UTStarcom Inc., Gurgaon V. DDIT, New Delhi

ITA 6320/DEL/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6516 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 07-12-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 21-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T M SHIVAKUMAR
• Assessee Lawyers: RAJAN SACHDEV
• Keywords: Transfer pricing; Rule of consistency; Deemed export; Tax effect
• Section: 80HHC; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.6320/DEL./2012 (ASSESSMENT YEAR : 2008-09) UT STARCOM INC. (INDIA BRANCH), VS. DDIT, CIRCLE 2 (2), 805, SIGNATURE TOWERS II, NEW DELHI. SOUTH CITY I, GURGAON (HARYANA). (PAN : AAACU5017A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJAN SACHDEV, CA REVENUE BY : SHRI T.M. SHIVA KUMAR, CIT DR DATE OF HEARING : 07.12.2016 DATE OF ORDER : 23.12.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, UT STARCOM INC. (INDIA BRANCH) (HERE INAFTER REFERRED TO AS THE ASSESSEE COMPANY) BY FILING TH E PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 18.10. 2012, PASSED BY THE AO UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2008-09 IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TPO ON THE CONCISE GROUNDS INTER ALIA THAT :- ITA NOS. 6320/DEL./2012 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DEPUTY DIRECTOR OF INCOME-TAX, CIRCLE 2(2), INTERNATIONAL TAX, NEW DELHI (LD. AO') UNDER DIRECTIONS ISSUED B Y THE HON'BLE DISPUTE RESOLUTION PANEL - II, NEW DELHI CORP'), ER RED IN NOT ALLOWING THE CLAIM OF EXEMPTION UNDER SECTION 10A O F THE INCOME- TAX ACT, 1961 ('THE ACT') OF RS.2,81,78,490 TO THE APPELLANT'S TOTAL INCOME. 1. DENIAL OF CLAIM UNDER SECTION 10A OF THE ACT 1.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN DENYING AND THE HON 'BLE DRP HAS ERRED IN CONFIRMING THE ACTION OF LD. AO ON THE DISALLOWANCE OF APPELLANT'S CLAIM OF DEDUCTION UNDE R SECTION 10A OF THE ACT AMOUNTING TO RS.2,81,78,490. 1.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO HAS ERRED IN HOLDING AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE ACTION OF LD. AO, T HAT THERE IS NO EXPORT OF SOFTWARE BY THE BRANCH IN INDIA TO THE HEAD OFFICE. 1.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO HAS ERRED IN HOLDING AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THE ACTION OF LD. AO, T HAT THE APPELLANT IS NOT A SEPARATE TAXABLE ENTITY AND AS A CONSEQUENCE A PERSON CANNOT EARN PROFIT FROM ITSELF . 1.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO IS NOT APPRECIATING AND THE HON'BLE DRP HAS FURTHER FAILED TO APPRECIATE THAT IF THE APPROACH A DOPTED BY THEM IS CONSIDERED TO BE IN ACCORDANCE WITH LAW, NO INCOME COULD BE SAID TO RESULT IN THE HANDS OF THE APPELLA NT. 1.5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO AND THE HON'BLE DRP HAVE REACHED TO ERRO NEOUS CONCLUSION OF DISALLOWING THE DEDUCTION UNDER SECTI ON 10A OF THE ACT BY PLACING THEIR RELIANCE ON CERTAIN JUD ICIAL PRECEDENTS WHICH ARE NOT APPLICABLE TO THE APPELLAN T'S CASE. 1.6 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO HAS ERRED IN AND THE HONBLE DRP HAS FUR THER ERRED IN NOT FOLLOWING PRINCIPLE OF CONSISTENCY. 2. INTEREST UNDER SECTION 234B OF THE ACT THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN LEVYING INTEREST UNDER SECT ION 234B OF THE ACT CONSEQUENT TO THE ABOVE DISALLOWANCES. ITA NOS. 6320/DEL./2012 3 3. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENAL PROCEEDING S UNDER SECTION 271 (1)(C) OF THE ACT AS PER THE IMPUGNED O RDER CONSEQUENTIAL TO THE ABOVE DISALLOWANCES. 2. ASSESSEE COMPANY, M/S. UT STARCOM INC. (INDIA BR ANCH), USA (UTS US), BEING GLOBAL LEADER IN MANUFACTURE, I NTEGRATION AND SUPPORT OF IP BASED, END-TO-END NETWORKING AND TELECOMMUNICATION SOLUTIONS, SET UP ITS BRANCH OFFI CE IN INDIA IN DECEMBER 2001, TO ENABLE UTS US TO OFFER ITS PRODUC TS AND SERVICES IN THE INDIAN MARKET. THE ASSESSEE PROVID ES SOFTWARE DEVELOPMENT SERVICES AND MARKETING SUPPORT AND IT E NABLES CUSTOMER SUPPORT SERVICES TO UTS US CUSTOMERS IN AS IA-PACIFIC REGION. 3. ASSESSEE COMPANY BY FILING PRESENT APPEAL HAS ON LY CONFINED TO THE CORPORATE GROUNDS BY CHALLENGING TH E DENIAL OF DEDUCTION U/S 10A OF THE ACT TO THE TUNE OF RS.2,81 ,78,490/- AND DETERMINING THE TAXABLE INCOME AT RS.27,13,52,357/- . AO DENIED THE BENEFIT OF SECTION 10A TO THE ASSESSEE COMPANY ON THE GROUND THAT SINCE THE ACCOUNT OF THE INDIA BRANCH OFFICE A RE CONSOLIDATED WITH OTHER BRANCHES AND THE HEAD OFFICE, THE ASSESS EE COMPANY CANNOT BE ASSUMED TO HAVE EARNED THE PROFIT FOR ITS ELF BECAUSE IN SUCH CASES TO ARRIVE AT THE FINAL ACCOUNT OF THE EN TITY AND PAYMENT ITA NOS. 6320/DEL./2012 4 MADE TO THE BRANCH WILL GET SQUARED UP WHEN THE ACC OUNTS ARE CONSOLIDATED. 4. ASSESSEE CARRIED THE MATTER BY RAISING THE OBJEC TIONS BEFORE THE LD. DRP BY WAY OF FILING THE APPEAL WHO HAS AFF IRMED THE ORDER PASSED BY AO/TPO. FEELING AGGRIEVED WITH THE ORDER PASSED BY TPO/DRP/AO, ASSESSEE COMPANY HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. CORPORATE GROUNDS GROUNDS NO.1.1 TO 1.6 6. LD. AR FOR THE ASSESSEE CONTENDED THAT THE BENEF IT OF SECTION 10A WAS GRANTED TO THE ASSESSEE COMPANY IN ASSESSME NT YEAR 2003-04 AND CONTINUED UPTO AY 2006-07 AND FURTHER R ELIED UPON THE JUDGMENT PASSED BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DDIT VS. VIRAGE LOGIC INTERNATIONAL (ITA NO.1108/20 07 ORDER DATED 09.11.2016) & ORS. HOWEVER, ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY LD. DRP/AO. ITA NOS. 6320/DEL./2012 5 7. UNDISPUTEDLY, THE REVENUE HAS BEEN EXTENDING THE BENEFIT OF SECTION 10A TO THE ASSESSEE COMPANY SINCE AY 2003-0 4 UPTO AY 2006-07 AND BUSINESS MODEL OF THE ASSESSEE COMPANY HAS NOT BEEN CHANGED QUA AYS 2007-08 AND 2008-09. 8. MORE SO, THE ISSUE IN CONTROVERSY HAS BEEN ANSWE RED IN FAVOUR OF THE ASSESSEE BY THE HONBLE JURISDICTIONA L HIGH COURT IN DDIT VS. VIRAGE LOGIC INTERNATIONAL (SUPRA) IN THE SIMILAR SET OF FACTS AND CIRCUMSTANCES, WHEREIN FOLLOWING QUESTION S OF LAW WERE FRAMED : (I) WHETHER THE TRANSFER OF COMPUTER SOFTWARE BY T HE INDIAN BRANCH TO THE HEAD OFFICE CAN BE SAID TO BE SALE TO THE HEAD OFFICE OUT OF INDIA? (II) WHETHER THE ASSESSEE IS ENTITLED TO CLAIM BENE FIT OF SECTION 10A OF THE INCOME TAX ACT, 1961, AS THE SOFTWARE IS DEVELOPED BY THE BRANCH AS PER THE REQUIREMENT OF HEAD OFFICE AN D NOT SOLD TO ANY THIRD PARTY? 9. OPERATIVE PART OF THE JUDGMENT IN DDIT VS. VIRAGE LOGIC INTERNATIONAL (SUPRA) IS REPRODUCED FOR READY PERUSAL AS UNDER : - 11. THE DECISION IN MOSER BAER (SUPRA) SPECIFICALL Y DEALT WITH THE ITATS LOGIC AND REASONING IN THE PRESENT CASE. THERE THE DIVISION BENCH OF THIS COURT NOTED THAT TRANSMISSIO N OF COMPUTER SOFTWARE FROM AN INDIAN ENTITY TO ITS HEAD OFFICE O N THE BASIS OF AN ARMS LENGTH PRICE DETERMINED FOR EXPORT ENTITLED T HE ASSESSEE TO EXEMPTION UNDER SECTION 10A. THE COURT IS IN AGREE MENT WITH THE ASSESSEES CONTENTION THAT MERE OMISSION OF A PROVI SION KIN TO SECTION 80HHC EXPLANATION (2) OR THE OMISSION TO MA KE A PROVISION OF A SIMILAR KIND OF THAT ENCOMPASSES EXP LANATION 2(IV) TO SECTION 10A BY ITSELF DOES NOT RULE OUT THE POSS IBILITY OF TREATMENT OF TRANSFER/ TRANSMISSION OF SOFTWARE FRO M THE BRANCH OFFICE TO THE HEAD OFFICE AS AN EXPORT. A PLAIN REA DING OF SECTION 80-IA(8) SHOWS THAT TRANSFER OF ANY GOODS OR SERVIC E FOR THE PURPOSE OF THE ELIGIBLE BUSINESS TO ANY OTHER BUS INESS CARRIED ON BY THE ASSESSEE, ARE COVERED. THE ONLY CONDITION I NSISTED UPON BY ITA NOS. 6320/DEL./2012 6 THE PARLIAMENT WAS THAT THE FACE VALUE OF SUCH TRAN SACTIONS WAS INCONCLUSIVE AND THAT THE AO COULD DETERMINE THE MA RKET VALUE: FOR SUCH TRANSACTIONS OR SALES. THE INCORPORATION IN IT S ENTIRETY WITHOUT ANY CHANGE IN THIS PROVISION [SECTION 80-IA(8)] TO SECTION 10A THROUGH SUB-SECTION (7) IS FOR THE PURPOSE OF ENSUR ING THAT INTER- BRANCH TRANSFERS INVOLVING EXPORTS ARE TREATED AS S UCH AS LONG AS THE OTHER INGREDIENTS FOR A SALE ARE SATISFIED. 12. IN THIS CASE THE AO CARRIED OUT THE EXERCISE MA NDATED BY SECTION 10A(7) READ WITH SECTION 80-IA(8). CONSEQUE NTLY THE PARTICULARS OF THE PRICE OR COST REPORTED BY THE AS SESSEE WERE NOT BINDING OR CONCLUSIVE BUT RATHER THEY ATTAINED FINA LITY IN THE ASSESSMENT PROCEEDINGS, AFTER DUE ADDITION. IT UND ERWENT FURTHER INQUIRY/ SCRUTINY UNDER CHAPTER X OF THE ACT. 13. IT IS UNDOUBTEDLY APHORISM THAT A LEGAL FICTION OUGHT TO BE TAKEN TO ITS LOGICAL CONCLUSION AND THE MIND SHOULD NOT BE ALLOWED TO BOGGLE. THIS MERELY IMPLIES THAT A FICTION SHOUL D LOGICALLY TAKE A DIRECTION; THE TRAIN OF THOUGHT HOWEVER CANNOT DIVE RT ELSEWHERE. THE ABSENCE OF A DEEMED EXPORT PROVISION IN SECTI ON 10A SIMILAR TO THE ONE IN SECTION 80HHC DOES NOT LOGICA LLY UNDERCUT THE AMPLITUDE OF THE EXPRESSION TRANSFER OF GOODS UNDER SECTION 80-IA(8) WHICH IS OF NOW PART OF SECTION 10A. SUC H AN INTERPRETATION WOULD DEFEAT SECTION 10A(7) ENTIRELY . 14. FOR THE ABOVE REASONS, THE COURT IS OF THE OPIN ION THAT SUBSTANTIAL QUESTIONS OF LAW FRAMED ARE TO BE ANSWE RED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE ITA NO S. 1108/2007, 1249/2009 AND 173/2016 ARE, ACCORDINGLY, DISMISSED. IT IS CLARIFIED, HOWEVER, THAT THE AO IS AT LIBERTY TO GI VE TAX EFFECT AS A CONSEQUENCE OF THE INTERPRETATION ADOPTED BY THIS C OURT. THE RATIO OF THE JUDGMENT IN VIRAGE LOGIC INTERNATI ONAL (SUPRA) IS THAT THE TRANSFER OF COMPUTER SOFTWARE, BY THE INDI AN BRANCH TO THE HEAD OFFICE IS NOT SALE, HAVING BEEN DEVELOPED AS P ER REQUIREMENT OF HEAD OFFICE, AND NOT BEING SOLD TO THIRD PARTY A ND AS SUCH ENTITLED FOR THE BENEFIT OF SECTION 10A OF THE ACT. 10. SO FOLLOWING THE RATIO LAID DOWN BY HONBLE HIG H COURT IN DDIT VS. VIRAGE LOGIC INTERNATIONAL (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT SINCE ASSESSEE COMPANY HAS EXP ORTED ITA NOS. 6320/DEL./2012 7 COMPUTER SOFTWARE FROM INDIA TO ITS HEAD OFFICE IN US AS PER ITS REQUIREMENT AND NOT SOLD TO ANY THIRD PARTY, IT IS ENTITLED TO EXEMPTION U/S 10A, SO AO/DRP HAVE ERRED IN DENYING THE BENEFIT OF SECTION 10A TO THE ASSESSEE. SO, THE MATTER IS RESTORED TO THE AO TO DECIDE AFRESH IN ACCORDANCE WITH THE LAW LAID DO WN BY THE HONBLE JURISDICTIONAL HIGH COURT AND THE DIRECTION S ISSUED HEREIN BEFORE. SO, GROUNDS NO.1.1 TO 1.6 ARE DETERMINED I N FAVOUR OF THE ASSESSEE. 11. GROUND NO.2 NEEDS NO ADJUDICATION AS THE SAME I S CONSEQUENTIAL IN NATURE. 12. GROUND NO.3 IS PREMATURE, HENCE NEEDS NO ADJUDI CATION. 13. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, PRESE NT APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PU RPOSES AND MATTER IS RESTORED TO THE AO TO DECIDE AFRESH IN THE LIGHT OF THE DIRECTIONS ISSUED HEREIN BEFORE. ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF DECEMBER, 2016. SD/- SD/- (S.V. MEHROTRA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 23 RD DAY OF DECEMBER, 2016 TS ITA NOS. 6320/DEL./2012 8 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.