DCIT, V. Sasken Communication Technology,

ITA 176/BANG/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86063 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 08-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR K SHANKAR PRASAD J
• Keywords: Question of law
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NOS.1645 & 1646/BANG/2012 (ASSESSMENT YEARS: 2006 - 07 & 2008 - 09) AND CROSS OBJN.NO.72/BANG/2013 (IN ITA NO.176/BANG/2013) (ASSESSMENT YEAR: 2004 - 05) M/S.SASKEN COMMUNICATION TECHNOLOGIES LTD. 139/25, DOMLUR RING ROAD, DOMLUR, BANGALORE. APPELLANT / PAN: AAECS 6424 R CROSS OBJECTOR VS. DEPUTY COMMISSIONER OF INCOME - TA X, CIRCLE 12(3), BANGALORE. RESPONDENT AND ITA NO. 176 / BANG/20 1 3 ( ASSESSMENT YEAR: 2004 - 05 ) DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 12(3), BANGALORE. APPELLANT VS. M/S.SASKEN COMMUNICATION TECHNOLOGIES LTD. BANGALORE. RESPONDENT ASSESSEE BY: SHRI SUDHEENDRA, CA. REVENUE BY: DR.K.SHANKAR PRASAD, JCIT(DR) DATE OF HEARING : 23 /0 2/201 5. DATE OF PRONOUNCEMENT: 04/ 0 3 /201 5. ITA NO S . 1645,1646/B/12, 176 & CO 72 /BANG/201 3 M/S.SASKEN COMMUNICATION TECHNOLOGIES LTD. PAGE 2 OF 8 O R D E R PER SMT. P.MADHAVI DEVI, JM : ALL THESE APPEALS AND THE CROSS - OBJ ECTIONS ARE FIXED FOR HEARING ON ACCOUNT OF ONE OF THE ISSUES BEING REMANDED TO THE FILE OF THE TRIBUNAL FOR RE - CONSIDERATION. 2. THE HON BLE HIGH COURT OF KARNATAKA VIDE ITS JUDGMENT DATED 16/09/2014 IN ITA NOS.40 TO 42 OF 2014 AND OTHERS HAD REMANDED ONE OF THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE FOR FRESH CONSIDERATION. THE GROUND REMANDED IS AS FOLLOWS: WHETHER THE TELECOMMUNICATION EXPENSES, INSURANCE CHARGES, PERSONNEL EXPENSES, PROFESSIONAL EXPENSES, BRANCH OFFICE EXPENSES AND OTHER EXPENSES INC URRED IN FOREIGN EXCHANGE SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT,1961? 3. IN VIEW OF THE SAME, THESE APPEALS ARE RE - FIXED FOR HEARING. IT IS THE CASE OF THE ASSESSEE THAT THE ASSESSING OFFICER(AO) AND THE CIT(A) HAD EXCLUDED THE TRAVELLING EXPENSES INCURRED IN FOREIGN EXCHANGE FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD MADE AN ALTERNATIVE CLAIM BEFORE THE TRIBUNAL THAT IF SUCH EXPENDITURE WAS TO BE EXCLUDED FROM THE EXPORT TURNOVER THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER AS HELD BY T HE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD. IN ITA ITA NO S . 1645,1646/B/12, 176 & CO 72 /BANG/201 3 M/S.SASKEN COMMUNICATION TECHNOLOGIES LTD. PAGE 3 OF 8 NO.142 OF 2008 DATED 20/10/2014. HE SUBMITTED THAT THE TRIBUNAL HAD ACCEPTED THE ALTERNATIVE PLEA AND HAS NOT DEALT WITH THE ORIGINAL GROUND AS TO WHETHER THE TRAVELLING EXPENSES I NCURRED IN FOREIGN EXCHANGE ARE TO BE EXCLUDED FROM THE EXPORT TURNOVER AT ALL. HE SUBMITTED THAT THIS ISSUE HAD BEEN CONSIDERED BY THIS TRIBUNAL IN THE CASE OF SOFTTEK INDIA PVT. LTD. VS. ITO IN IT(TP)A NO.222/BANG/2014 DATED 31/10/2014 WHEREIN, AFTER CO NSIDERING THE JUDGMENT OF THE HON BLE HIGH COURT IN THE CASE OF CIT VS. MOTOR INDUSTRIES CO. LTD. IN ITA NO.1172/2006 DATED 13/06/2014 AS WELL AS THE DECISION OF THE HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. ELX S I LTD. IN ITA NO.660 OF 2008 DAT ED 16/9/2014 HAS HELD THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 10A OF THE ACT IF IT IS IN THE BUSINESS OF MANUFACTURE AND EXPORT OF COMPUTER SOFTWARE AND THE TRAVELLING OF THE EMPLOYEES OF THE ASSESSEE IS THE INTEGRAL PART OF THE SOFTWARE DEVELOPMEN T AND THEREFORE IT CANNOT BE REDUCED OR EXCLUDED FROM THE EXPORT TURNOVER FOR COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. COPIES OF THE ORDERS OF THE HON BLE HIGH COURT AS WELL AS THIS TRIBUNAL ARE FILED BEFORE US. AS SEEN FROM THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2006 - 07, THE AO HAS EXAMINED THE DETAILS OF THE EXPENDITURE INCURRED IN FOREIGN EXCHANGE WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT AND OBSERVED THAT THESE EXPENSES INCLUDED SALARY PAYMENT, TRAVELLING AND STAY EXPENSES OF DEPUTED EMPL OYEES ETC. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT THESE EXPENSES REPRESENT THE SALARY PAYMENT OUTSIDE INDIA IN FOREIGN ITA NO S . 1645,1646/B/12, 176 & CO 72 /BANG/201 3 M/S.SASKEN COMMUNICATION TECHNOLOGIES LTD. PAGE 4 OF 8 CURRENCY TO THE EMPLOYEES ON DEPUTATION ABROAD WHICH COMES TO RS.34,07,89,280/ - WHILE TRAVELLING EXPENSES OF THE EMPLOYEES FOR BEING DEPUTED ABROAD IN PROVIDING SOFTWARE SERVICES COMES TO RS.2,49,87,302/ - . THE AO HELD THAT THE SERVICES RENDERED BY THE ENGINEERS ABROAD WOULD SQUARELY FALL WITHIN TECHNICAL SERVICES AND THEREFORE THEY HAVE BEEN SPECIFICALLY DIRECTED TO BE EX CLUDED FROM THE DEFINITION OF THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. THEREFORE, IT IS CLEAR THAT THE ASSESSEE, W HICH IS IN THE DEVELOPMENT OF SOFTWARE, HAS DEPUTED ITS PERSONNEL ABROAD FOR PROVIDING SOFTWARE SERVICES IN TERMS OF ITS DEVELO PMENT OF SOFTWARE AND THEREFORE IT IS PART AND PARCEL OF THE ACTIVITY OF DEVELOPMENT AND EXPORT OF COMPUTER SOFTWARE. THE HON BLE HIGH COURT IN THE CASE OF MOTOR INDUSTRIES CO. LTD. (CITED SUPRA), WHILE CONSIDERING THE DEFINITION OF EXPORT TURNOVER U/S 80 HHC OF THE ACT, HAS AT PARA . 19 OF ITS ORDER HELD AS UNDER: 19. IF THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING TECHNICAL SERVICES OUTSIDE INDIA IN CONNECTION WITH THE DEVELOPMENT OR PRODUCTION OF COMPUTER SOFTWARE THEN EXPENSES IF ANY INCU RRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA IS LIABLE TO BE DEDUCTED OUT OF EXPORT TURNOVER. THE SAID PROVISION HAS NO APPLICATION IN THE CASE OF EXPORT OUT OF INDIA OF COMPUTER SOFTWARE OR ITS TRANSMISSION FROM INDIA TO A PLACE OUTSIDE INDIA BY ANY MEANS. THE LAW MAKES A DISTINCTION BETWEEN TECHNICAL SERVICES RENDERED IN CONNECTION WITH EXPORT OF COMPUTER SOFTWARE AND EXPORT OF TECHNICAL SERVICES FOR THE PURPOSE OF DEVELOPMENT OR PRODUCTION OF COMPUTER SOFTWARE OUTSIDE INDIA. IF THE TECHNICAL SERVICES RENDERED BY THE ASSESSEE S ENGINEERS IS IN CONNECTION WITH THE ITA NO S . 1645,1646/B/12, 176 & CO 72 /BANG/201 3 M/S.SASKEN COMMUNICATION TECHNOLOGIES LTD. PAGE 5 OF 8 EXPORT OF COMPUTER SOFTWARE FOR THE PURPOSE OF TESTING, INSTALLATION AND MONITORING OF SOFTWARE SUCH A TURNOVER DO NOT FALL WITHIN CLAUSE (II) OF SUBSECTION (1) OF SEC TION 80HHE OF THE ACT. SUCH A TURNOVER FALLS WITHIN SUB - CLAUSE (I) OF SUBSECTION (1) OF SECTION 80HHE OF THE ACT, THAT IS EXPORT OUT OF INDIA OF COMPUTER SOFTWARE OR ITS TRANSMISSION FROM INDIA TO A PLACE OUTSIDE INDIA BY ANY MEANS. THE EXPENDITURE INCUR RED IN THE FORM OF FOREIGN EXCHANGE FOR SUCH SERVICES CANNOT BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS IT FORMS PART OF THE EXPORT TURNOVER. IN THE INSTANT CASE AS IS CLEAR FROM THE ORDER OF THE ASSESSING AUTHORITY, HE PROCEEDS ON THE ASSUMPTION THAT THE ASSESSEE IS A COMPANY ENGAGED IN RENDERING TECHNICAL SERVICES OUTSIDE INDIA IN CONNECTION WITH PRODUCTION OF SAID SOFTWARE. THEREFORE THE EXPENDITURE INCURRED IN FOREIGN EXCHANGE IN PROVIDING SUCH TECHNICAL SERVICES OUTSIDE INDIA OF RS.62.7 LAKHS WAS EXCLUDED IN COMPUTING THE EXPORT TURNOVER AND TOTAL TURNOVER FOR ARRIVING AT DEDUCTION UNDER SECTION 80HHE OF THE ACT. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OUT OF INDIA OF COMPUTER SOFTWARE AND ITS TRANSMISSION TO PLACES FROM INDIA OUTSIDE I NDIA. BEFORE A COMPUTER SOFTWARE IS EXPORTED, THE SOFTWARE ENGINEERS OF THE ASSESSEE WOULD HAVE INITIAL DISCUSSION WITH REGARD TO THE REQUIREMENTS, SPECIFICATIONS ETC. THEREAFTER COMPUTER SOFTWARE IS MANUFACTURED AND THEN IT IS TRANSMITTED FROM INDIA TO A PLACE OUTSIDE INDIA. THE SOFTWARE ENGINEERS DEPUTED ABROAD WHO AMONG OTHER THINGS HAVE TO DO TESTING, INSTALLATION AND MONITORING OF SOFTWARE SUPPLIED TO THE CLIENT. THOUGH THE SAID SERVICES ARE TECHNICAL IN NATURE IT DOES NOT FALL WITHIN CLAUSE (II) OF SUBSECTION (1) OF 80HHE OF THE ACT, OF PROVIDING TECHNICAL SERVICES OUTSIDE INDIA IN CONNECTION WITH THE DEVELOPMENT OR PRODUCTION OF COMPUTER SOFTWARE. IT FALLS UNDER SUB - CLAUSE (I) OF SUB SECTION (1) SECTION 80HHE OF THE ACT. THEREFORE, THE SAID EXPEN DITURE CANNOT BE EXCLUDED IN COMPUTING EXPORT ITA NO S . 1645,1646/B/12, 176 & CO 72 /BANG/201 3 M/S.SASKEN COMMUNICATION TECHNOLOGIES LTD. PAGE 6 OF 8 TURNOVER. IN THAT VIEW OF THE MATTER WE DO NOT SEE ANY MERIT IN THIS APPEAL. ACCORDINGLY, THE SAID QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ORDERED ACCORDINGLY. THIS DEC ISION WAS FURTHER FOLLOWED BY THE HON BLE HIGH COURT IN THE CASE OF EMPHASIS LTD. IN ITA NO.1075/2008 AND 196/9 DATED 01/08/2014 WHEREIN THE ISSUE WAS THE EXCLUSION OF EXPENDITURE INCURRED IN FOREIGN CURRENCY FOR PROVIDING SOFTWARE DEVELOPMENT SERVICES OUT SIDE INDIA FOR COMPUTATION OF DEDUCTION U/S 10B OF THE ACT. THE HON BLE HIGH COURT HAS FOLLOWED THE DECISION OF THE CO - ORDINATE BENCH OF THE HON BLE HIGH COURT IN THE CASE OF MOTOR INDUSTRIES CO. LTD. (CITED SUPRA) AND ALSO ITS OWN DECISION IN THE CASE OF CIT & ANOTHER VS. TATA ELXSI LTD. REPORTED IN (2012) 349 ITR 98(KAR.) IN ANSWERING THE SUBSTANTIAL QUESTION OF LAW IN FAVOUR OF THE ASSESSEE AND FURTHER HOLDING THAT IF THE EXPENDITURE IS TO BE EXCLUDED FROM THE EXPORT TURNOVER THEN THE SAME HAS TO BE EXC LUDED FROM THE TOTAL TURNOVER AS WELL. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MOTOR INDUSTRIES CO. LTD. (CITED SUPRA) AS WELL AS THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SOFTTEK INDI A PVT. LTD , TO WHICH BOTH OF US ARE SIGNATORIES, WE DIRECT THE AO NOT TO EXCLUDE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY TOWARDS TRAVELLING AND ALSO SALARY OF THE EMPLOYEES OF THE ASSESSEE DEPLOYED ABROAD FOR DEVELOPMENT OF, TESTING, INSTALLATION AND MONITORING OF SOFTWARE OUTSIDE INDIA, AFTER VERIFICATION OF THE EXACT NATURE OF EXPENDITURE WHILE COMPUTING DEDUCTION U/S 10A OF THE ITA NO S . 1645,1646/B/12, 176 & CO 72 /BANG/201 3 M/S.SASKEN COMMUNICATION TECHNOLOGIES LTD. PAGE 7 OF 8 ACT. THEREFORE, THE GROUND OF APPEAL NO.2.1 IN THE ASSESSEE S APPEAL FOR ASSESSMENT YEAR 2006 -- 07 IS TREATED AS ALLOWED. SIMILARLY, GROUND NO.2 IN THE ASSESSEE S CROSS - OBJECTION NO.72/BANG/2013 IN ITA NO.176/BANG/2013 IS ALSO ON THE SAME ISSUE AND THEREFORE, THE GROUND NO.2 IN THE ASSESSEE S CROSS OBJECTION IS ALLOWED. 4. AS REGARDS THE REVENUE S APPEAL IN ITA NO.1 76/BANG/2013 FOR THE ASSESSMENT YEAR 2004 - 05 IS CONCERNED, THE GROUNDS ARE ONLY AGAINST THE DIRECTION OF THE CIT(A) TO EXCLUDE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATIO N OF DEDUCTION U/S 10A OF THE ACT BY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA ELXSI LTD., (CITED SUPRA) . IT IS THE CASE OF THE REVENUE THAT ITS SLP BEFORE THE HON BLE SUPREME COURT IS PENDING AND THEREFORE THE CIT(A) DIRE CTION IS ERRONEOUS. HOWEVER, RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). THE GROUNDS NO.5 AND 6 ARE ACCORDINGLY REJECTED. 5. FOR THE ASSESSMENT YEAR 2008 - 09 IN ITA NO.1646/BANG/2012 , THE ASSESSEE S GROUND OF APPEAL NO.2.1 IS ON THE EXCLUSION OF THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER FOR COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. FOLLOWING OUR DECISION FOR THE ASSESSMENT YE ARS 2004 - 05 AND 2006 - 07, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALSO ALLOWED SUBJECT TO VERIFICATION OF FACTS BY THE AO . ITA NO S . 1645,1646/B/12, 176 & CO 72 /BANG/201 3 M/S.SASKEN COMMUNICATION TECHNOLOGIES LTD. PAGE 8 OF 8 6. IN THE RESULT, THE ASSESSEE S APPEALS FOR ASSESSMENT YEARS 2006 - 07 AND 2008 - 09 ARE ALLOWED FOR STATISTICAL PURPOSES AND T HE REVENUE S APPEAL FOR ASSESSMENT YEAR 2004 - 05 IS DISMISSED ; AND THE CROSS OBJECTION OF THE ASSESSEE FOR ASSESSMENT YEAR 2004 - 05 IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH MARCH, 20 15 15 . SD/ - SD/ - (JASON P BOAZ) (SMT. P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE