M/s. Summit Works Technologies P. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2151/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0860 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 26-11-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T N BETGIRI JT
• Keywords: Business income
• Section: 10B; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER] I.T.A.NO.2151/MDS/2012 ASSESSMENT YEAR : 2008-09 M/S SUMMIT WORKS TECHNOLOGIES P. LTD C/O SHRI PHILIP GEORGE, ADVOCATE NEW #6, OLD # 10, SEETHA NAGAR 1 STREET, NUNGAMBAKKAM CHENNAI 600 034 VS THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE VI(4) CHENNAI [PAN AAECS 9249 J ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PHILIP GEORGE, ADVOCATE RESPONDENT BY : SHRI T.N. BETGIRI, JT. CIT DATE OF HEARING : 19-02-2013 DATE OF PRONOUNCEMENT : 22-02-2013 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-V, CHENNAI, DATED 13.09.2012. 2. THE A.R OF THE ASSESSEE SUBMITTED THAT THE SOLE IS SUE INVOLVED IN THIS APPEAL OF THE ASSESSEE IS THAT TH E CIT(A) ERRED IN I.T.A.NO. 2151/12 :- 2 -: CONFIRMING THE DEDUCTION OF ` 38,01,867/- FROM THE HEAD OF BUSINESS INCOME AND ASSESSING IT UNDER THE HEAD OTHER SOUR CES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE DECLARED NET PROFIT OF ` 1,28,49,685/- WHICH INCLUDED OTHER INCOME OF ` 38,01,867/- AND THE SAID OTHER INCOME CONSISTS OF THE FOLLOWING: (I) RECOVERIES FROM CANDIDATES WHO DID NOT STICK UPTO THE AGREEMENT ( A) SECURITY DEPOSITS ( B) BANK GUARANTEE INVOKED ` 1,00,000/- ` 27,20,000/- (II) ADMINISTRATIVE FEES COLLECTED FROM CANDIDATES ` 15,000/- (III) INTEREST INCOME FROM BANK FIXED DEPOSIT ` 7,69,990/- (IV) EXCESS RECEIVED FROM OVERSEAS CLIENT ` 1,90,363/- (V) OTHERS ` 6,514/- THE ASSESSING OFFICER HELD THAT THE OTHER INCOME OF ` 38,01,867/- HAS NO NEXUS WITH THE BUSINESS OF THE ASSESSEE AND TRE ATED THE SAME TO BE INCOME FROM OTHER SOURCES AND ALSO DID NOT CONSI DER THE SAME FOR CALCULATING THE ELIGIBLE PROFIT FOR EXEMPTION U/S 10B OF THE ACT. I.T.A.NO. 2151/12 :- 3 -: 4. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE CLAIM ED THAT THE SAID INCOME MAY NOT BE INCOME DERIVED FROM THE BUSINESS ELIGIBLE U/S 10B, HOWEVER IT IS BUSINESS INCOME OF THE ASSE SSEE. THE CIT(A), AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXPORT OF S OFTWARE DEVELOPMENT AND PROCURE EXPORT ORDER FROM ITS SUBSI DIARY, M/S SUMMIT WORKS TECHNOLOGIES INC. HAVING ITS BUSINESS IN USA. AS A GESTURE OF RECIPROCITY OR GENEROSITY THE ASSESSEE WAS RECRUIT ING SOFTWARE ENGINEERS OR COMPUTER PROFESSIONALS ETC FOR ITS SUB SIDIARY IN USA WITHOUT CHARGING ANY FEES. THE EXPENSES INCURRED B Y THE ASSESSEE LIKE FLIGHT FARE FOR TRAVEL OF CANDIDATES ARE REIMB URSED BY ITS SUBSIDIARY. IN THE PROCESS OF SENDING THE AFORESAID TECHNICAL P ERSONS ABROAD THE ASSESSEE TAKES BANK GUARANTEE FROM THEM TO THE EFFE CT THAT THEY WOULD CONTINUE TO WORK WITH ITS SUBSIDIARY FOR THE PERIOD OF ATLEAST ONE YEAR. THE AFORESAID BANK GUARANTEE IS FOR ENSURIN G THAT THE CANDIDATE WAS AT LEAST FOR ONE YEAR WITH THE SUBSIDIARY AND I T IS APPARENTLY BECAUSE THE SAID COMPANY WOULD BE INCURRING EXPENDI TURE FOR THEIR TRAVEL ABROAD. IN CASE ANY CANDIDATE DOES NOT JOIN THE AFORESAID COMPANY OR LEAVES IT BEFORE ONE YEAR THE SAID BANK GUARANTEE IS ENCASHED BY THE ASSESSEE AND THE AMOUNT OF THE SAI D ENCASHED BANK GUARANTEE FORMS MAJOR PART OF THE AFORESAID OTHE R INCOME. HE I.T.A.NO. 2151/12 :- 4 -: OBSERVED THAT THE OTHER CONSTITUENTS OF THIS INCOME ARE ALSO SIMILAR VIZ. FORFEITURE OF SECURITY DEPOSIT AND THE REIMBURSEMEN T RECEIVED FROM OVERSEAS COMPANY. THE CIT(A) HELD THAT THE NATURE OF INCOME WAS CONTINGENT ON HAPPENING OR NOT HAPPENING OF AN EVEN T ON WHICH THE ASSESSEE HAS NO CONTROL. HE, THEREFORE, HELD THAT THE ASSESSING OFFICER HAS RIGHTLY TREATED THE INCOME AS INCOME FROM OTHER SOURCES AND DISMISSED THE APPEAL OF THE ASSESSEE. 5. BEFORE US, THE A.R OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND SUBMITTED TH AT THE ENCASHMENT OF THE BANK GUARANTEE AND THE RECEIPT OF THE AMOUNT BY THE ASSESSEE WAS WHEN THE TECHNICAL PERSON SENT AB ROAD DID NOT WORK FOR ITS SUBSIDIARY FOR A PERIOD OF ONE YEAR OR DID NOT JOIN IT. THEREFORE, THE AMOUNT RECEIVED WAS NOT CONTINGENT. HE SUBMITT ED THAT IT WAS THE BUSINESS OF THE ASSESSEE TO RECRUIT TECHNICAL PERS ONS AND SEND THEM ABROAD AND THEREFORE, IT WAS PART AND PARCEL OF THE BUSINESS INCOME OF THE ASSESSEE AND SHOULD HAVE BEEN CONSIDERED ACCOR DINGLY WHILE COMPUTING THE DEDUCTION U/S 10B OF THE ACT. 6. THE DR, ON THE OTHER HAND SUPPORTED THE ORDER OF TH E CIT(A). I.T.A.NO. 2151/12 :- 5 -: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER EXCLUDED ` 38,01,867/- FROM THE BUSINESS INCOME DECLARED BY THE ASSESSEE AND ASSES SED THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE SA ID AMOUNT OF ` 38,01,867/- AS PER THE STATEMENT OF FACTS FILED BY THE ASSESSEE BEFORE THE CIT(A) CONSISTS OF THE FOLLOWING: (I) RECOVERIES FROM CANDIDATES WHO DID NOT STICK UPTO THE AGREEMENT (A) SECURITY DEPOSITS (FORFEITURE) (B) BANK GUARANTEE INVOKED ` 1,00,000/- ` 27,20,000/- (II) ADMINISTRATIVE FEES COLLECTED FROM CANDIDATES ` 15,000/- (III) INTEREST INCOME FROM BANK FIXED DEPOSIT ` 7,69,990/- (IV) EXCESS RECEIVED FROM OVERSEAS CLIENT ` 1,90,363/- (V) OTHERS ` 6,514/- 8. THE ASSESSING OFFICER TREATED THE AFORESAID AMOUNTS AS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S ON THE GROUND THAT THE OTHER INCOME OF ` 38,01,867/- IS ONLY ATTRIBUTABLE AND THERE IS NO DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. I.T.A.NO. 2151/12 :- 6 -: 9. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE A SSESSING OFFICER ON THE GROUND THAT THE ABOVE RECEIPTS OF TH E ASSESSEE ARE CONTINGENT IN NATURE AS ON HAPPENING OF THE EVENT I N PURSUANCE TO WHICH THE ASSESSEE BECOMES ENTITLED FOR THIS RECEI PT IS NOT IN THE CONTROL OF THE ASSESSEE. 10. BEFORE US, THE A.R OF THE ASSESSEE CONTENDED THAT THE ASSESSEE WAS ALSO ENGAGED IN THE BUSINESS OF RUNNIN G PLACEMENT AGENCY. DURING THE COURSE OF THIS BUSINESS THE AS SESSEE EARNED INCOME BY WAY OF ADMINISTRATIVE CHARGES OF ` 15,000/-, INVOCATION OF BANK GUARANTEE OF ` 27,20,000/- AND FORFEITURE OF SECURITY DEPOSIT OF ` 1,00,000/- AND THEREFORE, THE SAME OUGHT TO BE HEL D AS ASSESSABLE UNDER THE HEAD BUSINESS INCOME. 11. REGARDING INTEREST ON FIXED DEPOSITS, THE ASSESSEE SUBMITTED THAT FIXED DEPOSITS WERE MADE FOR BUSINESS PURPOSES AND THEREFORE, INTEREST INCOME ARISING FROM BUSINESS ASSETS WAS AS SESSABLE UNDER THE HEAD BUSINESS INCOME. IN RESPECT OF EXCESS AMOUN T RECEIVED FROM PARTIES AND OTHERS, THE ASSESSEE SUBMITTED THAT TH E SAID AMOUNT WAS RECEIVED DURING THE COURSE OF BUSINESS AND THEREFOR E, WAS ASSESSABLE AS BUSINESS INCOME. I.T.A.NO. 2151/12 :- 7 -: 12. ON THE OTHER HAND, THE DR SUPPORTED THE ORDERS OF T HE LOWER AUTHORITIES. 13. WE FIND FROM THE HEADING OF THE ASSESSMENT ORDER TH AT THE ASSESSING OFFICER HAS MENTIONED THE NATURE OF BUSIN ESS OF THE ASSESSEE AS SOFTWARE DEVELOPMENT AND SUPPORTING SERVICE/MAINTENANCE PLACEMENT SERVICES. 14. WE FIND THAT THE ASSESSING OFFICER HAS EXCLUDED ` 38,01,867/- FROM THE AMOUNT ASSESSABLE UNDER THE HE AD PROFITS AND GAINS OF THE BUSINESS BY OBSERVING THAT THESE RECE IPTS THOUGH ARE ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE BUT H AS NO DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. WE FIND THAT T HE ORDER OF THE ASSESSING OFFICER IS VERY CRYPTIC AND THE ASSESSIN G OFFICER HAS GIVEN NO REASON AS TO WHY A RECEIPT WHICH IS ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE EVEN THOUGH HAS NO DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE IS NOT ASSESSABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD THE NATURE AND SOURCE OF THE SIX DIFFERENT I TEMS COMPRISED IN THE RECEIPT OF ` 38,01,867/-. SIMILARLY, WE FIND THAT THE CIT(A) H AS ALSO FAILED TO APPRECIATE THE AMOUNT WHICH IS ASSES SABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IN VIEW OF THE PROVISIONS OF SECTION 28 OF THE ACT. THE CIT(A) HAS ALSO NOT PROPERLY I.T.A.NO. 2151/12 :- 8 -: EXAMINED THE NATURE OF EACH OF THE SIX TYPES OF REC EIPTS IN QUESTION AND HAS NOT ARRIVED AT THE CONCLUSION THAT THESE RE CEIPTS HAVE NO NEXUS WITH ANY BUSINESS CARRIED ON BY THE ASSESSEE DURING THE YEAR CONSIDERATION BEFORE HOLDING THAT THE SAME IS NOT A SSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 15. BEFORE US, THE ONLY ISSUE IN DISPUTE IS THAT WHETHE R THE SIX RECEIPTS IN QUESTION AMOUNTING TO ` 38,01,867/- IS UNDER THE SCHEME OF THE I.T.ACT ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IN VIEW OF THE PROVISIONS OF SECTION 28 OF THE ACT OR IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES IN VIEW OF THE PROVISIONS OF SECTION 56 OF THE ACT. IN OUR CONSID ERED VIEW, BUSINESS MEANS ANY ACTIVITY CARRIED ON BY THE ASSESSEE SYST EMATICALLY AND REGULARLY FOR THE PURPOSES OF EARNING PROFIT. A RE CEIPT DURING THE COURSE OF THE BUSINESS IS A RECEIPT WHICH IS ATTRI BUTABLE TO THE BUSINESS ACTIVITY OF THE ASSESSEE OR A RECEIPT OF THE ASSESSEE WHICH HAS A NEXUS DIRECT OR INDIRECT WITH THE BUSINESS OF THE ASSESSEE OR RECEIPTS ARISING OUT OF THE BUSINESS ASSET OF THE ASSESSEE IS ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. AS IN THE INSTANT CASE, THE LOWER AUTHORITIES HAVE NOT VERIFI ED THE NATURE AND SOURCE OF SIX RECEIPTS IN QUESTION PROPERLY, WE A RE OF THE OPINION THAT IT SHALL BE FAIR AND IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE BACK TO I.T.A.NO. 2151/12 :- 9 -: THE FILE OF THE ASSESSING OFFICER FOR DECIDING AFRE SH BY PASSING A SPEAKING ORDER AFTER ALLOWING PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. 16. BEFORE PARTING WITH THE APPEAL, WE WOULD LIKE TO OB SERVE THAT PROFITS AND GAINS DERIVED FROM EXPORT WHICH IS ALLO WABLE AS DEDUCTION U/S 10B IS TO BE COMPUTED IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 10B(4) OF THE ACT WHEREIN PROFITS AND GAINS OF THE UNDERTAKING IS TO BE ASCERTAINED WHICH MAY NOT BE SAME AS THE AMOUNT ASS ESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON OF THE ASSESSEE. THUS, THE GROUNDS OF APPEAL OF THE ASSESSEE ARE AL LOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 22 ND FEBRUARY, 2013, AT CHENNAI. SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 22 ND FEBRUARY, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR