ACIT, CHENNAI V. M/s. New gen imaging systems pvt. Ltd., CHENNAI

ITA 1872/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61295 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 18-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHRISHAJI P JACOB
• Assessee Lawyers: SHRISRIRAMSESHADRI
• Keywords: Search and seizure; Services rendered outside India
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NOS. 1871, 1872& 1873/MDS/2011 (ASSESSMENT YEARS :2005-06, 2006-07& 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(4), CHENNAI - 600 034 . (APPELLANT) V. M/S NEW GEN IMAGING SYSTEMS PVT. LTD., NO.268, ROYAPETTAH HIGH ROAD, CHENNAI - 600 014. PAN : AAACN2041B (RESPONDENT) C.O. NOS. 67, 68 & 69/MDS/2012 (IN I.T.A. NOS. 1871, 1872 & 1873/MDS/2011) ASSESSMENT YEARS :2005-06, 2006-07 & 2007-08 M/S NEWGEN KNOWLEDGE WORKS PRIVATE LIMITED (FORMERLYNEWGEN IMAGING SYSTEMS PVT. LTD.), 60/3, LATTICE BRIDGE ROAD, CHENNAI - 600 041. (CROSS OBJECTOR) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(4), CHENNAI - 600 034 . (RESPONDENT) REVENUE BY : SHRISHAJI P. JACOB, ADDL. CIT ASSESSEE BY : SHRISRIRAMSESHADRI, CA DATE OF HEARING : 05.07.2012 DATE OF PRONOUNCEMENT : 19.07.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS AND CROSS-OBJECTIONS OF THE REVE NUE AND ASSESSEE FOR ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08. I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 2 CROSS-OBJECTIONS FILED BY THE ASSESSEE ARE DELAYED BY 117 DAYS. CONDONATION PETITIONS HAVE BEEN FILED ALBEIT FOR 11 6 DAYS. NO SERIOUS OBJECTION WAS RAISED BY THE REVENUE AGAINST CONDONI NG THE DELAY. REASONS SHOWN BY THE ASSESSEE ARE JUSTIFIABLE. HENC E WE CONDONE THE DELAY AND ADMIT THE CROSS-OBJECTIONS. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSINESS OF E-PUBLISHING AND ALSO UNDERTAKING PHOTO TYPESETT ING WORK FOR FOREIGN PUBLISHERS IN USA AND EUROPE, HAD FILED ITS RETURN FOR IMPUGNED ASSESSMENT YEARS, INTER ALIA CLAIMING RELI EF UNDER SECTION 10B OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). SUCH CLAIMS CAME TO ` 8,33,37,036/- FOR ASSESSMENT YEAR 2005-06, ` 11,33,79,687/- FOR ASSESSMENT YEAR 2006-07 AND ` 6,05,46,684/- FOR ASSESSMENT YEAR 2007-08. THE A.O., DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FOR RESPECTIVE ASSESSMENT YEARS, NOTED THAT THE EXP ENDITURE CLAIMED BY THE ASSESSEE INCLUDED EXPENSES INCURRED IN FOREI GN CURRENCY. SUCH EXPENSES CAME TO ` 1,36,44,171/- FOR ASSESSMENT YEAR 2005- 06, ` 1,93,20,683/- FOR ASSESSMENT YEAR 2006-07 AND ` 1,52,31,496/- FOR ASSESSMENT YEAR 2007-08. THE BREAK-UP OF THE E XPENSES FILED BY THE ASSESSEE SHOWED THAT IT WAS INCURRED FOR BUSIN ESS PROMOTION, FOREIGN TRAVEL, JOB WORK CHARGES, SALARY, COMMISSIO N, INTERNET I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 3 CHARGES, TRAINING EXPENSES, MARKETING CONSULTANCY E XPENSES AND OTHER OPERATING EXPENSES. ASSESSING OFFICER WAS OF THE OPINION THAT SUCH EXPENDITURE HAD TO BE EXCLUDED FROM EXPORT T URNOVER IN VIEW OF CLAUSE (III) OF EXPLANATION 2 TO SECTION 10B OF THE ACT. AS PER THE A.O., THE EXPENSES INCURRED WERE FOR RENDERING TECH NICAL SERVICES BY A MARKETING AGENT NAMED MS. ANITHAMADHAVAN BASED IN UK FOR HER MARKETING SERVICES. OTHER EXPENSES WERE FOR CARRYI NG OUT COPY EDITING, INDEXING AND ALSO RENDERING JOB WORK TO CL IENTS OF THE ASSESSEE. AS PER THE A.O., BUSINESS PROMOTION EXPE NSES, FOREIGN TRAVEL EXPENSES, JOB WORK CHARGES, SALARY, COMMISSI ON WERE ALL PART OF THE FOREIGN CURRENCY EXPENSES WHICH REQUIRED EXC LUSION IN TERMS OF CLAUSE (III) OF EXPLANATION 2 TO SECTION 10B OF THE ACT. HE, THEREFORE, RECOMPUTED THE ELIGIBLE DEDUCTION OF ASSESSEE UNDER SECTION 10B BY EXCLUDING THESE AMOUNTS FROM EXPORT TURNOVER. HOWE VER, HE DID NOT ALLOW ASSESSEES CLAIM THAT SUCH AMOUNTS SHOULD ALS O BE EXCLUDED FROM TOTAL TURNOVER WHILE WORKING OUT DEDUCTION UND ER SECTION 10B OF THE ACT. 3. ASSESSEE MOVED IN APPEALS FOR ALL THE YEARS BEFO RE CIT(APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT EX PENDITURE INCURRED IN FOREIGN EXCHANGE, IF IT WERE FOR TECHNI CAL SERVICES OUTSIDE I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 4 INDIA TO THIRD PARTIES ALONE COULD BE EXCLUDED FROM EXPORT TURNOVER, IN VIEW OF THE DECISION OF SPECIAL BENCH OF THIS TRIBU NAL IN THE CASE OF ZYLOG SYSTEMS LTD V ITO [2011] 7 ITR ( TRIB ) 348. AS PER THE ASSESSEE, TECHNICAL SERVICES MAY BE ADVICE GIVEN TO THIRD PARTY AND IN THIS CASE, NEITHER WAS IT GIVING ADVICE TO THIRD PARTIES NOR IT HAD INCURRED ANY EXPENDITURE OF THE LIKE. ARGUMENT OF THE ASSESSEE, WAS THAT IT HAD NOT RENDERED ANY TECHNICAL OR CONSULTA NCY SERVICES WHICH COULD BE CONSIDERED AS TECHNICAL SERVICES AS DEFI NED IN EXPLANATION(2) TO UNDER CLAUSE (VII) OF SECTION 9(1 ) OF THE ACT. ASSESSEE ALSO RELIED ON NOTIFICATION NO.S.O.890(E) DATED 26 TH SEPTEMBER, 2000 FOR ARGUING THAT ASSESSEES BUSINES S FELL WITHIN THE DEFINITION OF COMPUTER SOFTWARE. ACCORDING TO ASS ESSEE, IN THE CASE OF ZYLOG SYSTEMS LTD. (SUPRA), THE QUESTION RAISED WAS WHETHER EXPENSES INCURRED IN FOREIGN CURRENCY IN COMPUTER S OFTWARE DEVELOPMENT OF THE CLIENTS PLACED OUTSIDE INDIA WER E TO BE EXCLUDED FROM EXPORT TURNOVER OR NOT. THIS ISSUE WAS DECIDE D IN FAVOUR OF THE ASSESSEE, SINCE TECHNICAL SERVICES, IN THAT CASE WA S NOT RENDERED TO ANY THIRD PARTY. AS PER THE ASSESSEE HERE ALSO, IT HAD NOT RENDERED ANY TECHNICAL SERVICES TO ANY THIRD PARTY AND HENCE , SUCH AMOUNTS COULD NOT BE EXCLUDED FROM EXPORT TURNOVER, HERE AL SO. CIT(APPEALS) WAS APPRECIATIVE OF THE CONTENTIONS OF THE ASSESSEE . ACCORDING TO I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 5 HIM, THE EXPENDITURE INCURRED BY THE ASSESSEE DID N OT FALL WITHIN THE CATEGORY OF EXPENSES INCURRED IN CONNECTION WITH AN Y OUTSIDE WORK RENDERED TO ANY THIRD PARTY. IN VIEW OF THE DECISI ON OF ZYLOG SYSTEMS LTD. (SUPRA), SUCH AMOUNTS COULD NOT BE EXCLUDED FR OM EXPORT TURNOVER. HE, THEREFORE, DIRECTED THE ASSESSING OF FICER TO RE-COMPUTE THE DEDUCTION UNDER SECTION 10B FOR RESPECTIVE YEAR S WITHOUT EXCLUDING EXPENDITURE INCURRED IN FOREIGN CURRENCY. THOUGH ASSESSEE HAD TAKEN AN ALTERNATIVE GROUND THAT AMOUNTS THAT W ERE EXCLUDED FROM EXPORT TURNOVER WERE REQUIRED TO BE EXCLUDED F ROM TOTAL TURNOVER ALSO, THIS WAS NOT DECIDED BY THE CIT(APPEALS) SINC E HE HELD IN FAVOUR OF ASSESSEE ON THE PRIMARY ISSUE. 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT IN ASSESSEE'S OWN CASE FOR EARLIER ASSESSMENT YEARS 2001-02, 2003-04 AND 2004-05, THIS TRIBUNAL IN ITS ORDER DATED 8.2.2008 IN I.T.A. NOS.1955, 570 & 1956 /MDS/2007, HAD CLEARLY HELD THAT SERVICES RENDERED BY MS. ANITHAMA DHAVAN WAS NOTHING BUT VERY MUCH TECHNICAL IN NATURE. THEREFO RE, ACCORDING TO HIM, CIT(APPEALS) WAS NOT JUSTIFIED IN DIRECTING T HE ASSESSING OFFICER TO INCLUDE THE EXPENSES INCURRED ON SUCH TECHNICAL SERVICES IN THE I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 6 EXPORT TURNOVER. AS PER THE LD. D.R.,, THE ISSUE S TOOD COVERED AGAINST THE ASSESSEE IN TRIBUNALS ORDER FOR THE EA RLIER YEARS. 5. PER CONTRA, LEARNED A.R. STRONGLY SUPPORTING THE ORDER OF CIT(APPEALS) FOR ALL THE YEARS, SUBMITTED THAT SUBS EQUENT TO THE DECISION OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FO R EARLIER YEARS, THE SAME ISSUE WAS THE MATTER OF CONSIDERATION BY SPECI AL BENCH OF THIS TRIBUNAL IN THE CASE OF ZYLOG SYSTEMS LTD (SUPRA). ACCORDING TO HIM, WHERE ASSESSEE HAD NOT RENDERED TECHNICAL SERVICES OUTSIDE INDIA TO THIRD PARTIES, THE EXPENSES INCURRED IN RENDERING S UCH SERVICES IN FOREIGN CURRENCY COULD ALWAYS BE CONSIDERED AS EXPE NSES INCURRED IN CONNECTION WITH ASSESSEES OWN NEEDS. LEARNED A.R. FURTHER SUBMITTED THAT THE TRIBUNAL IN THE CASE OF ZYLOG SY STEMS LTD. (SUPRA) HAD DULY CONSIDERED THE DEFINITION OF TECHNICAL SE RVICES GIVEN IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. THE REFORE, AS PER THE LEARNED A.R., THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR EARLIER YEARS P ALED INTO INSIGNIFICANCE IN VIEW OF THE DECISION OF SPECIAL B ENCH WHICH NOW WAS IN FAVOUR OF ASSESSEE. ACCORDING TO HIM, MS. ANITA MADHAVAN WAS AN AGENT OF THE ASSESSEE. LEARNED A.R. FURTHER POINTE D OUT THAT THE CO- ORDINATE BENCH OF THIS TRIBUNAL WHILE RULING AGAINS T THE ASSESSEE FOR I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 7 THE EARLIER YEARS, HAD RELIED ON A DECISION OF INFO SYS TECHNOLOGIES LIMITED V. JCIT (109 TTJ 631). NEVERTHELESS, ACCOR DING TO HIM THIS DECISION WAS ALSO CONSIDERED BY THE SPECIAL BENCH W HILE EXPRESSING ITS VIEW, IN THE CASE OF ZYLOG SYSTEMS LTD. (SUPRA ). SUBSTANCE OF DECISION IN ZYLOG SYSTEMS LTD. (SUPRA) WAS THAT A P ERSON COULD NOT RENDER SERVICE TO HIMSELF. ASSESSEE HERE HAD NOT R ENDERED ANY SERVICE TO ANY FOREIGN PERSON. FURTHER, ACCORDING TO HIM, ASSESSEE IN THE INVOICES RAISED TO THE CLIENTS HAD NOT MADE ANY SPECIFIC CLAIM FOR TECHNICAL SERVICE CHARGES NOR FOR REIMBURSEMENT OF ANY EXPENSES INCURRED. RELIANCE WAS PLACED ON PAPER-BOOK VOLUME I PAGES 21-22 WHICH, ACCORDING TO HIM, WAS REPRESENTATIVE OF THE INVOICES RAISED BY THE ASSESSEE ON ITS CLIENTS. LEARNED A.R. FURTHER POINTED OUT THAT EXPLANATION 2 TO SECTION 10B OF THE ACT IN ITS CLAU SE (III) DIRECTED EXCLUSION FROM EXPORT TURNOVER ONLY THOSE TYPES OF EXPENSES WHICH WERE BILLED ON THE CLIENTS. ACCORDING TO HIM, THER E WERE TWO LEGS IN SUCH DEFINITION OF WHICH FIRST RELATED TO FREIGHT, TELECOMMUNICATION CHARGES, INSURANCE, ETC. ATTRIBUTABLE TO DELIVERY O F SOFTWARE OUTSIDE INDIA AND THE SECOND LEG APPLIED TO EXPENSES INCURR ED IN FOREIGN CURRENCY IN PROVIDING TECHNICAL SERVICES OUTSIDE IN DIA. ACCORDING TO HIM, ASSESSEE HAD NOT PROVIDED ANY TECHNICAL SERVIC ES OUTSIDE INDIA NOR BILLED ANY AMOUNT ON ITS CLIENTS. RENDERING OF TECHNICAL SERVICES I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 8 WAS NOT PROVED BY THE REVENUE. IN ANY CASE, ACCORD ING TO HIM, IF THESE AMOUNTS WERE EXCLUDED FROM EXPORT TURNOVER, I T HAD TO BE EXCLUDED FROM TOTAL TURNOVER IN VIEW OF THE DECISIO N OF SPECIAL BENCH IN THE CASE OF ITO V. SAK SOFT LTD. (2009) 313 ITR (AT) 353. 6. AD LIBITUM, LEARNED D.R. SUBMITTED THAT THE DECI SION OF CO- ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN C ASE COULD NEVER BE IGNORED AND THIS TRIBUNAL WAS BOUND TO FOLLOW SU CH DECISION, WHEN THE FACT SITUATION REMAINED THE SAME. ACCORDI NG TO HIM, THERE WAS NO DISPUTE THAT FACT SITUATION RELATING TO EXPE NSES IN FOREIGN CURRENCY INCURRED DURING THE RELEVANT PREVIOUS YEAR WERE VERY SIMILAR TO SUCH EXPENSES INCURRED FOR PREVIOUS YEARS RELEVA NT TO ASSESSMENT YEARS 2001-02, 2003-04 AND 2004-05, WHERE THIS TRIB UNAL HAD HELD AGAINST ASSESSEE. AS FOR THE RELIANCE PLACED ON TH E DECISION OF ZYLOG SYSTEMS LTD. (SUPRA), LEARNED D.R. SUBMITTED THAT I T WAS CLEAR FROM PARA 3 OF THE ORDER OF SPECIAL BENCH THAT ASSESSEE THERE WAS DOING ONSITE DEVELOPMENT AND OFFSHORE DEVELOPMENT THROUGH A BRANCH IN USA FOR WHICH SEPARATE ACCOUNTS WERE MAINTAINED. A S AGAINST THIS, ASSESSEE-COMPANY HERE WAS NOT HAVING ANY BRANCH OUT SIDE INDIA AND THEREFORE, IT CANNOT SAY THAT TECHNICAL SERVICE S RENDERED WERE FOR ITS OWN EMPLOYEES AND FOR ITS OWN NEEDS AND NOT FOR ITS CLIENTS. I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 9 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE ARE TWO LEGS OF ARGUMENT THAT ASSESSEES COUN SEL HAS RAISED IN SUPPORT OF CIT(APPEALS)S ORDER. FIRST IS THAT WHA T WAS RENDERED BY MS. ANITHA MADHAVAN WAS NOT TECHNICAL SERVICES FALL ING WITHIN THE DEFINITION OF THAT TERM GIVEN UNDER EXPLANATION 2 T O SECTION 9(1)(VII) OF THE ACT AND THEREFORE, EXPENSES INCURRED IN RELATIO N THERETO, WAS NOT REQUIRED TO BE EXCLUDED FROM EXPORT TURNOVER, AS DE FINED IN CLAUSE (III) OF EXPLANATION 2 TO SECTION 10B OF THE ACT. SECOND LEG OF HIS ARGUMENT IS THAT THERE WAS NO SEPARATE BILLING DONE FOR ITS CLIENTS FOR ANY TECHNICAL SERVICE, AND THEREFORE, EXCLUSION OF SUCH EXPENSES FROM EXPORT TURNOVER WAS NOT REQUIRED. ACCORDING TO HIM , DECISION OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE, FOR EARLIER YEARS, COULD NOT BE FOLLOWED DUE TO SUBSEQUENT DECISION IN THE CASE OF ZYLOG SYSTEMS LTD. (SUPRA) BY SPECIAL BENCH. WE ARE UNABLE TO AC CEPT ANY OF THESE LINES OF REASONING. FIRST AND FOREMOST IS THAT A C LEAR FINDING HAS BEEN GIVEN BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR E ARLIER YEARS, RELATING TO FOREIGN CURRENCY EXPENSES OF SIMILAR NA TURE. IT WAS CLEARLY HELD THAT WHAT ASSESSEE WAS RENDERING WAS ONLY TECH NICAL SERVICES. RELEVANT PARA 6 OF THE ORDER DATED 8.2.2008 OF THIS TRIBUNAL IS REPRODUCED HEREUNDER:- I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 10 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS ON RECORD. THE CONTENTION OF THE ASSESSE E IS THAT MS. ANEETHAMADHAVAN IS RENDERING ONLY MARKETING SERVICE S AND IS NOT DOING ANY TECHNICAL SERVICE. WE HAVE GONE THRO UGH THE FACTS OF THE CASE. THE ASSESSEE HAS MADE PAYMENTS TOWARDS JOB WORK TO AGENCIES FOR CARRYING COPY EDITING AND INDEXING RELATING TO E-PUBLISHING. AS POINTED OUT BY LEARNE D D.R., ONLY A PERSON HAVING TECHNICAL EXPERTISE AND KNOWLEDGE CAN RENDER THESE SERVICES. A MARKETING PERSON WHO DOES NOT HA VE ANY TECHNICAL KNOWLEDGE CANNOT HANDLE THESE TYPE OF SER VICES. THE TYPE OF SERVICES RENDERED BY MS. ANEETHAMADHAVAN IS NOT LIKE RENDERING SERVICE FOR MARKETING OF THE PRODUCT OF T HE ASSESSEE COMPANY. TO DO THE MARKETING JOB FOR THE ASSESSEE, THE PERSON INVOLVED MUST NECESSARILY POSSESS TECHNICAL EXPERTI SE AND KNOWLEDGE OF THE ACTIVITY CARRIED ON BY THE ASSESSE E. TO CANVASS THE CUSTOMERS ABOUT THE SERVICES RENDERED B Y THE ASSESSEE FIRM, THE MARKETING PERSON FIRST OF ALL SH OULD BE UPDATED WITH ALL TECHNICAL DETAILS RELATING TO THE SERVICES OF THE ASSESSEE COMPANY AND ONLY IN THAT EVENT THE MARKETI NG PERSON WOULD BE ABLE TO PERFORM THE BASIC JOB OF MARKETING . IN THE CASE OF ASSESSEE FIRM, MARKETING SERVICES AND TECHN ICAL SERVICES GO HAND IN HAND AND IN OUR OPINION AND THEY ARE LIK E TWO FACES OF THE SAME COIN. THE ARGUMENT OF THE ASSESSEE THAT M /S, ANEETHAMADHAVAN IS MBA (MARKETING) ONLY AND HENCE H ER ONLY KNOWLEDGE IS LIMITED TO MARKETING IS DEVOID OF ANY MERIT. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT TECHNICAL SERVICE IS DIFFERENT FROM MARKETING SERVI CES CANNOT BE CONSIDERED. ASSESSEES PRODUCTS CAN BE MARKETED ONLY WITH TECHNICAL ASSISTANCE. SINCE THE ASSESSEE IS ENGAGE D IN E- PUBLISHING, PHOTO TYPE ETC. TO MEET THE NEED BASE O F THE ASSESSEES CUSTOMERS, MARKETING CANNOT BE DONE WITH OUT TECHNICAL SERVICES. TECHNICAL SERVICE IS PART AND PARCEL OF MARKETING. HENCE WE ARE OF THE OPINION THAT LEARNE D COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFI ED IN HOLDING THAT MS. ANEETHAMADHAVAN HAS NOT RENDERED ANY TECHN ICAL SERVICES. HENCE WE REVERSE THE FINDINGS OF THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) IN ALL THE THR EE ASST. YEARS. FURTHER THE ORDER OF THE BANGALORE BENCH OF THE I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 11 TRIBUNAL IN THE CASE OF INFOSYS CITED SUPRA IS NOT RELATING TO SEC.10B BUT IS ONLY RELATING TO SEC.80HHC. HENCE W E HAVE NOT CONSIDERED THE SAME. 8. FOR EARLIER ASSESSMENT YEARS, ALSO EXPENDITURE INCURRED WERE IN RELATION TO THE VERY SAME MARKETING AGENT. ASSE SSING OFFICER HAD CONSIDERED FOR EXCLUSION ONLY THOSE EXPENDITURE INC URRED IN FOREIGN CURRENCY AND NOTHING ELSE. BUSINESS PROMOTION EXPE NSES, FOREIGN TRAVEL EXPENSES, JOB WORK CHARGES, SALARY, COMMISSI ON, INTERNET SERVICE CHARGES, TRAINING EXPENSES AND OTHER OPERAT ING EXPENSES WERE ALL INCURRED IN FOREIGN CURRENCY. DEFINITION OF EXPORT TURNOVER AS GIVEN IN CLAUSE (III) OF EXPLANATION 2 TO SECTIO N 10B OF THE ACT, RUNS AS UNDER:- (III) EXPORT TURNOVER MEANS THE CONSIDERATION I N RESPECT OF EXPORT [BY THE UNDERTAKING] OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHAN GE IN ACCORDANCE WITH SUB-SECTION (3), BUT DOES NOT INCLU DE FREIGHT, TELECOMMUNICATION 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 THE TECHN ICAL SERVICES OUTSIDE INDIA. 9. EXPENSES OF THE NATURE INCURRED BY THE ASSESSEE CLEARLY FELL WITHIN THE PURVIEW OF THE ABOVE EXPLANATION, SINCE ADMITTEDLY THESE WERE RELATED TO TECHNICAL SERVICES RENDERED OUTSIDE INDIA. ONLY I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 12 QUESTION IS WHETHER THE DECISION OF SPECIAL BENCH I N ZYLOG SYSTEMS LTD. (SUPRA) WOULD MAKE ANY DIFFERENCE. AS POINTED OUT BY THE LEARNED D.R., IN THE CASE OF ZYLOG SYSTEMS LTD. (SU PRA), THE QUESTION WAS WHETHER THE EXPENSES INCURRED IN FOREIGN CURREN CY ON COMPUTER SOFTWARE DEVELOPMENT ONSITE AT THE CLIENTS PLACE O UTSIDE INDIA WAS TO BE EXCLUDED FROM EXPORT TURNOVER. ARGUMENT OF THE ASSESSEE IN THAT CASE WAS THAT IT WAS NOT RENDERING ANY TECHNICAL SE RVICES OUTSIDE INDIA TO ANY THIRD PARTY, BUT THE FOREIGN CURRENCY EXPENSES INCURRED WERE IN CONNECTION WITH ITS OWN STAFF IN FOREIGN BR ANCH IN FOREIGN COUNTRY. HERE, ON THE OTHER HAND, ASSESSEE ADMITTE DLY WAS NOT HAVING ANY BRANCH OUTSIDE INDIA. THE CLIENTS TO WH ICH IT RENDERED SERVICE IN THE NATURE OF E-PUBLISHING, PHOTO-TYPE S ETTING WORK WERE BASED IN USA AND EUROPE. FINDING OF THE SPECIAL BE NCH IN THE CASE OF ZYLOG SYSTEMS LTD. (SUPRA) WAS THAT ASSESSEE COU LD NOT PROVIDE SERVICE TO SELF SINCE FOREIGN CURRENCY EXPENDITURE INCURRED RELATED TO ITS OWN STAFF. HERE, ON THE OTHER HAND, ADMITTEDLY ASSESSEE WAS INCURRING EXPENDITURE ON AN AGENT NAMED MS. ANITHAM ADHAVAN AND THERE IS A FINDING GIVEN BY THE CO-ORDINATE BENCH O F THIS TRIBUNAL THAT SUCH SERVICES WOULD BE CONSIDERED AS TECHNICAL SERV ICES. IT WAS NOT A CASE WHERE EXPENDITURE WAS INCURRED IN DEVELOPMEN T OF SOFTWARE BY THE EMPLOYEES OF THE ASSESSEE IN FOREIGN BRANCH. WE ARE OF THE I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 13 OPINION THAT THE SPECIAL BENCHS DECISION IN THE CA SE OF ZYLOG SYSTEMS LTD. (SUPRA) WILL NOT HELP THE ASSESSEE IN ANY MANNER. ON THE OTHER HAND, THE CO-ORDINATE BENCH DECISION IN A SSESSEE'S OWN CASE FOR EARLIER YEARS WILL BE APPLICABLE IN ALL FO UR SQUARES. 10. SECOND LEG OF THE ARGUMENT BY THE LEARNED A.R. THAT THERE WAS NO SEPARATE BILLING FOR THESE ITEMS TO ITS CLIENTS. WE ARE AFRAID WE ARE UNABLE TO ACCEPT THIS LINE OF REASONING ALSO. WHEN EXPENSES WERE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA, OR EXPENSES WERE INCURRED IN FOREIGN EXCHANGE FOR TECHNICAL SERVICES OUTSIDE INDIA, EVEN IF THE ASSES SEE HAD NOT INVOICED SUCH AMOUNTS SPECIFICALLY AND SEPARATELY I N ITS BILLINGS RAISED ON ITS CUSTOMERS ABROAD, THE BILLING AMOUNTS WOULD HAVE DEFINITELY BEEN FIXED BY THE ASSESSEE, TAKING INTO CONSIDERATI ON SUCH EXPENSES ALSO. JUST BECAUSE INVOICES RAISED DID NOT SPECIFI CALLY MENTION, REIMBURSEMENT OF FOREIGN CURRENCY EXPENSES IN THE NATURE MENTIONED IN CLAUSE (III) OF EXPLANATION 2 TO SECTION 10B OF THE ACT, WE CANNOT SAY THAT BILLED AMOUNTS WERE EXCLUSIVE OF SUCH EXPE NSES. ASSESSEE WHILE AGREEING FOR RENDERING SERVICES TO ITS CLIENT S WOULD HAVE DEFINITELY RECKONED SUCH EXPENSES WHICH WERE TO BE INCURRED BY IT IN THE DELIVERY OF SUCH SERVICES OUTSIDE INDIA. IT IS NOT THE CASE OF THE I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 14 ASSESSEE THAT SUCH EXPENSES WERE NOT CONSIDERED BY IT FOR WORKING OUT ITS PROFITS. IT IS ALSO NOT A CASE OF THE ASSE SSEE THAT SUCH EXPENSES WERE NOT CONSIDERED BY IT AS A PART OF ITS REVENUE OUTGO. ONCE EXPENSES OF THE NATURE MENTIONED IN CLAUSE (II I) OF EXPLANATION 2 TO SECTION 10B OF THE ACT ARE INCURRED, THESE WIL L HAVE TO BE EXCLUDED FROM EXPORT TURNOVER, WHETHER OR NOT BILLI NGS OF THE ASSESSEE SPECIFICALLY MENTIONED SUCH ITEMS. EVEN IF SUCH EX PENSES OTHER THAN ON TECHNICAL SERVICES, ARE INCURRED IN INDIA, IT ST ILL HAS TO BE EXCLUDED FROM EXPORT TURNOVER AS HELD BY SPECIAL BENCH IN TH E CASE OF ITO VS. SAK SOFT LTD. (2009) 313 ITR (A.T) 353. WE ARE THU S OF THE OPINION THAT CIT(APPEALS) FELL IN ERROR, WHEN HE DIRECTED T HE A.O. TO EXCLUDE FOREIGN CURRENCY EXPENSES FROM THE EXPORT TURNOVER, WHILE WORKING OUT THE DEDUCTION U/S.10B OF THE ACT. 11. IN THE RESULT, WE SET ASIDE THE ORDERS OF CIT(A PPEALS) AND REINSTATE COMPUTATION MADE BY THE ASSESSING OFFICER IN WORKING OUT REDUCTION UNDER SECTION 10B OF THE ACT, SUBJECT TO OUR FINDING ON THE CROSS OBJECTIONS OF THE ASSESSEE. 12. ASSESSEE IN ITS CROSS-OBJECTIONS HAS RAISED THE ISSUE OF NON- EXCLUSION OF SUCH AMOUNTS FROM TOTAL TURNOVER ALSO. ADMITTEDLY, SUCH A GROUND WAS RAISED BEFORE THE CIT(APPEALS) WHO HAD NOT I.T.A. NOS.1871 TO 1873/MDS/11 C.O. NOS.67 TO 69/MDS/12 15 ADJUDICATED ON THIS ISSUE. HOWEVER, SENDING THE IS SUE BACK TO THE CIT(APPEALS) WILL BE AN EXERCISE IN FUTILE SINCE SP ECIAL BENCH IN THE CASE OF SAK SOFT LTD. (SUPRA) HAS SPECIFICALLY HELD THAT THE ITEMS WHICH WERE EXCLUDED BY THE ASSESSING OFFICER FROM E XPORT TURNOVER BY RELYING ON CLAUSE (III) OF EXPLANATION 2 TO SECT ION 10B OF THE ACT, WILL HAVE TO BE EXCLUDED FROM TOTAL TURNOVER ALSO F OR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. THEREFORE, WE DIRECT THE A.O. THAT WHILE RE-WORKING THE DEDUCTION AVAILABLE TO ASSESSEE UNDER SECTION 10B OF THE ACT, THOSE ITEMS WHICH ARE EXCLUDED FROM EXPORT TURNOVER TO BE EXCLUDED FROM T OTAL TURNOVER ALSO. 13. TO SUMMARISE THE RESULT, APPEALS OF THE REVENUE AS WELL AS CROSS-OBJECTIONS OF THE ASSESSEE ARE ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 19 TH OF JULY, 2012, AT CHENNAI. SD/- SD/- (V.DURGARAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 19 TH JULY, 2012. KRI. COPY TO: ASSESSEE/ASSESSING OFFICER/CIT(A)-VI, CHE NNAI/ CIT-III, CHENNAI/D.R./GUARD FILE