JCIT, Bangalore V. Smt. J. Rama, Bangalore

ITA 389/BANG/2011

• Counselvise Citation: 38921114 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-05-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PADAMCHAND KHINCHA
• Assessee Lawyers: S K AMBASTHA CITI
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.K SAINI, ACCOUNTANT MEMBER AND SMT. P MADHAVI DEVI, JUDICIAL MEMBER ITA NO.1182 /BANG/2011 (ASST. YEAR 2007-08) M/S KEANE INDIA LTD., (ASST. IN THE CASE OF KEANE INTERNAITONAL IND. PVT. LTD., NOW MERGED WITH KEANE IND. LTD., ) PAN NO.AABCK7777J). APPELLANT VS. THE ASST. COMMISSIONER OF INCOME-TAX (ASST.), CIRCLE-11(5), BANGALORE. RESPONDENT APPELLANT BY : SHRI PADAM CHAND KHINC HA, CA RESPONDENT BY : SHRI S.K AMBAST HA, CIT-I DATE OF HEARING : 04-05-2012 DATE OF PRONOUNCEMENT : 25-05-2012 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) I AT BANGALORE DATED 24.10.2011. THE APPEAL ARISES OUT OF THE ASSESSMENT COMPLETED U /S 143(3) OF THE INCOME-TAX ACT, 1961. ITA NO.1182/B/11 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE LEARNED CIT ( A ) HAS ER R ED IN LAW AND ON FACTS BY UPHOLDING THE ORDER OF THE AO , WH I CH I S BASED ON INCORRECT APPRECIATION OF FACTS AND LAW AND IS THEREFORE BAD I N LAW . 2. THE LEARNED CIT ( A ) HAS ERRED I N LAW AND O N FACTS BY HOLD I NG THAT THE FORMAT I ON COND I T I ONS PRESCRIBED BY THE SOFTWARE TECHNOLOGY PARK OF I ND I A ( ' STPI ') SCHEME AND THE ACT HAVE NO T BEEN SAT I SFIED I N THE CASE OF UN I T 2 , UNIT 3 AND UN I T 4 AND IN FURTHER HOLD I NG THAT THE SA ID UN I TS A R E NOT E L IG I BLE FOR DEDUCTION UNDER SECTION 1 OA OF THE ACT . 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ORDER OF THE AO W I THOUT APPRECIATING THE FACT THAT THE UNIT 2 , UN I T 3 , AND UNIT 4 HAVE SATISF I ED ALL THE FORMATION CONDITIONS OF SECT I O N 1 0A AND HENCE ELIG I BLE FOR DEDUCT I ON UNDER SECTION 10A OF THE ACT . 4. T HE LEARNED C IT( A ) FO R A Y 200 7- 08 HAS E RR ED LAW I N NOT ALLOW I NG T HE H ONOURABLE T RI B U NA L ' S ORDER FO R EA R L I ER Y EA R S R EGARD I NG SECT I ON 1 0A EL I G I B I L I TY OF U NI T 2 , UNIT 3 AND UN IT 4 IN T HE APPELLANT ' S OWN CASE , BE I NG B I ND I NG ON THE LOWER AUTHOR I T I ES. 5. THE LEARNED CIT ( A) HAS E RR ED IN LAW AND ON FACTS I N IGNORING AND NOT FOLLOWING THE HONOURABLE T RI BUNA L ' S DEC I S I ONS I N THE APPELLANT ' S OWN CASE FOR EARL I ER YEARS W I THOUT APPREC I AT I NG THE FA C T THAT THE I SSUES AND FACTS COVERED U N DER THE PRESENT APPEAL ARE I DEN T ICAL AND S I M I LA R W ITH THAT O F T HE EARL I ER YEARS . 6. THE LEARNED C I T ( A ) HAS ERRED I N LAW AND O N FACTS I N STATING T HAT THE HONO UR ABLE T RI BUNAL ' S DEC I SIONS IN THE APPELLANT ' S OWN CASE FOR EARLIER ITA NO.1182/B/11 3 YEARS ARE NOT BINDING ON THE GROUND THAT THE ORDERS FOR THE EARLIER YEARS HAVE BEEN PASSED BY HONOURABLE TRIBUNAL WITHOUT DI SCUSSING THE BAS I S OR CONCLUSION OF AO FOR NON - ALLOWANCE OF DEDUCTION UNDER SECT I O N 10A TO UN I T2 , UN I T3 , AND UNIT 4 . 7. THE LEARNED CIT ( A ) HAS ERRED IN LAW AND ON FACTS I N CONFIRM I NG THE AO ' S O R DER WITHOUT APPREC I ATING THE FACT THA T T HE EA R L I ER YEAR ORDERS OF THE HONOURABLE TRIBUNAL HAVE DISCUSSED AND DELIBERATED AT LENGTH THE ASPECT OF ELIGIB I LITY OF CLAIM OF SECTION 10A DEDUCTION IN RESPECT O F UNIT 2 , UNIT 3 AND UNIT 4. 8. THE LEARNED CIT ( A) HAS ER R ED I N LAW AND ON FACTS I N HO L DING THA T I NCOME FROM HUMAN RESOURCE SERV I CES I S NOT ELIGIBLE FO R DED U C TI ON UNDER SECT I ON 10A O F THE AC T . 9 . THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN NOT APPRECIATING THAT INCOME FROM HUMAN RESOURCE SERVICES IS ELIGIBL E FOR DEDUCTION UNDER SECTION 10A SINCE IT IS COVERED WITHIN THE NOTIFIED INFORMATION TECHNOLOGY ENABLED SERVICES CONSTITUTING COMPUTER SOFTWARE. 10. THE LEARNED CITL(A) HAS ERRED IN LAW ON FACTS I N CONFIRMING THE ORDER OF THE AO BY NO APPRECIATING THE FACT THAT THE TELE COMMUNICATION CHARGES ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE IN DIA ARE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER ONLY IF THE SAME IS INCLUDED IN THE EXPORT TURNOVER IN RESPECT OF UNITS 5 AND 6. 11. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S BY NOT CONSIDERING THE ALTERNATIVE PLEA OF THE APPELLANT THAT, IF THE TELECOMMUNICATION CHARGES ITA NO.1182/B/11 4 ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE A RE EXCLUDED FROM EXPORT TURNOVER, THE SAME SHOULD ALSO BE REDUCED FROM TOTA L TURNOVER IN COMPUTING DEDUCTION U/S 10A OF THE ACT. 12. THE LEARNED CIT(A) FOR AY 2007-08 HAS ERRED IN LAW IN NOT APPLYING THE HONOURABLE TRIBUNALS DECISIONS I THE APPELLANT S OWN CASE AND OTHER PREVAILING JUDICIAL PRECEDENTS OF THE HONOURABLE TR IBUNAL AND HONOURABLE KARNATAKA HIGH COURT ON THE PRINCIPLE OF PARITY. 13. THE LEARNED CIT(A) HAS ERRED, IN LAW AND ON FAC TS, IN NOT CONSIDERING THE FOREIGN EXCHANGE GAIN IN RELATION TO THE RECEIV ABLES FROM DEBTORS AS A PART OF THE EXPORT TURNOVER WHILE COMPUTING THE DED UCTION U/S 10A OF THE ACT. 14. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN EXCLUDING FOREIGN EXCHANGE GAIN FROM PROFITS OF THE UNDERTAKING ELIGI BLE FOR DEDUCTION U/S 10A OF THE ACT. 15. THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS I N NOT GRANTING DEDUCTION U/S 10A OF THE ACT IN RESPECT OF INTEREST INCOME AND MISCELLANEOUS INCOME WHICH FORM PART OF THE BUSINESS INCOME OF TH E APPELLANT FOR THE UNIT 5 AND 6. 3. THE GROUND NO.1 IS GENERAL IN NATURE AND NEEDS N O ADJUDICATION. ITA NO.1182/B/11 5 4. AS REGARDS GROUNDS NO.2 TO 7, THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVE LOPMENT SERVICES AND PROFESSIONAL SERVICES AND IT FILED ITS RETURN OF IN COME FOR THE ASSESSMENT YEAR 2007- 08 ON 31.10.2007 DECLARING A TOTAL INCOME OF RS.29, 30,45,240/-. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3), THE ASSESSING OF FICER OBSERVED THAT THE ASSESSEE COMPANY HAS FIVE UNITS REGISTERED UNDER STPI, OF WH ICH TWO ARE NEW UNITS, WHICH HAVE COMMENCED OPERATIONS DURING THE PREVIOUS YEAR PERTAINING TO THE ASSESSMENT YEAR 2005-06. HE ALSO OBSERVED THAT THE ASSESSEE C OMPANY HAS CLAIMED DEDUCTION U/S 10A AMOUNTING TO RS.124,77,99,091/- IN RESPECT OF ITS UNITS SITUATED AT DIFFERENT PLACES IN BANGALORE AND CHENNAI. THE ASSESSEE COMP ANY WAS ASKED TO FURNISH DOCUMENTS AND DETAILS PERTAINING TO THE TWO NEW UNI TS, AS THE DETAILS REGARDING THE OLD UNITS WERE ALREADY CONSIDERED IN THE EARLIER AS SESSMENT YEARS. AFTER CONSIDERING THE DETAILS FURNISHED BY THE ASSESSEE, THE AO OBSERVED THAT ONE OF THE PRIMARY CONDITIONS STIPULATED IN SEC. 10A WAS THAT THE UNDERTAKING SHOULD HAVE BEEN FORMED AFTER REGISTRATION WITH STP AND THAT THE UNI TS REGISTERED WITH STPI AUTHORITIES SHOULD COMMENCE PRODUCTION ONLY IN THE CUSTOMS BONDED AREA. HE OBSERVED THAT THE COMMENCEMENT OF PRODUCTION STARTE D IN UNIT 2, 3 AND 4 MUCH BEFORE OBTAINING THE LICENSE FOR BONDED WAREHOUSE AND, THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR THE EXEMPTION OF INCOME U/S 10A OF THE INCOME-TAX ACT WITH REGARD TO THE INCOME FROM THE SAID UNITS. HE ALSO OBSERVE D THAT IN THE PREVIOUS YEARS, THE ITA NO.1182/B/11 6 ISSUE HAS NOT BECOME FINAL AND HENCE, THE ASSESSES S CONTENTION OF EXEMPTION U/S 10A RELATING TO THESE UNITS IS NOT ACCEPTABLE. 5. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS I N APPEAL BEFORE US. 6. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001-02, 2003- 04, 2004-05 AND 2006-07 AND THE TRIBUNAL HAS DECIDE D THE ISSUE IN ITS FAVOUR. THE LEARNED DR HOWEVER, PLACED RELIANCE UPON THE ORDER S OF THE AUTHORITIES BELOW. 7. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS, WE FIND THAT THE TRIBUNAL AFTER CONSIDERING THE ISSUE AT LENGTH HAS HELD AT PARAS 2.20 AND 2.21 AS UNDER : 2.20 THE LEARNED APEX COURT IN THE CASE OF BAJAJ TEMPO LTD . VCIT (196 ITR 188) HELD THAT INCENTIVE PROVISION IN FISCAL ST ATUTE SHOULD BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE AND NOT TO FRUSTRATE IT. THE LEARNED AR HAS FILED COPY OF ONE APPROVAL LETTER ISSUED BY STPI . IN THE APPROVAL LETTER, IT IS MENTIONED AS UNDER:- ITA NO.1182/B/11 7 'WE ARE HAPPY TO INFORM THAT YOUR APPLICATION FOR SETTING UP OF 100% EXPORT ORIENTED UNIT UNDER THE SOFTWARE TECHNOLOGY PARK SCHEME OF GOVERNMENT OF INDIA AT YOUR OWN PREMISES HAS BEEN APPROVED BY THIS OFFICE UNDER THE DELEGATED POWERS TO THE DIRECTORS OF STPS BY IMSC VIDE DOE LETTER NO.15(100)/93-EXPORT DATED 24.6 . 93 . YOU ARE REQUESTED TO KINDLY CONFIRM THAT YOU ARE AGREEABLE TO THE TERMS AND CONDITIONS ENCLOSED TO SIA (EOU SECTION) AND DOE (IP DIVISION), NEW DELHI AND A COPY TO THIS OFFICE . FURTHER, IT IS REQUESTED TO SUBMIT THE ENCLOSED LEGAL AGREEMENT (ON RS . 50/- STAMP PAPER) ALONG WITH RS . 45,OOO/- BY DEMAND DRAFT IN FAVOUR OF THE DIRECTOR, SOFTWARE TECHNOLOGY PARKS OF INDIA, CHENNAI TOWARDS SERVICE CHARGES FOR 3 YEARS (TO BE PAID IN ADVANCE) @ RS.15,OOO/- PER ANNUM . YOU ARE ALSO REQUESTED TO SUBMIT A LIST OF CAPITAL GOODS TO BE IMPORTED FOR ATTESTATION, WHICH IS REQUIRED TO OBTAIN THE BONDED WARE HOUSE LICENSE FROM CUSTOM'S AUTHORITIES. IT IS ALSO INTIMATED THAT SEPARATE PROFORMA INVO ICE FROM THE SUPPLIER HAS TO BE SUBMITTED TO THIS OFFICE FOR ATTESTATION AS AND WHEN YOU INTEND TO IMPORT DUTY FREE CAPITAL GOODS/~ ITA NO.1182/B/11 8 ALONG WITH THE APPROVAL LETTER, ANOTHER LETTER OF T HE SAME DATE HAS ALSO BEEN ISSUED BY STPI . IN PARA 1 OF LETTER NO.6200 DATED 29TH JUNE, 1998, IT IS MENTIONED THAT THE GOVT. IS PLEASED TO EXTEND ALL T HE FACILITIES AND PRIVILEGES ADMISSIBLE UNDER THE STP SCHEME FOR THE ESTABLISHMENT OF A NEW UNDERTAKING UNIT IN THE STATE OF TAMIL NADU FOR THE MANUFACTURE OF COMPUTER SOFTWARE. SUCH FACILITIES AND PRIVILEGES W ERE SUBJECT TO THE CONDITIONS STIPULATED IN ANNEXURE AS WELL AS MENTIO NED IN PARA 2 OF THAT LETTER . AS PER PARA 2( I X) OF THE LETTER UNDER REFERENCE, IT WAS MENTIONED THAT THE UNIT SHALL BE CUSTOM BONDED . IT THEREFORE MEANS THAT IN ORDER TO AVA I L THE FACILITIES AND PRIVILEGES ADMISSIBLE UNDER TH E STP SCHEME CAN BE AVAILED IF THE UNIT IS CUSTOM BONDED. THE ASSESSEE HAS OBTAINED CLARIFICATION FROM STPI AS PER LETTER DATED 20TH AP RIL, 2004 FROM DIRECTOR , STP . IT IS MENTIONED THAT IF THE ASSESSEE INTEND TO AVAI L ANY DUTY CONCESSION, THEN THE ASSESSEE IS REQUIRED TO APPROA CH CUSTOM FOR CUSTOM BONDING . HENCE, IT CANNOT BE READ IN THE PROVISIONS OF THE ACT THAT FO R AVAILING DEDUCTION U/S LOA, THE ASSESSEE SHOULD FIRST OBTAIN THE CUSTOM BO NDING AND THEN SHOULD COMMENCE PRODUCTION . SO FAR AS UNIT 2 AND 3 ARE CONCERNED, THE CUSTOM BONDING HAS BEEN OBTAINED IN THE EARLIER PREVIOUS Y EAR AND NOT IN THE PREVIOUS YEAR RELEVANT TO THE ASST. YEAR UNDER CONS IDERATION . AS ALREADY POINTED OUT THAT CONDITION IN 10A(2)(I) IS IN THE P RESENT TENSE AND THEREFORE, SUCH CONDITION IS REQUIRED TO BE SATISFI ED IN THE PREVIOUS YEAR RELEVANT TO THE ASST . YEAR UNDER CONSIDERATION. SO FAR AS UNIT 2 AND 3 AR E CONCERNED, THE PRODUCTION IS AFTER THE CUSTOM BONDING SO FAR A S THE PREVIOUS YEAR ITA NO.1182/B/11 9 RELEVANT TO THE ASST . YEAR IS CONCERNED . IF THE ASSESSEE IS LEGALLY JUSTIFIED TO CLAIM BENEFIT IN THE ASST . YEAR, THEN HIS CONDUCT IS TO BE SEEN FOR THAT ASST . YEAR AND THE PAST CONDUCT IS NOT RELEVANT, PARTICUL ARLY WHEN REFERENCE TO SUCH CONDUCT IS NOT MADE IN THE ACT . FOR THIS PROPOSITION, RELIANCE IS PLACED ON THE DECISION OF DELHI BENCH IN THE CASE O F TECH BOOKS ELECTRONICS SERVICES (P) LTD. V ADDL . CIT (100 ITD 125). 2 . 21 THIS BENCH IN THE CASE OF INFOSYS TECHNOLOGY HAS HELD THAT IF THE FIRST SALE IS EFFECTED AFTER THE UNIT IS RECOGNIZED AS ST P, THEN THE ASSESSEE IS ENTITLED TO BENEFIT OF SECTION LOA EVEN THOUGH THE UNIT STARTED PRODUCTION BEFORE IT BECAME A STP UNIT. IN THE INSTANT CASE, T HE ASSESSEE HAS DEMONSTRATED THAT FIRST INVOICE HAS BEEN RAISED AFTER IT HAS OBTAINED THE APPROVAL OF STPI . THUS, THE ISSUE OF CLAIM OF EXEMPTION U/S 10A IS COVERED BY THE DECISION S OF THIS BENCH VIDE ORDER DATED 5TH JULY, 2005 IN ITA NO . 140 / BANG 101 FOR THE ASST . YEAR 1997-98 IN THE CASE OF M/S INFOSYS TECHNOLOGIES LTD. FOLLOWING THAT ORDER, WE HOLD THA T THE LEARNED CIT(A)WAS JUSTIFIED IN ALLOWING EXEMPTION U/S 10A F OR UNITS 2, 3 AND 4. IN RESPECT OF UNIT 4, THE DEDUCTION I S HELD AS ADMISSIBLE AS THE FIRST INVOICE IS RAISED AFTER STPI APPROVAL . 8. IN VIEW OF THE SAME, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE, THE GROUND OF APP EAL NOS.2 TO 7 ARE ALLOWED. ITA NO.1182/B/11 10 9. AS REGARDS GROUND NO.10, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH THE ASSESSEE IS AGGRIEVED BY THE EXCLUSION OF TELECOMMUNICATION CHARGES ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE IN DIA FROM THE EXPORT TURNOVER, THE ASSESSEE IN NOT GOING TO PRESS THE SAME IN VIEW OF THE ALTERNATIVE GROUND OF APPEAL AT GROUND NOS. 11 AND 12, WHICH IS COVERED BY THE D ECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. TATA EL XSI LTD. REPORTED IN (2011) 5 TAXCORP (DT) 49675. 10. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT S.NO. 11 IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F TATA ELXSI LTD. (CITED SUPRA), WHEREIN THE HONBLE JURISDICTIONAL HIGH COURT HAS H ELD THAT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE INCOME-TAX ACT, IF ANY INCOME IS EXCLUDED FROM THE EXPORT TURNOVER, THEN THE SAME HAS TO BE E XCLUDED FROM THE TOTAL TURNOVER ALSO. 11. IN VIEW OF THE SAME, GROUND NO.10 IS REJECTED AND GROUND NOS. 11 AND 12 ARE ALLOWED. ITA NO.1182/B/11 11 12. AS REGARDS GROUNDS NO.13 AND 14 ARE CONCERNED, THE BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT THE ASSESSEE COMPANY HAS ADDED AN AMOUNT OF RS.11,60,328/- AND RS.1,33,52,,629/- FOR UNITS 5 A ND 6 RESPECTIVELY AS FOREIGN EXCHANGE GAIN FOR THE PURPOSE OF COMPUTING DEDUCTIO N U/S 10A OF THE INCOME-TAX ACT. HE OBSERVED THAT THE DEDUCTION U/S 10A IS ALL OWABLE ONLY FOR THE MONEY DERIVED DIRECTLY FROM THE EXPORT AND NOT THE FOREIG N EXCHANGE GAIN. HE, THEREFORE, REDUCED THE FOREIGN EXCHANGE GAIN FROM THE EXPORT T URNOVER. 13. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS I N SECOND APPEAL BEFORE US. 14. IN SUPPORT OF ASSESSEES CONTENTION, THE LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FOREIGN EXCHANGE GAIN IS OUT OF THE OPERATIONAL INCOME OF THE ASSESSEE, AND THUS FORMS PART OF THE EXPORT TURNOVE R. IN SUPPORT OF THIS CONTENTION, HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS : 1. CIT VS. INFOSYS TECHNOLOGIES LTD., HONBLE KARNA TAKA HIGH COURT DECISION, 1189/2006 DATED 22.11.2011, WHEREIN THE H ONBLE KARNATAKA HIGH COURT CONFIRMED THE ORDER OF THE TRIBUNAL HOLDING T HAT THE FLUCTUATION IN THE VALUATION OF CURRENCY WHICH HAS TO BE CONVERTED TO FOREIGN EXCHANGE ITA NO.1182/B/11 12 CURRENCY HAS DIRECT NEXUS TO THE EXPORT OF SOFTWARE AND CAN NEVER BE INCLUDED AS INCOME FROM OTHER SOURCES 2. CIT VS. PENTASOFT TECHNOLOGIES LTD., (2010) 4 T AXCORP (DT) 46840 (MAD); 3. CIT VS. GEM PLUS JEWELLERY INDIA (2010) 330 I TR 175, BOMBAY; WHEREIN SIMILAR VIEW HAS BEEN EXPRESSED. 15. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 16. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF VARIOUS HIGH COURTS (CITED SUPRA) AND RESPECTFULLY FOLLOWIN G THE SAME, THESE GROUNDS OF APPEAL ARE ALLOWED 17. AS REGARDS GROUND NO.15, BRIEF FACTS OF THE CAS E ARE THAT THE ASSESSEE COMPANY HAD EARNED INCOME IN THE NATURE OF INTERES T INCOME AND MISCELLANEOUS INCOME AND THE SAME HAD BEEN INCLUDED IN THE PROFI TS OF THE UNDERTAKING AS ELIGIBLE FOR DEDUCTION U/S10A OF THE INCOME-TAX ACT . THE AO HELD THAT THE INTEREST INCOME AND OTHER MISCELLANEOUS INCOME ARE NOT DE RIVED FROM EXPORT OF SOFTWARE BUT ARE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AS THEY ARE EARNED BY ITA NO.1182/B/11 13 INVESTING/DEPOSITING THE TEMPORARY SURPLUS FUNDS AV AILABLE WITH THE ASSESSEE COMPANY. 18. FOR COMING TO THE SAID CONCLUSION, THE AO RELIE D UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. STERLI NG FOOD REPORTED IN 237 ITR 579. 19. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS I N APPEAL BEFORE US. 20. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FACTS RELATING TO THE INTEREST INCOME AND MISCELLANEOUS INCOME HAVE N OT BEEN PROPERLY APPRECIATED BY THE AO AND THE CIT(A). IT WAS SUBMITTED THAT TH E INTEREST INCOME AND MISCELLANEOUS INCOME FOR UNITS 5 AND 6 HAVE BEEN EXCLUDED FROM THE PROFITS AND GAINS OF THE UNDERTAKING FOR COMPUTATION U/S 10A OF THE INCOME-TAX ACT AND WHILE MAKING SUCH ADJUSTMENT IN COMPUTATION, INADVERTENTL Y FOREIGN EXCHANGE GAIN WAS ALSO EXCLUDED FROM THE PROFIT OF THE BUSINESS OF TH E UNDERTAKING. HE SUBMITTED THAT IT IS NECESSARY TO CONSIDER THE ACTUAL BIFURCATION OF THE INTEREST INCOME AND MISCELLANEOUS INCOME OF UNITS 5 AND 6 RESPECTIVEL Y AND THEN DECIDE THE ISSUE IN ACCORDANCE WITH LAW. ITA NO.1182/B/11 14 21. THE LEARNED DR HAD NO OBJECTION TO THE SAME TH ING BUT HE PLACED RELIANCE UPON THE ORDERS OF THE AUTHORITIES BELOW: 22. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE DEEM IT FIT AND PROPER TO REMIT THE ISSUE BACK TO T HE FILE OF THE AO FOR RECONSIDERATION OF THE ISSUE IN ACCORDANCE WITH LAW AND AS PER ABOVE OBSERVATION. 23. THIS GROUND IS ACCORDINGLY ALLOWED FOR STATISTI CAL PURPOSES. 24. COMING TO THE GROUNDS NO. 8 AND 9, BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED THE INCOME FROM RECRUITMENT FEE AS PART OF EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 10A OF THE I NCOME-TAX ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO SUBMIT THE MASTER AGREEMENT, SCOPE OF WORK, COPIES OF INVOICES RAISED BY THE ASSESSEE DURING THE YEAR ETC., AND FROM THE DETAILS FILED, IT WAS NOTICED BY HIM THAT SOME OF THE INVOICES HAD BEEN RAISED BY QUOTING A SPECIFIC AMOUNT AGAINST TH E NAMES OF INDIVIDUALS. THE ASSESSEE WAS ASKED TO PROVIDE THE DETAILS OF THE SA ME AND ALSO TO SUBSTANTIATE WHY SUCH PAYMENTS SHOULD NOT BE TREATED AS PAYMENTS FOR BODY SHOPPING AND ACCORDINGLY WHY DEDUCTION U/S 10A SHOULD NOT BE DI SALLOWED ON THE SPECIFIC ITA NO.1182/B/11 15 AMOUNTS, WHICH HAVE BEEN EARNED BY SUCH BODY SHOPP ING. VIDE REPLY DATED 23.12.2010, THE ASSESSEE SUBMITTED THAT DURING FINA NCIAL YEAR 2006-07, THE ASSESSEE COMPANY HAS EARNED INCOME FROM PROVIDING HUMAN RESO URCE SERVICES TO ITS PARENT COMPANY. IT WAS SUBMITTED THAT HUMAN RESOURCE SERV ICES BY THE COMPANY INVOLVE MAINTENANCE BY IT A COMPUTERIZED DATABASE WITH REGA RD TO VARIOUS TYPES OF QUALIFIED IT PERSONNEL AVAILABLE IN INDIA AND WHERE THE COMPA NYS CUSTOMERS REQUIRE EMPLOYEES FOR THE PURPOSE OF CARRYING ON THEIR BUSI NESS OF SOFTWARE DEVELOPMENT, THEY APPROACH THE COMPANY TO ASSIST IT IN RECRUIT MENT OF TRAINED PERSONNEL AND IN SUCH A SITUATION, THE COMPANY PROVIDES THE CUSTOMER S WITH INFORMATION ON THE POTENTIAL CANDIDATES WHO WOULD MEET THE REQUIREMEN TS OF THE CUSTOMERS AND IF THE CUSTOMER IS SATISFIED WITH THE QUALITY OF THE CANDI DATE REFERRED, THE CANDIDATE IS HIRED BY THE CUSTOMER AND THE ASSESSEE COMPANY RECEIVES A CONSIDERATION FOR THE SERVICES RENDERED. THUS, ACCORDING TO THE ASSESSEE, THE ROL E OF THE COMPANY IS TO CREATE A RESOURCE OF QUALIFIED PERSONNEL AND TO TRANSMIT DAT A THROUGH ELECTRONIC MEANS TO THE CUSTOMERS. IT WAS ALSO SUBMITTED THAT AS PER THE C BDT NOTIFICATION NO.S0 890(E) 26/09/2000, INFORMATION TECHNOLOGY ENABLED PRODUCTS /SERVICES, INCLUDE HUMAN RESOURCE SERVICES AS ELIGIBLE FOR DEDUCTION U/S 10A OF THE INCOME-TAX ACT. THUS, ACCORDING TO THE ASSESSEE, THE RECRUITMENT/HUMAN RE SOURCE SERVICES RENDERED BY THE COMPANY SQUARELY FALLS WITHIN THE AMBIT OF HUMAN RE SOURCES SERVICES MENTIONED IN THE NOTIFICATION DATED 26.9.2000 AND IN SUPPORT OF ITS CONTENTION, THE ASSESSEE ITA NO.1182/B/11 16 PLACED RELIANCE UPON THE DECISION OF CHENNAI TRIBU NAL IN THE CASE OF M/S ACCURUM INDIA PVT. LTD., 2010-TIOL127, ITAT, MADRAS. THE ASSESSING OFFICER WAS HOWEVER NOT CONVINCED WITH THE ASSESSEES SUBMISSIO N AND HELD THAT THE INCOME EARNED BY THE ASSESSEE IS MAINLY DUE TO SUPPLY OF MAN POWER TO ITS CLIENTS, WHICH IS AKIN TO THE WORK UNDERTAKEN BY A RECRUITMENT AGE NCY. HE ACCORDINGLY HELD THAT RECRUITMENT FEE/REVENUE EARNED BY RECRUITING MANPOW ER IS NOT ALLOWABLE DEDUCTION U/S 10A AND IS TO BE EXCLUDED FROM EXPORT TURNOVER. 25. AGGRIEVED BY THIS, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS I N SECOND APPEAL BEFORE US. 26. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND HAS PLACE D STRONG RELIANCE UPON THE CBDT NOTIFICATION DATED 26.9.2000, WHEREIN THE IT ENABLE D SERVICES ARE SPECIFIED TO INCLUDE HUMAN RESOURCE SERVICES. HE SUBMITTED THAT THE MEANING OF THE PHRASE HUMAN RESOURCE SERVICES MENTIONED IN THE NOTIFICA TION HAD COME UP FOR CONSIDERATION BEFORE VARIOUS BENCHES OF THE TRIBUNA L AND THE TRIBUNAL HAS HELD THAT THE HUMAN RESOURCE SERVICES INCLUDE RECRUITMENT AND TRAINING OF I.T PROFESSIONALS ON BEHALF OF OVERSEAS CUSTOMERS. IN SUPPORT OF HIS CO NTENTION, HE PLACED RELIANCE UPON THE FOLLOWING DECISION: ITA NO.1182/B/11 17 1) ACIT VS. MERIDIAN ENTERPRISES COMPUTING SOLUTION S PVT. LTD., REPORTED IN (2011) 5 TAXCROP (AT) 24096 (MUM). 2) M.L OUTSOURCING SERVICES PVT. LTD. VS. ITO IN 12 04/DEL/2011 DATED 27.5.2011 3) THIRD MEMBER BENCH IN THE CASE OF ITO VS. ACCURU M INDIA PVT. LTD., REPORTED IN 126 ITD 69, CHENNAI. 27. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE WAS ONLY RECR UITING THE PERSONNEL AND ASSISTING THE FOREIGN COMPANY IN ENGAGING THOSE EMP LOYEES AND THEREBY, THIS ACTIVITY OF THE ASSESSEE WAS NOTHING BUT MANPOWER S UPPLY WHICH COULD NOT BE SAID TO BE AN IT ENABLED SERVICE TO QUALIFY DEDUCTION U /S 10A OF THE INCOME-TAX ACT. HE SUBMITTED THAT THE CIT(A) HAS ACCEPTED ALTERNATE PL EA OF THE ASSESSEE THAT ONLY THE NET INCOME FROM THE BUSINESS OF BODY SHOPPING OR MANPOWER SUPPLY SHOULD BE TAXED AND HAS DIRECTED THE AO TO CONSIDER ONLY 50% OF THE RECEIPTS AS NET INCOME OF THE ASSESSEE FROM THIS ACTIVITY. IT WAS SUBMITTED THAT THE CIT(A) HAS NOT ATTRIBUTED ANY BASIS TO ALLOW 50% EXPENSES FROM BUSINESS ACTI VITY AS IT IS ON A LOWER SIDE. HE SUBMITTED THAT THE ASSESSEE MUST PROVE WITH SUPPORT ING EVIDENCE AS TO WHICH EXPENSES ARE ALLOWABLE UNDER THE ACT. HE, THEREFOR E, SUBMITTED THAT ASSESSEE SHOULD ITA NO.1182/B/11 18 BE ASKED TO PRODUCE EVIDENCE FOR CLAIMING THE EXPEN SES RELATING TO THE BUSINESS OF BODY SHOPPING BY THE ASSESSEE. 28. THE LEARNED DR ALSO TRIED TO DISTINGUISH THE DE CISIONS OF THE TRIBUNAL IN THE CASES RELIED UPON BY THE ASSESSEE BY STATING THAT IN THOSE CASES THE ASSESSEE THEREIN WERE NOT ONLY RECRUITING BUT WERE ALSO IMPARTING TRAINING TO THE EMPLOYEES BEFORE MAKING THEM AVAILABLE TO OVERSEAS CUSTOMERS, WHEREAS IN THE CASE BEFORE US, THE ASSESSEE HAS ONLY RECRUITED THE TRAI NED PERSONNEL AND, THEREFORE, SAID DECISIONS ARE NOT APPLICABLE TO THE CASE OF THE ASS ESSEE. 29. AT THE TIME OF HEARING WE ALSO ASKED BOTH THE P ARTIES AS TO WHETHER THERE WOULD BE ANY GRIEVANCE, IF THE ALTERNATE CONTENTION OF THE ASSESSEE THAT IF THIS INCOME IS EXCLUDED FROM THE EXPORT TURNOVER, THEN I T SHOULD ALSO TO BE EXCLUDED FROM THE TOTAL TURNOVER IS ACCEPTED. BOTH THE PART IES EXPRESSED THEIR AGREEMENT TO THIS PROPOSED ISSUE. 30. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIAL AVAILABLE ON RECORDS, WE FIND THAT THE ALTERNATIVE CONTENTION, O F THE ASSESSEE IS ALREADY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT TATA ELXSI LTD. REPORTED IN (2011) 5 TAXCORP (DT) 49675 AND WE HAVE FOLLOWED THE SAID ITA NO.1182/B/11 19 DECISION WHILE DEALING WITH GROUND NOS. 11 AND 12 O F THE ASSESSEES APPEAL. AS BOTH THE PARTIES HAVE AGREED ON THE OUTCOME OF THE GROUN DS NO. 8 AND 9 FOR ACCEPTING THE ALTERNATE PLEA, WE DO NOT SEE ANY REASON TO ADJUDIC ATE ON THE ISSUE AS TO WHETHER THE RECRUITMENT FEE WOULD FORM PART OF EXPORT TURNOVER. THEREFORE, THE ISSUE IS LEFT OPEN TO THE ASSESSEE TO AGITATE IN APPROPRIATE CASES. 31. IN VIEW OF THE SAME, WE DIRECT THE ASSESSING OF FICER TO CONSIDER ONLY THE NET INCOME FROM MANPOWER SUPPLY AS INCOME FROM OTHE R SOURCES. NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE GIVEN FAIR OPPOR TUNITY OF HEARING AND ALSO FOR FILING NECESSARY DETAILS REGARDING EXPENDITURE RELA TED TO THE RECRUITMENT PROCESS. 32. IN THE RESULT, GROUNDS NO. 8 AND 9 ARE REJECTED AND THE ALTERNATE PLEA IS ACCEPTED. 33. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. . ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MAY, 2012. SD/- SD/- (N.K SAINI) (P MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER AM*. BANGALORE DATED : 25/05/2012 ITA NO.1182/B/11 20 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.