TEKLA INDIA P.LTD, NAVI MUMBAI V. ITO 10(3)(4), MUMBAI

ITA 3079/MUM/2013

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1318 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 12-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 22-04-2013
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO. 3079/MUM/2013 & 7031/MUM/2014 : (A.YS : 2009-10 & 2010-11) TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED UNIT NOS. 112-115, BUILDING NO. 2, MILLENIUM BUSINESS PARK, SECTOR-1, MAHAPE, NAVI MUMBAI 400 710. PAN : AACCT8089R (APPELLANT) VS. INCOME TAX OFFICER-10(3)(4), MUMBAI (RESPONDENT) APPELLANT BY : SHRI DIVESH CHAWLA RESPONDENT BY : SHRI M.V. RAJGURU DATE OF HEARING : 05/09/2019 DATE OF PRONOUNCEMENT : 06/09/2019 O R D E R PER G.S. PANNU,VICE PRESIDENT: THE CAPTIONED APPEALS BY THE ASSESSEE ARE DIRECT ED AGAINST SEPARATE ORDERS OF CIT(A)-22, MUMBAI DATED 28.02.2013 AND 07 .08.2014 PERTAINING TO ASSESSMENT YEARS 2009-10 AND 2010-11 RESPECTIVELY, WHICH IN TURN HAVE ARISEN FROM THE ORDERS PASSED BY THE ASSESSING OFFI CER, MUMBAI DATED 26.12.2011 AND 13.03.2013 RESPECTIVELY U/S 143(3) O F THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED 2. SINCE BOTH THE APPEALS INVOLVE CERTAIN COMMON IS SUES, THEREFORE, THEY HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLID ATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. WE MAY TAKE-UP FOR CONSIDERATION THE APPEAL FOR ASSESSMENT YEAR 2009-10 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL :- GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2009-10 :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A); 1. ERRED IN MAKING DISALLOWANCE OF RS 70,309,000 UN DER SECTION 40(A)(I) OF THE ACT; 2. ERRED IN TREATING PURCHASE COST OF THE APPELLANT TOWARDS LICENCE AND UPGRADES AND SERVICES AS ROYALTY PAYMENTS; 3. ERRED IN HOLDING THE IMPUGNED PAYMENTS AS ROYAL TY ON ACCOUNT OF THE RETROSPECTIVE AMENDMENT MADE IN EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT VIDE FINANCE ACT 2012 WITHOUT APPRECIATING THAT THE APPELLANT IS ELIGIBLE TO CLAI M BENEFICIAL PROVISIONS OF INDIAN FINLAND TAX TREATY, WHICH HAS NOT UNDERGONE ANY CHANGE; 4. ERRED IN NOT APPRECIATING THAT THE NEWLY INSERTE D EXPLANATION TO SECTION 9(1)(VI)OF THE ACT IS NOT APPLICABLE WHILE APPLYING SECTION 40(A)(I) O F THE ACT; 5. ERRED IN HOLDING THAT AS THE APPELLANT HAS NOT O BTAINED A CERTIFICATE FOR DEDUCTION OF TAX AT NIL/ LOWER RATE UNDER SECTION 195(2)/195(3)/197 OF THE ACT, THE APPELLANT HAD TO DEDUCT TAXES WITHOUT APPRECIATING THAT THE IMPUGNED PAYMENTS WER E NOT TAXABLE AS PER THE BENEFICIAL PROVISION OF INDIA-FINLAND TAX TREATY; 6. ERRED IN DISALLOWING AN AMOUNT OF RS 6,936,000 T OWARDS FOREIGN EXCHANGE LOSS ON ACCOUNT OF RESTATEMENT OF TRADE RECEIVABLES/ PAYABLES ON TH E BALANCE SHEET DATE; 7. ERRED IN HOLDING THAT THE JUDGMENT OF THE HONORA BLE SUPREME COURT IN CASE OF CIT VS. WOODWARD GOVERNOR INDIA PRIVATE LIMITED (312 ITR 25 4) DECIDED ON LOSS IN FLUCTUATION OF FOREIGN EXCHANGE ON CAPITAL ACCOUNT AND NOT ON REVENUE TRAN SACTIONS; 8. ERRED IN TREATING FOREIGN EXCHANGE LOSS AS CONTI NGENT LOSS AND HENCE NOT AN ALLOWABLE EXPENDITURE AS PER SECTION 30 TO 37 OF THE ACT; 4. THE FIRST SUBSTANTIVE DISPUTE IS WITH REGARD TO THE ADDITION OF RS.7,03,09,000/- MADE TO THE RETURNED INCOME BY DIS ALLOWING EXPENDITURE REPRESENTING REMITTANCE TO A FOREIGN CONCERN BY INV OKING SEC. 40(A)(I) OF THE ACT ON THE GROUND THAT THE REQUISITE TAX HAS NOT BE EN DEDUCTED AT SOURCE. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT THE APPEL LANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER- 3 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED ALIA , ENGAGED IN THE BUSINESS OF DISTRIBUTION OF SPECIA LISED OFF-THE-SHELF SOFTWARE PRODUCTS DEVELOPED BY ITS HOLDING COMPANY, TEKLA OYJ, FINLAND (HEREINAFTER REFERRED TO AS TEKLA FINLAND). PERT INENTLY, DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDER ATION, ASSESSEE PAID RS.4,76,09,000/- AND RS.2,27,00,000/- TO TEKLA FINL AND TOWARDS PURCHASE OF SOFTWARE AND UPGRADES/SERVICES RESPECTIVELY. THE A FORESAID EXPENDITURE HAS BEEN CONSIDERED BY THE ASSESSING OFFICER TO BE IN T HE NATURE OF ROYALTY, WHICH REQUIRED DEDUCTION OF TAX AT SOURCE AND SINCE THE ASSESSEE HAD FAILED TO DO SO, HE DISALLOWED SUCH EXPENDITURE U/S 40(A)( I) OF THE ACT. THE STAND OF THE ASSESSING OFFICER HAS ALSO BEEN UPHELD BY THE C IT(A), AND IN THIS MANNER ASSESSEE IS IN APPEAL BEFORE US. 5. IN THIS BACKGROUND, IT IS TO BE APPRECIATED THAT THE CRUX OF THE CONTROVERSY IS AS TO WHETHER THE PAYMENTS MADE BY T HE ASSESSEE TO TEKLA FINLAND WOULD CONSTITUTE ROYALTY AS PER THE PROVI SIONS OF SEC. 9(1)(VI) OF THE ACT AND/OR UNDER THE PROVISIONS OF INDIA-FINLAND DO UBLE TAXATION AVOIDANCE AGREEMENT WHICH GOVERNS THE RECIPIENT OF INCOME. I N ORDER TO ADDRESS THE SAID CONTROVERSY, WE MAY BRIEFLY REFER TO THE MANNE R IN WHICH THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAVE CONSIDERED SUCH PAYMENTS TO BE IN THE NATURE OF ROYALTY. PERTINENTLY, THE RECIPIENT, I .E. TEKLA FINLAND, IS A TAX RESIDENT OF FINLAND, AND IS A 100% HOLDING COMPANY OF THE ASSESSEE- COMPANY. IN TERMS OF AN AGREEMENT FOR RESALE OF SO FTWARE DATED 01.02.2008, TEKLA FINLAND APPOINTED THE ASSESSEE FO R DISTRIBUTION AND MARKETING OF THE SOFTWARE IN INDIA. IN TERMS OF TH E ARRANGEMENT, TEKLA FINLAND ENTERED INTO AN AGREEMENT WITH THE ASSESSEE TO DISTRIBUTE AND SUB- LICENCE SHRINK-WRAP SOFTWARE PRODUCTS DEVELOPED BY IT. THE STAND OF THE 4 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED ASSESSEE IS THAT ONCE A TRANSACTION IS INITIATED WI TH THE CUSTOMER WHO INTENDS TO PURCHASE THE SOFTWARE PRODUCT, ASSESSEE ENTERS INTO AN AGREEMENT WITH THE CUSTOMER. THEREAFTER, ASSESSEE, IN TURN, PREPARES A REPURCHASE ORDER ON TEKLA FINLAND AND ON ACCEPTANCE OF THE ORDER BY TEKLA FINLAND, THE SOFTWARE PRODUCT ALONGWITH A TEMPORARY PASSWORD IS SENT TO THE ASSESSEE. IT WAS EXPLAINED AT THE TIME OF HEARING THAT AT THIS STAGE AN INVOICE IS RAISED ON THE ASSESSEE AND ASSESSEE THEREAFTER D ELIVERS THE SOFTWARE ALONGWITH THE TEMPORARY PASSWORD TO THE CUSTOMER FO R WHICH PURPOSE, ASSESSEE RAISES A SALES INVOICE. AT THE TIME OF HE ARING, THE AFORESAID HAS ALSO BEEN SOUGHT TO BE EXPLAINED BY MEANS OF A DIAG RAM ALONGWITH SAMPLE COPIES OF CUSTOMER ORDER AND SOFTWARE LICENCE AGREE MENT, REPURCHASE ORDER, PURCHASE INVOICE FROM TEKLA FINLAND AS ALSO THE S ALES INVOICE RAISED ON THE THE CUSTOMER BY THE ASSESSEE. 6. AT THE TIME OF HEARING, IT HAS ALSO BEEN EMPHASI SED THAT ASSESSEE IS NEITHER GRANTED THE SOURCE CODE OF THE SOFTWARE PRO DUCT AND IS NOR PERMITTED TO MODIFY, TRANSLATE, RECOMPILE OR ALTER THE SOFTWARE IN ANY MANNER. IT HAS BEEN EXPLAINED ON THE BASIS OF THE TERMS OF THE AGREEMENT, THAT ASSESSEE IS MERELY GRANTED NON-EXCLUSIVE RIGHT TO MARKET, RE-SELL AND SUB-LICENCE THE SOFTWARE PRODUCT DEVELOPED BY TEKLA FINLAND. IT WAS ALSO POINTED OUT THAT ALL THE TRADEMARKS AND TRADE NAMES INVOLVED IN CONNECTION WITH THE PRODUCTS DISTRIBUTED BY THE ASSESSEE REMAI N THE EXCLUSIVE PROPERTY OF TEKLA FINLAND. IT IS SOUGHT TO BE POINTED OUT T HAT THERE IS NO TRANSACTION WHICH COULD ENABLE IT TO BE CONSIDERED AS A ROYALT Y AS EXPLAINED IN EXPLANATION-2 TO SEC. 9(1)(VI) OF THE ACT. 5 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED 7. A PERUSAL OF THE ORDER OF THE ASSESSING OFFICER REVEALS THAT MUCH EMPHASIS HAS BEEN GIVEN TO CLAUSE 4.13 OF THE AGREE MENT, WHICH READS AS UNDER :- 4.13 THE RESELLER HAS A RIGHT TO DEVELOP CUSTO MER SPECIFIC ADDITIONAL LOCALIZED FEATURES (THE ADDITIONAL FEATURES), SUCH AS MACROS, AND LINKS TO THIRD PARTY SOFTWARE PRODUCTS USING SOFTWARE TOOLS PROVI DED BY TEKLA. SUCH ADDITIONAL FEATURES, WHICH MAY BE USED BY MORE T HAN ONE CUSTOMER ON A COMMERCIAL BASIS, MAY ONLY BE DEVELOPED WITH TH E PRIOR WRITTEN CONSENT OF TEKLA. SUCH CONSENT IS SUBJECT TO THE R ESELLER ENTERING INTO A SEPARATE DEVELOPMENT AGREEMENT WITH TEKLA. SAID AGREE MENT SHALL COVER THE DEVELOPMENT, SALE AND OTHER RELATED MATTERS IN RESP ECT OF ADDITIONAL FEATURES AS WELL AS THE PAYMENT OF ROYALTIES IN CASE TEKLA SELLS ADDITIONAL FEATURES DEVELOPED BY RESELLER TO TEKLAS OTHER RESELL ERS OR CUSTOMERS. ANY SUCH DEVELOPMENT SHALL NOT ENTITLE THE RESELLER TO ANY RIGHTS IN THE SOFTWARE. 8. AS PER THE ASSESSING OFFICER, THE TERMS AND COND ITIONS OF THE RE-SELLER AGREEMENT CLEARLY SUGGEST THAT THE PAYMENTS HAVE B EEN MADE FOR THE USE OR RIGHT TO USE THE SOFTWARE AND, THEREFORE, IT WOULD BE IN THE NATURE OF ROYALTY. THE ASSESSING OFFICER ALSO REFERRED TO THE AGREEMENT TO POINT OUT THAT IT ENVISAGES ASSESSEE RECEIVING THE SOFTWARE F ROM TEKLA FINLAND AND SUB- LICENSING IT TO CUSTOMERS IN THE INDIAN TERRITORY A ND NO WAY DOES IT JUSTIFY THE ASSERTIONS OF THE ASSESSEE THAT IT WAS REQUIRED TO PURCHASE THE SOFTWARE FROM TEKLA FINLAND FOR ONWARD SALE TO THE CUSTOMERS IN INDIA. THE PAYMENTS MADE ARE FOR USE OF INTELLECTUAL PROPERTY AND NOT F OR PURCHASE OF GOODS AND, THEREFORE, IT BEING IN THE NATURE OF ROYALTY, TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE. THE CIT(A) HAS ALSO MORE OR LE SS CONCURRED WITH THE REASONING TAKEN BY THE ASSESSING OFFICER BASED ON T HE MEANING OF EXPRESSION ROYALTY ASCRIBED IN EXPLANATION-2 TO SEC. 9(1)(VI ) OF THE ACT. FURTHER, THE CIT(A) ALSO REFERRED TO EXPLANATION-4 TO SEC. 9(1)( VI) OF THE ACT, INSERTED BY 6 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED THE FINANCE ACT, 2012 W.R.E.F. 01.06.1976, TO SAY T HAT THE PAYMENTS WERE FOR RIGHT TO USE OF SOFTWARE, WHICH WOULD AMOUNT TO RO YALTY. 9. IN THE ABOVE CONTEXT, THE LEARNED REPRESENTATIVE , IN PARTICULAR, WITH RESPECT TO THE RELIANCE PLACED BY THE ASSESSING OFF ICER ON CLAUSE 4.13 OF THE AGREEMENT, POINTED OUT THAT THE ADDITIONAL FEATURE S REFERRED THEREIN WERE NEVER DEVELOPED BY THE ASSESSEE DURING THE PERIOD U NDER CONSIDERATION AND THAT THE IMPUGNED PAYMENTS WERE MERELY TOWARDS THE PURCHASE OF SOFTWARE FOR ULTIMATE SALE TO THE CUSTOMERS IN INDIA. THE L EARNED REPRESENTATIVE EMPHASISED THAT THOUGH THE AGREEMENT REFERS TO OBTA INING SOFTWARE PRODUCT BY GETTING A LICENCE, BUT IN EFFECT, IT WAS A CASE WHERE ASSESSEE HAD PURCHASED THE SOFTWARE AND RESOLD IT TO THE CUSTOME RS IN INDIA. FOR THIS PURPOSE, THE PURCHASE INVOICE RAISED BY TEKLA FINLA ND ON ASSESSEE AND THEREAFTER THE SALES INVOICE RAISED BY THE ASSESSEE ON THE CUSTOMERS IN INDIA HAVE BEEN REFERRED TO ON A SAMPLE BASIS TO SAY THAT IT IS A CASE OF A PURCHASE OF PRODUCT FOR ONWARD SALE. REFERENCE HAS ALSO BEE N MADE TO THE FINANCIAL STATEMENTS SHOWING THAT THE TRANSACTIONS HAVE BEEN DEPICTED AS PURCHASE AND SALE OF SOFTWARE PRODUCTS. THE LEARNED REPRESE NTATIVE POINTED OUT THAT THE AFORESAID DETAILED POSITION WAS NOT SPECIFICALL Y RAISED BEFORE THE LOWER AUTHORITIES, BUT REFERRED TO AN AFFIDAVIT WHICH SEE KS TO POINT OUT THAT THE ASSESSEE HAS NOT DEVELOPED ANY ADDITIONAL FEATURES IN THE SOFTWARE PRODUCT OF TEKLA FINLAND BEFORE ONWARD SALE TO THE CUSTOMER S. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE REFERRED TO AN APPLICATION DATED 24.01.2018 REQUESTING FOR ADMISSION OF ADDITIONAL E VIDENCE IN TERMS OF RULE 29 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 19 63. THE ADDITIONAL EVIDENCE WHICH HAVE BEEN SOUGHT TO BE ADMITTED ARE AS FOLLOWS :- 7 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED I) SAMPLE COPIES OF CUSTOMER ORDER AND LICENCE AGREEME NT ALONGWITH THE SALES INVOICE EXECUTED BETWEEN ASSESSEE AND TEK LA FINLAND AND THE PURCHASE INVOICE ALONGWITH THE REPURCHASE ORDER EXE CUTED BETWEEN ASSESSEE AND TEKLA FINLAND PERTAINING TO THE YEAR UNDER CONSIDERATION. THESE EVIDENCES HAVE BEEN EMPHASISED TO JUSTIFY THAT THERE WAS BACK-TO-BACK ARRANGEMENT ENTERED INTO BY ASSESSEE WITH TEKLA FINLAND FOR PURCHASE OF SOFTWARE AND ITS SU BSEQUENT SALE AND ALSO TO JUSTIFY THAT NO ADDITIONAL FEATURES HAVE BEEN DEVELOPED BY THE ASSESSEE BEFORE THE SALE OF PRODUCTS TO THE C USTOMERS. II) THE STANDARD TERMS AND CONDITIONS AGREED BETWEEN A SSESSEE AND THE ULTIMATE CUSTOMERS AT THE TIME OF SIGNING THE C USTOMER ORDER AND THE SOFTWARE LICENCE AGREEMENT HAS BEEN FURNISHED. AN AFFIDAVIT HAS BEEN FURNISHED TO JUSTIFY THE ASSERTION THAT ASSESSEE HAS NOT DEVELOPED ANY ADDITIONAL FEATURES IN THE SOF TWARE PRODUCTS OF TEKLA FINLAND. III) CHART SHOWING DEPARTMENT-WISE BIFURCATION OF EMPL OYEES AND THEIR SALARY COST FOR AY 2009-10 AND AY 2010-11; IV) CHART CAPTURING THE SUMMARY OF SALES AND PURCHASE MADE DURING AY 2010-11; AND V) AN AFFIDAVIT EVIDENCING THAT TRIMBLE INDIA HAS NO T DEVELOPED ANY ADDITIONAL FEATURES IN THE SOFTWARE PRODUCTS OF TRIMBLE SOLUTIONS CORPORATION. 10. APART THEREFROM, THE FINANCIAL STATEMENTS FOR T HE YEAR UNDER CONSIDERATION HAVE BEEN REFERRED TO, IN ORDER TO DE MONSTRATE THE MANNER IN WHICH THE TRANSACTIONS HAVE BEEN ENTERED IN THE BOO KS OF ACCOUNT. 11. ANOTHER ASPECT RAISED IN SUPPORT OF THE PLEA TH AT NO ADDITIONAL FEATURES IN THE SOFTWARE HAVE BEEN DEVELOPED BY THE ASSESSEE IS BASED ON THE DEPARTMENT-WISE BIFURCATION OF EMPLOYEES AND TH EIR SALARY COSTS. THESE 8 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED DETAILS HAVE BEEN REFERRED, TO SAY THAT EMPLOYEES O F THE ASSESSEE ARE PREDOMINANTLY ENGAGED IN THE ACTIVITIES OF SALES, M ARKETING AND DISTRIBUTION OF SOFTWARE PRODUCTS AND ASSESSEE DOES NOT HAVE ANY EMPLOYEE COMPETENT TO UNDERTAKE SOFTWARE DEVELOPMENT ACTIVITIES. THE AFORESAID MATERIAL HAVE BEEN REFERRED BY THE ASSESSEE BEFORE US TO SHOW THA T IT IS A CASE WHERE ASSESSEE HAS BOUGHT THE SOFTWARE AND IN THE PROCESS OF FACILITATING ITS DISTRIBUTION AND SALE IN INDIA, RENDERED SALES AND MARKETING SERVICES AND IT IS NOT A CASE WHERE ASSESSEE HAS INDULGED IN AN ACTIVI TY WHICH WOULD RENDER THE PAYMENTS AS ROYALTY IN NATURE. 12. ON THE OTHER HAND, THE LD. DR SUPPORTED THE STA ND OF THE LOWER AUTHORITIES, WHICH WE HAVE ALREADY NOTED IN THE EAR LIER PARAS AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 13. HAVING CONSIDERED THE RIVAL STANDS, IT IS ABUND ANTLY CLEAR THAT THE DISPUTE HINGES AROUND THE MECHANICS OF RE-SELLER AG REEMENT OF THE ASSESSEE WITH TEKLA FINLAND IN TERMS OF WHICH ASSESSEE IS AP POINTED TO DISTRIBUTE AND MARKET THE SOFTWARE OF TEKLA FINLAND IN THE INDIAN TERRITORY. THE CASE SOUGHT TO BE MADE OUT BY THE ASSESSEE IS THAT IT HAS MEREL Y PURCHASED AND SOLD A COPYRIGHTED ARTICLE WHILE, ON THE CONTRARY, WHAT TH E ASSESSING OFFICER HAS CONCLUDED IS THAT ASSESSEE ACQUIRED A RIGHT IN THE COPYRIGHT OF THE ARTICLE AND IT IS NOT A CASE WHERE ASSESSEE HAS MERELY DEALT WI TH A COPYRIGHTED ARTICLE. THE STAND OF THE ASSESSING OFFICER IS PRIMARILY BAS ED ON CLAUSE 4.13 OF THE AGREEMENT, WHICH SAYS THAT ASSESSEE WOULD HAVE A RI GHT TO DEVELOP CUSTOMER SPECIFIC FEATURES IN THE SOFTWARE PRODUCT AND ONLY THEREAFTER SELL IT TO THE INDIAN CUSTOMERS. WITHOUT GOING INTO THE QU ESTION AS TO WHETHER THE 9 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED AFORESAID CLAUSE ENABLES THE CHARACTERISATION OF TH E PAYMENT TO TEKLA FINLAND AS ROYALTY, IT IS VEHEMENTLY CLAIMED BY T HE APPELLANT BEFORE US THAT, ON FACTS, NO SUCH ACTIVITY HAS BEEN UNDERTAKEN BY T HE ASSESSEE DURING THE PERIOD UNDER CONSIDERATION. IT IS SOUGHT TO BE EMP HASISED THAT NO SUCH LOCALISED FEATURES WERE DEVELOPED; AND, ON THE BASI S OF SAMPLE COPIES OF DOCUMENTS, THE ENTIRE SEQUENCE STARTING FROM INITIA TION OF TRANSACTION WITH THE CUSTOMER WHO INTENDS TO PURCHASE THE SOFTWARE, OBTAINING THE SAME FROM TEKLA FINLAND AND FINALLY SELLING IT TO THE CU STOMER, IT HAS BEEN EXPLAINED THAT ASSESSEE HAS MERELY ACTED AS A DIST RIBUTOR OF THE PRODUCT. WE FIND THAT THIS ASPECT WAS NOT SPECIFICALLY RAISE D BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES AND IN THIS BACKGROUND, ASSES SEE HAS PRAYED FOR ADMISSION OF SUCH EVIDENCE AS ADDITIONAL EVIDENCE I N TERMS OF RULE 29 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963. AT TH E TIME OF HEARING, BOTH SIDES WERE ASKED TO GIVE THEIR SAY ON THE IMPORTANC E OF THE AFORESAID EVIDENCE IN ORDER TO DETERMINE THE CORRECTNESS OF T HE TAX LIABILITY OF THE ASSESSEE. OF COURSE, THE ASSESSEE SOUGHT TO JUSTIF Y THE CONSIDERATION OF SUCH ADDITIONAL EVIDENCE ON THE ON THE GROUND THAT IT WI LL ENABLE THE ASSESSEE TO PROVE ITS POINT THAT THE IMPUGNED PAYMENTS COULD NO T BE TREATED AS ROYALTIES. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, OPPOSED THE PLEA PRIMARILY ON THE GROUND THAT SUCH EVIDENCE WAS ALWAYS AVAILABLE WITH THE ASSESSEE BUT WAS NOT PRODUCED BEFORE THE LOWER AUTHORITIES. 13.1 IN OUR CONSIDERED OPINION, ADDITIONAL EVIDENCE NOW SOUGHT TO BE PRODUCED BY THE ASSESSEE DOES NOT ENABLE THE ASSESS EE TO MAKE OUT A NEW CASE BUT ONLY WOULD ENABLE THE ASSESSEE TO SUPPORT ITS ASSERTIONS MADE BEFORE THE AUTHORITIES IN AN APPROPRIATE MANNER. N OT ONLY THAT, THE ADDITIONAL EVIDENCE WILL ALSO ENABLE INCOME TAX AUT HORITIES TO DETERMINE THE 10 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED CORRECT NATURE OF THE PAYMENTS IN ACCORDANCE WITH T HE EXTANT POSITION OF LAW. THE ASSESSEE HAS CONSISTENTLY BEEN ASSERTING THAT THE RE-SELLER AGREEMENT IS MERELY A BACK TO BACK ARRANGEMENT WHER EBY ASSESSEE DISTRIBUTES THE SOFTWARE PRODUCTS DEVELOPED BY ITS HOLDING COMPANY. IN FACT THE EMPHASIS BY THE ASSESSING OFFICER ON PARA 4.1.3 OF THE RE-SELLER AGREEMENT WOULD BE SUSPECT TO TREAT PAYMENTS IN THE NATURE OF ROYALTY, IF FACTUALLY ASSESSEE IS ABLE TO DEMONSTRATE THAT IT H AS NOT UNDERTAKEN ANY SEPARATE DEVELOPMENT IN THE SOFTWARE PRODUCTS ON IT S OWN IN THE COURSE OF SELLING THE PRODUCT TO THE CUSTOMER. BE THAT AS I T MAY, IN OUR CONSIDERED OPINION, THE AFORESAID ADDITIONAL EVIDENCE IS GERMA NE AND IN THE INTEREST OF JUSTICE IT DESERVES TO BE CONSIDERED WHILE DETERMIN ING THE TAX LIABILITY OF THE ASSESSEE, QUA THE IMPUGNED PAYMENTS. OF COURSE, TH E SAID EVIDENCE WAS NOT BEFORE THE LOWER AUTHORITIES AND, THEREFORE, WE DEE M IT FIT AND PROPER TO REMIT THE MATTER BACK TO THE ASSESSING OFFICER, WHO SHALL REVISIT THE CONTROVERSY AFTER CONSIDERING THE SUBMISSIONS PUT FORTH BY THE ASSESSEE AND AS PER LAW. THUS, ON THIS ASPECT ASSESSEE SUCC EEDS FOR STATISTICAL PURPOSES. 14. THE LAST GROUND IN THIS APPEAL IS WITH REGARD T O THE DISALLOWANCE OF RS. 6,936,000/- TOWARDS FOREIGN EXCHANGE LOSS ON ACCOUN T OF RESTATEMENT OF TRADE RECEIVABLES/ PAYABLES ON THE END OF THE YEAR. IN T HIS CONTEXT, IT IS NOTED THAT ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCO UNTING AND AS ON 31/03/2009 THE VALUE OF TRADE RECEIVABLES AND PAYABLES WAS RES TATED IN THE FINANCIAL STATEMENTS IN ACCORDANCE WITH THE ACCOUNTING STANDA RD WHICH RESULTED IN MARKED TO MARKET LOSS OF RS.69,36,000/-. THE SAID LOSS W AS CLAIMED AS REVENUE LOSS BY WAY OF DEBIT IN THE P&L ACCOUNT. THE ASSESSING OFF ICER AS WELL AS THE CIT(A) DISALLOWED THE CLAIM ON THE GROUND THAT IT WAS A C ONTINGENT LIABILITY. IN THIS 11 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED CONTEXT, THE LD.REPRESENTATIVE FOR THE ASSESSEE REL IED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWA RD GOVERNOR INDIA PRIVATE LIMITED, 312 ITR 254 (SC) TO CONTEND THAT LOSS WAS ALLOWABLE AS AN EXPENDITURE IN COMPUTING THE TOTAL INCOME. OUR ATTENTION HAS ALS O BEEN DRAWN TO THE JUDGMENT OF THE HON;BLE BOMBAY HIGH COURT IN THE CASE OF VAS SANTRAM MEHTA & CO. VS. JCIT, 63 TAXMANN.COM, 102(BOM), WHEREIN IT HAS BEEN HELD THAT THE LOSS INCURRED ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RATE WA S ALLOWABLE ON THE DATE OF MAKING OF BALANCE SHEET AND ITS ALLOWABILITY COULD NOT BE POSTPONED TO A FUTURE DATE. IN VIEW OF THE AFORESAID PRECEDENTS, WE FIND THAT THE CLAIM OF THE ASSESSEE IS JUSTIFIED AND IT IS ORDERED TO BE ALLOWED. THUS, O N THIS ASPECT ASSESSEE SUCCEEDS. 15. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2009-10 IS ALLOWED AS ABOVE. ITA NO.7031/MUM/2014-A.Y. 2010-11: 16. T HE FACTS AND CIRCUMSTANCES IN THIS APPEAL ARE PARI-MATERIA TO THOSE CONSIDERED BY US IN ITA NO.3079/MUM/2013 FOR ASSESS MENT YEAR 2009-10, IN THE EARLIER PARAGRAPHS, THEREFORE, OUR DECISION FO R ASSESSMENT YEAR 2009-10 SHALL APPLY MUTATIS MUTANDIS IN THIS APPEAL ALSO. 17. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED AS ABOVE. SD/- SD/- (SANDEEP GOSAIN ) (G.S. PANNU) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED / /2019 SSL, SR. PS 12 ITA NOS. 3079/M/2013 & 7031/M /2014 TRIMBLE SOLUTIONS INDIA PRIVATE LIMITED COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI