Appeal details
Counselvise Citation
167919914 RSA 2010
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 5 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-08-2011
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
10-08-2011
Assessment Year
2005-2006
Appeal Filed On
04-03-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1679/MUM/2010 (ASSESSMENT YEAR: 2005-06) M/S. CAPGEMINI INDIA P. LTD. ADDL CIT 10(2) C/O. KALYANIWALLA & MSTRY AAYAKAR BHAVAN, M.K. ROAD ARMY & NAVY BLDG., 3RD FLOOR VS. MUMBAI 400020 148, MAHATMA GANDHI ROAD FORT, MUMBAI 400001 PAN - AAACE 2443 A APPELLANT RESPONDENT APPELLANT BY: SHRI M.M. GOLVALA/ SHRI AKRAM KHAN RESPONDENT BY: SHRI DEVI SINGH DATE OF HEARING: 10.08.2011 DATE OF PRONOUNCEMENT: O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XV, MUMBAI DATED 29.12.2009 FOR A.Y. 2005-06. 2. ASSESSEE HAS RAISED THE FOLLOWING 5 GROUNDS: - 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THAT THE LOSSES OF MUMBAI UNIT III, AND BANGALORE UNIT AMOUNTING TO RS.29,87,930/- AND RS.2,38,50,509 /- RESPECTIVELY WERE REQUIRED TO BE REDUCED FROM THE D EDUCTION UNDER SECTION 10A, COMPUTED IN RESPECT OF MUMBAI UN IT III. 2. THE APPELLANT SUBMITS THAT THE LOSSES OF MUMBAI UNIT-III AND BANGALORE UNIT BE PERMITTED TO BE SET-OFF AGAINST T HE TAXABLE INCOME OF THE APPELLANT. 3. WITHOUT PREJUDICE TO THE FOREGOING, THE APPELLAN T SUBMITS THAT THE LOSSES OF MUMBAI UNIT-III AND BANGALORE UNIT BE RED UCED FROM THE PROFITS OF MUMBAI UNIT II AND MUMBAI UNIT I ON A PRO-RATE BASIS. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT DECIDING GROUND NO. 33 RAISED BY THE APPELLANT. ITA NO. 1679/MUM/2010 M/S. CAPGEMINI INDIA P. LTD. 2 5. THE APPELLANT SUBMITS THAT EXPENDITURE ON DATA L INE COST AMOUNTING TO RS.2,05,20,797/- SHOULD NOT BE REDUCED FROM THE EXPORT TURNOVER, WHILE COMPUTING DEDUCTION UNDER SE CTION 10A. 3. WE HAVE HEARD SHRI M.M. GOLVALA, THE LEARNED COUNS EL FOR THE ASSESSEE AND SHRI DEVI SINGH, THE LEARNED D.R. DURI NG THE PROCEEDINGS GROUND NO. 3 WAS NOT PRESSED, HENCE TREATED AS WITH DRAWN. 4. GROUND NO. 1 & 2 PERTAIN TO THE ISSUE OF CLAIM OF A DJUSTMENT OF LOSSES OF MUMBAI UNIT III AND BANGALORE UNIT AMOUNTING T O ` 29,87,930/- AND ` 2,38,50,509/-, RESPECTIVELY FROM THE INCOME OF MUMB AI UNIT-II BEFORE ALLOWING DEDUCTION U/S 10A. THE ASSESSEE DURING THE RELEVANT YEAR HAS CLAIMED DEDUCTIONS UNDER SECTION 10A IN RESPECT OF MUMBAI UNIT II AMOUNTING TO ` 11,18,44,590/-. IN THE MUMBAI UNIT III AND BANGAL ORE UNIT, THE ASSESSEE HAD INCURRED A LOSS OF ` 2,68,38,439/-. THE ASSESSEE HAD SET OFF THE LOSS FROM UNITS AGAINST INCOME FROM OTHER NON 1 0A UNITS AFTER CLAIMING DEDUCTION UNDER SECTION 10A IN RESPECT OF ONE UNIT. THE A.O. DURING THE ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO EXPLAI N AS TO WHY THE LOSS FROM TWO UNITS SHOULD NOT BE IGNORED AS INCOME WAS EXEMPT OR ALTERNATIVELY THE CLAIM OF DEDUCTION UNDER SECTION 10A SHOULD NOT BE REDUCED TO THAT EXTENT. THE ASSESSEE EXPLAINED THAT, IN VIEW OF THE AMENDED PROVISIONS OF SECTION 10A FROM 1.4.2001, IT WAS NO LONGER AN EXEM PTED PROVISION BUT ONLY A DEDUCTION WAS ALLOWED UNDER SECTION 10A AND THERE FORE LOSS FROM THE 10A UNIT HAS TO BE SET OFF AGAINST THE TAXABLE PROFITS OF OTHER BUSINESSES UNDER THE PROVISIONS OF SECTION 70. IT WAS ALSO SUBMITTED THAT DEDUCTION ALLOWABLE UNDER SECTION 10A WAS IN RESPECT OF A PARTICULAR UN DERTAKING AND NOT FROM THE TOTAL INCOME WHICH HAD ALSO BEEN CLARIFIED BY T HE CIRCULAR ISSUED BY THE CBDT. THE AO HOWEVER DID NOT ACCEPT THE ARGUMENTS ADVANCED AND HELD THAT TOTAL INCOME OF THE ASSESSEE WAS REQUIRED TO B E COMPUTED WITH RESPECT TO THE VARIOUS UNDERTAKING AND THEREAFTER DEDUCTION WAS REQUIRED TO BE GIVEN IN RESPECT OF THESE UNITS FROM THE TOTAL INCO ME. HE ACCORDINGLY REDUCED THE LOSS FROM TWO UNITS FROM THE DEDUCTION CLAIMED IN RESPECT OF MUMBAI-II UNIT AND DEDUCTION TO THAT EXTENT IN RESPECT OF MUM BAI-II UNIT WAS THUS REDUCED. AGGRIEVED BY THE SAID DECISION THE ASSESSE E IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO. 1679/MUM/2010 M/S. CAPGEMINI INDIA P. LTD. 3 4.1 BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT ISSUE WAS COVERED IN ASSESSEE FAVOUR BY THE ORDER IN AY 2 006-07. THE LEARNED A.R. ALSO PLACED THE ORDERS IN A.Y. 2006-07 ON RECORD. T HIS ISSUE WAS CONSIDERED BY THE COORDINATE BENCH VIDE PARA 2.2, WHICH IS AS UNDER: - 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING SET OFF OF LOSS OF A 10A UNIT AGAINST THE TAXABLE PROFIT OF OTHER UNITS. THE ASSESSEE HAD FOUR 10A UNITS IN RESPECT OF WHICH DEDUCTION UNDER SECTI ON 10A WAS ALLOWABLE AND ONE NON 10A UNIT. THE ASSESSEE HAD IN CURRED LOSS FROM ONE 10A UNIT WHICH HAD BEEN SET OFF AGAINST THE TAX ABLE PROFIT OF OTHER 10A UNITS. THE AO HOWEVER TOOK THE VIEW THAT SINCE INCOME FROM 10A UNIT WAS EXEMPT, LOSS FROM 10A UNIT HAS TO BE IGNOR ED OR ALTERNATIVELY THE LOSS HAS TO BE ADJUSTED AGAINST THE PROFIT OF A NOTHER 10A UNIT BEFORE ALLOWING DEDUCTION UNDER SECTION 10A. WE HAV E GONE THROUGH THE PROVISIONS OF SECTION 10A AND FIND THAT AS PER THE PROVISIONS IN FORCE PRIOR TO ASSESSMENT YEAR 2001-02, THE PROFIT AND GAIN FROM THE ELIGIBLE UNDERTAKING WAS NOT TO BE INCLUDED IN THE TOTAL INCOME WHICH MEANT THAT THE INCOME FROM THE ELIGIBLE UNIT WAS EX EMPT FROM TAX. HOWEVER, PROVISIONS WERE AMENDED WITH EFFECT FROM A SSESSMENT YEAR 2001-02 AND AS PER THE AMENDED PROVISIONS, THE PROF IT AND GAIN DERIVED BY AN ELIGIBLE UNDERTAKING IS REQUIRED TO B E DEDUCTED FROM THE TOTAL INCOME. THUS FROM ASSESSMENT YEAR 2001-02, SE CTION 10A IS NO LONGER AN EXEMPTION PROVISION AND IT ALLOWS ONLY DE DUCTION FROM TOTAL INCOME. THE DEDUCTION IS TO BE ALLOWED IN RESPECT O F EACH ELIGIBLE UNDERTAKING SEPARATELY WHICH HAS ALSO BEEN CLARIFIE D BY THE CBDT. WE ALSO NOTE THAT PRIOR TO ASSESSMENT YEAR 2001-02 WHE N SECTION 10A WAS AN EXEMPTION PROVISION, SECTION 10(6) PROVIDED RESTRICTION ON SET OFF AND CARRIED FORWARD OF BUSINESS LOSS AND UNABSO RBED DEPRECIATION. HOWEVER SUBSEQUENTLY, SECTION 10(6) WAS AMENDED BY FINANCE ACT 2003 WITH EFFECT FROM ASSESSMENT YEAR 2001-02 AND S UCH RESTRICTION WAS WITHDRAWN WHICH WAS CONSISTENT WITH THE NEW SCH EME OF SECTION 10A WHICH IS A DEDUCTION PROVISION AND NOT EXEMPTIO N PROVISION FROM A.Y.2001-02. THEREFORE THE LOSS FROM 10A UNIT HAS T O BE ADJUSTED AGAINST TAXABLE PROFITS OF OTHER UNITS AFTER DEDUCT ION UNDER SECTION 10A HAS BEEN ALLOWED IN RESPECT OF EACH ELIGIBLE UNIT. SAME VIEW HAS BEEN TAKEN BY THE HONBLE HIGH COURT OF MUMBAI IN CASE O F HINDUSTAN UNI LIVER LTD. VS DCIT (SUPRA) IN WHICH IT WAS HELD THA T DEDUCTION HAS TO BE ALLOWED IN RESPECT OF THREE ELIGIBLE UNITS AND L OSS OF THE FOURTH 10A UNIT HAS TO BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. THE TRIBUNAL IN CASE OF HONEY WELL INTERNATIONAL INDIA PVT.LTD. VS DCIT (SUPRA) HAS ALSO FOLLOWED THE SAME VIEW. THEREFORE RESPECTFULLY FOLLOWING THE ABOVE JUDGMENTS, THE ORDER OF THE ADDITIONAL CIT CANNOT B E SUSTAINED. WE ACCORDINGLY SET ASIDE THE ORDER OF THE ADDITIONAL C IT AND ALLOW THE CLAIM OF THE ASSESSEE. ITA NO. 1679/MUM/2010 M/S. CAPGEMINI INDIA P. LTD. 4 5. RESPECTFULLY FOLLOWING THE ABOVE COORDINATE BENCH D ECISION, WE DIRECT THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE. GROUND S ARE CONSIDERED ALLOWED. 6. GROUND NOS. 4 & 5 PERTAIN TO THE DISPUTE REGARDING REDUCTION OF DATA LINE COST FROM EXPORT TURNOVER WHILE COMPUTING DEDU CTION UNDER SECTION 10A. THE ASSESSEE HAD INCURRED DATA LINE COST AMOUNTING TO ` 2,05,20,797/-. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE ABOV E EXPENDITURE SHOULD NOT BE DEDUCTED FROM THE EXPORT TURNOVER IN VIEW OF THE PROVISIONS OF EXPLANATION 2(IV) OF SECTION 10A AS PER WHICH EXPENSES OF FREIG HT, TELECOMMUNICATION CHARGES AND INSURANCE CHARGES ATTRIBUTABLE TO THE D ELIVERY OF ARTICLE OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES INCU RRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA WERE REQUIRED TO BE DEDUCTED FROM EXPORT TURNOVER. THE ASSESSEE EXPLAINED THAT I T WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF COMPUTER SOFT WARE. THE SOFTWARE DEVELOPMENT WORK WAS CARRIED OUT IN INDIA AT ITS DE VELOPMENT CENTRES IN INDIA AND ALSO IN SOME CASES ON SITES. THE ASSESSEE WAS N OT ENGAGED IN PROVIDING ANY TECHNICAL SERVICES OUTSIDE INDIA. IT WAS ALSO S UBMITTED THAT THE ASSESSEE HAD NOT INCURRED ANY FREIGHT EXPENSES DURING THE YE AR AND THAT INSURANCE EXPENDITURE RELATED ONLY TO FIRE, BURGLARY, THEFT I N RELATION FOR VARIOUS ASSETS OF THE ASSESSEE. SIMILARLY TELECOMMUNICATION CHARGES W ERE ALSO NOT ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA AND HAD BEEN INCURRED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AT THE SOFTWAR E UNITS OF THE ASSESSEE IN INDIA. THUS NONE OF THE EXPENSES WERE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA AND THEREFORE THESE WERE NOT REQUIRED TO BE DEDUCTED FROM THE EXPORT TURNOVER. ALTERNATIVELY IT WAS ALSO SUBMITTED THAT IN CASE THESE EXPENSES WERE EXCLUDED FROM THE EXPORT TURNOV ER THESE SHOULD ALSO BE DEDUCTED FROM THE TOTAL TURNOVER. THE ASSESSEE PLAC ED RELIANCE ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN CA SE OF ITO VS. SAK SOFT LTD. 313 ITR 353. THE ASSESSEE ALSO DREW ANALOGY TO THE PARALLEL PROVISIONS OF SECTION 80HHC IN WHICH THE TOTAL TURNOVER WAS DEFIN ED AS PER WHICH THE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATT RIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA WAS REQUIRED TO BE DEDUCTED. THE AO HOWEVER DID NOT ACCEPT THE EXPLANATION GIVEN. AS RE GARDS THE ALTERNATE CLAIM THAT SUCH EXPENSES SHOULD ALSO DEDUCTED FROM TOTAL TURNOVER, THE A.O. ITA NO. 1679/MUM/2010 M/S. CAPGEMINI INDIA P. LTD. 5 OBSERVED THAT THERE WERE NO PROVISIONS IN SECTION 1 0A AS PER WHICH THESE EXPENSES COULD BE EXCLUDED FROM TOTAL TURNOVER ALSO . THE A.O. THEREFORE EXCLUDED THE DATA LINE COSTS FROM THE EXPORT TURNOV ER ONLY AND COMPUTED DEDUCTION ACCORDINGLY AGGRIEVED BY WHICH THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 6.1 BEFORE US, THE LEARNED A.R. FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITY BELOW THAT UN DER THE PROVISIONS OF EXPLANATION 2(IV) ONLY THE FREIGHT, TELECOMMUNICATI ON CHARGES AND INSURANCE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE O UTSIDE INDIA HAS TO BE EXCLUDED FROM EXPORT TURNOVER. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF CIT VS. GEM JEWELLERY INDIA LTD. 330 ITR 175 AND ON THE DECISION OF THE SPECIAL BENC H OF THE TRIBUNAL IN CASE OF ITO VS. SAK SOFT LTD. 313 ITR (AT) 353. THE LD. AR PLACED ON RECORD THE ORDER OF ITAT IN AY 2006-07 TO SUBMIT THAT THE ISSU E WAS COVERED. THE LEARNED D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O. 7. SAME ISSUE WAS ALSO CONSIDERED BY THE COORDINATE B ENCH IN 2006-07 VIDE PARA 3.2 AS BELOW: - 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING EXCLUSION OF DA TA LINE COST INCURRED BY THE ASSESSEE FROM THE EXPORT TURNOVER. UNDER THE PROVISIONS OF EXPLANATION 2(IV) OF SECTION 10A, EXPENSES ON FREIG HT, TELE- COMMUNICATION CHARGES AND INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLE OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDI A OR EXPENSES INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA ARE REQUIRED TO BE EXCLUDED FROM THE EXPORT T URNOVER. IN THIS CASE THE DATA LINE COST BEING THE TELECOMMUNICATION EXPENSES HAVE BEEN EXCLUDED BY THE AO FROM THE EXPORT TURNOVER. T HE CASE OF THE ASSESSEE IS THAT THE TELECOMMUNICATION EXPENSES HAD BEEN INCURRED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AT THE SOFT WARE UNDERTAKINGS OF THE ASSESSEE IN INDIA. THIS CLAIM H AS NOT BEEN CONTROVERTED BY THE AO BY PLACING ANY MATERIAL ON R ECORD. THE EXPENSES INCURRED ON DEVELOPMENT OF SOFTWARE IN IND IA CANNOT BE CONSIDERED AS EXPENSES ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. THEREFORE IN OUR VIEW SUCH EXPENSES CANNOT BE EXCLUDED FROM THE EXPORT TURNOVER AND IN CASE TH ESE ARE EXCLUDED, THESE HAVE TO BE EXCLUDED FROM TOTAL TURNOVER ALSO FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF CIT VS GEM PLUS JEWELLERY INDIA LTD. (SUPRA) AND DECISION OF T HE TRIBUNAL IN CASE OF ITO VS SAK SOFT LTD. (SUPRA). IN ANY CASE SINCE WE HAVE HELD THAT THESE EXPENSES HAVE BEEN INCURRED IN THE BUSINESS O F SOFTWARE DEVELOPMENT IN INDIA, THESE COULD NOT BE CONSIDERED AS EXPENDITURE ITA NO. 1679/MUM/2010 M/S. CAPGEMINI INDIA P. LTD. 6 ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE OUTSI DE INDIA. WE THEREFORE SET ASIDE THE ORDER OF AO ON THIS POINT A ND HOLD THAT THESE EXPENSES ARE NOT TO BE EXCLUDED FROM THE EXPORT TUR NOVER. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO ORDINATE BENCH, WE HOLD THAT THESE EXPENSES ARE NOT EXCLUDABLE FROM THE EXP ORT TURNOVER. THIS GROUND IS TREATED AS ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 10 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XV, MUMBAI 4. THE CIT X, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.
