M/s. GTL LTD., MUMBAI V. ACIT Rg. 2(1), MUMBAI

ITA 6540/MUM/2004

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4027 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 15-02-2016
• Assessment Year: 1999-2000
• Appeal Filed On: 10-09-2004
• Court: TRIBUNAL
• Department Lawyers: JASBIR CHA UHAN
• Keywords: Capital asset; Business income; Business expenditure; Double taxation relief; Revenue expenditure; Capital expenditure
• Section: 80HHC; 234B

Judgement Text

, , L, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.5161/MUM/2001 ASSESSMENT YEAR: 1998-99 GLOBAL TELE - SYSTEMS LIMITED , GLOBAL VISION, ELECTRONIC SADAN NO.2, MIDC, MAHAPE VILLAGE, TTC INDUSTRIAL AREA, NEW MUMBAI-400701 / VS. A C IT , RANGE - 15, MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AAACG3742L ITA NO.5018/MUM/2001 ASSESSMENT YEAR: 1998-99 ACIT, RANGE - 15, MUMBAI- / VS. GLT LTD. (FORMERLY KNOWN AS GLOBAL TELE-SYSTEMS LIMITED, GLOBAL VISION,ELECTRONIC SADAN NO.2, MIDC, MAHAPE VILLAGE, TTC INDUSTRIAL AREA, NEW MUMBAI-400701 (REVENUE ) (RESPONDENT) P.A. NO. AAACG3742L ITANO.7289/MUM/2002 ASSESSMENT YEAR-1998-99 GLT LTD. (FORMERLY KNOWN AS GLOBAL TELE-SYSTEMS LIMITED, GLOBAL VISION, ELECTRONIC SADAN NO.2, MIDC, MAHAPE VILLAGE, TTC INDUSTRIAL AREA, NEW MUMBAI-400701 / VS. ACIT, RANGE - 1(1), MUMBAI- GLT. LTD. 2 (ASSESSEE ) (REVENUE) P.A. NO. AAACG3742L ITA NO.6540/MUM/2004 ASSESSMENT YEAR: 1999-2000 GLT LTD. (FORMERLY KNOWN AS GLOBAL TELE-SYSTEMS LIMITED, GLOBAL VISION, ELECTRONIC SADAN NO.2, MIDC, MAHAPE VILLAGE, TTC INDUSTRIAL AREA, NEW MUMBAI-400701 / VS. ACIT, RANGE - 2( 1) , MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AAACG3742L ITA NO.194/MUM/2003 ASSESSMENT YEAR: 1998-99 ACIT, RANGE - 2(1), MUMBAI- / VS. GLT LTD. (FORMERLY KNOWN AS GLOBAL TELE-SYSTEMS LIMITED, GLOBAL VISION, ELECTRONIC SADAN NO.2, MIDC, MAHAPE VILLAGE, TTC INDUSTRIAL AREA, NEW MUMBAI-400701 ( REVENUE ) (RE SPONDENT ) P.A. NO. AAACG3742L ITA NO.6377/MUM/2004 ASSESSMENT YEAR: 1999-2000 ACIT, RANGE - 2(1), MUMBAI- / VS. GLT LTD. (FORMERLY KNOWN AS GLOBAL TELE-SYSTEMS LIMITED, GLOBAL VISION, ELECTRONIC SADAN NO.2, MIDC, MAHAPE VILLAGE, TTC INDUSTRIAL AREA, NEW MUMBAI-400701 (REVENUE ) (RESPONDENT) P.A. NO. AAACG3742L GLT. LTD. 3 ITANO.193/MUM/2003 ASSESSMENT YEAR-1998-99 ACIT, RANGE - 1(1), MUMBAI- / VS. GLT LTD. (FORMERLY KNOWN AS GLOBAL TELE-SYSTEMS LIMITED, GLOBAL VISION, ELECTRONIC SADAN NO.2, MIDC, MAHAPE VILLAGE, TTC INDUSTRIAL AREA, NEW MUMBAI-400701 (REVENUE ) (RESPONDENT) / ASSESSEE BY SHRI VIJAY MEHTA (AR) / REVENUE BY SHRI JASBIR CHAU HAN , CIT - DR / DATE OF HEARING : 02/03/2016 / DATE OF ORDER: 20/04/2016 / O R D E R PER BENCH: THESE APPEALS PERTAIN TO THE SAME ASSESSEE INVOLVIN G IDENTICAL ISSUES, AND THEREFORE, THESE WERE HEARD T OGETHER AND BEING DISPOSED OF BY THESE CONSOLIDATED ORDER FOR T HE SAKE OF CONVENIENCE. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI VIJAY MEHTA, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND SHRI JASBIR CHAUHAN, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. GLT. LTD. 4 FIRST WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.5161/MUM/2001 FOR A.Y. 1998-99: THE ASSESSEE HAS FILED THIS APPEAL ON THE FOLLOWING GROUNDS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED IN UPHOLDING THE ASSESSING OFFICERS VIEW THAT DEDUCTION U/S 80HHE IS NOT ALLOWABLE ON THE BASIS O F SEPARATE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLA NT FOR SOFTWARE EXPORT DIVISION. THE DEDUCTION UNDER SECTI ON 80HHE THEREFORE MERITS TO BE ALLOWED AS CLAIMED BY THE ASSESSEE. 3. THE SOLITARY ISSUE RAISED IN ITS APPEAL BY THE ASS ESSEE IS WITH REGARD TO ALLOWING THE DEDUCTION CLAIMED BY TH E ASSESSEE U/S 80HHE OF THE ACT AT RS.26,74,856/- INSTEAD OF RS.6,65,03,172/- AS WAS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. IT WAS NOTED BY AO THAT THE ASSESSEE HAD EXPORTED INCOME FROM MANY BUSINESS UNITS AND ONE OF THE UNIT WAS ENGAGED IN THE BUSINESS OF EXPORT OF SOFTWARE. THE ASSESSEE MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR THE UNIT ENGAGED IN THE EXPORT OF SOFTWARE AND ACCORDINGLY CLAIMED DEDU CTION ON THE AMOUNT OF PROFIT AS PER ITS BOOKS OF ACCOUNTS O F THE EXPORT UNIT AT RS.6,65,03,172/- ON THE EXPORT TURNOVER OF RS.8,31,02,181/-. ON THE OTHER HAND, THE AO WAS OF THE VIEW THAT AS PER SECTION 80HHE ALL THE BUSINESSES OF THE ASSESSEE HAVE TO BE TAKEN AS ONE, IRRESPECTIVE OF THE FACT W HETHER SEPARATE BOOKS OF ACCOUNT FOR EACH BUSINESS IS MAIN TAINED OR NOT, THE AMOUNT OF DEDUCTION ALLOWABLE U/S 80HHE SH OULD BE COMPUTED ON THE BASIS OF FORMULA WHICH COMPUTES T HE DEDUCTION ON PROPORTIONATE BASIS AND ACCORDINGLY, T HE AO GLT. LTD. 5 COMPUTED THE DEDUCTION U/S 80HHE ON THE BASIS OF FO LLOWING FORMULA: PROFIT OF THE BUSINESS X EXPORT TURNOVER / TOT AL TURNOVER 3.1. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) AND MADE DETAILED SUBMISSIONS TO IMPRESS UPON THE POINT THAT SINCE ASSESSEE HAD MAINTAINED SEPARATE B OOKS OF ACCOUNTS FOR THE EXPORT DIVISION AND ALL THE FIGURE S WERE SEPARATELY AVAILABLE FOR COMPUTING THE BENEFIT OF D EDUCTION U/S 80HHE I.E. PROFIT OF THE BUSINESS, EXPORT TURNOVER AND TOTAL TURNOVER, THEREFORE, THERE WAS NO NEED THE AGGREGAT E ALL THE BUSINESSES FOR COMPUTING THE DEDUCTION U/S 80HHE, B UT LD. CIT(A) DID NOT AGREE WITH THE SUBMISSIONS OF THE AS SESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER : I HAVE CONSIDERED THE FACTS OF THE CASE AND THE ARGUMENTS OF THE APPELLANT. THE FIRST ISSUE TO BE D ECIDED AS TO WHETHER SEPARATE BOOKS OF ACCOUNTS ARE MAINTA INED FOR TWO DIVISIONS - (I) THE NORMAL TELECOM BUSINESS AND (II) THE SOFTWARE EXPORTS, THE CALCULATION FOR THE DEDUCTION UNDER SECTION 80 HHE HAS GOT TO BE ALLOWE D ON THE BASIS OF THE BOOKS OF ACCOUNTS FOR THE SOFTWARE BUSINESS OR ON THE BASIS OF THE FORMULA PRESCRIBED/ IN SECTION 80HHE ITSELF. THERE IS NO DOUBT THAT WHILE ALLOWING DEDUCTION WHICH LEADS TO GROWTH, EMPLOYMENT AND EARNING FOREIGN EXCHANGE, A LIBERAL VIEW HAS TO BE ADOPTED BUT DOES NOT MEAN THAT THE PROVISIONS UNDER WHICH THE DEDUCTION HAVE TO BE GRANTED HAVE BE IGNORED. IF A RELIEF IS ADMISSIBLE UNDER A CERTAIN PROVISION, THEN THE PROVISIONS OR THE FORMULA PRESC RIBED IN THE SAID SECTION HAS TO BE FOLLOWED AND THE SAME COULD BE IGNORED. IN FACT, SECTION 80HHE(1) UNDER W HICH THE DEDUCTION HAS TO BE ALLOWED STATES THAT DEDUCTI ON HAS TO BE ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF THE SECTION. SECTION 80HHE(3) READS AS UNDER 'FOR THE PURPOSES OF SUB-SECTION (1), PROFITS DERIV ED FROM THE BUSINESS REFERRED TO IN THE SUB-SECTION SHALL B E THE GLT. LTD. 6 AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON THE ASSESSEE.' THE PROVISIONS DO NOT MENTION THE MAINTENANCE OF DIFFERENT BOOKS OF ACCOUNTS FOR DIFFERENT DIVISIONS . THE SECTION ENVISAGES THE CARRIAGE OF BUSINESS, WHICH COULD BE OF LOCAL SALES AND EXPORTS. THE SECTION UNDERLINES THE INDIVISIBILITY OF BUSINESS AND DOES NOT TALK OF THE DIVISION OF SEPARATE DIVISIONS AS TWO BUSINESSES. IN VIEW OF THE SPECIFIED, PROVISIONS, T HE CONCEPT OF THE MAINTENANCE OF SEPARATE BOOKS OF ACCOUNTS CANNOT BE IMPORTED FOR THE PURPOSE OF DEDU CTION UNDER SECTION 80HHE OF THE INCOME-TAX ACT. THE APPE LLANT HAS RELIED ON CERTAIN TRIBUNAL DECISIONS. BUT THESE DECISIONS ARE ALL REGARDING THE INTERPRETATION OF S ECTION 80HHC OF THE INCOME-TAX ACT AND ARE NOT IN RESPECT OF THE PROVISIONS OF SECTION 80HHE OF THE INCOME-TAX ACT. THOUGH THE TWO SECTIONS ARE SIMILAR AND RELATE TO EXPORTS BUT THERE IS A DIFFERENCE IN THE TWO SECTIO NS. THE ASSESSING OFFICER HAS THEREFORE CORRECTLY HELD THAT THE DECISIONS OF THE ITAT UNDER SECTION 80HHC CANNOT BE APPLIED FOR SECTION 80HHE. CONSIDERING THE DISCUSSI ON ABOVE, IT HAS TO BE HELD THAT THE DEDUCTION UNDER S ECTION 80HHE(3) OF THE INCOME-TAX ACT. MAINTENANCE OF SEPA RATE BOOKS OF ACCOUNTS FOR THE SOFTWARE DIVISION IS OF N O USE OR THE DEDUCTION CAN ONLY BE GRANTED IN ACCORDANCE WIT H SECTION 80HHE(3) OF THE INCOME TAX ACT. THEREFORE, ON THIS ISSUE ORDER OF THE ASSESSING OFFICER IS CONFIRMED. 3.2. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL. DURING THE COURSE OF HEARING BEFORE US, I T HAS BEEN ARGUED BY THE LD. COUNSEL THAT THIS ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE ON THE BASIS OF JUDGMENTS OF THE TR IBUNAL IN FOLLOWING CASES: I. MORGAN STANLEY INDIA SECURITIES P. LTD. VS. ACIT IN ITA NO. 5072/MUM/2005 II. DATAMATICS TECHNOLOGIES LTD. VS. DCIT GLT. LTD. 7 3.3. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS O F THE LOWER AUTHORITIES. 3.4. WE HAVE GONE THROUGH THIS ISSUE CAREFULLY AND FIND IT TO BE NO MORE RES-INTEGRA . IT IS NOTED THAT IN BOTH OF THE CASES RELIED UPON BY THE LD. COUNSEL, THIS ISSUE HAS BEEN ANALYSED IN DETAIL. IN THE CASE OF MORGAN STANLEY INDIA SECU RITIES P. LTD (SUPRA), THE MUMBAI BENCH OF ITAT DECIDED THIS ISSU E IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 16. THE CONTROVERSY BEFORE US THEREFORE IS LIMITED TO THE QUESTION AS TO WHETHER, WHILE APPLYING SUB- SECTION (3) AND THE FORMULA PRESCRIBED THEREIN, THE EXPRESSION 'PROFITS OF THE BUSINESS' SHOULD MEAN ON LY THE PROFITS OF THE ELIGIBLE BUSINESS OR THE PROFITS OF ALL THE BUSINESSES CARRIED ON BY THE ASSESSEE. WHEREAS THE FIGURE OF RS.15,42,52,035/- ADOPTED BY THE ASSESSING OFFICER REPRESENTS THE AGGREGATE PROF ITS OF ALL THE BUSINESSES CARRIED ON BY THE ASSESSEE, T HE FIGURE OF RS.80,46,765/- WHICH FORMS THE BASIS OF T HE ASSESSEE'S COMPUTATION REPRESENTS ONLY THE PROFITS OF THE ELIGIBLE BUSINESS (BACK OFFICE SUPPORT SERVICES). THE TASK BEFORE US IS TO EXAMINE WHICH O F THE TWO VIEWS IS CORRECT. 17. ACCORDING TO US THE VIEW CANVASSED ON BEHALF OF THE ASSESSEE IS TO BE PREFERRED OVER THE VIEW PUT FORTH ON BEHALF OF THE INCOME TAX DEPARTMENT. AS ALREADY NOTED SUB-SECTION (3) EXISTS ONLY FOR THE PURPOSES OF SUB-SECTION (1) AND IT SAY S THAT PROFITS ELIGIBLE BUSINESS SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAM E PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTA L TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE . IF REGARD IS HAD TO BE USE OF THE DEFINITE ARTICLE THE, IT SEEMS TO US THAT THE EXPRESSION 'PROFITS OF THE BUSINESS APPEARING IN SUB-SECTION (3) REFERS ONLY TO THE PROFITS OF THE ELIGIBLE BUSINESS WHICH IS REFER RED TO IN SUB-SECTION (1). IN OTHER WORDS, IT IS ONLY THE PROFITS OF THE BUSINESS OF BACK OFFICE SUPPORT SERVICES WHI CH GLT. LTD. 8 HAVE TO BE SPLIT IN THE SAME PROPORTION AS THE EXPO RT TURNOVER IN THE SAID BUSINESS BEARS TO THE TOTAL TURNOVER IN THE SAID BUSINESS. EXPLANATION (D), WHI CH DEFINES THE EXPRESSION 'PROFITS OF THE BUSINESS' RE FERS TO THE PROFITS OF THE BUSINESS AS COMPUTED UNDER TH E HEAD PROFITS AND GAINS OF BUSINESS'. UNDER THE INCO ME TAX ACT, HAVING REGARD TO THE PROVISIONS OF CHAPTER IV READ WITH SECTION 70 AND SECTION 71, IT SEEMS TO US THAT IN THE CASE OF AN ASSESSEE CARRYING ON MORE TH AN ONE BUSINESS, EACH BUSINESS IS CONSIDERED AS A SEPARATE SOURCE FALLING UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' THE NET RESULT OF THE COMPUTATIO N IN RESPECT OF ANY SOURCE OF BUSINESS, IF IT IS A LO SS, CAN BE ADJUSTED AGAINST THE INCOME FROM ANY OTHER BUSINESS AS PROVIDED IN SECTION 70(1). THEREFORE, WHEN EXPLANATION (D) PROVIDES THAT THE EXPRESSION 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS', IT MEANS THE PROFITS OF THE ELI GIBLE BUSINESS AS COMPUTED UNDER THE AFORESAID HEAD. IN OTHER WORDS, EXPLANATION (D) DOES NOT EXPAND THE MEANING OF THE EXPRESSION 'PROFITS OF THE BUSINESS' TO INCLUDE PROFITS OF ALL THE BUSINESSES CARRIED ON BY THE ASSESSEE. HAVING SAID IN SUB-SECTION (3) THAT THE PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE ELIGIBLE BUSINESS REFERRED TO IN SUB-SECTION (1), I T IS INCONCEIVABLE THAT BY EXPLANATION (D) THE EXPRESSIO N 'PROFITS OF THE BUSINESS' WOULD HAVE BEEN DEFINED T O INCLUDE THE PROFITS OF ALL THE BUSINESSES CARRIED O N BY THE ASSESSEE. THE EXPLANATION CAN ONLY EXPLAIN THE EXPRESSION 'PROFITS OF THE BUSINESS' APPEARING IN SUB-SECTION (3), BUT IT CANNOT EXPAND THE MEANING O F THE EXPRESSION. EXPLANATION (D) IS CONTROLLED BY SU B- SECTION (3) AND WHAT IT SAYS IS ONLY DESCRIPTIVE OF WHAT THE PROFITS OF THE BUSINESS ARE. IT ONLY SAYS THAT THE PROFITS OF THE BUSINESS, WHICH MEANS THE ELIGIBLE BUSINESS, ARE THE PROFITS AS COMPUTED IN THE ASSESSMENT ORDER UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. IT HAS POSSIBLY BEEN ENACTED TO CLARIFY OR EXPLAIN THAT THE PROFITS OF THE ELIGIBLE BUSINESS I S NOT WHAT THE BOOKS OF ACCOUNT OF THE ASSESSEE SHOW AND IT CAN ONLY BE WHAT THE ASSESSMENT ORDER SHOWS. IT GLT. LTD. 9 IS ALSO SIGNIFICANT THAT SUB-SECTION (3) AS WELL AS EXPLANATION (D) REFER ONLY TO 'PROFITS OF THE BUSIN ESS' AND NOT THE PROFITS OF ALL THE BUSINESSES CARRIED O N BY THE ASSESSEE. THIS REASONING ALSO TAKES CARE OF THE ARGUMENT OF THE LEARNED CIT-DR BASED ON SECTION 80- IA(5). IN THIS VIEW OF THE MATTER WE ARE UNABLE TO ACCEPT THE CONTENTION ADVANCED ON BEHALF OF THE DEPARTMENT. 18. OUR VIEW IS IN CONFORMITY WITH THE VIEW TAKEN BY A COORDINATE BENCH IN MUMBAI IN THE CASE OF DATAMATICS LTD. VS. ACIT (2007) 111 TTJ (MUM) 55. PARAGRAPHS 35 AND 36 OF THIS ORDER DEAL WITH THE QUESTION. THESE PARAGRAPHS ARE AS UNDER: - 35. IT IS THE CASE OF THE ASSESSEE THAT ASSESSEE COMPANY IS EXPORTING THE COMPUTER SOFTWARE MANUFACTURED IN SEEPZ UNIT. ASSESSEE IS KEEPING SEPARATE ACCOUNT. THE ENTIRE ACTIVITY OF THE ASSESS EE IN THIS ZONE IS INDEPENDENT FROM ASSESSEE OTHER BUSINESS. THERE IS NO OVERLAPPING AND MINGLING OF T HE SERVICES OR ANY LINK BETWEEN THE MANUFACTURING ACTIVITIES OF BOTH. BOTH ARE EXCLUSIVE OF EACH OTHE R. 36. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL, SECTION 80HHC SPEAKS OF DEDUCTION IN RESPECT OF PROFITS DERIVED BY THE ASSESSEE FROM EXPORT OF SUCH GOODS OR MERCHANDISE: WHEREAS SECTION 80HHE SPEAKS OF SUCH BUSINESS. SUCH BUSINESS' ONLY COULD MEAN THE BUSINESS OF EXPORT OF COMPUTER SOFTWARE. T HE SCOPE OF CONSIDERATION HAS BEEN NARROWED DOWN. IN OTHER WORDS, WHETHER THE ASSESSEE DERIVES INCOME FROM ANY OTHER BUSINESS OR NOT, IS NOT A CRITERIA A ND IT IS WHOLLY EXTRANEOUS WHILE GRANTING DEDUCTION UNDER SECTION 80HHE, WHICH IS EXCLUSIVELY FOR COMPUTING DEDUCTION IN RESPECT OF PROFIT FROM EXPORT OF COMPUTER SOFTWARE ETC. FOR THE REASONS STATED HEREINABOVE, WE ALLOW THE CLAIM OF THE ASSESSEE ON THIS GROUND.' IN COMING TO THE ABOVE CONCLUSION THE TRIBUNAL HAS REFERRED TO TWO JUDGMENTS OF THE MADRAS HIGH COURT, IN THE CASE OF CIT VS. RATHORE BROTHERS (2002) 254 ITR 656 (MAD) AND IN THE CASE OF CIT VS. MADRAS MOTORS/M M FORGINGS LTD. (2002) 257 ITR 60 (MAD). GLT. LTD. 10 THESE TWO JUDGMENTS WERE CONCERNED WITH SECTION 80HHC OF THE ACT. HOWEVER, THERE WAS SIMILARITY BETWEEN SECTION 80HHC AND SECTION 80HHE IN THE SENSE THAT WHILE WORKING OUT THE ELIGIBLE PROFITS O N THE BASIS OF THE RATIO BETWEEN THE EXPORT TURNOVER AND THE TOTAL TURNOVER, IT WAS HELD BY THE MADRAS HIGH COURT THAT IT IS ONLY THE PROFITS OF THE EXPORT BUS INESS THAT HAVE TO BE SO APPORTIONED AND THE PROFITS OF BUSINESSES WHICH DID NOT QUALIFY FOR THE DEDUCTION, WHICH WERE ALSO CARRIED ON BY THE ASSESSEE, CANNOT BE HEL D ELIGIBLE FOR THE DEDUCTION. THE RATIO LAID DOWN IN THESE JUDGMENTS WAS CONSIDERED APPLICABLE TO THE PROVISIO NS OF SECTION 80HHE ALSO. 19. THE RESULT OF THE ABOVE DISCUSSION IS THAT THE DEPARTMENTAL AUTHORITIES WERE NOT CORRECT IN TAKING THE PROFITS OF THE ELIGIBLE BUSINESS AT 15,42,52,035/-. THEY OUGHT TO HAVE TAKEN THE FIGURE AT 80,46,765/- AS CONTENDED FOR BY THE ASSESSEE, WHICH FIGURE REPRESENTS THE PROFITS OF TH E BACK OFFICE SUPPORT SERVICES, WHICH IN OTHER WORDS ARE THE PROFITS OF THE ELIGIBLE BUSINESS. 3.5. SIMILARLY IN THE CASE OF DATAMATICS TECHNOLOGIES L TD. (ITA NO.5557/MUM/2011 DATED 08.03.2013), THE BENCH HAS A GAIN DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY OBS ERVING AS UNDER: A REVIEW OF THE PROVISION SHOWS THAT IT IS ONLY TH E PROFITS OF THE ELIGIBLE BUSINESS, TO THE EXTENT THEY ARE FR OM OR ATTRIBUTABLE TO EXPORT OUT OF INDIA, WHICH ARE SUBJ ECT TO DEDUCTION UNDER THE SECTION. NO DOUBT, THEREFORE, B OTH GLOBAL PROFITS AND GLOBAL TURNOVER COULD BE CONSIDE RED FOR APPLYING THE PROPORTIONATE TURNOVER FORMULA IN DETE RMINING THE RELEVANT PROFIT, AS INDEED THE LANGUAGE OF THE PROVISION SUGGESTS. HOWEVER, SUCH A COURSE IS FRAUGHT WITH SE RIOUS ABERRATIONS, LEADING TO DEDUCTION BEING ALLOWED ON NON- ELIGIBLE PROFITS ON ONE HAND, AND BEING DENIED ON T HE ELIGIBLE PROFIT, ON THE OTHER. THIS IS IN VIEW OF N ON SEGREGATION OF THE PROFITS ON THE BASIS OF ACTIVITY , OR EVEN BROADLY, I.E., ON THE BASIS OF TRADING AND MANUFACT URING SECTORS, WHICH WE FIND TO HAVE BEEN THE LEGISLATIVE GLT. LTD. 11 RESPONSE IN RESPECT OF THE PARA MATERIA PROVISION O F S. 80- HHC BY FINANCE ACT, 1990 AND FINANCE (NO.2) ACT, 19 91, WHICH ALSO BORE A SIMILAR COMPUTATION FORMULA BASED ON THE RATIO OF THE RELEVANT TURNOVER, INTRODUCING SOM E SEGREGATION IN THE COMPUTATION MECHANISM OF S. 80- HHC(3) AND, CORRESPONDINGLY, CONCEPTS SUCH AS ADJU STED PROFITS AND ADJUSTED TOTAL TURNOVER. THE PROVISI ON OF S. 80-HHE(3), HOWEVER, HAS REMAINED UNCHANGED, SO THAT THE STRUCTURAL INFIRMITY OBTAINS. IT IS THIS RATIONALIZ ATION THAT HAS GUIDED THE TRIBUNAL IN INTERPRETING THE PROVISI ON IN A MANNER CONSISTENT WITH THE INTENT OF ACCORDING THE BENEFIT THERE-UNDER ONLY TO THE PROFITS FROM THE SPECIFIED, QUALIFYING ACTIVITY. ACCORDINGLY, IT IS ONLY THE PR OFITS OF THE ASSESSEES COMPUTER SOFTWARE BUSINESS, CHRISTENED A S THE ELIGIBLE BUSINESS, THAT WOULD STAND TO BE APPORTIO NED U/S.80-HHE(3). AS A NATURAL COROLLARY, IT IS ONLY T HE TOTAL TURNOVER OF SUCH ELIGIBLE BUSINESS THAT WOULD STAND TO BE TAKEN IN THE DENOMINATOR FIGURE, WITH THE EXPORT TU RNOVER HAVING BEEN ALREADY DEFINED TO BE THE QUALIFYING EX PORT TURNOVER OF SUCH BUSINESS ONLY. THE ASSESSEES MANN ER OF COMPUTATION OF DEDUCTION U/S. 80-HHE, THUS, MERITS APPROVAL. WE MAY BEFORE PARTING WITH THE ORDER, ALS O CLARIFY THAT IN ARRIVING AT THE SAID DECISION, WE H AVE DULY PERUSED AND CONSIDERED ALL THE DECISIONS CITED BY B OTH THE PARTIES, EVEN AS A SPECIFIC REFERENCE TO SOME OF TH EM MAY NOT HAVE FOUND PLACE IN OUR DISCUSSION, FINDING IT AS BEING COVERED BY THE RATIO OF OTHER DECISIONS, OR AS BEIN G NOT DIRECTLY ON THE POINT. NO INFERENCE AS TO OUR HAVIN G NOT CONSIDERED THOSE DECISIONS, THUS, MAY BE DRAWN. WE DECIDE ACCORDINGLY. 3.6. WE HAVE GONE THROUGH THE AFORESAID JUDGMENTS AND F ACTS OF THIS CASE, AND RESPECTFULLY FOLLOWING THESE JUDG MENTS, WE PRINCIPALLY UPHOLD THE CLAIM OF THE ASSESSEE. SINCE THE ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS, IN OUR CONSIDERED VIEW, THERE IS NO NEED, AS PER LAW, TO A GGREGATE ACCOUNTS OF ALL THE BUSINESSES FOR COMPUTING AMOUNT OF DEDUCTION ALLOWABLE U/S 80HHE. SINCE ALL THE AMOUNT S REQUIRED FOR COMPUTING DEDUCTION U/S 80HHE I.E. PRO FIT OF THE GLT. LTD. 12 EXPORT BUSINESS (I.E. ELIGIBLE BUSINESS), ITS EXPOR T TURNOVER AND ITS TOTAL TURNOVER ARE SEPARATELY AVAILABLE, THEREF ORE, THE DEDUCTION HAS TO BE COMPUTED ON THE BASIS OF THESE AMOUNTS ONLY. THUS, THESE SHOULD NOT BE CLUBBED WITH THE CORRESPONDING AMOUNTS OF THE OTHER BUSINESS(ES) FOR COMPUTING AMOUNT OF DEDUCTION ALLOWABLE U/S 80HHE. BUT THE AO HAD DECIDED THIS ISSUE WITHOUT EXAMINING THE CORRECTNESS OF AMOUNT OF PROFIT OF THE ELIGIBLE BUS INESS, EXPORT TURNOVER AND TOTAL TURNOVER; THEREFORE, PRINCIPALLY ACCEPTING THE CLAIM OF THE ASSESSEE, WE SEND THIS ISSUE BACK TO THE FILE OF THE AO TO FIND OUT WHETHER THESE AMOUNTS HAVE BEEN CORRECTLY COMPUTED BY THE ASSESSEE. THUS, FOR THE LIMITED PUR POSE OF VERIFICATION OF THESE FACTS, THIS ISSUE IS SENT BAC K TO THE FILE OF THE AO FOR WHICH ADEQUATE OPPORTUNITY OF HEARING SH ALL BE PROVIDED TO THE ASSESSEE. THE ASSESSEE IS FREE TO R AISE ALL LEGAL AND FACTUAL ISSUES BEFORE THE AO. THE AO SHALL PASS THE ORDER AFRESH AFTER TAKING INTO ACCOUNT ALL THE DETAILS AN D EVIDENCES AS MAY BE BROUGHT ON RECORD BY THE ASSESSEE. THESE GROUNDS MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 4. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. NOW, WE SHALL TAKE UP REVENUES APPEAL IN ITA NO.5018/MUM/2001 FOR AY 1998-99: THE REVENUE HAS FILED FOLLOWING GROUNDS WITH THE AP PEAL MEMO: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND GLT. LTD. 13 IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALL OWANCE OF RS. 15,92,74,120/- BEING LICENCE FEES PAID FOR LOGISTICS TRACKING SOFTWARE (LTS) TREATING THE SAME AS REVENUE EXPENSES' 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE OF RS.3,79,64,689/- ON ACCOUNT OF DEFERRED REVENUE EXPENDITURE.' 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW THE DEDUCTION OF INTERE ST AMOUNTING TO RS.2,64,65,547/-.' 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.3,76,553/- MADE ON ACCOUNT OF MISCELLANEOUS AND OTHER EXPENSES HOLDING THE SAME A S NON-BUSINESS EXPENSES. 5.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN DIRECTING THE A.O. NOT TO DELETE 90% OF LEASE AND SERVICE CHARGES FOR CALCULA TING THE PROFITS OF THE BUSINESS IN ACCORDANCE WITH CLAUSE ( D) OF THE EXPLANATION TO SECTION 80HHE OF THE I.T. ACT 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A .O. NOT TO EXCLUDE THE MISCELLANEOUS INCOME FROM THE BUSINE SS PROFITS AND NOT TO INCLUDE THE SAME IN THE TOTAL TU RNOVER OF THE ASSESSEE. THE LD. CIT(A) HAS FURTHER ERRED DIRECTING THE A.O. TO EXCLUDE THE DIVIDEND INCOME F ROM THE- TOTAL TURNOVER OF THE BUSINESS. IN ADDITION TO THE ABOVE, THE REVENUE HAS FILED FOL LOWING ADDITIONAL GROUNDS: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT CONSIDERING THE FINDING OF THE ASSESSING OFFICER WITH REGARD TO PROVISIONS OF SECTION 163 OF THE I.T. ACT WHEREIN THE ASSESSEE WAS TREATED AS AN 'AGENT' OF THE US COMPANY AND TAX WAS TO BE DEDUCTED ON PAYMENTS MADE TO IT AS PER THE PROVISIONS OF SECTION 161 OF THE I.T. ACT, 1961. II) THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE AO' S GLT. LTD. 14 INFERENCE THAT THE AMOUNT CLAIMED AS DEDUCTION BY T HE ASSESSEE IS BEING DISALLOWED U/S.40(A)(I) DUE TO IT S FAILURE TO DEDUCT AND PAY TAX U/S.195 & 195A OF THE I.T. AC T. IN ANY CASE, THE AMOUNT WAS NOT ALLOWED AS AN EXPENDITURE ON THE PREMISE THAT NO TAX WAS DEDUCTED AND PAID AS PER THE PROVISIONS OF SECTION 195 R.W.S . 195A OF THE I.T. ACT, AND FAILURE TO DO SO HAS RESULTED IN OPERATION OF PROVISIONS OF SECTION 40(A)(I) OF THE I.T. ACT, WHICH OVER RIDE ALL OTHER PROVISIONS. III) THE LD. CIT(A) ERRED IN REJECTING THE AO'S ALT ERNATE FINDING THAT THE EXPENDITURE ON ACQUISITION OF SOFT WARE WAS IN THE NATURE OF ROYALTY AS DEFINED IN SECTION 9(1)(VI) OF ARTICLE 12 OF DTAA, AND THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AS PER PROVISIONS OF SECTION 195, 195A OF THE I.T. ACT, 1961, WHICH THE ASSESSEE FAIL ED TO DO. FURTHER, THE LD. CIT(A) DID NOT ACCEPT THAT THIS EX PENDITURE WAS NOT ALLOWABLE IN VIEW OF PROVISIONS OF PROVISIO NS OF SECTION 40(A)(I) OF I.T. ACT, 1961. IV) THE LD.C1T(A) ERRED IN REJECTING THE AO'S ALTER NATIVE FINDING THAT THE EXPENDITURE ON ACQUISITION OF SOFT WARE WAS IN THE NATURE OF FEE FOR TECHNICAL SERVICES AND IS LIABLE FOR DEDUCTION OF TDS, AS PER PROVISIONS OF SECTION 195, 195A OF THE I.T. ACT, 1961, WHICH THE ASSESSEE FAIL ED TO DO. FURTHER, THE LD. CIT(A) DID NOT ACCEPT THAT THI S EXPENDITURE WAS NOT ALLOWABLE IN VIEW OF SECTION 40 (A)(I) OF I.T. ACT 1961. 5. DURING THE COURSE OF HEARING, IT WAS SUBMITTED BY THE LD. DR THAT ADDITIONAL GROUNDS ARE PURELY LEGAL GROUNDS AND THESE WERE OMITTED TO BE TAKEN AT THE TIME OF FILING OF T HE APPEAL. HE RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT I N THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS CIT 229 ITR 383, IN SUPPORT OF HIS PRAYER FOR ADMISSION OF THE ADDITION AL GROUNDS. 6. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE OPP OSED THE PRAYER OF THE LD. DR FOR ADMISSION OF THE ADDITIONA L GROUNDS. 7. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE, IT I S NOTED BY GLT. LTD. 15 US THAT ADDITIONAL GROUNDS ARE PURELY LEGAL GROUNDS AND GO TO THE ROOT OF THE MATTER AND THEREFORE, IN THE INTERE ST OF JUSTICE AND FAIR PLAY, THESE ARE ADMITTED. 8. DURING THE COURSE OF HEARING, LD. DR MENTIONED THA T ADDITIONAL GROUNDS NO. (I) IS NOT PRESSED. THEREFORE, THE SAME IS DISMISSED. 9. GROUND NOS.1 (OF THE MAIN GROUNDS) AND GROUND NO S. (II), (III) & (IV) OF THE ADDITIONAL GROUNDS: THESE GROUNDS ADDRESS THE COMMON ISSUE OF CORRECT TREATMENT OF AM OUNT OF RS.15,92,74,120/-, BEING THE LICENSE PAID FOR LOGIS TICS TRACKING SOFTWARE (LTS) WHICH WAS DISALLOWED BY THE AO BY TREATING THE SAME AS CAPITAL EXPENSES. 9.1. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS MAINLY ENGAGED IN THE BUSINESS OF TRADI NG AND DISTRIBUTION OF TELECOM EQUIPMENTS. IN THE ASSESSME NT ORDER, THE AO MADE DISALLOWANCE OF RS.15,92,74,120/-, BEIN G THE AMOUNT OF LICENSE FEE PAID FOR ACQUIRING LOGISTICS TRACKING SOFTWARE (LTS). THE FACTS AS NOTED BY THE LOWER AUT HORITIES WITH RESPECT TO THE SAID DISALLOWANCE ARE THAT THE ASSESSEE HAD CLAIMED THESE EXPENSES AS PART OF ITS DEDUCTION FRO M ITS TOTAL INCOME. DURING THE YEAR UNDER CONSIDERATION, THE AS SESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S GELS INTERNA TIONAL INC, A U.S. COMPANY. ACCORDING TO THE AGREEMENT, TH E ASSESSEE WAS A LICENSEE OF CERTAIN SOFTWARE RELATIN G TO THE LOGISTICS TRACKING OF CARGO. THE U.S. COMPANY HAD G RANTED THE LICENCE TO THE ASSESSEE FOR A CONSIDERATION OF 4 MI LLION U.S. GLT. LTD. 16 DOLLARS. THE LICENCE TO USE THE SOFTWARE WAS ONLY F OR USE IN INDIA. THE ASSESSEE HAD THE RIGHT TO USE THE SOFTWA RE AND MAKE FURTHER DEVELOPMENTS, WHICH COULD BE EXPORTED OUT OF INDIA, AND 50 % OF THE EXPORT PROCEEDS OF THESE SOF TWARES WERE TO BE GIVEN TO THE U.S. COMPANY. THE ASSESSEE WAS D EBARRED FROM SUB- LICENSING THE PROGRAM CODE WITHOUT THE WR ITTEN PERMISSION OF THE U.S. COMPANY. IT WAS ALSO ENVISAG ED THAT THE U.S. COMPANY WOULD HAVE THE OWNERSHIP OF ALL CO PIES OF THE PROGRAM. ALL THE DERIVATIVE SOFTWARE WOULD BELO NG TO THE ASSESSEE. 9.2. ON THE BASIS OF THE AGREEMENT, THE ASSESSING OFFIC ER HELD THAT THERE WAS NO SALE, EXCHANGE OR RELINQUISHMENT OF COPYRIGHT BY THE U.S. COMPANY WITHIN THE MEANING OF SECTION 2(47) OF THE INCOME TAX ACT. THE ASSESSING OFFICER ALSO HELD THAT THE COPYRIGHT OVER THE SOFTWARE WAS NOT REGIST ERED IN INDIA, AS IT WAS NOT LOCATED IN INDIA AND THEREFORE SECTION 9(1) OF THE INCOME-TAX ACT WAS NOT ATTRACTED. THE ASSESS ING OFFICER THEN EXAMINED AS TO WHETHER SECTIONS 9, 35A AND 35AB OF THE INCOME-TAX ACT WERE ATTRACTED WITH REFE RENCE TO ARTICLE 12 OF THE DTAA BETWEEN INDIA AND THE U.S.A. THE ASSESSING OFFICER EXAMINED SECTION 35A OF THE INCOME-TAX ACT AND CAME TO THE CONCLUSION THAT BY THE AGREEMEN T THE ASSESSEE HAD NOT ACQUIRED ANY PATENT OR COPYRIG HT FROM THE U.S. COMPANY AND THEREFORE SECTION 35A WAS NOT APPLICABLE. THE ASSESSING OFFICER HELD THAT AS THE ASSESSEE HAD ONLY ACQUIRED A RIGHT TO USE THE SOFTWARE AND NOT T HE OWNERSHIP OVER THE SOFTWARE, THE PAYMENT MADE HAD T O BE TREATED AS A PAYMENT OF ROYALTY. FOR THIS PROPOSITI ON, THE GLT. LTD. 17 ASSESSING OFFICER RELIED ON THE DEFINITION OF ROYAL TY UNDER SECTION 9(L)(VI) OF THE INCOME-TAX ACT. THE ASSESSI NG OFFICER FURTHER HELD THAT THE RIGHTS IN COMPUTER SOFTWARE A RE INTELLECTUAL RIGHTS. THE ASSESSING OFFICER FURTHER HELD THAT THE DEFINITION OF ROYALTY IN THE ACT COVERS ALL PAY MENTS FOR THE TRANSFER OF ALL OR ANY RIGHTS IN COPYRIGHTS, LI TERARY, ARTISTIC OR SCIENTIFIC WORK OR OTHER INDUSTRIAL PRO PERTY. IN HIS VIEW, ROYALTIES ALSO INCLUDED CONSIDERATION FOR SER VICES CONNECTED WITH LICENSING RIGHTS AND KNOWHOW AND IMPARTING OF INFORMATION CONCERNING TECHNICAL, INDU STRIAL, COMMERCIAL, SCIENTIFIC KNOWLEDGE, EXPERIENCE AND SK ILL. THE ASSESSING OFFICER THEN RELIED ON THE RATIO LAID DOW N IN THE FOLLOWING CASES:- A) CIT V CILAG LTD. 70 ITR 760 (BOM) B) EVANS MEDICAL SUPPLIES LTD., 143 ITR 720 (BOM) C) C.I.T. V GILBERT & BARKER MFG. CO. 111 ITR 529 (BOM ) D) ROLLS ROYCE LTD. V. JETFREY, 56 ITR 580 (HOUSE OF LORDS) E) C.I.T. V. AHMEDABAD MFG. & CALICO PRINTING CO. 139 ITR 896 (GUJARAT) F) C.I.T. V RALLIWOLF LTD. 143 ITR 720 (BOM) G) N.V.PHILLIPS V C.I.T. 172 ITR 520 (CAL) & H) C.I.T. V DAVY ASHMORE INDIA LTD. 190 ITR 626. 9.3. THE ASSESSING OFFICER ALSO RELIED ON THE RATIO LAI D DOWN IN THE CASE OF PEERLESS CONSULTANCY PVT. LTD. 164 CTR 194 (SC), WHEREIN IT WAS HELD THAT PROCESSING O F DATA AMOUNTS TO PROCESSING OF GOODS AND IS MANUFACTURING ACTIVITY AND THEREFORE THE ASSESSEE WAS AN INDUSTRI AL COMPANY. THE ASSESSING OFFICER ALSO RELIED ON THE D ECISION OF THE I.T.A.T., MUMBAI IN THE CASE OF TANGERINE EX PORTS 49 GLT. LTD. 18 ITD 386 WHEREIN IT WAS HELD THAT THE SALE OF SOFTWA RE WAS HIT BY THE SALE OF GOODS ACT. THE ASSESSING OFFICER HELD THAT 1/6TH OF THE AMOUNT PAID BY THE ASSESSEE WAS A LLOWABLE BUT AS SUCH A CLAIM HAD NOT BEEN MADE BY THE ASSESS EE, THE CLAIM CANNOT BE ALLOWED. THE ASSESSING OFFICER FURT HER FOUND THAT IN THE AGREEMENT THERE WAS NO PROVISION IN THE AGREEMENT FOR REFERRING THE SOURCE CODE TO THE U.S. COMPANY. THE AGREEMENT WAS FOR PERPETUITY AS NO TIM E LIMIT WAS MENTIONED IN THE AGREEMENT. ACCORDING TO THE ASSESSING OFFICER, THE AGREEMENT GAVE AN ENDURING B ENEFIT TO THE ASSESSEE AND THEREFORE THE EXPENDITURE WAS CAPI TAL IN NATURE. TO SUPPORT THIS VIEW, THE ASSESSING OFFICER RELIED ON THE DECISIONS OF THE ITAT IN THE CASES OF TELECOM I ND. CO. PVT. LTD. 45 ITD 203 (MAD), COMP. FIELD SERVICES PVT. LT D. 159 CTR 220 (MAD). THE ASSESSING OFFICER THEN HELD THAT THE ASSESSEE WAS AN INDUSTRIAL COMPANY. THE ASSESSING O FFICER HELD THAT THE CLAIM OF THE ASSESSEE CANNOT BE CONSI DERED FOR DEDUCTION UNDER SECTIONS 35A AND 35AB OF THE IN COME- TAX ACT BECAUSE NO SUCH CLAIM HAD BEEN MADE BY THE ASSESSEE. THE ASSESSING OFFICER THEN CONSIDERED THE RATIO LAID DOWN IN THE CASE OF JONAS WOODHEAD & SONS (1) LTD. 224 ITR 324 (SC). THE ASSESSING OFFICER CONSIDERED THE SAID DECISION WITH REFERENCE TO THE FACTS OF THE ASSESSEE'S CASE AND FOUND THAT THE SOFTWARE PURCHASED WAS NOT FOR THE BETTERM ENT OF THE EXISTING PRODUCTS. IN HIS VIEW, THE PURCHASE OF THE SOFTWARE WAS FOR A NEW LINE OF BUSINESS. THE ASSESS ING OFFICER THEREFORE CAME TO THE CONCLUSION THAT THE EXPENDITURE WAS CAPITAL IN NATURE. THE ASSESSING OF FICER THEN GLT. LTD. 19 EXAMINED THE RATIO LAID DOWN IN THE CASE OF KIRIOSK AR CUMMINS LTD. 202 ITR 36 (BOM) AND HELD THAT THE SAI D DECISION WAS NOT APPLICABLE TO THE ASSESSEE'S CASE BECAUSE THE SOFTWARE PURCHASED BY THE ASSESSEE WAS NOT FOR THE ASSESSEE'S EXISTING BUSINESS BUT WAS FOR A NEW BUSI NESS BECAUSE THE PRODUCTION OF SOFTWARE WAS NOT THE BUSI NESS OF THE ASSESSEE. THE ASSESSING OFFICER THEN RELIED ON THE RATIO LAID DOWN IN THE CASE OF ADITYA MINERALS LTD. 237 ITR 817 (SC) AND CAME TO THE CONCLUSION THAT THE EXPEND ITURE WAS CAPITAL IN NATURE. BUT IN HIS OPINION, DEPRECIA TION WAS NOT ALLOWABLE ON THE SAID EXPENDITURE BECAUSE THE A SSESSEE WAS NOT THE OWNER OF THE SOFTWARE. THE ASSESSING OF FICER HELD THE EXPENDITURE TO BE IN THE NATURE OF ROYALTY AS DEFINED IN SECTION 9(1)(VI) OF ARTICLE 12 OF THE DT AA. FOR THIS PROPOSITION, THE ASSESSING OFFICER RELIED ON THE RA TIO LAID DOWN IN THE CASE OF JYOTI ELECTRIC MOTORS LTD. 237 ITR 2 80 (GUJ). THE ASSESSING OFFICER HELD THAT THE SOFTWARE ACQUIR ED COULD BE USED FOR PRODUCING FURTHER SOFTWARE AND THAT THE SO FTWARE WAS NOT LIKELY TO BECOME OBSOLETE. IN HIS VIEW THER EFORE, THE DECISION IN THE CASE OF BUSINESS INFORMATION PROCES SING SERVICES 239 ITR (AT) 19 WOULD NOT APPLY AS IN THAT CASE THE SOFTWARE WAS HELD TO BE A REVENUE EXPENDITURE A S IT WAS LIKELY TO BECOME OBSOLETE VERY FAST. THE SOFTWA RE ACQUIRED BY THE ASSESSEE WAS DOWNLOADED FROM THE INTERNET. THE ASSESSING OFFICER HELD THAT THE MAIN PURPOSE OF ACQUIRING THE PROGRAM WAS TO INCORPORATE IT INTO ITS EXISTING GOBA1 NET SERVICES. THE ASSESSING OFFICER FURTHER HELD THAT THE AMOUNT PAYABLE WAS ROYALTY AS DEFINED IN GLT. LTD. 20 SECTION 9(1)(VI) OF THE INCOME-TAX ACT. HE ALSO HEL D THAT AS NO TAX WAS DEDUCTED UNDER SECTION 195 OF THE INC OME-TAX ACT, IN VIEW OF SECTION 40(A)(I) OF THE INCOME TAX ACT, THE AMOUNT CANNOT BE ALLOWED AS A DEDUCTION. 9.4. BEING AGGRIEVED, THE ASSESSEE FILED THE APPEAL BEF ORE THE LD. CIT(A) WHEREIN DETAILED SUBMISSIONS WERE MADE, CHALLENGING THAT IMPUGNED EXPENSES WERE REVENUE IN NATURE AND THAT THE SAME DID NOT FALL WITHIN THE DEFINITIO N OF ROYALTY U/S 9(1)(VI) OF THE ACT AND NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE ON THE SAID PAYMENT. THE LD. CIT(A) PARTL Y ACCEPTED THE SUBMISSIONS OF THE ASSESSEE AND DELETING THE AD DITION HE ALLOWED THE APPEAL. BEING AGGRIEVED, THE REVENUE HA S FILED AN APPEAL WHEREIN IT HAS TAKEN GROUND NO.1 AS PART OF MAIN GROUNDS AND THREE MORE ADDITIONAL GROUNDS. FIRST WE TAKE GROUND NO 1 OF MAIN GROUNDS: 10. IN THIS GROUND THE REVENUE HAS CHALLENGED THE ACTI ON OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF THE IMPU GNED EXPENSES BY TREATING THE SAME AS REVENUE EXPENSES. 10.1. DURING THE COURSE OF HEARING BOTH THE PARTIES WERE UNANIMOUS ON THIS POINT THAT THE IMPUGNED EXPENSES WERE REVENUE IN NATURE AND NOT AT ALL CAPITAL NATURE. IT IS FURTHER NOTED BY US THAT LD. CIT(A) HAS THRASHED OUT THIS I SSUE PROPERLY AFTER ANALYZING THE FACTUAL MATRIX OF THE CASE AND CORRECT POSITION OF LAW IN THIS REGARD. WE FIND IT APPROPRIATE TO REPRODUCE THE RELEVANT PORTIONS OF THE FINDINGS OF THE LD. CIT(A) AS UNDER: GLT. LTD. 21 I HAVE CONSIDERED THE FACTS OF THE CASE. THE APPEL LANT WAS IN THE BUSINESS OF SOFTWARE. IN ORDER TO INCREA SE ITS COMPETITIVENESS AND TO GIVE BETTER FACILITIES TO IT S CUSTOMERS, THE APPELLANT PURCHASED LTS SOFTWARE FRO M GEIS, A US COMPANY. THE QUESTION IS WHETHER THIS EXPENDITURE WOULD BE CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. THE ASSESSING OFFICER HAS TREATED THE PURCHASE OF SOFTWARE AS PU R CHASE OF MACHINERY. THE BUSINESS OF THE APPELLANT REMAINS THE SAME EVEN AFT ER THE PURCHASE OF THE SOFTWARE. THE SOFTWARE IS NOTHING B UT A SERIES OF PROGRAMS AND COMMANDS, WHICH GIVES EFFICI ENCY AND EFFECTIVENESS TO THE BUSINESS. THE SOFTWARE BECOMES OBSOLETE VERY FAST. IT CAN BE CLASSIFIED AS THE TOOL OF THE TRADE. IF THE PURCHASE OF THE SOFTWARE LED TO STARTING OF NEW BUSINESS OR NEW PRODUCT THEN IT COU LD BE CONSIDERED THAT THE EXPENDITURE WAS A CAPITAL EXPENDITURE. BUT IN THIS CASE NOTHING OF THE SORT H AS HAPPENED. THE SOFTWARE HAS GIVEN A NEW EDGE TO THE BUSINESS OF THE APPELLANT AND HAS ALSO INCREASED TH E EFFICIENCY OF THE APPELLANT. THE ASSESSING OFFICER HAS MAINLY RELIED THAT THE PURCHASE OF THE SOFTWARE HAS LED TO GIVING AN ENDURING BENEFIT TO THE APPELLANT. THE CONCEPT OF ENDURING BENEFIT IS NOT THE ONLY CRITERI A TO BE SEEN. THE ISSUE TO BE EXAMINED IS AS TO WHETHER ANY ASSET WAS BROUGHT IN TO EXISTENCE. IN FACT IN THE C ASE OF EMPIRE JUTE CO. LTD. THE SUPREME COURT HAS HELD THA T ENDURING BENEFIT IS NOT CERTAIN AND CONCLUSIVE TEST AND THAT IT CANNOT BE APPLIED MECHANICALLY WITHOUT REGA RD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A CASE. I N THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. (SUPRA), TH E SUPREME COURT HELD THAT PAYMENTS MADE FOR AUGMENTATION OF EXISTING PRODUCTS HAVE TO BE ALLOWE D AS REVENUE EXPENDITURE. INCIDENTALLY, IN THAT CASE SOME MACHINERY WAS PURCHASED WHICH WAS UTILIZED FOR INCREASING THE EFFICIENCY OF PRODUCTION. THE SUPREM E COURT HELD THAT AS NEW PRODUCT WAS MANUFACTURED THE EXPENDITURE LAID OUT HAD TO BE TREATED AS REVENUE EXPENDITURE. THEREFORE, CONSIDERING THESE TWO LANDM ARK JUDGMENTS OF THE SUPREME COURT ARE HAS TO BE HELD T HAT THE EXPENDITURE INCURRED FOR THE PURCHASE OF SOFTWA RE IS REVENUE EXPENDITURE IN THE HANDS OF THE APPELLANT. GLT. LTD. 22 10.2. IT IS NOTED BY US THAT LD. CIT(A) HAS CAREFULLY AN ALYSED THE FACTS OF THIS CASE AND APPLIED THE JUDGMENTS OF THE SUPREME COURT CORRECTLY. THUS, IN VIEW OF THESE FIN DINGS OF LD. CIT(A) AS WELL AS SUBMISSIONS OF BOTH THE SIDES, WE FIND THAT THERE IS NOTHING WRONG IN THE FINDINGS OF LD. CIT(A ) AND THE IMPUGNED EXPENSES HAVE BEEN RIGHTLY HELD TO BE REVE NUE EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY. T HUS, ORDER OF THE LD. CIT(A) TO THIS EXTENT ON THIS ISSU E IS UPHELD AND GROUND NO.1 (OF THE MAIN GROUNDS) IS DISMISSED. NOW WE TAKE UP ADDITIONAL GROUNDS NOS. (II), (III) AND (IV) OF THE REVENUE: 11. IN THESE GROUNDS THE REVENUE HAS CONTENDED THAT TH E IMPUGNED EXPENDITURE WAS IN THE NATURE OF ROYALTY A S DEFINED IN SECTION 9(1)(VI) AS WELL AS ARTICLE 12 OF INDO-U S DTAA AND THEREFORE, ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOU RCE ON THE IMPUGNED PAYMENT MADE TO THE NON-RESIDENT, AND SINC E ASSESSEE FAILED TO DEDUCT TAX AT SOURCE THE IMPUGNE D EXPENDITURE WAS LIABLE TO BE DISALLOWED U/S 40(A)(I ) OF THE ACT. IT HAS ALSO BEEN ALTERNATIVELY, CONTENDED BY THE RE VENUE THAT THE IMPUGNED EXPENDITURE WAS IN THE NATURE OF FEE F OR TECHNICAL SERVICES (FTS) AND THEREFORE, LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 AND 195A OF THE ACT, AND SINC E ASSESSEE FAILED TO DEDUCTED TAX AT SOURCE, IT WAS TO BE DISA LLOWED U/S 40(A)(I). 11.1. DURING THE COURSE OF HEARING BEFORE US, IT HAS BEE N CONTENDED BY THE LD. DEPARTMENTAL REPRESENTATIVE EL ABORATING GLT. LTD. 23 THE CONTENTIONS OF THE REVENUE RAISED IN THE ADDITI ONAL GROUNDS, THAT THESE ISSUES ARE NOW COVERED IN FAVOU R OF THE REVENUE IN VIEW OF VARIOUS JUDGMENTS. HE RELIED UPO N FOLLOWING JUDGMENTS IN SUPPORT OF THE ADDITIONAL GR OUNDS: (I) VIACOM 18 MEDIA PVT. LTD. VS. ADIT 153 ITD 384 (MUMBAI), (II) DDIT VS. RELIANCE INFOCOM LTD. 37 CCH 69 (ITAT MUMBAI), (III) VERIZON COMMUNICATIONS SINGAPORE PTE. LTD. VS ITO 361 ITR 575 (MADRAS), (III)CIT VS SAMSUNG ELECTRONICS CO. LTD., 345 ITR 494 (KARNATAKA) (IV)CIT VS SYNOPSIS INTERNATIONAL OLD LTD.212 TAXMA NN 454. LD. DR VEHEMENTLY ARGUED THAT RATIO OF THESE JUDGME NTS NEED TO BE ANALYSED AND APPLIED ON THE FACTS OF THIS BEF ORE THIS ISSUE CAN BE CONCLUDED ON EITHER SIDE. 11.2. PER CONTRA, LD. COUNSEL OF THE ASSESSEE HAS OPPOSE D THE ARGUMENTS OF THE LD. DR. IT HAS BEEN CONTENDED THAT ARTICLE 12(3) OF INDO US DTAA IS DIFFERENT FROM THE PROVISI ONS OF SECTION 9(1)(VI) READ WITH ITS EXPLANATIONS. IT IS SETTLED LAW THAT MORE BENEFICIAL PROVISIONS BETWEEN THE TAX TREATY A ND THE INCOME TAX ACT CAN BE CHOSEN BY THE ASSESSEE. IT IS SUBMITTED THAT THE IMPUGNED PAYMENTS SHALL NOT FALL WITHIN TH E DEFINITION OF THE TERM ROYALTY AS PER ARTICLE 12(3) OF INDO US TREATY, WHEREIN THE WORDS USED ARE DIFFERENT FROM THE WORDS USED IN THE PROVISIONS OF SECTION 9(1)(VI). IT HAS BEEN SUB MITTED THAT QUA INDIAN TERRITORY, THE SAID SOFTWARE HAS BEEN PU RCHASED BY THE ASSESSEE COMPANY AND THUS IT CAN BE SAID TO BE OWNED BY GLT. LTD. 24 THE ASSESSEE, AND THEREFORE, IT AMOUNTS TO ALIENATI ON OF RIGHTS AND NOT FOR THE USE OF RIGHTS IN THE SOFTWARE. IN O THER WORDS, CONSIDERATION PAID BY THE ASSESSEE IS NOT FOR THE U SE OF RIGHTS BUT FOR PURCHASE OF PROPERTY AND RIGHTS THEREIN. IN OTHER WORDS THE ASSESSEE IS OWNER QUA INDIAN TERRITORY. 11.3. LASTLY, THE LD. COUNSEL HAS MADE A CLAIM TO TAKE T HE BENEFIT OF NON-DISCRIMINATION CLAUSE OF INDO US TRE ATY. OUR ATTENTION HAS BEEN DRAWN ON PARA 3 OF ARTICLE 26 OF THE TREATY. IT IS SUBMITTED THAT WITH RESPECT TO THE RESIDENT A SSESSEES, AN AMENDMENT WAS BROUGHT U/S 194J W.E.F. 01.07.2006 FO R CREATING OBLIGATION TO DEDUCT TAX AT SOURCE ON THE AMOUNT OF ROYALTY. THUS, PRIOR TO THE SAID DATE, A RESIDENT I N INDIA WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON THE AMOUNT OF ROYALTY PAID BY IT. UNDER THESE CIRCUMSTANCES, NO DISCRIMIN ATION SHOULD BE DONE WITH THE NON-RESIDENT ASSESSEES BY CREATING OBLIGATION TO DEDUCT TAX AT SOURCE ON THE AMOUNT OF ROYALTY, IN VIEW OF SPECIFIC PROVISIONS OF PARA 3 OF ARTICLE 26 OF THE TREATY, AND FOR THIS PURPOSE RELIANCE HAS BEEN PLACED ON TH E JUDGMENT OF THE DELHI BENCH OF ITAT REPORTED IN HERBAL LIFE INTERNATIONAL INDIA (P) LTD. VS ACIT 101 ITD 450 AND MILLENNIUM INFOCOM TECHNOLOGIES LTD . VS. ACIT 117 TTJ 456 (DEL.). FURTHER RELIANCE WAS P LACED ON VARIOUS JUDGMENTS WHEREIN IT WAS HELD THAT SIMILAR KIND OF PAYMENTS DID NOT FALL WITHIN THE DEFINITION OF ROYA LTY IN THE YEAR UNDER CONSIDERATION AND IN ANY CASE NO TAX WAS REQUIRED TO BE DEDUCTED ON SUCH PAYMENTS. 11.4. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. IT I S NOTED GLT. LTD. 25 THAT IMPUGNED ORDER WAS PASSED BY THE LD. CIT(A) ON 28.05.2001. SINCE, THEN MUCH WATER HAS FLOWN AND TH ERE ARE PLETHORA OF JUDGMENTS OF THE TRIBUNAL ON BOTH THE S IDES. IN THESE JUDGMENTS VARIOUS CONTENTIONS HAVE BEEN ANALY SED AND DISCUSSED IN CONTEXT OF DIFFERENT FACTUAL SITUATION S. IT IS FURTHER NOTED BY US THAT VARIOUS CONTENTIONS RAISED BY BOTH THE PARTIES NOW BEFORE US WERE NOT ANALYSED BY THE LD. CIT(A) WHILE DECIDING THIS ISSUE. LD. CIT(A) HAD HELD THAT THE IMPUGNED PAYMENTS DID NOT FALL WITHIN DEFINITION OF ROYALTY AND THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE IMPUGNED PAYMENT. IT IS NOTED THAT THE VARIOUS CONTENTIONS RAISED BEFORE US HAVE BEEN ANALYSED BY THE LD. CIT(A), NEITHER ON FACTS NOR ON LAW. THUS, IN VIEW OF FRESH LEGAL DEVELOPMENT AND VARIOUS CONTENTIONS MADE BEFORE US, WE FIND IF APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE LD. CIT(A) TO RE-EXAMINE THE SAME AND ANALYSE THE FACTS AND VARIOUS CONTENTIONS OF BOTH THE SIDES, AND AFTER TA KING INTO ACCOUNT JUDGMENTS AVAILABLE ON BOTH THE SIDES, A FR ESH ORDER SHOULD BE PASSED. NEEDLESS TO SAY THAT ASSESSEE SHO ULD BE GIVEN ADEQUATE OPPORTUNITY OF HEARING. THE ASSESSEE IS FREE TO TAKE ALL LEGAL AND FACTUAL ISSUES BEFORE THE LD. CI T(A). THE LD. CIT(A) SHALL DECIDE THESE ISSUES AFRESH. 12. AS A RESULT GROUND NO. 1 OF MAIN GROUNDS IS DISMIS SED AND GROUND NOS. (II) (III) & (IV) OF THE ADDITIONAL GROUNDS ARE SENT BACK TO THE FILE OF THE LD. CIT(A) FOR FRESH A DJUDICATION AND MAY BE TREATED AS PARTLY ALLOWED FOR STATISTICA L PURPOSES. 13. GROUND NO.2 (MAIN GROUNDS): IN THIS GROUND, THE GLT. LTD. 26 REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.3,79,64,689/- ON ACCOUNT OF DEFE RRED REVENUE EXPENDITURE. 13.1. THE BRIEF FACTS AS NOTED BY THE LOWER AUTHORITIES ARE THAT THE ASSESSEE HAD CLAIMED A DEDUCTION OF RS.3,79,64, 689/- AS A DEDUCTION IN THE COMPUTATION OF ITS INCOME. TH E EXPENDITURE RELATED TO SEVERAL EXPENSES INCURRED BY THE ASSESSEE IN RELATION TO PROFESSIONAL CHARGES, FINAN CE CHARGES, SOFTWARE CHARGES ETC. IN THE BOOKS OF ACCOUNTS, THE ASSESSEE HAD AMORTIZED THE EXPENSES OVER A PERIOD OF SEVERAL YEARS AS DEFERRED REVENUE EXPENSES. THIS WAS DONE IN ACCORDA NCE WITH THE ACCOUNTING STANDARD LAID DOWN BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. BUT IN THE INCOME T AX RETURN, THE ASSESSEE CLAIMED THE EXPENSES IN ITS EN TIRETY. IT WAS ARGUED BEFORE THE ASSESSING OFFICER THAT THE EX PENSES WERE ALLOWABLE UNDER SECTION 37 AND SHOULD BE ALLOW ED. THE ASSESSING OFFICER RELIED ON THE DECISION IN THE CAS E OF MADRAS INDUSTRIAL INVESTMENT CO. LTD. 25 ITR 802 (SC). IN THAT CASE THE COMPANY HAD ISSUED DEBENTURES AT A DISCOUNT FOR A PERIOD OF 12 YEARS AND THE ENTIRE DI SCOUNT WAS CLAIMED AS A DEDUCTION IN ONE YEAR. THE SUPREME COURT HELD THAT SUCH A CLAIM GIVES A DISTORTED PICT URE AND THEREFORE THE DISCOUNT WHICH WAS NOTHING BUT INTERE ST WAS TO BE SPREAD OVER A NUMBER OF YEARS. ACCORDING TO THE ASSESSING OFFICER CLAIMING THE ENTIRE EXPENDITURE IN ONE YEAR WOULD GIVE A DISTORTED PICTURE AND THEREFORE IN VIEW OF THE RA TIO LAID DOWN IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CO . LTD. (SUPRA) THE EXPENDITURE WAS ALLOWABLE ON A DEF ERRED GLT. LTD. 27 REVENUE BASIS. HE THEREFORE DISALLOWED THE ENTIRE C LAIM OF RS.3,79,64,689/-. 13.2. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) WHEREIN DETAILED SUBMISSIONS WERE MADE A ND IT WAS CONTENDED THAT IN FACT THESE EXPENSES WERE PURELY R EVENUE IN NATURE EXPENSES BUT IN THE BOOKS OF ACCOUNTS THESE WERE CLAIMED AS DEFERRED REVENUE. THE LD. CIT(A) CONSIDE RED THE SUBMISSIONS OF THE ASSESSEE AND ANALYSED THE NATURE OF EXPENSES AND HELD THAT THESE EXPENSES WERE REVENUE NATURE AND THEREFORE, HE DELETED THE DISALLOWANCE MADE BY THE AO. 13.3. BEING AGGRIEVED, THE REVENUE HAS FILED AN APPEAL B EFORE THE TRIBUNAL. 13.4. DURING THE COURSE OF HEARING, LD. DR HAS RELIED UP ON THE ORDER OF THE AO. ON THE OTHER HAND, LD. COUNSEL REL IED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE O F TAPARIA TOOLS LTD. V. JCIT (2015) 372 ITR 605 (SC) AND SUBMITTED THAT THE IMPUGNED EXPENSES WERE PURELY REV ENUE IN NATURE EXPENSES AND THEREFORE, LD. CIT(A) HAS RIGHT LY ALLOWED THE SAME AND THEREFORE HIS ORDER SHOULD BE UPHELD A ND GROUND RAISED BY THE REVENUE SHOULD BE DISMISSED. 13.5. WE HAVE GONE THROUGH ORDERS OF THE LOWER AUTHORITI ES, SUBMISSIONS MADE BEFORE US AS WELL AS JUDGMENT OF H ONBLE SUPREME COURT RELIED UPON BY THE LD. COUNSEL. IT IS NOTED THAT THE LD. CIT(A) HAS ANALYSED THE DETAILS OF EXPENSES AND REPRODUCED THE SAME IN HIS ORDER AT PAGE NO.17, WHI CH IS REPRODUCED HEREUNDER: GLT. LTD. 28 DURING THE COURSE OF APPEAL, THE DETAILS OF THE EXPENSES OF RS.3,79,64,689/- WERE SUBMITTED WHICH A RE REPRODUCED AS UNDER:- A) PROFESSIONAL CHARGES/CONSULTANCY CHARGES RS.14,36,460 B) FINANCE CHARGES RS.1,80,86,624 C) ADVERTISEMENT EXPENSES RS.1,34,78,719 D) TRAVELLING EXPENSES RS.32,53,386 E) SOFTWARE CHARGES RS.3,79,64,689 13.6. IT IS NOTED BY US THAT APPARENTLY THESE EXPENSES A RE OTHERWISE PURELY REVENUE NATURE EXPENSES. THE TREAT MENT OF THESE EXPENSES UNDER THE INCOME TAX LAW CANNOT BE D ECIDED MERELY ON THE BASIS OF MANNER OF RECORDING BY THE A SSESSEE IN ITS BOOKS OF ACCOUNTS. THE INCOME HAS TO BE ASSESSE D AND EXPENSES ARE TO BE ALLOWED UNDER THE INCOME TAX PRO CEEDINGS IN VIEW OF THE PROVISIONS OF INCOME TAX ACT, 1961, AS EXPLAINED BY THE COURTS AS WELL AS CENTRAL BOARD OF DIRECT TA XES BY WAY OF ITS CIRCULARS/ INSTRUCTIONS AS HAVE BEEN ISSUED TIME TO TIME. IT IS WELL SETTLED LAW THAT ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT DETERMINATIVE OF THE CHARACTER OF INCOME OR EXP ENSES. NO CASE HAS BEEN MADE OUT BY THE AO THAT THESE EXPENSE S ARE CAPITAL IN NATURE. THUS, WE FIND THESE EXPENSES TO BE REVENUE NATURE EXPENSES AS HAS BEEN HELD BY THE LD. CIT(A) CORRECTLY. CONTENTION OF THE AO FOR MAKING THE DISALLOWANCE IS THAT ASSESSEE HAS CLAIMED THE SAME AS DEFERRED REVENUE EXPENDITURE. WE FIND THAT THERE IS NO CONCEPT OF DE FERRED GLT. LTD. 29 REVENUE EXPENDITURE UNDER THE INCOME TAX ACT EXCEPT UNDER SPECIFIC SECTIONS I.E. WHERE AMORTIZATION IS SPECIF ICALLY PROVIDED E.G. U/S 35D OF THE ACT. IT HAS NOT BEEN DISPUTED T HAT THESE EXPENSES WERE INCURRED DURING THE YEAR UNDER CONSID ERATION AND PERTAIN TO THE SAME YEAR AND THESE HAVE BEEN IN CURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. UNDER THES E CIRCUMSTANCES WE FIND NO REASON TO DISALLOW THESE E XPENSES. OUR VIEW FINDS SUPPORT FROM THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF TAPARIA TOOLS LTD. (SUPRA) AS WELL AS VARIOUS OTHER JUDGMENTS WHICH HAVE BEEN REFERRED TO BY THE LD. CIT(A) IN ITS ORDER. FOR THE SAKE OF READY REFE RENCE, RELEVANT PORTION OF THE ORDER OF THE LD. CIT(A) IS REPRODUCE D BELOW: THE APPELLANT CLAIMED THE ENTIRE EXPENSES RELYING ON THE RATIO LAID DOWN IN THE CASE OF KEDRNATH JUTE MANUFACTURING CO. LTD. 82 ITP 363 (SC), HINDUSTAN COMMERCIAL BANK 21 ITR 353 (ALL), HIMT LTD. 203 ITR 820 (KAR), INDIA CEMENTS LTD. 60 ITR 52 (SC), EMPIR E JUTE CO.LTD. 124 ITR 1. IT WAS ARGUED THAT THE RATI O LAID DOWN IN THE CASE OF MADRAS INDUSTRIAL INVESTME NTS CO. (SUPRA) WAS NOT APPLICABLE TO THE CASE OF THE APPELLANT AS THE SAID JUDGMENT REFERRED ONLY TO DEBENTURES AND NOT TO OTHER EXPENSES. IT WAS THEREF ORE ARGUED THAT THE EXPENDITURE SHOULD BE ALLOWED IN FU LL. IN THIS CASE RELIANCE WAS PLACED IN THE CASE OF MADRAS AUTO SERVICE (P) LTD. 233 ITR 468 (SC). RELIANCE WA S ALSO PLACED ON THE RATIO LAID DOWN IN THE CASE OF S UTLEJ COTTON MILLS LTD. 116 ITR 1, C.PARAKH &CO.(INDIA) L TD. 29 ITR 661 (SC). IN BOTH THESE CASES, THE SUPREME COUR T HAS HELD THAT ENTRIES MADE IN THE BOOKS OF ACCOUNTS ARE NOT DETERMINATIVE OF THE INCOME TO BE ASSESSED. A S IMILAR VIEW WAS EXPRESSED BY THE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. 227 ITR 172 (SC). IT WAS THEREFORE ARGUED THAT NO DISALLOWANCE SHOULD HAVE BEEN LAID ON THE BASIS OF THE ENTRIES MADE IN THE ACCOUNTS. IT WAS THEREFORE ARGU ED GLT. LTD. 30 THAT THE ADDITION OF RS.3,79,64,689/- BE DELETED. 10. I HAVE CONSIDERED THE FACTS OF THE CASE. IN MY VIEW THE RATIO LAID DOWN IN THE CASE OF MADRAS INDUSTRIA L INVESTMENT LTD. (SUPRA) HAS A LIMITED APPLICATION A ND IS NOT APPLICABLE TO THE CASE OF THE APPELLANT. THE ARGUME NTS OF THE APPELLANT ARE CORRECT. ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT DETERMINATIVE OF THE CHARACTER OF INCOME AND EXPENSES. THE CLAIM OF THE APPELLANT IS CORRECT AS SUCH EXPENSES WERE OF REVENUE IN NATURE. THE ASSESSING OFFICER IS THEREFORE DIR D TO DELETE A SUM OF RS. 3,79,64,689/- FROM THE TOTAL INCOME OF THE APPELLANT. 13.7. IN VIEW OF DETAILED DISCUSSION MADE BY US AND FIND INGS OF LD. CIT(A), WE FIND NOTHING WRONG IN THE ORDER O F LD. CIT(A) AND THEREFORE, WE UPHOLD THE SAME AND DISMISS THE G ROUND RAISED BY THE REVENUE. 14. GROUND NO.3: IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DIRECTING THE AO TO ALL OW THE DEDUCTION OF INTEREST AMOUNTING TO RS.2,64,65,547/- 14.1. THE FACTS OF THE CASE NOTED FROM THE ORDERS OF LOW ER AUTHORITIES ARE THAT IN ITS BOOKS OF ACCOUNTS, THE ASSESSEE HAD CAPITALISED THE AMOUNT OF INTEREST. THE ASSESSI NG OFFICER FOUND THAT THE EXPENDITURE WAS INCURRED IN RESPECT OF THE BORROWINGS MADE FOR FUNDING THE EXPENDITURE OF THE ASSESSEE'S BUSINESS. IN ITS RETURN OF INCOME, THE A SSESSEE HAD CLAIMED THE AMOUNT AS A DEDUCTION UNDER SECTION 36( 1)(III) OF THE INCOME-TAX ACT. THE ASSESSING OFFICER RELIED ON THE DECISION OF THE CALCUTTA BENCH OF ITAT IN THE CASE OF JCIT GLT. LTD. 31 LTD 65 ITD 169. THE TRIBUNAL HAD HELD THAT THE ESTABLISHED PRINCIPLES OF ACCOUNTANCY IS THAT INTEREST ON BORRO WED FUNDS WAS REQUIRED TO BE CAPITALISED TO THE COST OF THE A SSETS WHICH WERE PURCHASED OUT OF THE BORROWED FUNDS. THE ASSESSING OFFICER HELD THAT THE ASSESSEE CANNOT TAK E TWO DIFFERENT STANDS IN ITS BOOKS OF ACCOUNTS AND IN IT S RETURN OF INCOME. IN HIS OPINION, THE ENTRIES IN THE BOOKS OF ACCOUNTS ARE BINDING ON THE ASSESSEE. IN HIS VIEW THE ASSESS EE COULD HAVE CLAIMED THE INTEREST AS A DEDUCTION IF IT COUL D PROVE THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS WERE AGAI NST THE NORMAL LEGAL POSITION. THE ASSESSING OFFICER ALSO R ELIED ON SECTION 43(1) OF THE INCOME-TAX ACT WHEREIN IT HAS BEEN MENTIONED THAT THE INTEREST PAID ON BORROWING HAS T O BE ADDED TO THE COST OF THE ASSETS IF THE PURCHASE OF THE ASSETS ARE FROM THE BORROWED FUNDS. IN HIS VIEW, THERE WAS NO BASIS TO HOLD THAT THE PROVISIONS OF SECTION 36(1)( III) OVERRULE THE PROVISIONS OF SECTION 43(1 ) OF THE INCOME-TAX ACT. HE THEREFORE DID NOT ACCEPT THE CLAIM OF THE ASSESSEE FOR THE DEDUCTION OF INTEREST. 14.2. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A), WHEREIN DETAILED SUBMISSIONS WERE MADE. IT WAS SUBMITTED THAT THE ASSESSEE HAD RAISED A SUM OF RS. 167 CRORES THROUGH FOREIGN CURRENCY CONVERTIBLE BONDS (I.E. FC CB) FOR THE EXPANSION OF EXISTING BUSINESS. IT WAS SUBMITTED TH AT BORROWED FUNDS WERE FOR THE PURPOSE OF THE BUSINESS AND THEREFORE, INTEREST WAS TO BE ALLOWED AS DEDUCTION, EVEN IF ASSESSEE HAS CAPITALIZED THE SAME IN ITS BOOKS OF A CCOUNTS. RELIANCE WAS PLACED ON THE JUDGMENT OF SUTLEJ COTTO N MILLS GLT. LTD. 32 LTD. 116 ITR 1 (SC) FOR THE PROPOSITION THAT ENTRIE S IN THE BOOKS OF ACCOUNTS WERE NOT CONCLUSIVE AND DECISIVE TO DECIDE WHETHER IT WOULD BE PART OF BUSINESS EXPENSE. AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE, LD. CIT(A) FOUND FORCE IN IT AND THEREFORE, DIRECTED TO ALLOW THE DE DUCTION OF INTEREST CLAIMED BY THE ASSESSEE. 14.3. BEING AGGRIEVED, THE REVENUE HAS FILED AN APPEAL B EFORE THE TRIBUNAL. DURING THE COURSE OF HEARING LD. DR R ELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE STATED THIS ISSUE AS COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE 215 CTR 1 (SC), AND REQUE STED FOR UPHOLDING ORDER OF LD. CIT(A) ON THIS GROUND. 14.4. WE HAVE GONE THROUGH FACTS OF THE CASE, ORDERS OF THE LOWER AUTHORITIES SUBMISSIONS MADE BY BOTH THE SIDE S AS WELL AS WELL AS JUDGMENT OF HONBLE SUPREME COURT. IT IS NOTED THAT THIS ISSUE NOW STAND COVERED IN FAVOUR OF THE ASSES SEE IN VIEW OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CORE HEALTH CARE (SUPRA). RELEVANT GIST OF THE ORDE R OF THE HONBLE SUPREME COURT IS REPRODUCED BELOW: SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961, HA S TO BE READ ON OWN TERMS: IT IS A CODE BY ITSELF. IT MAKES NO DISTINCTION BETWEEN MONEY BORROWED TO ACQUIRE A CAPITAL ASSET OR A REVENUE ASSET. ALL THAT THE SECT ION REQUIRES IS THAT THE ASSESSEE MUST BORROW CAPITAL A ND THE PURPOSE OF THE BORROWING MUST BE FOR BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE IN THE YEAR OF ACCOUNT. UNLIKE SECTION 37 WHICH EXPRESSLY EXCLUDES AN EXPENSE OF A CAPITAL NATURE, SECTION 36(1)(III) EMPHASISES THE USER OF THE CAPITAL AND NOT THE USER OF GLT. LTD. 33 THE ASSET WHICH COMES INTO EXISTENCE AS A RESULT OF THE BORROWED CAPITAL. THE LEGISLATURE HAS, THEREFOR E, MADE NO DISTINCTION IN SECTION 36(1)(III) BETWEEN ' CAPITAL BORROWED FOR A REVENUE PURPOSE' AND 'CAPITAL BORROW ED FOR A CAPITAL PURPOSE'. AN ASSESSEE IS ENTITLED TO CLAI M INTEREST PAID ON CAPITAL PROVIDED THAT THE CAPITAL IS USED FOR BUSINESS PURPOSE IRRESPECTIVE OF WHAT MAY BE THE RESULT OF USING THE CAPITAL WHICH THE ASSESSEE HAS BORROWED. 'ACTUAL COST' OF AN ASSET HAS NO RELEVANC Y IN RELATION TO SECTION 36(1)(III). THE PROVISO INSERTED IN SECTION 36(1)(III) BY THE F INANCE ACT, 2003, WITH EFFECT FROM APRIL 1, 2004, WILL OPE RATE PROSPECTIVELY. HELD ACCORDINGLY, THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 36(1)(III) PRIOR TO ITS AME NDMENT BY THE FINANCE ACT, 2003, IN RELATION TO MONEY BORR OWED FOR PURCHASE OF MACHINERY EVEN THOU H THE ASSESSEE HAD NOT USED THE MACHINERY IN THE YEAR OF BORROWING . 14.5. IT IS FURTHER NOTED BY US THAT LD. CIT(A) HAS ALSO DECIDED THIS ISSUE AFTER CAREFULLY EXAMINING THE FACTS OF T HE CASE. RELEVANT PORTION OF HIS ORDER IS REPRODUCED BELOW: I HAVE CONSIDERED THE FACTS OF THE CASE. IN THE CASE OF TATA CHEMICALS LTD. 72 LTD 1, THIS VERY ISS UE CAME UP BEFORE THE I.T.A.T., MUMBAI. TATA CHEMICALS LTD. HAD AN EXISTING UNIT AT GUJARAT. IT HAD BORROW ED FUNDS FOR THE PURPOSE OF SETTING UP ANOTHER UNIT AT BABRALA. THE QUESTION ARISES AS TO WHETHER THE INTEREST ON THE BORROWINGS FOR THE NEW UNIT COULD B E ALLOWED AGAINST THE INCOME OF THE EXISTING UNIT. TH E TRIBUNAL ALLOWED THE CLAIM OF THE APPELLANT AFTER ANALYSING A NUMBER OF DECISIONS OF DIFFERENT HIGH COURTS AND THE SUPREME COURT. THE FACTS OF THE APPELLANT ARE SIMILAR TO THAT CASE. THOUGH THE BORROWINGS WERE FOR THE PURPOSE OF THE EXPANSION TH E INTEREST ON THE BORROWING WOULD HAVE TO BE ALLOWED AS A DEDUCTION FROM THE TOTAL INCOME. THE ASSESSING- OFF ICER WAS THEREFORE DIRECTED TO ALLOW THE DEDUCTION OF IN TEREST AMOUNTING TO RS.2,64,65,547/-. GLT. LTD. 34 14.6. THUS, WE FIND THAT LD. CIT(A) HAD RIGHTLY DELETED THE DISALLOWANCE MADE BY THE AO, AND THEREFORE, WE ARE INCLINED TO UPHOLD THE SAME. THE AO IS DIRECTED TO ALLOW THE DE DUCTION OF INTEREST CLAIMED BY THE ASSESSEE FOR RS.2,64,65,547 /-. THIS GROUND IS DISMISSED. 15. GROUND NO.4: IN THIS GROUND THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE DISALLOWAN CE OF RS.3,76,553/- MADE ON ACCOUNT OF MISCELLANEOUS AND OTHER EXPENSES HOLDING THE SAME AS NON-BUSINESS EXPENSES. 15.1. IT IS NOTED THAT TOTAL EXPENSES CLAIMED UNDER THIS HEAD WERE TO THE TUNE OF RS.3,48,01,847/- UNDER THIS AMO UNT, A SUM OF RS.75,77,669/- HAS BEEN CLAIMED AS MISCELLA NEOUS EXPENSES. THE AO HELD THAT COMPLETE BILLS AND OTHER DOCUMENTS OF THESE EXPENSES WERE NOT AVAILABLE AND THEREFORE, HE DISALLOWED 5% OF THE TOTAL EXPENSES ON ESTIMATE AND AD HOC BASIS. 15.2. IT WAS CONTENDED BEFORE LD. CIT(A) THAT FURTHER DE TAILS WERE NEVER ASKED AND IN ANY CASE AD-HOC DISALLOWANC E CANNOT BE MADE IN A SUMMARY MANNER. IN VIEW OF ALL THESE SUBMISSIONS, LD. CIT(A) DELETED THE DISALLOWANCE, A S ACCORDING TO HIM AD-HOC DISALLOWANCE WAS NOT PERMISSIBLE UNDE R THE LAW. 15.3. WE HAVE GONE THROUGH THE ORDER OF THE LOWER AUTHOR ITIES. NOTHING WRONG HAS BEEN POINTED OUT BY THE LD. DR IN THE GLT. LTD. 35 ORDER OF LD. CIT(A). WE ALSO DO NOT FIND ANYTHING W RONG IN HIS DECISION AND THEREFORE, SAME IS DISMISSED. ACCORDIN GLY, GROUND NO.4 OF REVENUES APPEAL IS DISMISSED. 16. GROUND NOS. 5 & 6: THESE GROUNDS WERE RAISED CHALLENGING MANNER OF COMPUTATION OF DEDUCTION U/S 80HHE. IT WAS CONTENDED THAT IN CASE GROUND RAISED IN ASSE SSEES APPEAL ON DEDUCTION UNDER SECTION 80HHE WAS ALLOWED , THEN THESE GROUNDS WOULD BECOME INFRUCTUOUS. 16.1. WE HAVE ALLOWED THE GROUND OF THE ASSESSEE IN PRIN CIPLE, BUT REMITTED THE MATTER BACK FOR THE LIMITED PURPOS E FOR VERIFICATION OF FACTS. IN VIEW OF THE SAME, WE FIND IT APPROPRIATE TO SEND THESE GROUNDS BACK TO THE FILE OF THE AO WH O SHALL RE- ADJUDICATE THESE ISSUES AFTER DECIDING THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL. ACCORDINGLY, THIS MAY B E TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 17. AS A RESULT APPEAL OF REVENUE IS PARTLY ALLOWED. NOW WE SHALL TAKE UP APPEAL FILED BY THE REVENUE FO R A.Y. 1998-99 IN ITA NO.193 & 194/MUM/2003. THE REVENUE HAS FILED APPEAL ON THE FOLLOWING GROUN DS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN- 1.DELETING THE ADDITION MADE BY THE ASSESSING OFFIC ER IN VIEW OF THE FINDINGS GIVEN IN THE APPEAL U/S. 163 O RDER DATED 22.102002; AND 2.HOLDING THAT THE LICENSE FEE RECEIVED BY GEIS IS A BUSINESS INCOME BECAUSE IT IS A TRANSFER OF COPY RIGHTED ART ICLE RATHER GLT. LTD. 36 THAN THE COPY RIGHT ITSELF AS AGAINST THE VIEW OF T HE ASSESSING OFFICER THAT THE AMOUNT IS TAXABLE IN IND IA AS 'ROYALTY' UNDER ARTICLE 12 OF THE DTAA BETWEEN INDI A AND USA.' 18. IN THIS CASE, THE ADDITION WAS MADE IN THE HANDS O F THE ASSESSEE ON ACCOUNT OF PAYMENT MADE FOR ACQUIRING S OFTWARE FROM M/S GEIS, USA BY TREATING THE ASSESSEE AS AGEN T OF GEIS U/S 163 OF THE ACT. 18.1. IT IS NOTED THAT GROUNDS WITH REGARD TO TAXABILITY OF ROYALTY HAVE BEEN SENT BACK TO THE FILE OF THE CIT( A) IN ITA NO.5018/MUM/2001, THEREFORE, AT THIS STAGE THIS APP EAL CANNOT BE ADJUDICATED, THEREFORE, WE REMIT THIS ISS UE ALSO BACK TO THE FILE OF THE CIT(A) TO RE-ADJUDICATE THE SAME AFTER PASSING A FRESH ORDER IN PURSUANCE TO OUR DIRECTIONS IN ITA NO.5018/MUM/2001, IF REQUIRED AND PERMITTED UNDER T HE LAW. UNDER THESE CIRCUMSTANCES THESE APPEALS MAY BE TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. NOW WE SHALL TAKE UP ASSESSEES APPEAL NO.7289/MUM/2002 FOR A.Y. 1998-99: THE ASSESSEE HAS FILED APPEAL ON FOLLOWING GROUNDS: 1. HOLDING THAT THE GROUND RELATING TO CHARGING INT EREST U/S 234B AND 234C OF THE IT ACT, 1961 (VIDE POINT N O.4 OF THE ORDER) BECOMES INFRUCTUOUS AND ONLY OF ACADEMIC DISCUSSION AND IS ALLOWED ONLY FOR STATIST ICAL PURPOSES. 2. NOT ADJUDICATING THE GROUND THAT THE ASSESSING OFFICER HAD ERRED IN TAXING THE PAYMENT FOR LOGISTI CS TRACKING SOFTWARE @20% IGNORING THE CLAUSE 2 OF ART ICLE 12 OF THE DTAA BETWEEN INDIA AND USA AS PER WHICH GLT. LTD. 37 ROYALTIES ARE TAXABLE @15% AND IGNORING THE FACT TH AT THE PROVISIONS OF DTAA HAVE OVERRIDING EFFECT (VIDE POINT NO.6.1) THE CIT (A) ERRED IN DISMISSING THE GROUND AS INFRUCTUOUS. 3. NOT ADJUDICATING THE GROUND THAT THE AO HAD ERRE D IN CHARGING INTEREST UNDER SECTION 234A OF RS.1,60,26,687 AND U/S 234B OF RS.2,43,68,941 IGNORING THE FACT THAT WHERE A PERSON IS TREATED AS A REPRESENTATIVE OF A NON-RESIDENT AFTER THE FINANCIA L YEAR IS OVER, HE CANNOT RETROSPECTIVELY BE BURDENED WITH LIABILITY U/S 234A AND 234B OF ANY PAST FINANCIAL YEAR (VIDE POINT NO.6.2). THE CIT (A) DISMISSED THE GROUND AS INFRUCTUOUS. 19. IT IS NOTED THAT WE HAVE REMITTED THE APPEAL PERTA INING TO ASSESSMENT OF THE ASSESSEE IN THE REPRESENTATIVE CA PACITY BACK TO THE FILE OF LD. CIT(A) VIDE OUR ORDER IN ITA NO. 193 & 194/MUM/2003 ABOVE. THESE ISSUES DEPEND UPON ADJUDICATION OF THE ABOVE APPEALS AND THEREFORE, WE SEND THESE GROUNDS ALSO BACK TO THE FILE OF LD. CIT(A) TO BE D ECIDED AFRESH AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. NOW WE SHALL TAKE ASSESSEES APPEAL IN ITA NO.6540/MUM/2004 FOR A.Y. 1999-00. 20. THE ASSESSEE HAS FILED APPEAL ON THE FOLLOWING GRO UNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN IGNORING THAT THE APPE LLANT HAS A SEPARATE EXPORT DIVISION FOR EXPORT OF COMPUT ER SOFTWARE FOR WHICH SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED, AND THEREFORE DEDUCTION U/S 80HHE WAS CORRECTLY CLAIMED BY THE APPELLANT ON THE BASIS OF PROFITS OF THE SOFTWARE EXPORT DIVISION. 2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN IGNORING THAT SECTION 80HHE GLT. LTD. 38 ALLOWS DEDUCTION SPECIFICALLY FOR EXPORT OF COMPUTE R SOFTWARE, AND HENCE APPELLANT IS ELIGIBLE FOR DEDUC TION ON THE BASIS OF APPELLANT'S SOFTWARE EXPORT DIVISION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN IGNORING THAT PROVISION S OF SECTION 80HHE ARE INCENTIVE PROVISIONS, AND SHOULD BE CONSTRUED LIBERALLY. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT (A) HAS ERRED IN CONFIRMING THE INCLUS ION OF LEASE AND SERVICE CHARGES OF RS. 26,02,93,865/- IN THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION UNDER S ECTION 80HHE OF THE ACT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT (A) HAS ERRED IN EXCLUDING FOLLOWING I TEMS OF MISCELLANEOUS INCOME FROM BUSINESS PROFIT WHILE COMPUTING DEDUCTION U/S 80HHE OF THE ACT:- A. SALE OF PAPERS/CARTONS/SCRAP RS.9,245/- B. WAIVER OF HIRE PURCHASE LIABILITY ON ACCOUNT OF PREMATURE REPAYMENT OF THE PRINCIPAL AMOUNT TOWARDS PURCHASE OF COMPUTER EQUIPMENT ETC. RS. 18,998,887/ - C. TRAINING CHARGES FOR PROVISION OF TRAINING FACIL ITIES IN SOFTWARE ETC. RS.3,29,699/- D. RENT FROM MTNL FOR USE OF SPACE RS.37,166/- E. OTHER ITEMS RS.2,01,883/- ON THE FACTS AND CIRCUMSTANCE OF THE CASE IN LAW CI T(A) HAS ERRED IN PASSING THE APPELLATE ORDER WITHOUT UNDERSTANDING IN CORRECT PERSPECTIVE THE MATERIAL A ND THE EVIDENCE KEPT ON RECORD BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS AND APPELLANT PROCEEDINGS. 20.1. IT IS NOTED THAT THE ASSESSEES APPEAL FOR A.Y. 19 98-99 ON THIS ISSUE WAS DECIDED IN PRINCIPLE IN FAVOUR OF TH E ASSESSEE. BUT FOR THE LIMITED PURPOSE OF VERIFICATION OF FACT S THIS ISSUE WAS SENT BACK TO THE FILE OF THE AO VIDE OUR ORDER IN ITA NO.5161/MUM/2001 ABOVE. THEREFORE, WE FIND IT APPRO PRIATE TO SEND THESE GROUNDS ALSO BACK TO THE FILE OF THE AO TO BE DECIDED AFRESH AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING. GLT. LTD. 39 THUS, THIS APPEAL MAY BE TREATED AS ALLOWED FOR STA TISTICAL PURPOSES. NOW WE SHALL TAKE UP REVENUES APPEAL IN ITA NO.6377/MUM/2004 FOR A.Y. 1999-00 21. THE REVENUE HAS FILED APPEAL ON THE FOLLOWING GROU NDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.20,07,700/- ON ACCOUNT OF DEFERR ED REVENUE EXPENDITURE. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF INTERES T AMOUNTING TO RS.31,63,904/- U/S.36(1)(III) OF THE I NCOME TAX ACT WHICH HAVE BEEN CAPITALISED BY THE ASSESSEE IN BOOKS OF ACCOUNT.' 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER NOT TO DELETE 90% OF LEASE AND SE RVICE CHARGES OF RS.26,02,93,865/- FOR CALCULATING THE PR OFITS OF THE BUSINESS IN ACCORDANCE WITH CLAUSE (D) OF THE EXPLANATION TO SEC.80HHE OF THE INCOME TAX ACT.' 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING T HE ASSESSING OFFICER NOT TO EXCLUDE THE MISCELLANEOUS INCOME COMPRISING OF PROVISION FOR EXPENSES WRITTEN BACK, SERVICE CHARGES FOR MAINTENANCE AND DISCOUNT RECEIVED FROM SUPPLIERS FROM THE BUSINESS PROFITS AND NOT TO INCL UDE THE SAME IN THE TOTAL TURNOVER OF THE ASSESSEE.' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) O N THE ABOVE GROUNDS BE SET ASIDE. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GRO UND WHICH MAY BE NECESSARY. 22. GROUND NO. 1: THIS GROUND DEALS WITH THE ISSUE OF DEFERRED REVENUE EXPENDITURE. THIS ISSUE HAS ALREAD Y BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN GROUND NO.2 OF APPEAL OF GLT. LTD. 40 THE REVENUE FOR A.Y. 1998-99 VIDE OUR ORDER IN ITA NO.5018/MUM/2001, THEREFORE, FOLLOWING OUR ORDER WE DISMISS THE GROUND OF REVENUE. 23. GROUND NO.2: THIS GROUND PERTAIN TO ALLOWING THE DEDUCTION OF INTEREST WHICH IS SIMILAR TO GROUND NO .3 OF ASSESSMENT YEAR 1998-99. THUS, FOLLOWING OUR ORDER WE DISMISS THE GROUND OF REVENUE. 24. GROUND NOS. 3 & 4: THESE GROUNDS PERTAIN TO COMPUTATION TO DEDUCTION U/S 80HHE. THESE ARE SIMIL AR TO GROUND NOS. 5 & 6 OF REVENUES APPEAL FOR A.Y. 1998 -99, WHEREIN THESE HAVE BEEN SENT BACK TO THE FILE OF TH E AO, THEREFORE, FOLLOWING OUR ORDER WE SEND THESE GROUND S BACK TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS AS WERE GIVEN FOR A.Y. 1998-99. 25. IN THE RESULT, THIS APPEAL MAY BE TREATED AS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH APRIL, 2016. SD/- (C.N. PRASAD) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED : 20/04 /2016 CTX? P.S/. .. GLT. LTD. 41 # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()* # !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI