ACIT, Gurgaon V. M/s. Sun Life India Services Pvt. Ltd., Gurgaon

ITA 2575/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77751 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 20-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 28-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMESH CHANDER
• Keywords: Services rendered outside India
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG : JUDICIAL MEMBER ITA NO. 2575/DEL/2012 ASSTT. YR: 2007-08 ACIT, CIRCLE- 2, VS. SUN LIFE INDIA SERVICE PVT. LTD., GURGAON GROUND FLOOR TOWER-A, UNITECH WORLD CYBER PARK, SECTOR-39, GURGAON. PAN: AAJCS 6520 K ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI RAMESH CHANDER CIT (DR) RESPONDENT BY : SHRI SALIL KAPOOR ADV. DATE OF HEARING : 22-05-2014 DATE OF ORDER : 20-06-2014. O R D E R PER S.V. MEHROTRA, A.M: : THIS APPEAL, BY THE DEPARTMENT, IS DIRECTED AGAINST THE ORDER DATED 1-3- 2012 PASSED BY THE LD. CIT(A), FARIDABAD IN APPEAL NO. 159/GGN/2010-11 RELATING TO A.Y. 2007-08. 2. THE ASSESSEE COMPANY IN THE RELEVANT ASSESSMENT YEAR WAS ENGAGED IN THE BUSINESS OF RENDERING I.T. ENABLE SERVICES INCL UDING BACK OFFICE PROCESSING FOR GROUP COMPANIES. IT HAD FILED RETURN OF INCOME DECLARING INCOME AT RS. 17,04,510/-. THE ASSESSMENT WAS COMPL ETED AT AN INCOME OF RS. 7,42,24,760/- AS UNDER: ITA 2575/DEL/2012 ACIT VS. SUN LIFE INDIA SERVICES P. LTD. 2 THUS, THE ABOVE SECTION PROVIDES THAT DEDUCTION AL LOWABLE U/S 10A(4) SHALL BE COMPUTED AS UNDER: NET PROFIT OF THE BUSINESS X EXPORT TURNOVER OF THE UNDERTAKING TOTAL TURNOVER 6141401 X 36535607 113655767 DEDUCTION U/S 10A = 19,74,205/- . 2.1. LD. CIT(A) WHILE PARTLY ALLOWING THE ASSESSEE S APPEAL, DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 10A OF RS. 61,41,401/- AS AGAINST THE DEDUCTION ALLOWED BY ASSESSING OFFICER OF RS. 19,74 ,205/-. BEING AGGRIEVED FROM THE ORDER OF LD. CIT(A), THE DEPARTMENT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE WHOLE ADDITION OF RS. 6,83,53,049/- EVEN WHEN LD. CIT(A) HAS AGREED T HAT THE PAYMENTS OF RS. 3,36,56,472/- [6,83,53,409 3,46,9 6,577] WAS RECEIVED BY THE ASSESSEE COMPANY IN TERMS OF CLAUSE 3 OF AGREEMENT AND THE AFORESAID AMOUNT HAS NOTHING TO D O WITH EITHER RENDERING OF SERVICES OR EXPORT OF SERVICES/ SOFTWARE AND THE AO WAS JUSTIFIED UNDER THE PROVISIONS OF LAW T O TREAT THE AMOUNT TO THE EXTENT OF RS. 3,36,56,472/- AS NOT FO RMING PART OF EXPORT TURNOVER. THUS, THE AFORESAID AMOUNT SHOULD HAVE APPEARED IN BALANCE SHEET AND NOT IN PROFIT & LOSS ACCOUNT ASH SHOWN BY THE ASSESSEE AND ACCEPTED BY THE LD. CIT(A ). 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE ASSE SSING OFFICER TO EXCLUDE FROM THE TOTAL TURNOVER THE EXPENSES OF RS. 38,08,386/- BEING EXPENSES INCURRED IN FOREIGN CURR ENCY ON COMMUNICATION CHARGES AND EXPENSES OF RS. 3,36,56,4 72/- TOWARDS PROVIDING INFRASTRUCTURE SERVICES TO ITS SU BSIDIARY, FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10 A OF THE ACT. ITA 2575/DEL/2012 ACIT VS. SUN LIFE INDIA SERVICES P. LTD. 3 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE ASSE SSING OFFICER TO ALLOW DEDUCTION OF RS. 61,41,401/- U/S 10A OF TH E ACT, THUS ALLOWING EXCESS DEDUCTION TO THE ASSESSEE WITHOUT CONSIDERING THE EXCLUDIBLE EXPENSES WHILE COMPUTING ELIGIBLE DE DUCTION U/S 10A OF THE ACT. 4. THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 3. THE MAIN ISSUE IS REGARDING ALLOWABILITY OF DEDU CTION U/S 10A. THE ASSESSEE COMPANY HAD TAKEN APPROVAL FROM THE STPI A UTHORITY, NOIDA, TO ENGAGE IN DEVELOPMENT/ MANUFACTURE OF COMPUTER SOFT WARE/ IT ENABLED SERVICES. THE ASSESSEE COMPANY HAD CLAIMED DEDUCTIO N U/S 10A OF RS. 61,41,401/-. IN COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH DETAILS OF GROSS R ECEIPTS/ SALES, ALONG WITH BILLS RAISED BY THE ASSESSEE COMPANY. FROM THE PERU SAL OF SALES LEDGER AND BILLS, THE ASSESSING OFFICER NOTICED THAT AN AMOUNT OF RS. 6,83,53,049/- HAD BEEN RECEIVED BY THE ASSESSEE COMPANY AS CORPORATE SUBSIDY. THE ASSESSEE EXPLAINED THAT THE CORPORATE SUBSIDY WAS RECEIVED B Y IT FROM SUNLIFE INFORMATION SERVICES IRELAND LTD. AS REIMBURSEMENT OF PRE-OPERATIVE EXPENSES INCURRED BY IT. IT WAS CLARIFIED THAT THE CORPORATE SUBSIDY OF RS. 3,36,56,472/- PERTAINED TO THE PERIOD APRIL 2006 T O OCTOBER 2006 AND THE BALANCE AMOUNT OF RS. 3,46,96,577/- PERTAINED TO T HE PERIOD FROM NOVEMBER 01,2006 ONWARDS. THE ASSESSEES SUBMISSIONS HAVE BE EN REPRODUCED BY THE ASSESSING OFFICER AT PAGES 2 & 3 OF HIS ORDER. THE ASSESSING OFFICER CONCLUDED FROM ASSESSEES SUBMISSIONS AS UNDER: FROM THE PERUSAL OF THE ASSESSEES SUBMISSIONS TH E FOLLOWING POINTS EMERGE: ITA 2575/DEL/2012 ACIT VS. SUN LIFE INDIA SERVICES P. LTD. 4 I) THE CORPORATE SUBSIDY WAS PROVIDED BY SUNLIFE IR ELAND CO COMPENSATE PRE- WHEN THE ASSESSEE HAD NOT COMMENCED RENDERING OF SERVICES. OPERATIVE EXPENSES II) NO ACTUAL SERVICES WERE RENDERED DURING THE REL EVANT PERIOD. III) SUBSIDY WAS PROVIDED IN ANTICIPATION OF THE SE RVICES TO BE RENDERED BY THE ASSESSEE. IV) THE PAYMENT RECEIVED CANNOT BE TERMED AS REVENU E OF THE ASSESSEE AS NO SERVICE HAS BEEN PROVIDED WITH REGAR D TO THIS PAYMENT RECEIVED. V) AS THE CORPORATE SUBSIDY IN NOT AN ACCOUNT OF AC TUAL RENDERING OF SERVICES IN THE NATURE OF SOFTWARE EXP ORTS, THE AMOUNT OF RS. 6,83,53,049/- CANNOT BE HELD TO B E PROFIT AND GAINS DERIVED FROM THE BUSINESS OF SOFTW ARE EXPORTS. VI) THE RECEIPT OF RS. 6,83,53,049/- IS, THEREFORE, NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE I.T. ACT, 19 61. 3.1. THE ASSESSING OFFICER COMPUTED THE EXPORT TURN OVER AT RS. 3,65,35,607/- AFTER EXCLUDING THE NON-EXPORT TURNOV ER OF RS. 6,83,53,049/- FROM THE TOTAL TURNOVER AT RS. 11,36,55,767/-. THE ASSESSING OFFICER COMPUTED THE ALLOWABLE DEDUCTION U/S 10A(4) AS UNDER: THUS, THE ABOVE SECTION PROVIDES THAT DEDUCTION AL LOWABLE U/S 10A(4) SHALL BE COMPUTED AS UNDER: NET PROFIT OF THE BUSINESS X EXPORT TURNOVER OF THE UNDERTAKING TOTAL TURNOVER 6141401 X 36535607 113655767 DEDUCTION U/S 10A = 19,74,205/-. ITA 2575/DEL/2012 ACIT VS. SUN LIFE INDIA SERVICES P. LTD. 5 3.2. THUS, HE INCLUDED THE NON-EXPORT TURNOVER IN T HE TOTAL TURNOVER OF ASSESSEE. 4. BEFORE LD. CIT(A) IT WAS, INTER ALIA, SUBMITTED THAT IF AN ITEM IS REDUCED FROM EXPORT TURNOVER, THE SAME IS ALSO TO B E REDUCED FROM TOTAL TURNOVER. 4.1. LD. CIT(A) UPHELD THE AO'S CONTENTION THAT SIN CE THE AMOUNT RECEIVED BY THE ASSESSEE FOR THE PERIOD UP TO OCTOBER, 2006 IN THE NAME OF CORPORATE SUBSIDY FROM SUNLIFE IRELAND IS IN THE NATURE OF REIMBURSEMENT OF EXPENSE, HAVING NO NEXUS WITH THE ACTUAL EXPORT OF SOFTWARE, THE SAME IS CLEARLY OUTSIDE THE PURVIEW OF SECTION 10A OF THE A CT. THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED UNDER THE PROVISION S OF LAW TO TREAT THE AMOUNT TO THE EXTENT OF RS. 3,63,56,472/- AS NOT FO RMING PART OF EXPORT TURNOVER. HOWEVER, LD. CIT(A) DID NOT MAKE ANY OBSE RVATIONS IN REGARD TO SUBSIDY OF RS. 3,46,96,577/- FOR THE PERIOD FROM NO VEMBER 2006 ONWARDS. 4.2. LD. CIT(A) FURTHER OBSERVED THAT AS PER COPY O F SALES LEDGER, TOTAL RECEIPTS OF RS. 11,36,55,767/- INCLUDED THE AMOUNT OF RS. 6,83,53,049/- AS CORPORATE SUBSIDY AND, THEREFORE, ASSESSING OFFICER WAS NOT JUSTIFIED IN AGAIN INCLUDING THE SAME AS THE SAME RESULTED INTO DOUBLE TAXATION. HE, ACCORDINGLY, DIRECTED FOR DELETION OF RS. 6,83,53,0 49/-. 4.3. AS REGARDS THE EXCLUSION OF EXPENDITURE OF RS. 87,67,111/- BEING LEASE LINE CHARGES FROM THE EXPORT TURNOVER FOR THE PURPO SE OF ALLOWING DEDUCTION U/S 10A OF THE ACT, LD. CIT(A) IN PRINCIP LE AGREED THAT IN VIEW OF EXPLANATION 2 TO CLAUSE (4) OF SEC. 10A, FREIGHT, T ELECOMMUNICATION ITA 2575/DEL/2012 ACIT VS. SUN LIFE INDIA SERVICES P. LTD. 6 CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY O F ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY , INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSID E INDIA, WOULD NOT FORM PART OF EXPORT TURNOVER. THUS, HE AGREED THAT THE E XPENDITURE INCURRED IN FOREIGN CURRENCY ON LEASE LINES HAD TO BE REDUCED F ROM EXPORT TURNOVER. HOWEVER, HE AGREED WITH THE ASSESSEES CONTENTION T HAT WHILE REDUCING THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FROM THE E XPORT TURNOVER, IDENTICAL DEDUCTION SHOULD BE ALLOWED FROM THE TOTA L TURNOVER. 4.4. LD. CIT(A) RELIED ON THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS 290 ITR 6 67, WHEREIN PRINCIPLE OF PARITY HAS BEEN RECOGNIZED BETWEEN EXP ORT TURNOVER AND TOTAL TURNOVER FOR THE PURPOSE OF SECTION 80HHC. 4.5. LD. CIT(A) ALSO RELIED ON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. GENPACT INDIA 203 TAXMAN 632, W HEREIN IT HAS BEEN HELD THAT COMMUNICATION CHARGES ARE TO BE EXCLUDED FROM TOTAL TURNOVER FOR COMPUTING ELIGIBLE DEDUCTION U/S 10A. 4.6. SIMILARLY, HONBLE BOMBAY HIGH COURT IN CIT VS . GEM PLUS JEWELLERY INDIA LTD. 330 ITR 175 HAS HELD THAT FOR THE PURPOSE OF APPLICATION OF FORMULA PRESCRIBED BY SEC. 10A(4), E XPORT TURNOVER IN NUMERATOR MUST HAVE SAME MEANING AS EXPORT TURNOVER WHICH IS A CONSTITUENT ELEMENT OF TOTAL TURNOVER IN DENOMINATO R. 4.7. LD. CIT(A) ON THIS COUNT ALSO RELIED ON THE D ECISION OF ITAT CHANDIGARH BENCH IN THE CASE OF ITO VS. SAKSOFT LTD . 30 SOT 55, WHEREIN ITA 2575/DEL/2012 ACIT VS. SUN LIFE INDIA SERVICES P. LTD. 7 IT WAS HELD THAT FREIGHT, TELECOM CHARGES OR INSURA NCE ATTRIBUTABLE TO DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN P ROVIDING TECHNICAL SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED, BOTH FRO M EXPORT TURNOVER AND TOTAL TURNOVER, FOR PURPOSES OF COMPUTATION OF DEDU CTION U/S 10B(4). 4.8. LD. CIT(A) ACCORDINGLY HELD THAT THE EXPENDITU RE OF RS. 38,08,386/- INCURRED IN FOREIGN CURRENCY ON LEASE LINE CHARGES REDUCED FROM THE EXPORT TURNOVER IS ALSO REQUIRED TO BE REDUCED FROM THE TO TAL TURNOVER IN THE CASE OF ASSESSEE. 4.9. ACCORDINGLY, LD. CIT(A) OBSERVED AS UNDER: IN THE PRESENT CASE, THE PROFITS OF RS.61,41,401/- HAS BEEN CLAIMED FOR DEDUCTION U/S 10A OF THE ACT. CONSIDERING THE FACT THAT THE AMOUNT OF RS.33,656,472/- HAS BEEN HELD TO BE NOT DERIVED FRO M THE ACTUAL CONDUCT OF BUSINESS OF EXPORT BUT ONLY REIMBURSEMENT OF EXPENDITURE, THE SAME DOES NOT FORM PART OF EXPORT TURNOVER. THE AMOUNT OF RS.38,08,386 / - IS FURTHER REQUIRED TO BE REDUCED FROM THE EXPORT TURNOVER IN TERMS OF CLAUSE (IV) OF EXPLANATION -2. HENCE, THE EXPORT TURNOVER IN THE INSTANT CASE WORKS OUT TO RS. 7,61,90,909/-. AS REGARDS TOTAL TURNOVER, IN ADDITION TO THE AMOUNT OF RS.38,08,386/- BEING EXPENDITURE INCURRED IN FOREIG N CURRENCY ON LEASE LINE CHARGES, THE AMOUNT\OF RS.336,56,472/- BEING THE AMOUNT RECEIVED FROM SUN LIFE IRELAND AS REIMBURSEMENT OF EXPENSES DURING TH E PREOPERATIVE PERIOD TILL OCTOBER 2006 ON COST TO CO ST BASIS SHALL ALSO NOT FORM PART OF TOTAL TURNOVER AS THIS RECEIPT DOES NOT BORE ANY ELEMENT OF PROFIT; FOLLOW ING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F CIT VS. LAXMI MACHINE WORKS 210 CTR 1 (SC) AND ITA 2575/DEL/2012 ACIT VS. SUN LIFE INDIA SERVICES P. LTD. 8 THE RATIONALE LAID DOWN IN THE DECISION BY THE HON'BLE MUMBAI HIGH COURT IN CI'T VS. GEM PLUS .JEWELLERY INDIA LTD. (SUPRA). THEREFORE, THE TOTAL TURNOVER OF THE APPELLANT SHALL BE DETERMINED AT RS.76L,90,909/-. CONSEQUENTLY, THE CLAIM OF DEDUCTI ON U/S 10A FOR WHICH THE APPELLANT IS ELIGIBLE WORKS O UT TO RS.6L,4L,40L/-. THE AO IS THEREFORE, DIRECTED TO ALLOW DEDUCTION OF RS. 61,40,401/- U/S 10A OF THE ACT. 5. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER. 6. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE REGARDING EXCLUSION OF TELECOMMUNICATION CHARGES, BOTH FROM EXPORT TURNOVER AND TOTAL TURNOVER, IS SQUARELY COVERED BY VARIOUS DECI SIONS, RELIED UPON BY LD. CIT(A) AND IS NO MORE RES INTEGRA. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE RECORD OF THE CASE. AS FAR AS GROUND NO. 1 IS CONCERNED, THE REVE NUES CONTENTION IS THAT WHEN LD. CIT(A) HAD AGREED THAT PAYMENTS TO THE TUN E OF RS. 3,36,56,472/- WERE RECEIVED BY THE ASSESSEE COMPANY IN TERMS OF C LAUSE (3) OF AGREEMENT AND THE AFORESAID AMOUNT HAD NOTHING TO DO WITH EIT HER RENDERING OF SERVICES OR EXPORT OF SERVICES OF THE SOFTWARE AND THE ASSES SING OFFICER WAS JUSTIFIED UNDER THE PROVISIONS OF LAW TO TREAT THE AMOUNT TO THE EXTENT OF RS. 3,36,56,472/- AS NOT FORMING PART OF EXPORT TURNOVE R, THEN THE SAID AMOUNT SHOULD HAVE APPEARED IN BALANCE-SHEET AND NOT IN P& L A/C. THE CONTENTION IS THAT SINCE THE FINDINGS OF LD. CIT(A) ARE ONLY WITH RESPECT TO RS. 3,36,56,472/-, THEN HE WAS NOT JUSTIFIED IN DELETI NG THE WHOLE ADDITION OF RS. 6,83,53,049/-. WE DO NOT FIND ANY MERIT IN THIS GRO UND RAISED BY DEPARTMENT BECAUSE LD. CIT(A) DELETED THE ADDITION ON THE GROU ND OF DOUBLE ADDITION ITA 2575/DEL/2012 ACIT VS. SUN LIFE INDIA SERVICES P. LTD. 9 WHICH FINDING HAS NOT BEEN CONTROVERTED BY DEPARTME NT. WE, THEREFORE, DISMISS GROUND NO. 1 RAISED BY DEPARTMENT. 8. AS FAR AS GROUND NOS. 2 & 3 ARE CONCERNED, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) BECAUSE T HE ISSUE IS NO MORE RES- INTEGRA AS IT HAS BEEN HELD BY HONBLE SUPREME COUR T IN THE CASE OF CIT VS. LAKSHMI MACAHINE WORKS 290 ITR 667 THAT ANY RECEIPT WHICH DOES NOT HAVE AN ELEMENT OF TURNOVER CANNOT FIND A PLACE EITHER I N THE EXPORT TURNOVER OR THE TOTAL TURNOVER. REIMBURSEMENT OF EXPENSES, ACCO RDINGLY, HAS TO BE EXCLUDED FROM BOTH EXPORT TURNOVER AND TOTAL TURNOV ER. ACCORDINGLY, GROUND NOS. 2 & 3 ARE DISMISSED. 9. GROUND NO. 4 IS GENERAL IN NATURE AND REQUIRES N O ADJUDICATION. 10. IN THE RESULT, DEPARTMENTS APPEAL IS DISMISSED . ORDER PRONOUNCED IN OPEN COURT ON 20-06-2014. SD/- SD/- ( C.M. GARG ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20-06-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 2575/DEL/2012 ACIT VS. SUN LIFE INDIA SERVICES P. LTD. 10