DCIT, New Delhi V. M/s Estel Communication P Ltd., New Delhi

ITA 5337/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58959 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AROOP KUMAR SINHA SENIOR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure; TDS
• Section: 143(3); 37(1); 195; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.5337/DEL./2010 (ASSESSMENT YEAR : 2005-06) DCIT, CIRCLE 11 (1), VS. M/S. ESTEL COMMUNICATION P. LTD., NEW DELHI. B 155, SARVODAYA ENCLAVE, NEW DELHI. (PAN : AAACE7910N) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI AROOP KUMAR SINHA, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF THE CIT (APPEALS)-XIII, NEW DELHI DATED 29.09.2010 FOR THE ASSESSMENT YEAR 2005- 06. 2. THE RETURN OF INCOME WAS FILED ON 25.10.2005 DEC LARING A LOSS OF RS.3,46,37,500/-. THE ORDER U/S 143(3) WAS FINALIZ ED ON 28.12.2007. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. THE ASSESSE E IS ENGAGED IN THE BUSINESS OF PROVIDING INTERNET SERVICE OF CORPORATE , SMES, ITES COMPANIES AND CALL CENTRES ON ITS NETWORK ITA NO.5337/DEL./2010 2 3. IN GROUND NO.1, THE ISSUE INVOLVED IS AGAINST TH E DELETION OF ADDITION OF RS.2,79,19,427/- ON ACCOUNT OF PURCHASE OF BANDWIDT H BY THE ASSESSEE. 4. ASSESSEE HAD CLAIMED THAT IT HAD ENTERED INTO A RESELLER AGREEMENT WITH TELEGLOBE INTERNATIONAL CORPORATION, USA (TELE GLOBE) IN USA, M/S REACH NETWORKS HONG KONG LTD., M/S FUSION TELECOMMU NICATION INTERNATIONAL INC AND M/S TELENOR (UK) LTD., (TELEG LOBE & OTHERS) IN TERMS OF WHICH TELEGLOBE & OTHERS SHALL PROVIDE THE INTER NET BANDWIDTH TO (ESTEL - APPELLANT) FOR RESALE TO END USER CUSTOMER ON A NON -EXCLUSIVE BASIS. 4.1 IT IS ALSO CLAIMED THAT TELEGLOBE & OTHERS HAD PROVIDED THE INTERNET BANDWIDTH TO THE APPELLANT FOR RESALE FROM THE EQUI PMENT SITUATED OUTSIDE INDIA. THE FOREIGN COMPANIES DID NOT HAVE ANY PERMA NENT ESTABLISHMENT IN INDIA NOR CARRIED OUT ANY BUSINESS OPERATIONS IN TH E COUNTRY. FOREIGN COMPANIES DO NOT EXERCISE ANY CONTROL ON THE BUSINE SS OF APPELLANT. SALES WERE MADE BY ESTEL ON ITS OWN ACCOUNT. THE ASSESSEE HAD PURCHASED THE INTERNET BANDWIDTH FROM THEM ON PRINCIPAL TO PRINCI PAL BASIS, PAYMENT OF WHICH HAVE BEEN MADE OUTSIDE INDIA. UNDER DOUBLE TA XATION AVOIDANCE AGREEMENT ENTERED INTO BY THE GOVT. OF INDIA WITH T HE RESPECTIVE GOVERNMENTS UNDER WHICH THE BUSINESS PROFITS OF THE SAID NON-RESIDENT COMPANIES ARE TAXABLE IN THEIR COUNTRIES. 4.2 IT ALSO CLAIMED THAT THE INCOME TAX OFFICER DUR ING THE ASSESSMENT YEAR 2001-2002 HAD ERRONEOUSLY HELD THAT INCOME HAD ACCR UED OR ARISEN TO THE ITA NO.5337/DEL./2010 3 FOREIGN COMPANY FROM THE SUPPLY OF BANDWIDTH FROM B USINESS CONNECTION IN INDIA WITHIN THE MEANING OF SECTION 9(1)(I) OF THE ACT AND DISALLOWED THE ENTIRE PURCHASE OF RS.94,07,373/- OF INTERNET BANDW IDTH FROM TELEGLOBE, USA U/S 40A(I) ON THE GROUND OF NON-PAYMENT/ DEDUCTION OF WITHHOLDING TAX FROM THE PAYMENTS MADE TO THE FOREIGN COMPANY ON ACCOUNT OF PURCHASES OF BANDWIDTH BY TREATING THE SUPPLY OF INTERNET BANDWI DTH AS TECHNICAL SERVICES. 4.3 IT IS FURTHER CLAIMED THAT ON APPEAL FILED BY T HE ASSESSEE, THE LEARNED CIT(A)-XIV, NEW DELHI VIDE HIS ORDER DATED 16.6.200 3 IN APPEAL NO. 316/02/3 HAD BEEN PLEASED TO HOLD THAT THE SUPPLY OF BANDWIDTH CANNOT BE DEEMED AS FALLING WITHIN THE DEFINITION OF SECTION 9(1)(VII). HE HAD ALSO FURTHER CATEGORICALLY HELD THAT THE CASE OF THE APP ELLANT DOES NOT FALL WITHIN THE PURVIEW OF SECTION 9(1)(I), OF THE ACT AND THAT NO INCOME CAN BE DEEMED TO HAVE ACCRUED OR ARISEN TO TELEGLOBE IN INDIA. THERE FORE, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT ANY TAX AT SOURCE U/S 195 OF THE ACT AND DELETED THE ADDITION OF RS.94,07,373/- MADE U/S 40(A). 4.4 THE DEPARTMENT WENT IN APPEAL BEFORE THE ITAT. THE ITAT, DELHI BENCH G DELHI VIDE THEIR ORDER DATED 8 TH SEPTEMBER, 2006 IN APPEAL NO. ITA NO.4560/DEL/2003 FOR ASSESSMENT YEAR 2001-02, DISMI SSING THE DEPARTMENTS APPEAL, HELD THAT NO TDS WAS REQUIRED TO BE DEDUCTE D. 5. THE HON'BLE DELHI HIGH COURT HAS ALSO HELD IN IT S DECISION DATED 07.02.2008 IN ITA NO.527/2007 THAT THE PROVISIONS O F SECTION 40(A) READ WITH ITA NO.5337/DEL./2010 4 SECTION 195 IS NOT APPLICABLE TO THE FACTS OF THE A SSESSEES CASE. IT WAS HELD THAT IN ASSESSEES CASE, THE FACTS SHOW THAT NO TEC HNICAL SERVICES WERE RENDERED BY M/S. TELEGLOBE INDIA CORP., USA WITHIN THE MEANI NG OF SECTION 9 (1)(VII) OF THE INCOME-TAX ACT. THE RELEVANT PORTION OF THE JUDGMENT OF HON'BLE HIGH COURT IS AS UNDER :- IN FACT, THE ASSESSEE WAS MERELY PAYING FOR AN INT ERNET BANDWIDTH TO TELEGLOBE AND THEN SELLING IT TO ITS CUSTOMERS. TH E USE OF INTERNET FACILITY MAY REQUIRE SOPHISTICATED BUT THAT DOES IN TO MEAN THAT TECHNICAL SERVICES WERE RENDERED BY TELEGLOBE TO TH E ASSESSEE. IT WAS A SIMPLE CASE OF PURCHASE OF INTERNET BANDWIDTH THE ASSESSEE FROM TELEGLOBE. UNDER THE CIRCUMSTANCES THE TRIBUNAL CAME TO THE CO NCLUSION THAT THERE WERE NO TECHNICAL SERVICES PROVIDED BY TELEGL OBE TO THE ASSESSEE AND, THEREFORE, THE PROVISIONS OF SECTION 9(1)(VII) OF THE ACT DID NOT APPLY. WE FIND THAT THE TRIBUNAL HAS RIGHTLY DISMISSED THE APPEAL AFTER TAKING INTO CONSIDERATION THE AGREEMENT BETWEEN THE ASSESS EE AND TELEGLOBE AND THE NATURE OF SERVICES PROVIDED BY TELEGLOBE TO THE ASSESSEE. IT WAS A SIMPLE CASE OF PAYMENT FOR THE PROVISION A BA NDWIDTH. NO TECHNICAL SERVICES WERE RENDERED BY TELEGLOBE TO TH E ASSESSEE. 6. WE HAVE HEARD LD. DR AND GONE THROUGH THE MATERI AL ON RECORD. SINCE THE HON'BLE JURISDICTIONAL HIGH COURT HAS DECIDED T HE ISSUE IN FAVOUR OF THE ASSESSEE AND FACTS REMAIN THE SAME, IN VIEW OF THIS , WE FIND NO MERITS IN THIS GROUND OF REVENUES APPEAL AND ACCORDINGLY, WE DISM ISS GROUND NO.1 7. IN THE GROUND NO.2, THE ISSUE RAISED BY THE ASSE SSEE IS AGAINST DELETING THE ADDITION OF RS.16,34,204/- BY HOLDING THE EXPEN DITURE AS REVENUE. 8. THE ASSESSEE CLAIMED RS.17,96,268/- UNDER THE HE AD REPAIR AND MAINTENANCE EXPENSES. THE EXPENDITURE WAS INCURRED ON A RENTED BUILDING IN ITA NO.5337/DEL./2010 5 GURGAON. THE ASSESSING OFFICER HELD THE EXPENDITUR E TO BE CAPITAL. THE CIT (A) DELETED THE ADDITION BY HOLDING AS UNDER :- I HAVE CAREFULLY GONE TO THE SUBMISSION AND BILLS F ILED BY THE APPELLANT AS ALSO THE CASE LAWS ON WHICH RELIANCE H AVE BEEN PLACED, BY THE APPELLANT. FROM THE COPY OF BILLS OF ABC DEC ORATORS WHO HAVE CARRIED OUT THE WORK OF REPAIR AND REFURNISHING BOT H FOR THE PURPOSE OF DISMANTLING AT THE OLD LEASED PREMISES OF VITRIFIED THE APPELLANT AT OKHLA AND FURTHER THE REPAIRING AND REFINISHING BIL LS AS WELL AS RELAYING OF FLOOR TILES AND PAINT AT GURGAON OFFICE IT IS NOTED THAT NONE OF THE DESCRIPTION OF THE EXPENSES FITS INTO THE NA TURE OF 'CAPITAL EXPENDITURE' CARRIED OUT BY THE APPELLANT. IT IS AL SO NOTED FROM THE LEASE DEED OF THE APPELLANT DATED 28.09.2000 WITH T HE LESSOR OF THE PREMISES AT B-231 OKHLA INDUSTRIAL AREA THAT THERE ARE CLAUSES TO THE EFFECT THAT THE REPAIR AT THE DEMISED PREMISES SHAL L BE CARRIED OUT BY THE LESSEE THAT IS THE APPELLANT, IN ORDER TO KEEP THE PREMISES IN A GOOD STATE AND CONDITION. IN VIEW THEREOF ALL EXPENSES R ELATED TO DISMANTLING AND REPAIRING CARRIED OUT AT OKHLA INDU STRIAL AREA PREMISES OF THE APPELLANT IS ALLOWABLE AS REVENUE E XPENDITURE U/S 30(A)(I) OF THE IT ACT OR SECTION 37(1) OF THE IT A CT. SIMILARLY THE BILLS RELATING TO REPAIR AND RE-FURNISHING WORK CAR RIED OUT AT GURGAON OFFICE TOGETHER WITH THE MEASUREMENT SHEET FOR SUCH REPAIR WORK HAS BEEN GONE THROUGH AND IT IS SEEN THAT ALL SUCH EXPE NSE ARE FOR REPAIRING AND REFINISHING AND PLACING OF VITRIFIED FLOOR TILES AND PLASTIC PAINT AT GURGAON OFFICE AND THEREFORE ARE REVENUE I N NATURE AND ALLOWABLE AS AN EXPENSES U/S 30(A)(I) OF THE IT ACT OR WITHIN U/S 37(1) OF THE IT ACT. IN THIS CONNECTION THE RATIO OF THE JUDGMENT OF JUR ISDICTIONAL HIGH COURT IN THE CASE OF CIT VS HI LINE PENS (P) LTD. ( 2008) 306 ITR 182 (DEL) IS ALSO APPLICABLE TO THE FACTS OF THE PRESEN T CASE. THE FACTS IN CASE OF HI-LINE (SUPRA) WAS THAT EXPENDITURE WAS CL AIMED BY THE ASSESSEE IN RESPECT OF TENANTED PREMISES TAKEN ON L EASE FOR BUSINESS PURPOSES WHICH WERE IN NATURE OF FALSE CEILING, FIX ING TILES, REPLACING GLASSES , WOODEN_ PARTITIONS, REPLACEMENT OF ELECTR IC WIRING, EARTHING, REPLACEMENT OF G.I. PIPE ETC WHICH WERE CLAIMED, AS REVENUE EXPENDITURE AND WHICH WERE DISALLOWED BY THE AO IN VIEW OF EXPLANATION (1) TO SECTION 32(I) HOLDING THAT THE E XPENDITURE WAS TO BE TREATED AS CAPITAL AS IT HAD BEEN INCURRED FOR I MPROVEMENT OF RENTED PREMISES. THE RELEVANT OBSERVATION OF THE HIGH COUR T IN THIS CASE ARE AS UNDER:- 'WE ARE OF THE VIEW THAT THE ASSESSEE'S CLAIM FOR D EDUCTION UNDER SECTION 30(A)(I) HAS BEEN RIGHTLY ALLOWED BY THE ITA NO.5337/DEL./2010 6 TRIBUNAL. THE DECISION CITED BY THE COUNSEL FOR THE REVENUE RELATE TO 'CURRENT REPAIRS'. THERE IS A CLEAR DISTI NCTION BETWEEN THE EXPRESSION 'REPAIRS' AND THE EXPRESSION 'CURREN T REPAIRS '. IT IS OBVIOUS THAT THE WORD 'REPAIRS' IS MUCH WIDER TH AN THE EXPRESSION 'CURRENT REPAIRS'.. THE EXPENSES THAT WERE INCURRED BY THE ASSESSEE WER E TOWARDS REPAIRING THE PREMISES TAKEN ON LEASE SO AS TO MAKE IT CONDUCIVE TO ITS BUSINESS ACTIVITY. SUCH EXPENSES W OULD CLEARLY FALL WITHIN THE EXPRESSION OF REPAIRS TO TH E PREMISES AS APPEARING IN SECTION 30(A)(I). THE LEGISLATURE HAS MADE A DISTINCTION BETWEEN EXPENSES INCURRED BY A TENANT F OR 'REPAIRS' OF THE PREMISES AND EXPENSES INCURRED BY A PERSON W HO IS NOT A TENANT TOWARDS 'CURRENT REPAIRS' TO THE PREMISES. THIS DISTINCTION HAS TO BE GIVEN MEANING. PERHAPS THE LO GIC BEHIND THE DISTINCTION WAS THAT A TENANT WOULD, BY THE VER Y NATURE OF HIS STATUS A TENANT, NOT UNDERTAKE EXPENDITURE AS W OULD ENDURE BEYOND HIS LIKELY PERIOD OF TENANCY OR CREATE A NEW ASSET. WHEREAS, AN OWNER MAY UNDERTAKE EXPENDITURE SO AS T O EVEN BRING ABOUT NEW ASSETS OF CAPITAL NATURE.. IT FOLLOWS THEREFORE, THAT THE COST OF REPAIRS THAT HAVE BEEN INCURRED BY A TENANT IN RESPECT OF SUCH PREMISES WO ULD HAVE TO BE ALLOWED UNDER SECTION 30(A)(I). THE QUESTION OF DISALLOWING SUCH AN EXPENDITURE AND RELEGATING THE ASSESSEE TO CLAIM DEPRECIATION UNDER SECTION 32 DOES NOT ARISE. THE A SSESSEE HAS NOT CLAIMED DEPRECIATION. IT HAS CLAIMED DEDUCTION UNDER SECTION 30(A)(I). ONCE THE ASSESSEE'S CLAIM FALLS W ITHIN THAT PROVISION THERE IS NO QUESTION OF CONSIDERING THE Q UESTION OF APPLICABILITY OF SECTION 32. IN VIEW OF THE ABOVE DISCUSSION THE TOTAL EXPENSES FOR RS.16,34,204/- ARE ALLOWED A REVENUE EXPENDITURE. CONSEQUENTLY DEP RECIATION THEREON WOULD NOT BE GIVEN TO THE APPELLANT. 9. WE HAVE HEARD LEARNED DR AND PERUSED THE MATERIA L ON RECORD. FROM THE DETAILS, WE ALSO FIND THAT THE EXPENDITURE IS O N VITRIFIED TILES AND OTHER REPAIRS WORK. THUS, THE EXPENDITURE WAS TO KEEP TH E PREMISES IN A GOOD STATE OF CONDITION. CIT (A) HAS CONSIDERED THIS ISSUE IN VIEW OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. HI LINE PENS (P) LTD. ITA NO.5337/DEL./2010 7 306 ITR 182 (DEL.) WHEREIN THE HON'BLE HIGH COURT HAS HELD THAT THE QUESTION OF DISALLOWANCE OF SUCH AN EXPENDITURE AND RELEGATING THE ASSESSEE TO CLAIM DEPRECIATION U/S 32 DOES NOT ARISE. IN THAT CASE ALSO, THE EXPENDITURE WAS IN RESPECT OF THE RENTED PREMISES TAKEN ON LEAS E FOR THE BUSINESS PURPOSES AND THE EXPENDITURE WAS RELATED TO FALSE CEILING, F IXING TILES, REPLACING GLASSES, WOODEN PARTITIONS, REPLACEMENT OF ELECTRIC WIRING, EARTHING, REPLACING OF G.I. PIPE, ETC. AND ALL THESE EXPENDITURE HELD TO BE REV ENUE IN NATURE. WE, THEREFORE, FIND NO FAULT IN THE ORDER OF THE CIT (A ) AND DISMISS THIS GROUND OF REVENUES APPEAL ALSO. 10. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF MARCH, 2012. SD/- SD/- (I.P. BANSAL) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 23 RD DAY OF MARCH, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI AR, ITAT NEW DELHI.