT THE INT ERNET CONNECTIVE CHARGES OF RS.54,73,725 AND TRAVELING EXPENSES OF R S.1,90,88,594 INCURRED IN FOREIGN CURRENCY SHOULD BE EXCLUDED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10A. 3. THE CIT (APPEALS) ERRED IN HOLDING THAT RS.1,38, 36,518 PAID TO M/S. AON LIMITED, UK AS REIMBURSEMENT OF EXPENSES IS TO BE DISALLOWED UNDER SECTION 40(A)(I) ON ACCOUNT OF NON-DEDUCTION TAX AT SOURCE. 4. THE CIT (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE IN THE CASE OF REIMB URSEMENT OF EXPENSES AS THERE IS NO ELEMENT OF INCOME IN THE SAME AND HENCE THE AMOUNT OF REIMBURSEMENT CANNOT BE DISALLOWED UNDER SECTION 40 (A)(I). 5. THE RESPONDENT CRAVES LEAVE TO FILE ADDITIO NAL GROUNDS AT THE TIME OF HEARING. 4. THE GROUNDS RAISED BY REVENUE AT S.NOS.1, 11 AND 12 AND THE C.O. RAISED BY THE ASSESSEE AT S.NOS.1 AND 5 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 5.0 DEDUCTION UNDER SECTION 10A OF THE ACT 5.1 THE GROUNDS RAISED BY REVENUE ATS.NOS.2 TO 4 RELATE TO THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER SECTION 10A OF THE ACT. FROM THE R ECORD, IT IS SEEN THAT, IN THE COURSE OF 5 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER RESTR ICTED THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER SECTION 10A OF THE ACT TO RS.2,96,2 6,025 AS AGAINST A CLAIM OF RS.3,30,28,510 MADE BY THE ASSESSEE. THE ASSESSING OFFICER DID THIS BY REDUCING THE EXPENDITURE OF RS.54,73,725 AND RS.1,90,88,594 RELA TING TO INTERNET CONNECTIVITY AND TRAVELLING INCURRED IN FOREIGN CURRENCY FORM EXPORT TURNOVER. ON APPEAL BY THE ASSESSEE, THE LEARNED CIT (APPEALS) REVERSED THE DECISION OF THE ASSESSING OFFICER AND DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION U NDER SECTION 10A OF THE ACT BY REDUCING THE AFORESAID EXPENSES INCURRED IN FOREIGN CURRENCY ON TRAVELLING AND INTERNET CONNECTIVITY BOTH FROM EXPORT TURNOVER AND TOTAL TU RNOVER FOLLOWING THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V T ATA ELXSI AND OTHERS REPORTED IN 349 ITR 98 (KAR). 5.2 IN SUPPORT OF THE GROUNDS RAISED BY REVENUE AT S.NOS. 2 TO 4 , THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE LEAR NED CIT (APPEALS) HAD ERRED IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE DE DUCTION UNDER SECTION 10A OF THE ACT AFTER REDUCING THE AFORESAID EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER FOLLOWING THE DECISION OF THE HON'BLE KARN ATAKA HIGH COURT IN THE CASE OF TATA ELXSI& OTHERS (SUPRA) WHICH HAS NOT BEEN ACCEPTED B Y THE DEPARTMENT WHO HAVE FILED AN SLP AGAINST THE COURTS ORDER BEFORE THE HON'BLE APE X COURT WHICH IS PENDING DISPOSAL. THE LEARNED DEPARTMENTAL REPRESENTATIVE PLACED SUPP ORT ON THE ORDER OF THE ASSESSING OFFICER. 6 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 5.3 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATI VE SUPPORTED THE ORDER OF THE LEARNED CIT (APPEALS) AND CONTENDED THAT THERE WAS NO ERROR THEREIN, THAT REQUIRED THE INTERFERENCE OF THE TRIBUNAL, SINCE THE LEARNED CIT (APPEALS) FOLLOWED THE BINDING DECISION OF THE JURISDICTIONAL HIGH COURT OF KARNATAKA IN TH E CASE OF TATA ELXSI& OTHERS (SUPRA) WHICH COVERS THE ISSUE IN FAVOUR OF THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT IN VIEW OF THE ABOVE, REVENUES APPEAL IS LIABLE TO BE DISMISSED. 5.4 WE HAVE HEARD BOTH SIDES AND PERUSED AND CAREFU LLY CONSIDERED THE MATERIAL ON RECORD AND THE JUDICIAL DECISION CITED. ON PERUSA L THEREOF WE FIND THAT THE ISSUE BEFORE US FOR ADJUDICATION I.E. IF EXPENDITURE INCURRED ON INTERNET CONNECTIVITY CHARGES AND ON TRAVEL IN FOREIGN CURRENCY ATTRIBUTABLE TO THE DELI VERY OF COMPUTER SOFTWARE ABROAD IS REDUCED FROM EXPORT TURNOVER AN EQUAL AMOUNT SHOULD ALSO BE REDUCED FROM TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE KARNATAKA HIGH COURT IN THE CASE OF TATA ELXSI LTD. (SUPRA). IN THIS ORDER, THE HONBL E COURT HELD THE BOMBAY HIGH COURT HAD AN OCCASION TO CONSI DER THE EARNING OF THE WORD TOTAL TURNOVER IN THE CONTEXT OF SECTION 10A, IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (2011) [330 ITR P. 175 (BOM)] (2010-TIOL-456-HC-MUM-IT). INTER PRETING SUB-SECTION (4) OF SECTION 10A, IT IS HELD AS UNDER : UNDER SUB-SECTION (4) THE PROPORTION BETWEEN THE E XPORT TURNOVER IN RESPECT OF THE ARTICLES OR THINGS, OR A S THE CASE MAY BE, COMPUTER SOFTWARE EXPORTED, TO THE TOTAL TURNOV ER OF THE BUSINESS CARRIED OVER BY THE UNDERTAKING IS APPLIED TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN COMPUTING THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN COMPUTING THE PROFIT S DERIVED FROM EXPORT. IN OTHER WORDS THE PROFITS OF THE BUSINESS OF THE 7 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 UNDERTAKING ARE MULTIPLIED BY THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES, THINGS OR, AS THE CASE MAY BE, COMPUTE R SOFTWARE AND DIVIDED BY THE TOTAL TURNOVER OF THE BUSINESS CARRIE D ON BY THE UNDERTAKING. THE FORMULA WHICH IS PRESCRIBED BY SUB -SECTION (4) OF SECTION 10A IS AS FOLLOWS : PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. PROFITS OF THE BUSINESS OF THE UNDERTAKING. EXPORT TURNOVER IN RESPECT OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE. TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPORT AND THE T URNOVER FROM LOCAL SALES. THE EXPORT TURNOVER CONSTITUTES THE N UMERATOR IN THE FORMULA PRESCRIBED BY SUB-SECTION (4). EXPORT TURNO VER ALSO FORMS A CONSTITUENT ELEMENT OF THE DENOMINATOR IN A S MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. T HE EXPORT TURNOVER, IN THE NUMERATOR MUST HAVE THE SAME MEANI NG AS THE EXPORT TURNOVER WHICH IS CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS P ROVIDED A DEFINITION OF THE EXPRESSION EXPORT TURNOVER IN E XPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDE RATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES, TH INGS OR COMPUTER SOFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGHT, TELECOMMUNICATION CHARGES OR IN SURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES, THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT T URNOVER THE LEGISLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGH T AND INSURANCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BE HALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER, A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE, HOWEVER, MISSES THE POINT THAT THE EXP RESSION TOTAL TURNOVER HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE 8 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 PURPOSES OF S.10A. HOWEVER, THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS B EEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FRE IGHT AND INSURANCE, THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS OPEN TO PARLIAMENT TO MAKE A PRO VISION WHICH HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTE R OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTERPRETATION W OULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF THE REVENUE WERE TO BE ACCEPTED, THE SAME EXPRESSION VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAM E FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH THESE HAVE BEEN SPECIFICALLY E XCLUDED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PART OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN T HE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISION WHICH WOULD LE AD TO AN ABSURDITY MUST BE AVOIDED. THE SPECIAL BENCH OF THE TRIBUNAL, IN THE CASE OF ITO VS. SAK SOFT LTD. (2009) 313 ITR (AT) 353 (CHENNAI) (SB) (2 009-TIOL- 187-ITAT-MAD-SB) ALSO HAD AN OCCASION TO CONSIDER T HE MEANING OF THE WORD TOTAL TURNOVER. AFTER REFERRING TO T HE VARIOUS JUDGMENTS OF THE HIGH COURT AS WELL AS THE SUPREME COURT HELD AS UNDER : 53. FOR THE ABOVE REASONS, WE HOLD THAT FOR THE P URPOSE OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTIO N 10-B, THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PR OVIDING THE TECHNICAL SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED , BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FO RMULA.. THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 10A WOULD BE AS UNDER : PROFITS OF THE BUSINESS X EXPORT TURNOVE R / TOTAL TURNOVER 9 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 FROM THE AFORESAID JUDGMENTS, WHAT EMERGES IS THAT, THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERAT OR AND THE DENOMINATOR OF THE FORMULA, SINCE OTHERWISE IT WOU LD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10A IS A BENE FICIAL SECTION. IT IS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXP ORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATABLE TO EXPORTS . IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUS INESS AND DOMESTIC BUSINESS, THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS AND DOM ESTIC BUSINESS, THE LEGISLATURE INTENDED TO HAVE A FORMUL A TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNOVERS. APPORTI ONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE CASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSIN ESS INCOME OF THE ASSESSEE, WHEREAS IN SECTION 10A, THE EXPORT PR OFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING, IT MAY INCLUDE E XPORT BUSINESS AND DOMESTIC BUSINESS, IN OTHER WORDS, EXPORT TURNO VER AND DOMESTIC TURNOVER. THE EXPORT TURNOVER WOULD BE A COMPONENT OR PART OF A DENOMINATOR, THE OTHER COMPONENT BEING TH E DOMESTIC TURNOVER. IN OTHER WORDS, TO THE EXTENT OF EXPORT T URNOVER, THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IN VIEW OF THE COMMONA LITY, THE UNDERSTANDING SHOULD ALSO BE THE SAME. IN OTHER WO RDS, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED A T AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TO TAL TURNOVER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TUR NOVER INCLUDES EXPORT TURNOVER CANNOT BE DIFFERENT. THEREFORE, TH OUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN SECT ION 10A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT, WHAT I S EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTH ELESS FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISLATURE AND AN ORDINARY MEANING IS TO BE ATTRIBUTED TO THE SAME, THE SAID ORDINARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHICH IT IS USED. WHEN THE STATUTE PRESCRIBES A FO RMULA AND IN 10 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 THE SAID FORMULA, EXPORT TURNOVER IS DEFINED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE VERY SAME ME ANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOP TED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER, WH EN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCL UDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARR IVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TURNOVER IS A COMPO NENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. IF THAT WERE THE INTENTION OF THE LEGISLATURE, THEY WOULD HAVE EXPRESSLY STATED SO. IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHAT THE TOTAL TURNO VER MEANS, THEN, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNO VER, THE MEANING ASSIGNED BY THE LEGISLATURE TO THE EXPORT TU RNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO, WHILE INTERPRETIN G THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFORE THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECT ION 10A, WOULD BE AS UNDER : PROFITS OF THE BUSINESS OF THE UNDERTAKING X EXPORT TURN OVER (EXPORT TURNOVER + DOMESTIC TURN OVER) TOTAL TURNOVER 11. IN THAT VIEW OF THE MATTER, WE DO NOT SEE AN Y ERROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENTS RENDERED IN THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTIO N 10A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ON E AND THE SAME. THEREFORE, WE DO NOT SEE ANY MERIT IN THESE APPEALS. THE SUBSTANTIAL QUESTION OF LAW FRAMED IS ANSWERED IN F AVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD. (SUPRA), WE UPHOLD THE ORDER OF THE LEARNED CIT (APPEALS) IN DIRECTING THE ASSESSING OFFICER TO REDUCE THE EXPEN DITURE INCURRED ON INTEREST CONNECTIVITY CHARGES OF RS.54,73,725 AND EXPENDITUR E INCURRED ON TRAVEL IN FOREIGN CURRENCY AMOUNTING TO RS.1,90,88,594 FROM BOTH EXPO RT TURNOVER AND TOTAL TURNOVER FOR 11 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTIO N 10A OF THE ACT IN THE CASE ON HAND. CONSEQUENTLY THE GROUNDS RAISED AT S.NOS.2 TO 4 BY REVENUE ARE DISMISSED. 5.5 IN VIEW OF OUR FINDING AT PARA 5.4 OF THIS ORDE R (SUPRA), THE ASSESSEES GRIEVANCE IN RESPECT OF THE DEDUCTION UNDER SECTION 10A OF THE A CT IS ADDRESSED. IN THIS VIEW OF THE MATTER, THE CROSS OBJECTION RAISED BY THE ASSESSEE AT S.NO.2 RAISING AN ALTERNATE ARGUMENT UNDER SECTION 10A OF THE ACT NEED NOT BE A DJUDICATED UPON. DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT R S.1,38,36,518 6.1 IN THE GROUNDS RAISED ATS.NOS.5 TO 10 , REVENUE CHALLENGES THE ORDER OF THE LEARNED CIT (APPEALS) IN DIRECTING THE ASSESSING OFFICER TO RECALCULATE THE DEDUCTION UNDER SECTION 10A OF THE ACT ON THE TOTAL INCOME AS ENHAN CED BY THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE DEDUCTION IS ADMISSIBLE ON THE PROFITS OF THE UNDERTAKING AND THE DISALLOWANCE CON FIRMED UNDER SECTION 40(A)(IA) OF THE ACT DOES NOT INCREASE THE PROFITS OF THE UNDERTAKIN G OR FROM EXPORTS. IT WAS ALSO CONTENDED THAT THE AMOUNT SO DISALLOWED UNDER SECTI ON 40(A)(IA) OF THE ACT CANNOT BE CONSIDERED FOR ENHANCED DEDUCTION UNDER SECTION 10A OF THE ACT, SINCE THE AMOUNT SO DISALLOWED THERE UNDER WOULD BE ALLOWED IN THE YEAR OF ITS DEDUCTION AND REMITTANCE AND THIS WOULD RESULT IN DOUBLE BENEFIT TO THE ASSESSEE WHICH WAS NEVER THE INTENTION OF THE LEGISLATURE. 6.2 THE ASSESSEE IN CROSS OBJECTION AT S.NOS.3 AND 4 HAS CHALLENGED THE ORDER OF THE LEARNED CIT (APPEALS) UPHOLDING THE DISALLOWANCE OF RS.1,38,36,518UNDER SECTION 40(A)(IA) OF THE ACT. 12 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 6.3 AS PER THE DETAILS ON RECORD, IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MAD E PAYMENTS OF RS.1,38,36,518 TO ITS GROUP COMPANY M/S. AON LTD., UK BUT NO TAX WAS DEDU CTED AT SOURCE THEREON. ON BEING ASKED TO EXPLAIN WHY NO TDS WAS MADE ON THE AFORES AID PAYMENTS UNDER SECTION 195 OF THE ACT, THE ASSESSEE SUBMITTED THAT THESE PAYMENTS ARE IN THE NATURE OF REIMBURSEMENT OF EXPENSES AND THEREFORE DO NOT CONSTITUTE INCOME IN THE HANDS OF THE NON-RESIDENT COMPANY. THIS EXPLANATION OF THE ASSESSEE THAT NO TDS UNDER SECTION 195 OF THE ACT WAS TO BE MADE IN RESPECT OF THESE PAYMENTS AS THESE PE RSONS WERE ITS EMPLOYEES FOR ALL PRACTICAL PURPOSES WAS NOT ACCEPTED BY THE ASSESSIN G OFFICER. THE ASSESSING OFFICER HELD THAT SINCE THESE PERSONS WERE THE EMPLOYEES OF THE UK COMPANY, THE AFORESAID PAYMENTS WERE NOT IN THE NATURE OF REIMBURSEMENT OF EXPENSES AND HENCE LIABLE FOR DEDUCTION OF TAX THEREON UNDER SECTION 195 OF THE A CT. SINCE THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT, THE ENTIRE PAYMENT MADE BY THE ASSESSEE AMOUNTING TO RS.1,38,36,518 WAS DISALLOWED BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT. 6.4.1 ON APPEAL, THE LEARNED CIT (APPEALS) CONFIRME D THE DECISION OF THE ASSESSING OFFICER HOLDING THAT THE AFORESAID PAYMENTS BY THE ASSESSEE TO AON LTD., UK ARE NOT IN THE NATURE OF REIMBURSEMENT AND THEREFORE THE ASSES SEE WAS REQUIRED TO WITHHOLD TAX ON SUCH PAYMENTS AND FAILURE TO DO SO HAS MADE THE AFO RESAID PAYMENTS AMOUNTING TO RS.1,38,36,518 LIABLE FOR DISALLOWANCE UNDER SECTIO N 40(A)(IA) OF THE ACT. 13 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 6.4.2 AFTER UPHOLDING THE DISALLOWANCE UNDER SECTIO N 40(A)(IA) OF THE ACT, THE LEARNED CIT (APPEALS) AGREED WITH THE CONTENTION OF THE ASS ESSEE THAT THE DEDUCTION UNDER SECTION 10A OF THE ACT SHALL BE GRANTED ON THE INCO ME AS ENHANCED BY THE AMOUNT OF DISALLOWANCE OF RS.1,38,36,518. 6.5 REVENUE IS IN APPEAL AGAINST THE DECISION OF TH E LEARNED CIT (APPEALS) IN ALLOWING ENHANCED DEDUCTION UNDER SECTION 10A OF THE ACT ON THE AMOUNT OF RS.1,38,36,518 DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE, ON THE OTHER HAND, HAS FILED CROSS OBJECTIONS AT S.NOS.3 & 4 AGAINST THE DECISIO N OF THE LEARNED CIT (APPEALS) IN CONFIRMING THE ASSESSING OFFICERS ACTION IN DISALL OWING RS.1,38,36,518UNDER SECTION 40(A)(IA) OF THE ACT. IN THE COURSE OF APPELLATE P ROCEEDINGS, BOTH THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE AND LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE WERE HEARD, FILED SUBMISSIONS AND PLACED R ELIANCE ON VARIOUS JUDICIAL DECISIONS IN SUPPORT OF THEIR RESPECTIVE CONTENTIONS. 6.6 THE FACTS OF THE MATTER IS THAT AON LTD., UK (THE UK COMPANY) PLACED SECONDED A FEW OF ITS EMPLOYEES AT THE DISPOSAL OF THE ASSES SEE. THESE PERSONS WERE WORKING AND DISCHARGING FUNCTIONS FOR THE ASSESSEE. WHILE THE SALARY OF THESE PERSONS WAS PAID BY THE UK COMPANY, THE CHARGES RELATED TO THE SERVICES REN DERED BY THEM TO THE ASSESSEE WERE CROSS CHARGED BY THE UK COMPANY TO THE ASSESSEE. T HE ASSESSEE MADE PAYMENTS TO THE UK COMPANY TOWARDS THESE CROSS CHARGES. 6.7 THE QUESTION FOR CONSIDERATION, THEREFORE, IS W HETHER THESE PAYMENTS WERE IN THE NATURE OF REIMBURSEMENT OR NOT AND WHETHER TAX WAS LIABLE TO BE DEDUCTED ON THESE 14 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 PAYMENTS UNDER SECTION 195 OF THE ACT. THE FACTS O F THE CASE AS LAID OUT ABOVE, IN THIS ORDER, ARE NOT IN DISPUTE. IT IS NOT IN DISPUTE TH AT THESE PAYMENTS MADE BY THE ASSESSEE TO THE UK COMPANY ARE TOWARDS THE SALARY PAYMENTS O F THE EMPLOYEES OF THE UK COMPANY, FOR THE SERVICES RENDERED BY THEM TO THE ASSESSEE. THERE IS ALSO NO DISPUTE WITH REGARD TO THE FACT THAT THE UK COMPANY IS NOT RENDERING AN Y SERVICES TO THE ASSESSEE. IN THIS VIEW OF THE MATTER, IT IS CLEAR THAT THERE IS NO IN COME ELEMENT IN THE AFORESAID IMPUGNED PAYMENTS MADE BY THE ASSESSEE TO THE UK COMPANY. T HE VIEW OF THE AUTHORITIES BELOW, HOWEVER, IS THAT THESE PAYMENTS ARE NOT IN THE NATU RE OF REIMBURSEMENT. 7.0 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSE D AND CONSIDERED THE MATERIAL ON RECORD. IN THIS REGARD THE FOLLOWING ISSUES / QUES TIONS ARISE FOR OUR CONSIDERATION : (I) WHETHER THE ASSESSEE IS RESPONSIBLE FO R INCURRING THE EXPENSES TOWARDS THE EMPLOYEES, NECESSITATING THE REIMBURSEMENT OF CROSS CHARGES ? (II) WHETHER THESE PAYMENTS MADE BY THE A SSESSEE TO THE UK COMPANY WERE PURE REIMBURSEMENT OF EXPENSES AND IF SO WHETHER THE SAI D REIMBURSEMENTS CONSTITUTED INCOME IN THE HANDS OF THE UK COMPANY ? (III) WHETHER THESE PAYMENTS WERE LIABLE FOR TDS UNDER SECTION 195 OF THE ACT ? (IV) WHETHER THESE IMPUGNED PAYMENTS WERE LIABLE FOR DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT ? 7.1 THIS ISSUE AT (I) ABOVE OF WHETHER THE ASSESSEE IS RESPONSIBLE FOR INCURRING THE EXPENSES TOWARDS THE EMPLOYEES NECESSITATING THE RE IMBURSEMENT OF CROSS CHARGES WAS CONSIDERED AND ELABORATELY DISCUSSED IN THE DECISIO N OF THE CO-ORDINATE BENCH OF THIS 15 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 TRIBUNAL IN THE CASE OF ABBEY BUSINESS SERVICES (IN DIA) (P) LTD IN ITA NO.1141/BANG/2010 DT.18.7.2012 FOR ASSESSMENT YEAR 2005-06. IN THIS DECISION, THE CO-ORDINATE BENCH OF THIS TRIBUNAL HELD THAT THE INDIAN COMPANY WHICH HA S EFFECTIVE CONTROL ON THE EMPLOYEES WAS THE REAL EMPLOYER. IN COMING TO THIS FINDING, THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAD RELIED ON THE DECISION OF THE ANOTHER CO-ORDINA TE BENCH OF THIS TRIBUNAL IN THE CASE OF IDS SOFTWARE SOLUTIONS INDIA PVT. LTD. V ITO REPORT ED IN 122 TTJ 410 WHEREIN IT WAS HELD THAT THE INDIAN COMPANY SHOULD BE REGARDED AS THE REAL AND ECONOMIC EMPLOYER OF THE SECONDEES AND THE PAYMENTS MADE BY THE ASSESSEE IN THAT CASE WERE IN THE NATURE OF REIMBURSEMENT OF SALARY AND OTHER COSTS. IT WAS AL SO HELD THAT REIMBURSEMENTS MADE TO FOREIGN COMPANY UNDER SECONDMENT ARE NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE. IN PARA 12.9 OF THE DECISION OF THE CO-ORDINATE BE NCH OF THE TRIBUNAL IN THE CASE OF ABBEY BUSINESS SERVICES (INDIA) PVT. LTD. (SUPRA), IT HAS BEEN OBSERVED AS UNDER : 12.9 WE HAVE HEARD BOTH PARTIES AND HAVE CAREFULL Y PERUSED AND CONSIDERED THE CONTENTION AND SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD AND ARE OF THE CONSIDERED OPINION THAT THE CONTENTIONS OF T HE LEARNED DEPARTMENTAL REPRESENTATIVE CANNOT BE ACCEPTED AS THE QUANTUM OF PAYMENTS OR THE NUMBER OF EMPLOYEES SECONDED IS NOT RELEVANT CRITERIA. THE C ONCLUSION OF THE TRIBUNAL IN THE CASE OF IDS SOFTWARE SOLUTIONS P LTD (SUPRA) THAT T HE INDIAN COMPANY SHOULD BE REGARDED AS THE ECONOMIC EMPLOYER OF SECONDEES WAS NOT BASED ON THE NUMBER OF EMPLOYEES SECONDED OR THE QUANTUM OF REIMBURSEMENTS BUT WAS BASED ON THE TERMS OF THE SECONDMENT AGREEMENT WHICH PROVIDED TH AT THE SECONDEE WAS UNDER THE SUPERVISION AND CONTROL OF THE INDIAN COMPANY A ND THE FACT THAT TAX WAS DEDUCTED AND PAID UNDER SECTION 192 IN RESPECT OF S ALARIES PAID TO THE SECONDEES. IN THE IDS SOFTWARE SOLUTIONS P. LTD. CASE (SUPRA), TH OUGH THE FOREIGN COMPANY WAS THE EMPLOYER IN THE LEGAL SENSE, IT WAS HELD THAT THE E CONOMIC EMPLOYER OF THE SECONDEE WAS THE INDIAN COMPANY AND NOT THE FOREIGN COMPANY. IN THE INSTANT CASE, THE SUPERVISION AND CONTROL OVER THE SECONDEES AND THE RIGHT TO INSTRUCT THEM WAS WITH THE ASSESSEE. ABBEY NATIONAL PLC., UK WAS NOT RESP ONSIBLE FOR LOSS OR DAMAGE CAUSED BY THE SECONDEES WORK; TAX WAS DEDUCTED AND PAID UNDER SECTION 192 OF THE ACT IN RESPECT OF SALARIES PAID TO SECONDEES. THUS , WE ARE OF THE VIEW THAT THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I N THE CASE OF IDS SOFTWARE 16 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 SOLUTIONS INDIA P. LTD. (SUPRA) SQUARELY APPLIES TO THE ASSESSEES CASE ON HAND. THIS DECISION WAS FOLLOWED BY THE CO-ORDINATE BENCH IN T HE FOLLOWING CASES IN WHICH IT WAS HELD THAT IN THE SECONDMENT ARRANGEMENT, THE IN DIAN COMPANY REIMBURSING THE SALARY AND OTHER EXPENSES TO THE FOREIGN ENTITY SHO ULD BE CONSIDERED AS THE ECONOMIC EMPLOYER OF THE SECONDEES : (I) CERNER HEALTHCARE SOLUTIONS PVT. LTD V ITO BANGALOR E ITAT (II) CATERPILLAR INDIA P LTD V DDIT BANGALORE ITAT - I .T.A. NO.630(BANG.)/2010 (III) CATERPILLAR INDIA P LTD V DDIT BANGALORE ITAT - I .T.A. NO. 607(BANG.)/2010 (IV) CATERPILLAR INDIA P LTD V DDIT - BANGALORE ITAT I.T .A. NO.149(BANG.)/2010 (V) CATERPILLAR INDIA P LTD V DDIT - BANGALORE ITAT I.T .A. NO.629(BANG.)/2010 (VI) CATERPILLAR INDIA P LTD V DDIT - BANGALORE ITAT I.T .A. NO. 606(BANG.)/2010 (VII) ITO V M/S ARIBA TECHNOLOGIES INDIA PVT. LTD ITA NO. 616/BANG/2011 DATED 4.4.2012. IN PARA 15.3 OF THE DECISION OF THE CO-ORDINATE BE NCH OF THE TRIBUNAL IN THE CASE OF ABBEY BUSINESS SERVICES (INDIA) PVT. LTD. (SUPRA), IT HAS BEEN OBSERVED AS UNDER : 15.3 SECTION 9(1)(VII) OF THE ACT IS ATTRACTED IF THERE IS A RENDERING OF SERVICE FOR WHICH A CONSIDERATION SHOULD FOLLOW. IN THE INSTANT CASE, IT WAS SPECIFICALLY AGREED BY THE PARTIES THAT ABBEY NATIONAL PLC, UK WOULD ONLY SECOND STAFF TO THE ASSESSEE AS PER THE SECONDMENT AGREEMENT. NO SERVICES WERE REN DERED BY IT TO THE ASSESSEE. FEES FOR TECHNICAL SERVICES AS PER SECTION 9(1)(V II) MEANS ANY CONSIDERATION FOR RENDERING OF MANAGERIAL, TECHNICAL OR CONSULTANCY S ERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL). CONSIDE RATION MEANS SOMETHING GIVEN IN RETURN FOR OBTAINING OR GETTING A THING. IN THE IN STANT CASE, WHAT WAS PAID TO ABBEY NATIONAL PLC. UK BY THE ASSESSEE WAS REIMBURSEMENT OF SALARY COSTS AND OTHER ADMINISTRATION COSTS, RELATING TO SECONDED PERSONNE L/STAFF, WHICH WAS INITIALLY PAID BY ABBEY NATIONAL PLC, UK. THIS ARRANGEMENT WAS CO MPELLED OUT OF SOCIAL SECURITY AND OTHER REASONS. THE REIMBURSEMENT OF SALARY COS TS AND OTHER ADMINISTRATION COSTS DID NOT CONTAIN ANY MARK UP AS CLEARLY BROUGH T OUT IN THE CLAUSE 4.1 OF THE SECONDMENT AGREEMENT WHICH PROVIDES THAT IN CONSID ERATION OF THE SECONDMENT OF STAFF BY ABBEY UK, ABBEY INDIA SHALL MAKE PAYMENTS TO ABBEY UK (IN STERLING) EQUIVALENT TO THE REMUNERATION, PENSION CONTRIBUTION, EXPENSE S, STATUTORY PAYMENTS AND ANY OTHER SUMS INCURRED BY ABBEY UK APPLICABLE TO EACH SECONDEE DURING HIS OR HER PERIOD OF SECONDMENT. AS THE REIMBURSEMENT TO ABBEY NATIONAL PLC, UK DID NOT RESULT IN ANY PROFIT OR GAIN OR INCOME TO IT, THESE REIMBURSEMENTS CANNOT BE TREATED AS CONSIDERATION. 7.2 AS THE FACTS OF THE CASE ON HAND ARE SIMILAR, W E ARE OF THE VIEW THAT THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF IDS SOFTWAR E SOLUTIONS INDIA P. LTD. (SUPRA) 17 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 SQUARELY APPLIES TO THE ASSESSEE IN THE CASE ON HAN D. ON CONSIDERATION AND APPRECIATION OF THE FACTS OF THE CASE ON HAND, THE MATERIAL ON REC ORD AND THE DISCUSSION IN 6.1 TO 7.1 OF THE ORDER (SUPRA), WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE SHOULD BE CONSIDERED AS THE REAL AND ECONOMIC EMPLOYER OF THE PERSONS, SECONDED BY THE UK COMPANY AND WORKING FOR THE ASSESSEE. IT, THEREFOR E, FOLLOWS THAT THE ASSESSEE IS RESPONSIBLE FOR THE PAYMENT RELATED TO SERVICES REN DERED BY THE EMPLOYEES TO THE ASSESSEE NECESSITATING THE REIMBURSEMENT OF CHARGES . 8.0 THE ISSUE AT (II) IS OF WHETHER THE PAYMENTS MA DE BY THE ASSESSEE TO THE UK COMPANY WERE PURE REIMBURSEMENT OF EXPENSES AND WHE THER THE SAID REIMBURSEMENTS CONSTITUTED INCOME IN THE HANDS OF THE UK COMPANY. ON THIS ISSUE, 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 REIMBUR SEMENTS MADE TO FOREIGN COMPANY WERE NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE. TH IS DECISION WAS FOLLOWED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ABBE Y BUSINESS SERVICES (INDIA) (P) LTD. (SUPRA) WHEREIN AT PARA 14.6 THEREOF, IT HAS BEEN H ELD AS UNDER : 14.6 THE SPECIAL BENCH OF THE ITAT, MUMBAI IN THE CASE OF MAHINDRA & MAHINDRA LTD VS. DCIT (2009) 313 ITR (AT) 263 HELD WHEN A P ARTICULAR AMOUNT OF EXPENDITURE IS INCURRED AND THAT SUM IS REIMBURSED AS SUCH, THA T CANNOT BE CONSIDERED AS HAVING ANY PART OF IT IN THE NATURE OF INCOME. ANY PAYMEN T, IN ORDER TO BE BROUGHT WITHIN THE SCOPE OF INCOME BY WAY OF FEES FOR TECHNICAL SE RVICES UNDER SECTION 9(1)(VII), SHOULD BE OR HAVE ATLEAST 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 HANDS OF THE RECIPIENT. IN OTHER WORDS THE COMPONENT OF INCOME MUST BE PRESENT IN THE TOTAL AMOUNT OF FEES PAID FOR TECHNICAL SERVICES TO CONSTITUTE AS AN ITEM FALLING UNDER SECTION 9(1)(VI I). WHEN THE EXPENDITURE INCURRED IS REIMBURSED AS SUCH WITHOUT HAVING ANY ELEMENT OF INCOME IN THE HANDS OF THE 18 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 RECIPIENT, IT CANNOT ASSUME THE CHARACTER OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPI NION THAT REIMBURSEMENTS MADE BY THE ASSESSEE TO THE UK COMPANY DOES NOT CONSTITU TE INCOME IN THE HANDS OF THE UK COMPANY. 9.1 THE OTHER QUESTIONS; FOR CONSIDERATION, ARE (II I) WHETHER THE PAYMENTS MADE BY THE ASSESSEE TO THE UK COMPANY WERE LIABLE FOR TDS UNDE R SECTION 195 OF THE ACT ?AND (IV) WHETHER THE AFORESAID PAYMENTS MADE BY THE ASSESSEE ARE LIABLE FOR DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT ? IN VIEW OF OUR FINDINGS THAT A) THE ASSESSEE WAS THE REAL AND ECONOMIC EMPLOYER OF THE SECONDEES FROM THE UK COMPANY AND; B) THE REIMBURSEMENT OF SALARY COSTS, ETC. TO THE UK C OMPANY WAS WITHOUT ANY PROFIT ELEMENT AND THEREFORE CANNOT BE REGARDED AS INCOME CHARGEABLE IN THE HANDS OF UK COMPANY, THE ABOVE QUESTIONS AT (III) AND (IV) ARE ANSWERED IN FAVOUR OF THE ASSESSEE. IN OTHER WORDS, THE REIMBURSEMENT MADE BY THE ASSESSEE TO TH E UK COMPANY WERE NOT LIABLE FOR TDS UNDER SECTION 195 OF THE ACT AND CONSEQUENTLY T HE SAID PAYMENTS ARE NOT LIABLE FOR DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT. S INCE THESE PAYMENTS HAVE BEEN HELD TO BE NOT LIABLE TO BE DISALLOWED UNDER SECTION 40(A) (IA) OF THE ACT, THE QUESTION OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT ON ENHANCED INCOME DOES NOT ARISE. IN THIS VIEW OF THE MATTER, (I) REVENUES GROUNDS AT S .NOS.5 TO 10 RELATING TO COMPUTATION OF 19 IT(I.T.)A NO.1640/BANG/12 & C.O. NO.63/BANG/2013 DEDUCTION UNDER SECTION 10A OF THE ACT ON ENHANCED INCOME IS RENDERED INFRUCTUOUS AND ACCORDINGLY DISMISSED; (II) THE ASSESSEE'S CROSS OB JECTIONS AT S.NOS. 3 AND 4 ARE ALLOWED. 10. IN THE RESULT, REVENUES APPEAL FOR ASSESSMENT YEAR 2008-09 IS DISMISSED AND THE ASSESSEE'S CROSS OBJECTIONS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JAN., 2014. SD/- SD/- (N.V. VASUDEVAN) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - A BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE