M/s. Cognizant Technology Solutions India Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 1771/CHNY/2007

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96136 (ITAT-CHENNAI)
• Duration Of Justice: 8 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 07-09-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 29-06-2007
• Court: TRIBUNAL
• Department Lawyers: M N MAURYA; A V SREEKANTHJCIT
• Assessee Lawyers: DR ANITHA SUMANTH
• Keywords: Business income; Earning of tax free income; Retrospective amendment; Permanent establishment; Question of law; Benefit of exemption
• Section: 143(3); 234B; 14A; 10B; 147; 263; 10; 154; 15; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NOS. 1771, 209 & 2536/MDS/2007 / ASSESSMENT YEARS : 2002-03, 2003-04 & 2004-05 M/S. COGNIZANT TECHNOLOGY SOLUTIONS INDIA PVT. LTD., VICE PRESIDENT GLOBAL FINANCE, 38, WHITES ROAD,, 3 RD FLOOR, CHENNAI 600 014. PAN AAACD3312M (/ APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-I(3), CHENNAI. (/ RESPONDENT) ./ ITA NOS. 1784 & 591/MDS/2007 / ASSESSMENT YEARS : 2002-03 & 2003-04 AND C.O.NO.47/MDS/2007 (IN ITA NO.591/MDS/2007) THE ASSISTANT COMMISSIONER M/S. COGNIZANT TECHNOL OGY OF INCOME-TAX, SOLUTIONS INDIA PVT. LT D., COMPANY CIRCLE-I(3), VS. CHENNAI-14. CHENNAI (/ APPELLANT) (RESPONDENT-CROSS OBJECTOR) ASSESSEE BY : DR. ANITHA SUMANTH, ADVOCATE DEPARTM ENT BY : S/SHRI M.N.MAURYA, CIT & A.V.SREEKANTH, JCIT ! ' # $%& / DATE OF HEARING : 07.09.2015 '( # $%& / DATE OF PRONOUNCEMENT: 30.09.2015 - - ITA 1771, 209/07 ETC. 2 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEALS BY THE ASSESSEE AND BY THE REVENUE A RE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSION ER OF INCOME- TAX(APPEALS) FOR THE ASSESSMENT YEARS 2002-03, 2003 -04 AND 2004-05. THE ASSESSEE HAS ALSO FILED CROSS OBJECTI ON. SINCE, THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, TH EY ARE CLUBBED TOGETHER, HEARD TOGETHER AND DISPOSED OFF B Y THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1771/MDS/2007 AY 2002-03 (ASSESSEE) 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IS AS FOL LOWS: 2. DENIAL OF EXEMPTION U/S.10A/10B IN RESPECT OF P ROVISIONS NO LONGER REQUIRED WRITTEN BACK. 2.1 THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT TH E LINK CHARGES WRITTEN BACK AMOUNTING TO ` 1,09,00,000 SHOULD NOT BE CONSIDERED AS PART OF EXPORT PROFITS FOR THE PUR POSES OF SECTION 10A OF THE ACT, THOUGH THE SAME IS INCLUDIB LE AS BUSINESS PROFITS. 2.2 THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED THE C LAIM OF SECTION 10A IN RESPECT OF WRITE-BACK OF ANNUAL DAY EXPENSES AND HAS ACCORDINGLY ERRED IN DIRECTING THE ASSESSIN G OFFICER TO RE-EXAMINE THE ISSUE. - - ITA 1771, 209/07 ETC. 3 2.3 THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO RE-EXAMINE THE ISSUE, WHEN THE CIT(A) DO ES NOT HAVE THE POWER TO SET ASIDE THE ASSESSMENT ORDER IN RELATION TO SUBJECT ASSESSMENT YEAR. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE AND EXPORT OF THE SAME. IT WAS STATED BY THE ASSESSEE THAT SI NCE VSNL AND OTHER NETWORK SERVICE PROVIDERS HAD REDUCED THEIR COMMUNICATION LINK TARIFF RATES AFTER THE ASSESSEE COMPANY HAD PROVIDED FOR THE SAME, THE ASSESSEE HAD TO REVERSE THE PROVISION MADE EARLIER. ACCORDING TO THE ASSESSEE COMPANY T HE PROVISION MADE TOWARDS THIS EXPENDITURE IN THE EARLIER YEAR W AS NOT ACTUALLY INCURRED TO THAT EXTENT BECAUSE, THERE WAS REDUCTION IN THE TARIFF RATES OF THE OTHER COMPANY WHICH HAS REN DERED SERVICES TO THE ASSESSEE COMPANY HAD WAIVED CERTAIN AMOUNTS WHICH NECESSITATED THE ASSESSEE COMPANY TO WRITE BACK SU CH AMOUNTS DURING THE IMPUGNED ACCOUNTING PERIOD. IT WAS ARGU ED BY THE LD. COUNSEL FOR THE ASSESSEE, BEFORE THE CIT(APPEALS) T HAT IN AS MUCH AS THIS SUM WAS INCLUDIBLE AS BUSINESS PROFIT, IT WAS NOT CORRECT TO DENY EXEMPTION U/S.10A/10B OF THE ACT. TO SUPPORT THE VIEW, RELIANCE WAS PLACED ON THE DECISION OF TH E TRIBUNAL, AHMEDABAD BENCH IN THE CASE OF AARTI INDUSTRIES LTD . V. DCIT - - ITA 1771, 209/07 ETC. 4 (2005) 95 TTJ 14, WHEREIN IT WAS HELD THAT REFUND O F EXCISE DUTY WAS TO BE INCLUDED AS PART OF BUSINESS PROFITS FOR COMPUTING THE DEDUCTION U/S.80HHC OF THE ACT. HOWEVER, THE COMM ISSIONER OF INCOME-TAX(APPEALS) HELD THAT THE BENEFIT OF SEC.10 A OF THE ACT IN RESPECT OF THE INCOME THAT WAS SUBJECTED TO TAX U/S.41(1) IS NOT AVAILABLE. AGAINST THIS, THE ASSESSEE IS IN APPEAL , BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. SIMILAR ISSUE HAS BEEN CONSIDERED BY TH E TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 114, 2100 & 90/2011 FOR THE ASSESSMENT YEAR 2005-06 AND 2007-08 DATED 23.1.2011 , WHEREIN IT WAS HELD AS UNDER : 2.4 THE LAST ISSUE RAISED BY THE ASSESSEE FOR THE PRESENT ASSESSMENT YEAR IS ON THE QUESTION OF SECTION 14A DISALLOWANCE. THE ASSESSING OFFICER HA S DISALLOWED 2% OF EXEMPTION INCOME TREATING THE SAME AS EXPENDITURE INCURRED IN CONNECTION WITH EARNING THE EXEMPT INCOME IN THE NATURE OF DIVIDEND INCOME FROM MUTUAL FUNDS. IT IS THE CASE OF THE ASSESSEE THAT IT HAS NOT INCURRED ANY EXPENDITURE TOWARDS EARNING SUCH EXEMPT INCOME. WE FIND THAT THE DISALLOWANCE OF 2% MADE BY THE ASSESSING AUTHORITY IS REASONABLE. AT THE SAME TIME, WE ACCEPT THE ALTERNATE CONTENTION OF TH E ASSESSEE THAT THE PROFIT FOR THE PURPOSE OF SECTION 10A WILL BE ENHANCED TO THE EXTENT OF THE ABOVE DISALLO WANCE. THEREFORE PROPORTIONATE ENHANCEMENT WILL BE MADE IN THE AMOUNT OF DEDUCT ION AVAILABLE UNDER SECTION 10 A. THIS ISSUE IS PARTLY DECIDED IN FAVOUR OF THE ASSES SEE. - - ITA 1771, 209/07 ETC. 5 4.1. FURTHER, THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. 330 ITR 175 HAS HELD THAT WHENEVER ANY DISALLOWANCE MADE WHILE COMPUTING THE INCOME THAT DISALLOWANCE SHOULD BE PART AND PARCEL OF THE BUSINESS PROFIT OF THE ASSESSEE AND THE SAME SHOULD BE CONSIDERED F OR THE PURPOSE OF DEDUCTION U/S.10A OF THE ACT. IN VIEW O F THIS, WE ARE INCLINED TO HOLD THAT THE DISALLOWANCE MADE WITH RE GARD TO PROVISION IS TO BE CONSIDERED AS PART OF BUSINESS P ROFIT FOR THE PURPOSE OF DETERMINING DEDUCTION U/S.10A/10B OF THE ACT. THIS GROUND IN THIS APPEAL IS ALLOWED. 5. THE NEXT GROUND RAISED IN THE AFORESAID APPEAL I S AS UNDER: 3. CLAIM WITH RESPECT TO LIABILITIES WRITTEN BACK IN AY 2003-04 3.1 THE LEARNED CIT(A) HAS ERRED IN NOT EXAMINING THE CLAIM MADE BY THE APPELLANT IN RESPECT OF DISALLOWA NCE OF PROVISIONS AMOUNTING TO ` 2,51,62,011, WHICH WAS WRITTEN BACK IN AY 2003-04. 3.2 THE LEARNED CIT(A) HAVING ADMITTED THAT THIS I S A PLEA THAT OUGHT TO HAVE BEEN EXAMINED BY THE AO, SHOULD HAVE SOUGHT A REMAND REPORT FROM AO AND DECIDED THE ISSUE AND ACCORDINGLY, HAS ERRED IN NOT EXAMINING THE ISSUE AT ALL. 3.3 WITHOUT PREJUDICE TO THE ABOVE AND AS AN ALTER NATE SUBMISSION, THE LIABILITIES AMOUNTING TO ` 2,51,62,011 IN - - ITA 1771, 209/07 ETC. 6 RESPECT OF WHICH A PROVISION WAS CREATED IN AY 2002 -03 AND WHICH HAVE BEEN WRITTEN BACK IN 2003-04, OUGHT TO HAVE BEEN CONSIDERED TO FORM PART OF THE ELIGIBLE P ROFITS (IE, PROFITS OF THE UNDERTAKINGS TO BE INCREASED BY SUCH AMOUNT TO ARRIVE AT THE ELIGIBLE PROFITS) IN COMPUT ING DEDUCTION UNDER SECTION 10A/10B FOR AY 2002-03. 6. IT WAS AN ALTERNATE PLEA OF THE ASSESSEE THAT TH E EXCESS PROVISION MADE DURING THE ACCOUNTING PERIOD ENDED 3 1.3.2002 AMOUNTING TO ` 2,51,62,011/-, WHICH WAS WRITTEN BACK IN THE PROFI T AND LOSS ACCOUNT FOR THE NEXT FINANCIAL YEAR 2002-0 3 RELEVANT TO THE ASSESSMENT YEAR 2003-04 MUST BE DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE IMPUGNED ACCOUNTING PERIOD ITSELF AND EXEMPTION U/S.10A BE GRANTED ON THE SAME. 7. SINCE, THE CLAIM OF THE ASSESSEE WAS ALLOWED IN THE ASSESSMENT YEAR 2003-04, WHEN IT WAS ACTUALLY WRITT EN OFF, THIS IS ONLY ACADEMIC. HENCE, THIS GROUND IS DISMISSED AS I NFRUCTUOUS. 8. THE NEXT GROUND OF APPEAL IS AS FOLLOWS: 4. DENIAL OF EXEMPTION U/S.10A/10B IN RESPECT OF PROFITS ARISING FROM FLUCTUATION IN FOREIGN EXCHANGE (NET) 4.1 THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT TH E NET EXCHANGE FLUCTUATION GAINS ARISING ON ACCOUNT OF TH E EFFECT OF RESTATEMENT OF YEAR END BALANCES (DEBTOR/ CREDITOR BALANCES AND BALANCES IN EEFC ACCOUNT) ARE NOT ELIGIBLE FOR EXEMPTION UNDER SECTION 10A/10 B OF THE ACT. - - ITA 1771, 209/07 ETC. 7 4.2 THE LEARNED CIT(A) HAS ERRED IN CONSIDERING ` 402,171 (OUT OF THE TOTAL NET FOREIGN EXCHANGE GAIN S) AS PART OF RESTATEMENT OF YEAR-END BALANCES, WHEN THE SAME IS ON ACCOUNT OF A CRYSTALLIZED GAIN. 4.3 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT RESTATEMENT OF BALANCES WERE DONE IN ACCORDANCE WITH ACCOUNTING STANDARD 11 ISSUED BY TH E INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. 9. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE COMPANY HAD CREDITED ` 6,91,70,239/- AS REPRESENTING THE NET EFFECT OF TH E FOREIGN EXCHANGE FLUCTUATION UNDER THE HEAD, 'OTHER INCOME' IN SCHEDULE 9 OF THE ACCOUNT FOR THE ACCOUNTING YEAR ENDED 31.3.2002 . WHILE TAXING THIS SUM AS BUSINESS INCOME, THE ASSESSING OFFICER HAD D ENIED THE BENEFIT OF EXEMPTION U/S 10A BY HOLDING THAT THIS SUM CANNOT B E SAID TO BE DERIVED BY THE COMPANY FROM ITS UNDERTAKING OR FROM THE BUSINE SS OF EXPORT OF COMPUTER SOFTWARE. THE ASSESSING OFFICER WAS OF TH E VIEW THAT THE NET GAINS ARISING ON ACCOUNT OF FOREIGN EXCHANGE FLUCTU ATION CANNOT BE EQUATED WITH THE PROFITS AND GAINS DERIVED BY THE A SSESSEE'S UNDERTAKING FROM THE EXPORT OF COMPUTER SOFTWARE. FURTHER, REFE RRING TO THE APPELLATE ORDER IN ANOTHER CASE, CALIFORNIA SOFTWARE LTD. FOR THE ASSESSMENT YEAR 2001-02, THE ASSESSING OFFICER OBSERVED THAT IN VIE W OF THE FACT THAT THE DEPARTMENT HAD APPEALED AGAINST THAT ORDER AND THE MATTER HAD NOT - - ITA 1771, 209/07 ETC. 8 REACHED FINALITY, THE BENEFIT OF EXEMPTION U/S 10A/ 10B MUST BE DENIED IN THE PRESENT ASSESSEE'S CASE ALSO. ON GOING THROUGH THE IMPUGNED ORDER. IT IS FURTHER SEEN THAT THE ASSESSING OFFICER HAD D EALT WITH THE MEANING OF THE TERM 'RATE OF EXCHANGE AS DEFINED BY LAW AND AS PER THE DEFINITION GIVEN IN ENCYCLOPAEDIA BRITANNICA 2002 AND HAD MADE A SPECIFIC OBSERVATION THAT THE GAIN AS DUE TO EXCHANGE VARIAT ION HAS AS ITS SOURCE OR ORIGIN, THE EXCHANGE RATES DETERMINED BY THE VAR IOUS GOVERNMENTS, WHICH IN TURN, ARE GOVERNED BY A NUMBER OF MACRO ECONOMIC POLICIES. AND THEREFORE. IT WAS HELD BY HIM THAT THE GAINS DUE TO FOREIGN EXCHANGE FLUCTUATION WAS NOT TO BE TREATED AS INCOME DERIVED FROM THE EXPORT ORIENTED UNDERTAKING OR FROM THE EXPORT OF COMPUTER SOFTWARE WITHIN THE MEANING OF SEC.10A/10B OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT SUCH GAINS CAN BE SAID TO BE ATTRIBUTABLE TO T HE EXPORT ACTIVITIES OF THE ASSESSEE COMPANY WHICH IS DIFFERENT FROM THE SU M BEING 'DERIVED FROM' THE BUSINESS OF THE UNDERTAKING AND RELIANCE WAS PL ACED ON THE FOLLOWING DECISIONS OF THE SUPREME COURT: (I) CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. VS. CIT (113 ITR 84) (II) CIT VS. STERLING FOODS (237 ITR 579) 10. WE FIND THAT SIMILAR ISSUE WAS CONSIDERED BY TH E TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 200 5-06 AND - - ITA 1771, 209/07 ETC. 9 2007-08 IN ITA NOS. 90, 114 & 2100/11 DATED 23.01.2 013, WHEREIN THE TRIBUNAL HAS HELD AS UNDER: 6.1. THE FIRST GROUND IS THAT THE LOWER AUTHORITIES HAVE ERRED IN EXCLUDING THE NET EXCHANG E GAIN ON EXCHANGE EARNERS FOREIGN CURRENCY (EEFC) ACCOUNT FROM PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THE ISSUE IS THAT THE ASSE SSEE IS PERMITTED BY RBI TO KEEP A PART OF ITS FOREIGN EXCHANGE EARNINGS IN FOREIGN CURRENCY ACCOUNT ABROA D SO THAT IT CAN BE USED BY THE ASSESSEE FOR PURCHASI NG RAW MATERIALS AND AVAILING OTHER SERVICES AND IF NO T REQUIRED CAN REMIT BACK THE MONEY TO INDIA ALONGWIT H INTEREST. INTEREST IS ACCRUED AS PART OF EXPORT TU RNOVER. IT HAS NEXUS ONLY WITH THE EXPORT TURNOVER AND THEREFORE IT IS ALSO IN THE NATURE OF EXPORT PROFIT S. THIS ISSUE HAS BEEN DECIDED BY THE HONBLE DELHI HIGH COURT IN FAVOUR OF THE ASSESSEE IN THE CASE OF CIT VS. INDIAN TONERS AND DEVELOPERS LTD., 326 ITR 435. TH IS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY A SER IES OF TRIBUNAL ORDERS IN THE CASE OF M/S.RISHABH INTERNATIONAL VS. JCIT, MUMBAI IN ITA NO.2788 & 278 9 OF 2004; IN THE CASE OF DISCOVER INDIA TOURS(P) LTD . VS. ASSESSING OFFICER, 9 SOT 665 (DEL); IN THE CASE OF CIT VS. SYNTEL LTD. IN ITA NOS.1974, 1976 & 1978 OF 200 9; IN THE CASE OF RAJESH EXPORTS LTD. VS. ACIT IN ITA NO.51 OF 2008, ETC. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO INCLUDE THE GAIN FROM EEFC ACCOUNT AS PART OF THE PROFITS ELIGIBLE FOR DEDUCTI ON UNDER SECTION 10A OF THE ACT. THIS ISSUE IS DECIDE D IN FAVOUR OF THE ASSESSEE. 10.1 FURTHER, THE TRIBUNAL IN ASSESSEES OWN CAS E IN ITA NO.1090/MDS/2013 FOR THE ASSESSMENT YEAR 2008-09 DE CIDED THE - - ITA 1771, 209/07 ETC. 10 ISSUE IN FAVOUR OF THE ASSESSEE AND VIDE ITS ORDER DATED OBSERVED AS UNDER : 14. THE NEXT GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) HAS WRONGLY DIRECTED THE ASSESSING OFFICER NOT TO E XCLUDE THE FOREIGN CURRENCY EXPENDITURE FROM THE EXPORT TURNOV ER. 15. RELEVANT FACTS QUA THIS GROUND ARE THAT IN THE COUR SE OF SCRUTINY, THE ASSESSING OFFICER NOTICED FROM T HE DETAILS SUBMITTED BY THE ASSESSEE A SUM OF ` 10,06,69,173/- AND A LOSS OF ` 6,14,12,438/- ON EXCHANGE EARNERS FOREIGN CURRENCY ACCOUNTS IN RELEVANT PREVIOUS YEAR WHICH DESERVED TO BE TREATED AS INCOME UNDER THE HEAD OTHER SOURCES OU T OF THE PURVIEW OF DEDUCTION U/S 10A OF THE ACT. IN ASSE SSMENT ORDER, HE ACTED ACCORDINGLY AND RE-WORKED THE ASSE SSEES DEDUCTION U/S 10A. 16. IN THE LOWER APPELLATE PROCEEDINGS, THE CIT(A) HAS RELIED UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS PE NTASOFT TECHNOLOGIES LTD - 2010-TIOL- 525-HC-MAD AS WELL AS THAT OF THE TRIBUNAL IN AS SESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 IN I.T.A.NO.2100/MDS/2011 DATED 23.1.2013 HOLDING THER EIN THAT SUCH GAINS HAVE TO BE TREATED AS PART OF INCOM E DERIVED FROM EXPORT FOR THE PURPOSE OF DEDUCTION U/S 10A O F THE ACT. ON BEING GRANTED OPPORTUNITY TO REBUT, THE REVENUE ONLY REITERATES THE PLEADINGS IN THE GROUNDS. IN OUR VI EW, ONCE THE HON'BLE JURISDICTIONAL HIGH COURT HAS DECIDED T HE VERY QUESTION OF LAW WHICH HAS ALSO BEEN ECHOED IN THE ASSESSEES OWN CASE, THERE IS HARDLY ANY REASON TO ADOPT A DIFFERENT APPROACH IN THE IMPUGNED ASSESSMENT YEAR. CONSEQUENTLY, THIS GROUND IS REJECTED. 17. THE NEXT GRIEVANCE RAISED BY THE REVENUE RELATES TO TELECOMMUNICATION EXPENDITURE WHICH HAS BEEN ORDERE D BY THE CIT(A) NOT TO BE EXCLUDED FROM THE EXPORT TUR NOVER. 18. IN THIS REGARD AS WELL, THE PARTIES ARE UNANIMOUS THAT THE ISSUE STANDS DECIDED IN ASSESSEES FAVOUR BY THE - - ITA 1771, 209/07 ETC. 11 ORDER OF THE 'TRIBUNAL' DATED 23.1.2013. TAKING C UE FROM THE SAME, WE ORDER ACCORDINGLY AND REJECT THE REVENUES PLEA. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE T RIBUNAL, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 11. THE NEXT GROUND OF APPEAL IS AS FOLLOWS: 5. INTEREST UNDER SECTION 234D: 5.1 THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE INTEREST UNDER SECTION 234D OF THE ACT WHEN PROVISI ONS OF THE SAID SECTION WERE NOT APPLICABLE FOR THE SUBJEC T AY. THE LEARNED CIT(A) OUGHT TO HAVE FOLLOWED THE RATIO NALE OF THE JURISDICTIONAL TRIBUNAL IN THE CASE OF EAST COAST CONSTRUCTIONS WHICH IS BINDING UPON HER AND WHICH SUPPORTS THE STAND OF THE APPELLANT. 5.2 THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE INTEREST UNDER SECTION 234D OF THE ACT WHEN THE REF UND ITSELF WAS GRANTED BEFORE THE PROVISIONS OF THE SAI D SECTION WERE MADE APPLICABLE. 12. THE FACTS OF THE ISSUE ARE THAT THE ASSESSING O FFICER HAD CHARGED AN INTEREST OF ` 57,866/- U/S.234D ON THE REFUND OF ` 4,67,161/- ISSUED ON 11.2.2003 FOR THE ASSESSMENT Y EAR 2002- 03. THE ASSESSEE COMPANY HAD NOT RAISED ANY ISSUE REGARDING CHARGING OF INTEREST U/S.234D AT THE TIME OF FILING THE APPEAL. BUT, HOWEVER, BY WAY OF FILING AN ADDITIONAL GROUND ON 5 .7.2006, THE ASSESSEE HAS OBJECTED TO THE LEVY. - - ITA 1771, 209/07 ETC. 12 13. AFTER HEARING THE PARTIES, WE ARE OF THE OPINIO N THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF THE TRIBUNAL IN THE CASE OF DDIT VS. ORACLE CORPORATION IN ITA NO.4618/DEL/2012, WHEREIN THE TRIBUNAL VIDE ORDER D ATED 23.11.2012 OBSERVED AS UNDER: 4. WE HAVE HEARD THE RIVAL CONTENTIONS IN THE LIGH T OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. THE L D. DR SUBMITTED THAT EXPLANATION 2 HAS BEEN INSERTED I N SECTION 234D WITH RETROSPECTIVE EFFECT FROM 01.06.2 003. HENCE, HE PLEADED THAT THE SAID EXPLANATION CLEARLY PROVIDES THAT THE SECTION WILL BE APPLICABLE TO ALL ASSESSMENT YEARS COMMENCING BEFORE THE FIRST DAY JUNE, 2003 AND THE PROCEEDINGS IN RESPECT OF SUCH ASSESSMENT IS COMPLETED AFTER THE SAID DATE. 5. THE ID. COUNSEL OF THE ASSESSEE COULD NOT COGENT LY REBUT THE SUBMISSIONS BUT PLACED RELIANCE UPON THE FOLLOWING CASE LAWS:- I) ASSTT. COMMISSIONER OF LT (OSD) VS. GTL LTD. (MA NO.746/MUM/2009); II) CIT VS. SUDHIR S. MEHTA 139 TAXMAN 54; AND III) GLAXO SMITHKLINE ASIA EP) LTD. VS. ACIT 97 TTJ (DEL) 108. 6.THE LD. DR SUBMITTED THAT ALL THE ABOVE CASE LAWS WERE RENDERED PRIOR TO THE AMENDMENT IN SECTION 234D VIDE EXPLANATION 2. HENCE, HE PLEADED THAT LD. CIT (A)'S ORDER NEEDS TO BE REVERSED. THE LD. DR RELIED UPON THE FOLLOWING CASE LAWS.- - - ITA 1771, 209/07 ETC. 13 I) CIT VS. KAMLA S. RANI 189 ITR 359(BOM); AND II) GTC INDUSTRIES LTD. VS. DCIT 105 TTJ (MUM) (TM) 1010. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE CAN GAINFULLY REFER TO THE PROVISIONS OF SECTION 234D H ERE:- INTEREST ON EXCESS REFUND. 234D. (1) SUBJECT TO THE OTHER PROVISIONS OF THIS ACT, WHERE ANY REFUND IS GRANTED TO THE ASSESSEE UNDER SUB-SEC TION (1) OF SECTION 143, AND - (A) NO REFUND IS DUE ON REGULAR ASSESSMENT; OR (B) THE AMOUNT REFUNDED UNDER SUB-SECTION (1) OF SE CTION 143 EXCEEDS THE AMOUNT REFUNDABLE ON REGULAR ASSESSMENT, THE ASSESSEE SHALL BE LIABLE TO PAY SIM PLE INTEREST AT THE RATE OF 6[ONE-HALF] PER CENT ON THE WHOLE OR THE EXCESS AMOUNT SO REFUNDED, FOR EVERY MONTH OR P ART OF A MONTH COMPRISED IN THE PERIOD FROM THE DATE OF GRANT OF REFUND TO THE DATE OF SUCH REGULAR ASSESSMENT. (2) WHERE, AS A RESULT OF AN ORDER UNDER SECTION 15 4 OR SECTION 155 OR SECTION 250 OR SECTION 254 OR SECTIO N 260 OR SECTION 262 OR SECTION 263 OR SECTION 264 OR AN ORDER OF THE SETTLEMENT COMMISSION UNDER SUB-SECTION (4) OF SECTION 245D, THE AMOUNT OF REFUND GRANTED UNDER SU B- SECTION (1) OF SECTION 143 IS HELD TO BE CORRECTLY ALLOWED, EITHER IN WHOLE OR IN PART, AS THE CASE MAY BE, THE N, THE INTEREST CHARGEABLE, IF ANY, UNDER SUB-SECTION (1) SHALL BE REDUCED ACCORDINGLY. EXPLANATION 1--WHERE, IN RELATION TO AN ASSESSMENT YEAR, AN ASSESSMENT IS MADE FOR THE FIRST TIME UNDER SECT ION 147 OR SECTION 153A, THE ASSESSMENT SO MADE SHALL B E - - ITA 1771, 209/07 ETC. 14 REGARDED AS A REGULAR ASSESSMENT FOR THE PURPOSES O F THIS SECTION.] EXPLANATION 2.--FOR THE REMOVAL OF D OUBTS, IT IS HEREBY DECLARED THAT THE PROVISIONS OF THIS SECT ION SHALL ALSO APPLY TO AN ASSESSMENT YEAR COMMENCING BEFORE THE 1 ST DAY OF JUNE, 2003 IF THE PROCEEDINGS IN RESPECT OF SUCH ASSESSMENT YEAR IS COMPLETED AFTER THE SAID DA TE.' 8. A READING OF THE ABOVE SECTION CLEARLY INDICATES THAT EXPLANATION 2 WAS ADDED BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.06.2003. BY THAT AMENDMENT, IT WAS CLEARLY BROUGHT ON THE STATUTE THAT THE SECTION SHALL ALSO APPLY TO AN ASSESSMENT YEAR COMMENCING BEFORE THE FIRST DATE OF JUNE, 2003 IF THE PROCEEDINGS IN RESPECT OF SUCH ASSESSMENT YEAR IS COMPLETED AFTER THE SAID DATE. I N THIS REGARD, WE FIND THAT THE CASE LAWS RELIED UPON BY THE LD. D R ARE GERMANE. IN THE CASE OF CIT VS. KAMLA S . RANI 189 ITR 359 (BORN), HON'BLE BOMBAY HIGH COURT HAS HELD THAT COURT CANNOT IGNORE RETROSPECTIVE AMENDMENT WHILE CONSIDERING APPLICATION U/S 256 (2) AND HAS TO EXERCISE A JURISDICTION IN THE LIGHT OF THE LAW AS IT IS DEEMED TO STAND ON THE DATE WHEN THE TRIBUNAL DECID ED THE APPEAL. IN THE CASE OF GTC INDUSTRIES LTD. VS. DCIT 105 TTJ (MUM) (TM) 1010, THE ITAT, THIRD MEMBER BENCH HAD HELD THAT WHEN A LAW IS AMENDED WITH RETROSPECTIVE EFFECT, THE AUTHORITY WHEN HE DECIDES ANY PROCEEDINGS HAS TO APPLY SUCH RETROSPECTIVELY AMENDED LAW AS IT WERE ENFORCED AT ALL MATERIAL TIMES. 9. CONSIDERING THE ABOVE CASE LAWS AND THE CLEAR PROVISIONS OF THE SECOND EXPLANATION ADDED IN SECTI ON 234D, WE ARE OF THE OPINION THAT THE ORDER OF THE L D. CIT (A) IS TO BE EVERSED. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT (A) AND DECIDE THE ISSUE IN FAVOUR O F THE REVENUE. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS ALLOWED. - - ITA 1771, 209/07 ETC. 15 13.1 FURTHER, THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. INDIAN OIL CORPORATION LTD. IN ITA NO. 2012 OF 2011 DATED 12.9.2012 HELD IN PARAGRAPHS 26 & 27 AS UNDER: 26. A STATUTE COULD BE RETROSPECTIVE IN OPERATION BEING EXPRESSLY STATED OR BY NECESSARY IMPLICATION. THE CASE OF THE REVENUE IS THAT SECTION 234D AS INTRODUCED ON 1 ST JUNE, 2003 WAS RETROSPECTIVE IN OPERATION BY NECESSARY IMPLICATION. HOWEVER, AS DOUBTS WERE RAISED ABOUT ITS RETROSPECTIVITY, THE SAME WAS CLARIFIED BY ADDING AN EXPLANATION TO SECTION 234D BY FINANCE ACT, 2012. UNDER THE ACT WHAT IS BROUGHT TO TAX IS NOT THE INCOME OF THE ASSESSEE IN THE ASSESSMENT YEAR BUT THE INCOME OF THE ASSESSEE IN THE PREVIOUS YEAR. THE LIABILITY T O TAX ARISES ON ACCOUNT OF THE FINANCE ACT WHICH FIXE S THE RATE AT WHICH THE TAX IS TO BE PAID. THE LAW T O BE APPLIED IS AS EXISTING ON THE 1 ST DAY OF APRIL OF THE PREVIOUS YEAR. IN SUPPORT THE COUNSEL FOR THE RESPONDENT RELIED UPON THE DECISION OF THE SUPREME COURT IN KARIMTHURAVI TEA ESTATES LTD. V. STATE OF KERALA 60 ITR 262, MAHARAJAH OF PITHAPURM V. CIT 13 ITR 221 (PC) AND CIT V. SCINDIA STEAM NAVIGATION CO. LTD. 42 ITR 539. THE AFORESAID DECISIONS ARE NOT RELEVANT FOR OUR PURPOSE PARTICULARS, IN VIEW OF THE FACT THAT EXPLANATION 2 TO SECTION 234D OF THE ACT AS INT6RODUCED BY THE FINANCE ACT, 2012 BEING DECLARATORY IN NATURE WOULD BE RETROSPECTIVE. THIS AMENDMENT MAKE IT CLEAR THAT IT SHALL APPLY ASSESSMENT YEARS EVEN PRIOR TO 1/06/2003. 27. IN VIEW OF THE ABOVE, WE HOLD THAT THE DECISI ON OF THE TRIBUNAL IN ITO V. EKTA PROMOTERS PVT. LTD. REPORTED IN 113 ITD 719 WHICH HAS BEEN FOLLOWED IN THE IMPUGNED ORDER BY THE TRIBUNAL IS NOT CORRECT. - - ITA 1771, 209/07 ETC. 16 ONE MORE ASPECT OF THE MATTER WHICH MUST BE BORNE IN MIND IS THAT TILL SUCH TIME AS THE ASSESSMENT PROCEEDINGS ARE COMPLETED IN RESPECT OF ANY ASSESSMENT YEAR, THE AMENDMENT MADE TO THE ACT WOULD BE APPLICABLE EVEN IN CASE OF PENDING PROCEEDINGS. IT IS NOT THE CASE OF THE RESPONDENT THAT THE PROCEEDING IN REGARD TO REFUND WHICH HAS BEEN GRANTED UNDER SECTION-143(1) OF THE ACT ARE CONCLUDED AND FINAL. THE REFUND WHICH HAS BEEN GRANTED UNDER SECTION 143(1) OF THE ACT IS PROVISIONAL, TO BE FINALLY DETERMINED WHEN FINAL ASSESSMENT ORDER IS PASSED UNDER SECTION 143(3) OF THE ACT. XPLANATION-2 TO SECTION 234D OF THE ACT MAKES IT CLEAR THAT IT WOULD BE APPLICABLE TO PENDI NG PROCEEDINGS I.E. WHERE ASSESSMENTS IN RESPECT OF SUCH ASSESSMENT YEAR IS NOT COMPLETED ON 1/6/2003. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E BOMBAY HIGH COURT AND THE DECISION OF THE TRIBUNAL, WE DISMISS THIS GROUND OF APPEAL. 13.2 IN THE RESULT, THE APPEAL IN ITA NO.1771/MDS/2007 IS PARTLY ALLOWED. ITA NO. 1784/MDS/2007 AY 2002-03 : (REVENUE) 14. THE REVENUE HAS FILED THE FOLLOWING GROUNDS IN THIS APPEAL: 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR RELIEF U/S.10A/10B IN RESP ECT OF THE FOLLOWING AMOUNT WRITTEN BACK BY THE ASSESSEE: - - ITA 1771, 209/07 ETC. 17 A. PROVISION FOR EMPLOYEES COMPENSATION BENEFIT WRITTEN BACK - ` 3,6,00,000 B. PROVISION FOR TRAVEL EXPENSES WRITTEN BACK ` 94 LAKHS 3. THE LEARNED CIT(A) ERRED IN REMITTING THE MATTE R BACK TO THE ASSESSING OFFICER IN RESPECT OF ASSESSEES ELIGIBILITY TOWARDS WRITE BACK OF PROVIS ION FOR ANNUAL DAY EXPENSES OF ` 1,12,80,000/-. 15. AFTER HEARING BOTH THE PARTIES, WE FIND THAT S IMILAR ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESS EES OWN CASE IN ITA NOS. 114, 2100 & 90/2011 FOR THE ASSESS MENT YEAR 2005-06 AND 2007-08 DATED 23.1.2011, WHEREIN I T WAS HELD AS UNDER : 2.4 THE LAST ISSUE RAISED BY THE ASSESSEE FOR THE PRESENT ASSESSMENT YEAR IS ON THE QUESTION OF SECTION 14A DISALLOWANCE. THE ASSESSING OFFICER HA S DISALLOWED 2% OF EXEMPTION INCOME TREATING THE SAME AS EXPENDITURE INCURRED IN CONNECTION WITH EARNING THE EXEMPT INCOME IN THE NATURE OF DIVIDEND INCOME FROM MUTUAL FUNDS. IT IS THE CASE OF THE ASSESSEE THAT IT HAS NOT INCURRED ANY EXPENDITURE TOWARDS EARNING SUCH EXEMPT INCOME. WE FIND THAT THE DISALLOWANCE OF 2% MADE BY THE ASSESSING AUTHORITY IS REASONABLE. AT THE SAME TIME, WE ACCEPT THE ALTERNATE CONTENTION OF TH E ASSESSEE THAT THE PROFIT FOR THE PURPOSE OF SECTION 10A WILL BE ENHANCED TO THE EXTENT OF THE ABOVE DISALLO WANCE. THEREFORE PROPORTIONATE ENHANCEMENT WILL BE MADE IN - - ITA 1771, 209/07 ETC. 18 THE AMOUNT OF DEDUCT ION AVAILABLE UNDER SECTION 10 A. THIS ISSUE IS PARTLY DECIDED IN FAVOUR OF THE ASSES SEE. 15.1. FURTHER, THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. 330 ITR 175 HAS HELD THAT WHENEVER ANY DISALLOWANCE MADE WHILE COMPUTING THE INCOME THAT DISALLOWANCE SHOULD BE PART AND PARCEL OF THE BUSINESS PROFIT OF THE ASSESSEE AND THE SAME SHOULD BE CONSIDERED F OR THE PURPOSE OF DEDUCTION U/S.10A OF THE ACT. IN VIEW O F THIS, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THIS G ROUND IN REVENUES APPEAL IS DISMISSED. 15.2 IN THE RESULT, THE APPEAL IN ITA NO.1784/MD S/2007 IS DISMISSED. ITA NO. 209/MDS/2007 AY 2003-04 : (ASSESSEE) 16. THE FIRST GROUND FOR CONSIDERATION IN THIS APPE AL IS WITH REGARD TO EXCLUSION OF FOREIGN CURRENCY EXPENDITURE AND TELECOMMUNICATION EXPENDITURE WHILE COMPUTING DEDUC TION U/S.10A OF THE ACT. 17. THIS ISSUE IS COVERED BY THE ORDER OF THE TRIBU NAL IN ITA NOS.114, 2100 & 90/MDS/2011 DATED 23.1.2013 FOR THE ASSESSMENT YEAR 2005-06 IN FAVOUR OF THE ASSESSEE. FURTHER, - - ITA 1771, 209/07 ETC. 19 THE SPECIAL BENCH OF THE TRIBUNAL, CHENNAI IN THE C ASE OF ITO VS. SAK SOFT LTD. REPORTED IN 313 ITR (AT) 353 WAS ALSO CONSIDERED THIS ISSUE, WHEREIN IT WAS OBSERVED THAT FOR THE PU RPOSE OF APPLYING THE FORMULA PRESCRIBED BY SUB-SEC.(4) OF S EC.10B OF THE ACT, EXPENSES ON FREIGHT, COMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THI NGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE IN DIA, ARE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER AN D FROM THE TOTAL TURNOVER. BEING SO, IN OUR OPINION, THIS ISS UE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID DECISIONS OF THE TRIBUNAL. THIS GROUND IS ALLOWED. 18. THE NEXT GROUND IS WITH REGARD TO WRITE-BAC K OF PROVISIONS NO LONGER REQUIRED DO NOT FORM PART OF E LIGIBLE PROFITS OF THE BUSINESS FOR THE PURPOSES OF COMPUTI NG DEDUCTION U/S.10A/10B OF THE ACT. 19. SINCE, WE HAVE CONSIDERED SIMILAR ISSUE IN ITA NO.1771/MDS/2007 IN PARAGRAPHS 4 & 4.1 ABOVE OF THI S ORDER, THIS GROUND IN ASSESSEES APPEAL IS ALLOWED. - - ITA 1771, 209/07 ETC. 20 20. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF SET-OFF OF CURRENT YEAR LOSSES OF THE UNITS LOCATED IN PUNE , CHENNAI UNIT I AND KOLKATTA UNIT II, WHILE COMPUTING THE TAXABLE I NCOME. 21. THE LD. AR SUBMITTED THAT THIS ISSUE IS SQUAREL Y COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NOS.114, 2100 & 90/MDS/2011 DATED 23.1. 2013. HOWEVER, WE FIND THAT THERE IS A JUDGMENT FROM THE DELHI HIGH COURT IN THE CASE OF CIT VS. KEI INDUSTRIES LT D. (373 ITR 574), WHEREIN AFTER CONSIDERING THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT V. YOKOGAWA INDIA LTD. (341 ITR 385), IT WAS HELD THAT LOSS SUFFERED BY THE ASSESSEE IN A UNIT ENTITLED TO EXEMPTION UNDER SEC. 10B OF THE ACT, CANNOT BE SET OFF AGAINST INCOME FROM ANY OTHER UNIT NOT ELIGIBLE FOR SUCH EXEMPTION. IN VIEW OF THE A BOVE, AS THESE UNITS ARE CLAIMING EXEMPTION U/S.10B OF THE A CT, THE LOSS SUFFERED IN THESE UNITS CANNOT BE SET OFF WITH INCOME OF OTHER UNITS, WE ARE INCLINED TO DISMISS THIS GROUND OF APPEAL. 22. THE NEXT ISSUE RAISED BY THE ASSESSEE IN THI S APPEAL IS AS FOLLOWS: 7. THAT, THE CIT(A) HAS ERRED IN CONSIDERING THAT AMOUNTS PAID TO SPRINT ( ` 4,24,41,367) ATTRACT DEDUCTION - - ITA 1771, 209/07 ETC. 21 OF TAX AT SOURCE AND AS A CONSEQUENCE DISALLOWING T HE SAME UNDER SECTION 40(A). 8. THAT, THE CIT(A) HAS ERRED IN HOLDING THAT THE DISALLOWANCE UNDER SECTION 40(A) OF THE ACT CAN BE INVOKED ON THE PAYMENTS MADE TO SPRINT (A NON- RESIDENT), WHEN A SIMILAR DISALLOWANCE WAS NOT REQU IRED IN RESPECT OF PAYMENTS TO A RESIDENT. 23. SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ITA NOS.1535 & 1536/MDS/2010 ETC., WHEREIN THIS ISSUE W AS DECIDED AGAINST THE ASSESSEE. THE TRIBUNAL VIDE ORD ER DATED 9.6.2014 IN ITA NOS.1535 & 1536/MDS/2009 ETC. FOR T HE ASSESSMENT YEARS 2002-03 AND 2003-04 HELD AS UNDER : 2.4 WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO EXAM INED THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF M/S.VERIZON COMMUNICATIONS SINGAPORE PT E LTD., VS. ITO (INTERNATIONAL TAXATION) (SUPRA). WE FIND THAT THE ISSUE IN DISPUTE IS IDENTICAL TO THE ONE ADJUDICATED BY THE HONBLE HIGH COURT IN THE AFORES AID CASE. SIMILAR ISSUE, WHETHER THE SERVICES PROVIDE D BY THE OVERSEAS COMPANY CONSTITUTES ROYALTY OR NOT? CAME UP BEFORE THE HONBLE HIGH COURT. IN THE SAID CASE, THE NON-RESIDENT COMPANY WAS ENGAGED IN THE BUSINESS OF PROVIDING INTERNATIONAL CONNECTIVITY SE RVICES (BANDWIDTH SERVICES/TELECOM SERVICES) IN THE ASIA P ACIFIC REGION INCLUDING INDIA FOR TRANSMISSION OF DATA AND VOICE. THE INTERNATIONAL LEG OF TELECOMMUNICATION SERVICES OUTSIDE INDIA WAS PROVIDED BY THE NON-RESIDENT COMP ANY. IN INDIAN TERRITORY, THE CONNECTING SERVICES WERE P ROVIDED BY VSNL. VSNL TRANSMITTED THE TRAFFIC OF THE CUSTO MER IN INDIA FROM THE CUSTOMERS OFFICE IN INDIA TO A VIRTU AL POINT OUTSIDE INDIA AND THE NON-RESIDENT COMPANY TRANSMIT TED - - ITA 1771, 209/07 ETC. 22 IT UP TO THE CUSTOMER LOCATION OUTSIDE INDIA. THE N ON- RESIDENT COMPANY USED ITS TELECOM SERVICE EQUIPMENT SITUATED OUTSIDE INDIA IN PROVIDING INTERNATIONAL H ALF CIRCUIT. THE GATEWAY/LANDING STATION IN INDIA USED IN TRANSMITTING THE TRAFFIC WITHIN INDIA BELONG TO VSN L AND WAS USED BY VSNL FOR PROVIDING INDIAN END SERVICES IN ACCORDANCE WITH THE CONTRACT WITH ITS CUSTOMERS. THE ASSESSING OFFICER CAME TO THE CONCLU SION THAT THE PAYMENT RECEIVED BY THE NON-RESIDENT COMPANY IN PROVIDING INTERNATIONAL PRIVATE LEASED CIRCUIT WAS TAXABLE AS A ROYALTY FOR USE OR RIGHT TO USE COMMERCIAL A ND SCIENTIFIC EQUIPMENT U/S.9(1)(VI) OF THE ACT READ W ITH EXPLANATION-2 AND ARTICLE 12(3) OF THE DOUBT TAXATI ON AVOIDANCE AGREEMENT BETWEEN INDIA AND SINGAPORE. I N FIRST APPEAL, THE ORDER OF THE ASSESSEE WAS UPHELD BY THE CIT(APPEALS). ON FURTHER APPEAL, THE TRIBUNAL HELD THAT EVEN IF THE PAYMENTS WERE TREATED AS NON-RELATING T O THE USE OF EQUIPMENT, THEY SHOULD BE CONSIDERED AS PAYMENT FOR THE USE OF THE PROCESS PROVIDED BY THE ASSESSEE, WHEREBY THROUGH THE ASSURED BANDWIDTH, TH E CUSTOMER IS GUARANTEED THE TRANSMISSION OF DATA AND THE VOICE. THE FACT THAT THE BANDWIDTH IS SHARED WITH OTHERS, HOWEVER, HAS TO BE SEEN IN THE LIGHT OF THE TECHNOL OGY GOVERNING THE OPERATION OF THE PROCESS AND THIS BY ITSELF DOES NOT TAKE THE ASSESSEE OUT OF THE SCOPE OF ROYA LTY. THUS, THE CONSIDERATION BEING FOR THE USE AND RIGHT TO USE OF THE PROCESS, IT IS ROYALTY, WITHIN THE MEANING OF CLAUSE-(III) OF EXPLANATION-2 TO SECTION 9(1)(VI) O F THE ACT. THE HONBLE HIGH COURT AFFIRMED THE FINDINGS OF THE TRIBUNAL ON THE ISSUE. 2.5 THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO THE ONE ADJUDICATED BY THE HONBLE HIGH COURT. THUS, I N VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH CO URT, WE FIND MERIT IN THE APPEALS OF THE REVENUE. ACCORDINGLY, BOTH THE APPEALS OF THE REVENUE ARE ALLOWED. - - ITA 1771, 209/07 ETC. 23 RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF T HE TRIBUNAL WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 24. THE NEXT GROUND OF APPEAL IS WITH REGARD TO INTEREST UNDER SEC.234B OF THE ACT, WHICH IS CONSEQUENTIAL AND MANDATORY IN NATURE AND THE AO HA S TO COMPUTE ACCORDINGLY. ITA NO.209/MDS/2007 IS PARTLY ALLOWED. C.O.NO.47/MDS/2007 : AY 2003-04 (ASSESSEE) 25. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS I N THIS CROSS OBJECTION: 1. THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) HAS ERRED IN NOT APPRECIATING THAT PAYMENTS MADE TO SPRINT DO NOT CONSTITUTE ROYALTY AND HENCE, ARE NOT TAXABLE IN INDIA IN THE ABSENCE OF A PERMANENT ESTABLISHMENT. 2. WITHOUT PREJUDICE TO THE ABOVE GROUND, THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN UPHOLDING THE DISALLOWANCE UNDER SECTION 40(A) OF THE ACT MADE BY THE ASSESSING OFFICER IN RESPECT OF PAYMENTS MADE TO SPRINT (A NON-RESIDENT) , WHEN THE PAYMENTS MADE WERE FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM A SOURCE OUTSIDE INDIA. - - ITA 1771, 209/07 ETC. 24 SINCE, WE HAVE DISMISSED SIMILAR GROUND IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2003-04 IN PARAGRA PH 23, THE CROSS-OBJECTION IS DISMISSED AS INFRUCTUOUS . ITA NO.591/MDS/2007 : AY 2003-04 (REVENUE) 26. THE GRIEVANCE OF THE REVENUE IS WITH REGARD TO DELETING THE INTEREST LEVIED U/S.234D OF THE ACT. 27. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH IS ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. INDIAN OIL CORPOR ATION LTD. (SUPRA), WHICH IS DISCUSSED IN PARAGRAPHS 13 & 13.1 OF THIS ORDER. ACCORDINGLY, THIS GROUND OF THE APPEAL IS A LLOWED. HENCE, THE APPEAL OF THE REVENUE IN ITA NO.591/MDS/ 2007 IS ALLOWED. ITA NO.2536/MDS/2007 AY 2004-05 (ASSESSEE) 28. THE FIRST ISSUE RAISED BY THE ASSESSEE IN GROUN D NOS. 2 TO 4 ARE AS UNDER: 2. THAT, THE CIT(A) HAS ERRED IN CONFIRMING THE OR DER OF THE ASSESSING OFFICER ('AO') IN CONNECTION WITH EXC LUSION OF EXPENSES INCURRED IN FOREIGN CURRENCY AND TELECOMMUNICATION EXPENDITURE INCURRED IN INDIAN CURRENCY FROM THE EXPORT TURNOVER WITH RESPECT TO T HE - - ITA 1771, 209/07 ETC. 25 COMPUTATION OF DEDUCTION U/S 10B. 3. THAT, THE CIT(A) OUGHT TO HAVE APPRECIATED THAT EXPENSES INCURRED IN FOREIGN CURRENCY AND TELECOMMUNICATION EXPENDITURE INCURRED IN INDIAN CURRENCY WERE NOT INCLUDED IN THE EXPORT TURNOVER. HENCE, THE SAME CANNOT BE EXCLUDED FROM EXPORT TURNOVER. 4. IN ANY EVENT, AND WITHOUT PREJUDICE TO GROUNDS 2 AND 3 ABOVE, THE CIT(A) OUGHT TO HAVE NOTED THAT THE EXPE NSES WERE NOT INCURRED FOR THE PURPOSE OF RENDERING OF TECHNICAL SERVICES OUTSIDE INDIA, AND WERE THUS, NO T EXCLUDABLE. 29. SIMILAR ISSUE WAS CONSIDERED IN ITA NO.209/MDS/2007 VIDE PARAGRAPHS 16 & 17 FOR THE ASSESSMENT YEAR 2003-04. IN VIEW THIS, THIS ISSUE IS ALLOWED. 30. THE NEXT ISSUE IN THIS APPEAL IS AS UNDER: 5. THAT, THE LEARNED CIT(A) IS NOT JUSTIFIED IN DIS ALLOWING THE SET-OFF OF LOSS OF THE BANGALORE UNIT AGAINST T HE TAXABLE PROFITS OF THE APPELLANT. 31. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS I SSUE WAS DECIDED AGAINST THE ASSESSEE BY THE DELHI HIGH COURT IN THE CASE OF CIT VS. KEI INDUSTRIES LTD. (373 ITR 57 4) AND THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT V. YOKOGAWA INDIA LTD. (341 ITR 385) , WHICH IS DISCUSSED IN - - ITA 1771, 209/07 ETC. 26 PARAGRAPH 21 OF THIS ORDER. ACCORDINGLY, THIS GROU ND OF THE APPEAL IS DISMISSED. 32. THE NEXT GROUND RAISED BY THE ASSESSEE IS AS FO LLOWS: 6. THAT, THE LEARNED CIT(A) HAS ERRED IN CONFIRMIN G THE ORDER OF THE AO WITH RESPECT TO SET-OFF OF THE BROU GHT FORWARD LOSSES EVEN BEFORE ALLOWING DEDUCTION UNDER SECTION 10A/10B OF THE ACT. 33. THE LD. AR SUBMITTED THAT SIMILAR ISSUE WAS CONSIDE RED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.1 14, 2100 & 90/MDS/2011 DATED 23.1.2013, FOR THE ASSESSMENT YEA RS 2005- 06 AND 2007-08, WHEREIN IT WAS HELD AS FOLLOWS: 2.3. THE NEXT ISSUE, WHICH IS RAISED IN GROUND NO.5, IS THAT THE LOSSES OF ELIGIBLE UNITS NOT ALLO WED TO BE SET OFF AGAINST OTHER TAXABLE PROFITS. IN THE PRES ENT CASE THE ASSESSING OFFICER ADJUSTED THE BROUGHT FORWARD LOSSES OF THE ASSESSMENT YEAR 2004-05 OF THE ELIGIB LE UNITS AGAINST THE CURRENT YEARS PROFITS OF THE ELI GIBLE UNITS BEFORE COMPUTING THE DEDUCTION UNDER SECTION 10A. THE VERY SAME ISSUE WAS CONSIDERED BY THE INCOME-TAX APPELLATE TRIBUNAL, B-BENCH, CHENNAI, IN THE CASE O F RR DONNELLEY INDIA OUTSOURCE PVT. LTD. VS DCIT, IN ITA NOS.1489 & 1490(MDS)/2010. THROUGH THEIR ORDER DAT ED 26-7-2012 THE TRIBUNAL, FOLLOWING THE DECISIONS OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT & A NR. VS. YOKOGAWA INDIA LTD. AND OTHERS, 246 CTR (KAR) 2 26 AND IN THE CASE OF CIT & ANR. VS. TATA ELXSI LTD. & OTHERS, 247 CTR 334, HAS HELD THAT THE CURRENT YEAR S PROFIT OF THE ELIGIBLE UNITS SHOULD NOT BE REDUCED BY SETTING OFF OF THE BROUGHT FORWARD LOSSES OF EARLIE R YEARS - - ITA 1771, 209/07 ETC. 27 EVEN THOUGH RELATING TO ELIGIBLE UNITS. THE ASSESS ING OFFICER HAS TO GIVE DEDUCTION UNDER SECTION 10A ON ELIGIBLE PROFITS OF THE CURRENT ASSESSMENT YEAR. T HIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 33.1 FURTHER, THE TRIBUNAL IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2008-09 IN ITA NOS. 1090 & 1202/MDS /2013 DATED 11.3.2014, HELD AS UNDER: 19. THE NEXT GROUND RAISED BY THE REVENUE CHALLEN GES THE ACTION OF THE CIT(A) IN HOLDING THAT LOSSES OF ELIGIBLE UNITS SHALL BE SET OFF AGAINST OTHER TAXABLE PROFIT S. 20. QUA THIS PLEA, WE FIND FROM THE CASE FILE THAT THE CIT(A) HAS FOLLOWED THE ORDER OF THE 'TRIBUNAL' DAT ED 23.1.2013 (SUPRA). THEREFORE, WE MAINTAIN CONSISTEN CY IN THE IMPUGNED ASSESSMENT YEAR AS WELL AND DECIDE SAM E IN ASSESSEES FAVOUR. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF T HE TRIBUNAL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 34. THE NEXT GROUND RAISED BY THE ASSESSEE IS AS FO LLOWS: 7. THAT, CONSEQUENTIALLY, THE CIT(A) IS NOT JUSTI FIED IN HOLDING THAT INTEREST UNDER SECTION 234B AND SECTIO N 234D OF THE ACT IS CHARGEABLE. 35. AS FAR AS THE ISSUE OF INTEREST U/S.234D IS CONCERN ED, THE SAME WAS DECIDED AGAINST THE ASSESSEE BY FOLLOW ING THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT - - ITA 1771, 209/07 ETC. 28 VS. M/S. INDIAN OIL CORPORATION LTD. (SUPRA), WHICH IS DISCUSSED IN PARAGRAPHS 13 & 13.1 OF THIS ORDER. ACCORDINGLY, THIS GROUND OF THE APPEAL IS DISMISSED . 36. REGARDING THE ISSUE OF INTEREST U/S.234B IS CON CERNED, IT IS CONSEQUENTIAL AND MANDATORY IN NATURE AND TO BE COMPUTED ACCORDINGLY. THE APPEAL FILED BY THE ASSESSEE IN I TA NO.2536/MDS/2007 IS PARTLY ALLOWED. 37. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NOS.1171, 209 AND 2536/MDS/2007 ARE PARTLY ALLOWED AND THE CR OSS OBJECTION IN CO NO.47/MDS/2007 IS DISMISSED AS INFR UCTUOUS. THE APPEAL OF THE REVENUE IN ITA NO.1784/MDS/2007 I S DISMISSED AND ITA NO.591/MDS/2007 IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 30 TH OF SEPTEMBER, 2015 AT CHENNAI. SD/- SD/- ( ! ) ! * . + ,-. ) ( / 0 1 2% ) ( DUVVURU RL REDDY ) (CHANDRA POOJARI) < => /JUDICIAL MEMBER ,& =>/ACCOUNTANT MEMBER /,< ' /CHENNAI, D= /DATED, THE 30 TH SEPT., 2015. MPO* - - ITA 1771, 209/07 ETC. 29 =,E # $FG H,G$ /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ! I$ () /CIT(A) 4. ! I$ /CIT 5. GJK $ L /DR 6. K. M' /GF.