Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 9937 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 year(s) 4 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-06-2020
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
25-05-2017
Assessment Year
2008-2009
Appeal Filed On
13-02-2014
Judgement Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI C BEN CH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE MS. SUSHMA CHOWLA, VICE PRESIDENT SHRI N.K. BILLAIYA, ACCOUNTANT MEMB ER ITA NO. 5555/DEL/2014 [A.Y 20 05-06 ] ITA NO. 6162/DEL/2013 [A.Y 2006-07] ITA NO. 835/DEL/2014 [A.Y 20 08-09 ] HCL COMNET SYSTEMS AND SERVICES LTD VS. THE DY. C. I.T 806, SIDHARTH, 96 NEHRU PLACE CIRCLE 12(1) NEW DELHI NEW DELHI PAN: AAACH 3130 M ITA NO. 5924/DEL/2014 [A.Y 20 05-06 ] ITA NO. 6181/DEL/201 3 [A.Y 2006-07] ITA NO. 922/DEL/2014 [A.Y 20 08-09 ] THE DY. C.I.T VS. HCL COMNET SYSTEMS AND SE RVICES LTD CIRCLE 12(1) 806, SIDHARTH, 96 NEHRU PLAC E NEW DELHI NEW DELHI PAN: AAACH 3130 M (APPLICANT) ( RESPONDENT) ASSESSEE BY : SHRI AJAY VOH RA, SR. ADV SHRI ADITYA VOHRA, ADV SHRI ARPIT GOYAL, CA DEPARTMENT BY : SHRI SATPAL GULAT I, SR. DR DATE OF HEARING : 18.06.2020 DATE OF PRONOUNCEMENT : 25.06.2020 ORDER 2 PER BENCH: ITA NO. 5555/DEL/2014 AND ITA NO. 5924/DEL/2014 ARE CROSS APPEALS BY THE ASSESSEE AND REVENUE PERTAINING TO A SSESSMENT YEAR 2005-06. ITA NO. 6162/DEL/2013 AND ITA NO. 6181/DEL /2013 ARE CROSS APPEALS BY THE ASSESSEE AND REVENUE PERTAINING TO A SSESSMENT YEAR 2006-07. ITA NO. 835/DEL/2014 AND ITA NO. 922/DEL/2 014 ARE CROSS APPEALS BY THE ASSESSEE AND REVENUE PERTAINING TO A SSESSMENT YEAR 2008-09. SINCE ALL THESE APPEALS PERTAIN TO SAME A SSESSEE INVOLVING COMMON ISSUES AND WERE HEARD TOGETHER, WE ARE DISPO SING THEM OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND B REVITY. ITA NO. 5555/DEL/2014 [ASSESSEES APPEAL A.Y 2005-0 6] 2. GROUND NO. 1 RELATES TO THE DISALLOWANCE MADE U/ S 14A OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'T HE ACT' FOR SHORT] BEING 10% OF DIVIDEND INCOME EARNED DURING THE FINA NCIAL YEAR. 3. FACTS ON RECORD SHOW THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 6,12,626 /-. HOWEVER, NO DISALLOWANCE WAS MADE BY THE ASSESSEE U/S 14A OF TH E ACT IN RESPECT OF EARNING THIS EXEMPT INCOME. THE ASSESSING OFFICER WAS OF THE FIRM 3 BELIEF THAT SOME EXPENSES NEED TO BE DISALLOWED FOR EARNING THIS EXEMPT INCOME. THE ASSESSING OFFICER WAS OF THE OP INION THAT FOR EARNING DIVIDEND INCOME, THERE ARE VARIOUS ADMINIST RATIVE EXPENSES INVOLVED, LIKE TAKING THE DECISION OF INVESTMENT, E XPENSES RELATES TO PURCHASE/SALE OF THE INVESTMENT, LIKE THE DMAT FEE, COLLECTION EXPENSES, TELEPHONE EXPENSES ETC AND OTHER ADMINIST RATIVE EXPENSES AS WELL AS PERSONNEL COST. 4. THE ASSESSING OFFICER ACCORDINGLY, DISALLOWED BY ESTIMATING 25% OF THE DIVIDEND INCOME AND MADE ADDITION OF RS. 1,5 3,157/-. 5. WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT( A), THE LD. CIT(A) WAS OF THE OPINION THAT 10% OF THE DIVIDEND EARNED TO BE REASONABLE AMOUNT THAT MUST HAVE BEEN INCURRED FOR EARNING THE SAID EXEMPT INCOME AND, ACCORDINGLY, RESTRICTED THE DISA LLOWANCE TO RS. 61,263/-. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHE MENTLY STATED THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE ON EARNING DIVIDEND INCOME. IT IS THE SAY OF THE LD. COUNSEL FOR THE A SSESSEE THAT WHEN THE ASSESSEE CONTENDS BEFORE THE ASSESSING OFFICER THAT HE DID NOT INCUR 4 ANY EXPENDITURE FOR EARNING EXEMPT INCOME, THE ASSE SSING OFFICER IS DUTY BOUND TO PROVE THE EXPLANATION OF THE ASSESSEE INCORRECT WITH RESPECT TO EXAMINATION OF THE BOOKS OF THE ASSESSEE . 7. STRONG RELIANCE WAS PLACED ON THE DECISION OF TH E CO-ORDINATE BENCH IN THE CASE OF HONDA SIEL POWER PRODUCTS LTD ITA NO. 988/DEL/2016. THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE WORKING BEFORE THE LOWER AUTHORITIES WHEREIN THE EX PENSES RELATING TO FINANCE DEPARTMENT WERE PROPORTIONATE BETWEEN THE E XEMPT INCOME AND TOTAL INCOME AND EXPENSES ATTRIBUTABLE TOWARDS EXEMPT INCOME COMES TO RS. 5,924/-. THEREFORE, AT THE MOST, DISA LLOWANCE SHOULD BE RESTRICTED TO RS. 5,924/-. 8. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE FI NDINGS OF THE LOWER AUTHORITIES. 9. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE OR DERS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT RULE 8 D OF THE RULES IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. HOWEV ER, SOME REASONABLE EXPENDITURE NEEDS TO BE ALLOWED FOR EARN ING EXEMPT INCOME. THE LD. CIT(A) HAS RESTRICTED THE DISALLOW ANCE TO 10% OF THE 5 DIVIDEND INCOME. IN OUR CONSIDERED OPINION, RESTRI CTION BY THE LD. CIT(A) SEEMS TO BE REASONABLE AND, THEREFORE, NO IN TERFERENCE IS CALLED FOR. GROUND NO. 1 IS ACCORDINGLY, DISMISSED. 10. GROUND NOS. 2, 3 AND 4 RELATE TO ADJUSTMENT OF FOREIGN CURRENCY EXPENDITURE AND TELE-COMMUNICATION CHARGES FOR WORK ING OUT THE DEDUCTION U/S 10A OF THE ACT. 11. THE MAIN CONTENTION OF THE APPELLANT IS THAT TH E LD. CIT(A) ERRED IN EXCEEDING HIS JURISDICTION U/S 251(1) OF THE ACT IN RESTORING THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER. 12. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCE EDINGS. THE ASSESSING OFFICER WAS OF THE OPINION THAT CERTAIN E XPENDITURE HAS TO BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE O F DEDUCTION U/S 10A OF THE ACT. ACCORDINGLY, THE ASSESSEE WAS DIRE CTED TO GIVE DETAILS OF TELECOMMUNICATION CHARGES ATTRIBUTABLE TO THE DE LIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA AND ALSO DETAILS OF EXPENDIT URE INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICE S OUTSIDE INDIA. 13. DETAILS WERE FURNISHED BY THE ASSESSEE. AFTER PERUSING THE 6 DETAILS, THE ASSESSING OFFICER ASKED THE ASSESSEE T O EXPLAIN AS TO WHY THE TELE-COMMUNICATION EXPENSES PERTAINING TO T HE DELIVERY OF THE COMPUTER SOFTWARE NOT BE EXCLUDED FROM THE E XPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N U/S 10A OF THE ACT. THE ASSESSEE WAS ALSO ASKED TO EXPLAIN A S TO WHY THE EXPENSES INCURRED IN FOREIGN CURRENCY FOR THE PURPO SES OF PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA NOT BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF CALCULA TION OF DEDUCTION U/S 10A OF THE ACT. 14. IN ITS REPLY, THE ASSESSEE CONTENDED THAT SUCH EXPENDITURE COULD ONLY BE EXCLUDED FROM THE EXPORT TURNOVER ONL Y WHEN THESE ARE INCLUDED IN THE EXPORT TURNOVER IN THE FIRST PL ACE. IT WAS POINTED OUT THAT SINCE THE AFORESAID EXPENDITURE HA D NOT BEEN INCLUDED IN THE EXPORT INCOME AND ALSO SINCE NO SPE CIFIC REIMBURSEMENT WAS CLAIMED IN RESPECT OF THESE EXPEN SES, THE SAME WERE NOT FORMING PART OF THE EXPORT TURNOVER, AND ACCORDINGLY, SUCH EXPENDITURE SHOULD NOT BE EXCLUDE D FROM ITS EXPORT TURNOVER FOR CALCULATION OF DEDUCTION U/S 10 A OF THE ACT. 7 15. REPLY OF THE ASSESSEE DID NOT FIND ANY FAVOUR W ITH THE ASSESSING OFFICER WHO PROCEEDED BY RE-COMPUTING THE DEDUCTION U/S 10A OF THE ACT AND RECOMPUTED THE SAME AT RS. 11,06,24,673/- INSTEAD OF RS. 11,62,25,520/- AS CLA IMED BY THE ASSESSEE AND ACCORDINGLY, RS. 56,00,847/- WAS ADDED TO THE GROSS TOTAL INCOME AS DECLARED BY THE ASSESSEE. 16. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND IT WAS VEHEMENTLY ARGUED THAT IF THE AFORESAID EXPENSE S WERE EXCLUDED FROM THE EXPORT TURNOVER, THE ASSESSING OF FICER OUGHT TO HAVE ALSO EXCLUDED THE SAME FROM THE TOTAL TURNOVER . 17. HOWEVER, THE LD. CIT(A) FOUND THAT IN A.Y 2007- 08, THE THEN LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ASCERT AIN CLAIM OF THE ASSESSEE. FOLLOWING THE ORDER OF HIS PEER IN 2007- 08, THE LD. CIT(A) REMANDED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER. 8 18. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT THE LD. CIT(A) HAS NO POWER IN SETTING ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. IT IS THE SA Y OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE LD. CIT(A) FURTHER ERRED IN HOLDING THAT IF THE EXPENDITURE WAS EXCLUDED FROM EXPORT TURNOVER, THE SAME SHOULD BE EXCLUDED FROM TOTAL TURNOVER. THE LD. CO UNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR A.Y 2007-08. 19. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 20. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. WE FIND THAT A SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 4546 /DEL/2013 FOR A.Y 2007-08. IN THAT YEAR ALSO, THE LD. CIT(A) HAS SET ASIDE THE ASSESSMENT TO THE FILE OF THE ASSESSING OFFICER. T HE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH READ AS UNDER: 9 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON TH E RECORD. IT IS NOTICED HCL COMNET SYSTEMS & SERVICES LTD. THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED VIDE ORDER DATED 19.12.2011 OF THE ITAT 'B' BENCH, BANGALORE IN ITA NOS. 975 & 979 /BANG/2011 FOR THE ASSESSMENT YEAR 2002-03 IN THE CASE OF INTE L TECHNOLOGY INDIA PVT. LTD. VS DCIT, LTU, BANGALORE, WHEREIN ON E OF US (ACCOUNTANT MEMBER) IS THE AUTHOR. IN THE SAID CASE THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 21 AND 22 WHICH R EAD AS UNDER: 21. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH OF ITAT CHENNAI IN TH E CASE OF ITO V. SAK SOFT LTD . 313 ITR (AT) 353 (CHENNAI)(SB) WHEREIN IT HAS BEEN HELD AS UNDER: 'TO SAY THAT IN THE ABSENCE OF ANY DEFINITION OF 'T OTAL TURNOVER' FOR THE PURPOSE OF SECTION 10B , THERE IS NO AUTHORITY TO EXCLUDE ANYTHING FROM THE EXPRESSION AS UNDERSTOOD IN GENER AL PARLANCE WOULD BE WRONG, AS THERE HAS TO BE AN ELEMENT OF TU RNOVER IN THE RECEIPT IF IT HAS TO BE INCLUDED IN THE TOTAL TURNO VER. THAT ELEMENT IS MISSING IN THE CASE OF FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE GOODS OUTSIDE I NDIA AND EXPENSES INCURRED IN FOREIGN EXCHANGE IN CONNECTION WITH THE PROVIDING OF TECHNICAL SERVICES OUTSIDE INDIA. THES E RECEIPTS CAN ONLY BE RECEIVED BY THE ASSESSEE AS REIMBURSEMENT O F SUCH EXPENSES INCURRED BY HIM. MERE REIMBURSEMENT OF EXP ENSES CANNOT HAVE AN ELEMENT OF TURNOVER. IT IS ONLY IN RECOGNIT ION OF THIS 10 POSITION THAT IN THE DEFINITION OF 'EXPORT TURNOVER ' IN SECTION 10B , THE AFORESAID TWO ITEMS HAVE BEEN DIRECTED TO BE EX CLUDED. SECONDLY, THE DEFINITION OF EXPORT TURNOVER CONTEMP LATES THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN CONVERTIBLE FORE IGN EXCHANGE SHOULD REPRESENT 'CONSIDERATION' IN HCL COMNET SYST EMS & SERVICES LTD. RESPECT OF THE EXPORT. ANY REIMBURSEM ENT OF THE TWO ITEMS OF EXPENSES MENTIONED IN THE DEFINITION C AN UNDER NO CIRCUMSTANCES BE CONSIDERED TO REPRESENT 'CONSIDERA TION' FOR THE EXPORT OF THE COMPUTER SOFTWARE OR ARTICLES OR THIN GS. THUS, THE EXPRESSION 'TOTAL TURNOVER' WHICH IS NOT DEFINED IN SECTION 10B SHOULD ALSO BE INTERPRETED IN THE SAME MANNER. THU S, THE TWO ITEMS OF EXPENSES REFERRED TO IN THE DEFINITION OF 'EXPORT TURNOVER' CANNOT FORM PART OF THE TOTAL TURNOVER SI NCE THE RECEIPTS BY WAY OF RECOVERY OF SUCH EXPENSES CANNOT BE SAID TO REPRESENT CONSIDERATION FOR THE GOODS EXPORTED SINCE TOTAL TU RNOVER IS NOTHING BUT THE AGGREGATE OF THE DOMESTIC TURNOVER AND THE EXPORT TURNOVER. IN THE FORMULA PRESCRIBED BY SECTION 10B(4) THE FIGURE OF EXPORT TURNOVER HAS TO BE THE SAME BOTH IN THE NUME RATOR AND IN THE DENOMINATOR OF THE FORMULA. IT FOLLOWS THAT THE TOTAL TURNOVER CANNOT INCLUDE THE TWO ITEMS OF EXPENSES RECOVERED BY THE ASSESSEE AND REFERRED TO IN THE DEFINITION OF 'EXPO RT TURNOVER'.' 22. THE AFORESAID DECISION HAD BEEN CONSIDERED AND AFFIRMED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F TATA ELXSI LTD. & ORS. 2011-TIOL-684-HC-KAR-II WHEREIN IT HAS BEEN HELD THAT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 10 A OF THE ACT , IF ANY EXPENDITURE IS EXCLUDED FROM THE EXPORT TURNOVE R, THE SAME HAS TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO. A SIMILAR VIEW HAS 11 ALSO BEEN TAKEN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. 2010-TIOL-456-HC-MUM- IT. WE, THEREFORE, BY CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREINABOVE, ARE OF THE VIEW THAT THE LD. CIT(APPEA LS) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER. WE THEREFORE SET ASIDE THE IMPUGNED ORDER ON THIS ISSU E AND THE ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE TELECO MMUNICATION CHARGES FROM THE EXPORT TURNOVER AS WELL AS TOTAL T URNOVER WHILE WORKING OUT THE DEDUCTION U/S. 10A. 9. IT IS ALSO NOTICED THAT IN ASSESSEE'S OWN CASE A LSO FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO. 3199/DEL/2007 VI DE ORDER DATED 23.01.2009, ITAT DELHI BENCH 'C' NEW DELHI VI DE PARAS 8 AND 9 HAS HELD AS UNDER: '8. WITH REGARD TO THE REVENUE'S GROUND OF APPEAL, HE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY A NUMBER OF D ECISIONS OF THE ITAT. HE RELIED UPON THE ORDER OF THE ITAT IN THE C ASE OF BINARY SEMATICS (SUPRA) AND THE ORDER OF THE ITAT IN THE C ASE OF ACIT VS INFOSES TECHNOLOGIES REPORTED IN 172 TAXMAN 134. SIMILARLY, HE POINTED OUT THAT AN IDENTICAL ISSUE HAS BEEN CONSID ERED BY THE ITAT, HYDERABAD BENCH IN THE CASE OF PATNI TELECOMM UNICATION (P) LTD. VS ITO REPORTED IN (2008) 22 SOT 26 (HYD.). LE ARNED DR WAS UNABLE TO CONTROVERT THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. 9. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTAN CES OF THE CASE, WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED I N DETAIL BY THE ITAT IN THE ABOVE ORDERS AND IT HAS BEEN HELD THAT IF SUCH 12 EXPENSES ARE TO BE EXCLUDED FROM THE EXPORT TURNOVE R THEN THEY ARE TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO. RE SPECTFULLY FOLLOWING THE ORDERS OF THE ITAT, WE DO NOT FIND AN Y MERIT IN THE GROUND RAISED BY THE REVENUE. LEARNED CIT(APPEALS) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO EXCLUDE SUCH EXPE NSES FROM THE TOTAL TURNOVER ALSO WHILE COMPUTING THE DEDUCTIONS UNDER SEC. 10 A OF THE ACT .' 10. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRE D TO ORDERS, WE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) ON T HIS ISSUE AND THE AO IS DIRECTED TO REDUCE THE EXPENSES INCURRED IN FOREIGN CURRENCY AND TELECOMMUNICATION FROM THE EXPORT TURN OVER AS WELL THE TOTAL TURNOVER WHILE WORKING OUT THE DEDUCTION U/S 10 A OF THE ACT . 21. FINDING PARITY ON THE FACTS WITH THE FACTS OF T HE APPEAL IN HAND, WE DIRECT ACCORDINGLY. GROUND NOS. 2 TO 4 AR E ALLOWED. 22. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 13 ITA NO. 5924/DEL/2014 [REVENUES APPEAL FOR A.Y 200 5-06] 23. GROUND NO. 1 RELATES TO DELETION OF ADDITION OF RS. 91,894/- MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVI SIONS OF SECTION 14A OF THE ACT R.W.R 8D OF THE I.T. RULES. 24. THIS DISALLOWANCE U/S 14A OF THE ACT HAS BEEN C ONSIDERED BY US ELABORATELY IN ASSESSEES APPEAL [SUPRA] VIDE GR OUND NO. 1 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION GIVEN THE REIN, GROUND NO. 1 IS ACCORDINGLY, DISMISSED. 25. GROUND NOS. 2 AND 3 RELATE TO THE DELETION OF A DDITION OF RS. 14,45,72,425/- ON ACCOUNT OF LICENCE FEE PAID TO DO T. 26. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED DEDUCTION OF RS. 16,06,36,027/- AS REVENUE SHARE OF LICENSE FEES PAID TO DOT AND DEBITED IN THE PROFIT AND LOSS ACCOUNT. TH E ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE EXPENSES INCURRED ON LICENSE FEE 14 SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE AS PER THE PROVISIONS OF SECTION 35ABB OF THE ACT. 27. IN ITS REPLY, THE ASSESSEE CONTENDED THAT AS PE R THE TERMS OF THE LICENSE AGREEMENT WITH THE DEPARTMENT OF TELE- COMMUNICATION, IN TERMS OF MIGRATION TO THE REVENUE SHARING SCHEME UNDER THE NATIONAL TELECOM POLICY, 1999, EFF ECTIVE FROM 1.8.1999, THE ASSESSEE COMPANY WAS PAYING LICENSE F EE AT SPECIFIED PERCENTAGE OF THE GROSS REVENUE DERIVED B Y THE ASSESSEE. 28. THE ASSESSEE POINTED OUT THAT UNDER THE NEW REV ENUE SHARING REGIME, EFFECTIVE FROM 1.8.1999, THE LICENS E FEES WAS A DIRECT FUNCTION OF THE REVENUE AND THAT THE LICENSE FEE WAS CORRECTLY CLAIMED AS REVENUE EXPENDITURE. 29. THE CONTENTION OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE ASSESSING OFFICER WHO WAS OF THE OPINION THAT T HE LICENSE FEE DEBITED IN THE PROFIT AND LOSS ACCOUNT IS TO BE AMO RTIZED OVER THE 15 REMAINING PERIOD OF LICENSE AND SINCE THE ASSESSEE HAS CLAIMED RS. 16,06,36,027/-, THE ASSESSING OFFICER WAS OF THE OP INION THAT 1/10 TH OF THE PAYMENT IS TO BE ALLOWED U/S 35ABB OF THE A CT FOR EXPENSES INCURRED DURING THE YEAR UNDER CONSIDERATI ON AND ACCORDINGLY, DISALLOWED EXCESS AMOUNT OF RS. 14,45, 72,425/- 30. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED ITS CONTENTIONS AS TAKEN BEFORE THE ASSE SSING OFFICER. 31. THE LD. CIT(A) FOUND THAT IN A.Y 2007-08, HIS P EER HAS DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER AND FOL LOWING THE SAME, THE LD. CIT(A) DELETED THE ADDITION. 32. BEFORE US, THE LD. DR STRONGLY SUPPORTING THE F INDINGS OF THE ASSESSING OFFICER REITERATED THAT THE EXPENDITURE I S OF CAPITAL IN NATURE AND THERE IS NO ERROR IN THE FINDINGS OF THE ASSESS ING OFFICER. 33. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO THE DECISION OF THE CO-ORDINATE BENCH. 16 34. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. AN IDENTICAL ISSUE WAS CONSIDERE D BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NOS. 4546/DEL/2 013 AND 5106/DEL/2013. THE RELEVANT FINDINGS OF THE CO-ORD INATE BENCH READ AS UNDER: 30. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON TH E RECORD. IT IS NOTICED THAT THE ISSUE UNDER CONSIDERATION IS SQUAR ELY COVERED BY THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS BHARTI HEXACOM LTD. 221 TAXMAN 323 (DEL) (SUPRA), WHEREIN IT HAS BEEN HELD AS UNDER: 'THE LICENCE FEE WAS IMPOSED AND PAYABLE UNDER THE INDIAN TELEGRAPH ACT AND OTHER STATUTORY PROVISIONS AND WAS/IS MANDATORY. FAILURE TO PAY THE SAME WOULD/WILL RESUL T IN DISCONTINUANCE OR STOPPAGE OF BUSINESS OPERATIONS. UNDER 1999 POLICY, THE AMOUNT PAYABLE SPEAKS OF SHA RING OF GROSS REVENUE EARNED BY THE SERVICE PROVIDER FROM THE CUS TOMERS. 1994 AGREEMENT AS NOTICED DID HAVE A PROVISION FOR SHARI NG BUT WITH MINIMUM PAYMENT STIPULATION. IN CASE OF NON-PAYMENT OF LICENCE FEE, THE LICENCE COULD BE REVOKED AND LICENCEE WAS NOT PERMITTED TO CARRY ON AND CONTINUE CELLULAR TELEPHONE SERVICE. THUS, THE LICENCE FEE PAYABLE WAS/IS EQUALLY WITH T HE OBJECTIVE AND PURPOSE TO MAINTAIN AND OPERATE CELLULAR TELEPHONE SERVICES. IT WAS 17 ALSO AN OPERATING EXPENSE AND NON-PAYMENT CAN LEAD TO CANCELLATION AS ONE OF THE CONSEQUENCES. ENDUREMENT REQUIRES CUR RENT EXPENSES AND IS SUBJECT TO PAYMENT ON REVENUE SHARE. IT WILL NOT BE CORRECT TO HOLD OR PROPOUND THAT ENTIRE PAYMENT DURING THE TERM OF LICENCE, IS DEFERRED CAPITAL PAYMENT. THIS WAS/IS NOT THE IN TENT UNDER THE 1994 AGREEMENT OR 1999 POLICY. THE INTENT IS TO ALS O SHARE THE .GROSS EARNING TO MAINTAIN AND OPERATE THE LICENCE. THE LICENCE FEE AS SUCH IS SIMILAR TO BOTH PROSPECT ING FEE, ACQUISITION OF RIGHT TO LEASE AS WELL AS LEASES WHI CH ENABLED REMOVAL OF SAND/TENDU LEAVES, ETC. AS NOTHING HAS TO BE WON OVER, OR EXTRACTED. PART PAYMENT WAS TOWARDS AN INITIAL INVE STMENT WHICH AN ASSESSEE HAD TO MAKE TO ESTABLISH THE BUSINESS. IT WAS A PRECONDITION TO SETTING UP OF BUSINESS. IT HAS ELEM ENT AND INCLUDES PAYMENT MADE TO ACQUIRE THE 'ASSET' I.E. THE RIGHT TO ESTABLISH CELLULAR TELEPHONE SERVICE. BUT THE LICENCE PERMITS AND ALLOWS THE ASSESSEE TO MAINTAIN, OPERATE AND CONTINUE BUSINESS ACTIVITIES. PAYMENT OF LICENCE FEE HAS CERTAIN INGREDIENTS AND IS LIKE LEASE RENT WHICH IS PAYABLE FROM TIME TO TIME TO BE ABLE TO US E THE LICENCE. THE LICENCE ACQUIRED WAS INITIALLY FOR 10 YEARS AND THE TERM WAS EXTENDED UNDER THE 1999 POLICY TO 20 YEARS BUT THIS ITSELF DOES NOT JUSTIFY TREATING THE LICENCE FEE PAID ON REVENUE SH ARING BASIS UNDER THE 1999 POLICY AS A CAPITAL EXPENSE MADE TO ACQUIR E AN ASSET. THE PAYMENT OF YEARLY LICENCE FEE ON REVENUE SHARIN G BASIS WAS FOR CARRYING ON BUSINESS AS CELLULAR TELEPHONE OPERATOR AND, THUS IT WAS A NORMAL BUSINESS EXPENSE. 18 READ IN THIS MANNER, THE LICENCE GRANTED BY THE GOVERNMENT/AUTHORITY TO THE ASSESSEE WOULD BE A CAP ITAL ASSET, YET AT THE SAME TIME, THE ASSESSEE HAS TO MAKE PAYMENT ON YEARLY BASIS ON THE GROSS REVENUE TO CONTINUE, TO BE ABLE TO OPERATE AND RUN THE BUSINESS, IT WOULD ALSO BE REVENUE IN NATUR E. FAILURE TO MAKE STIPULATED REVENUE SHARING PAYMENT ON YEARLY BASIS WOULD RESULT IN FORFEITING THE. RIGHT TO OPERATE AN D IN TURN DENY THE ASSESSEE, RIGHT TO DO BUSINESS WITH THE AID OF THE CAPITAL ASSET. NON-PAYMENT WILL PREVENT AND BAR AN ASSESSEE FROM P ROVIDING SERVICES. IN AFORESAID CIRCUMSTANCES, IT WOULD BE APPROPRIATE AND PROPER TO APPORTION THE LICENCE FEE AS PARTLY REVENUE AND PAR TLY CAPITAL. THE NEXT OBVIOUS QUESTION IS, ON WHAT BASIS APPORTI ONMENT SHOULD BE DONE AND WHAT COULD BE THE PROPORTION OF APPORTI ONMENT BETWEEN CAPITAL AND REVENUE EXPENDITURE. IN THIS RE GARD IT WOULD BE APPROPRIATE AND PROPER TO DIVIDE THE LICENCE FEE INTO TWO PERIODS I.E. BEFORE AND AFTER 31-7-1999. THE LICENC E FEE PAID OR PAYABLE FOR THE PERIOD UP TO.31-7-1999 I.E. THE DAT E SET OUT IN THE 1999 POLICY SHOULD BE TREATED AS CAPITAL AND THE BA LANCE AMOUNT PAYABLE ON OR AFTER THE SAID DATE SHOULD BE TREATED AS REVENUE. THE AFORESAID APPORTIONMENT IS NECESSARY BECAUSE LI CENCE FEE WAS PAYABLE FOR ESTABLISHMENT, MAINTENANCE AND OPERATIO N OF CELLULAR TELEPHONE SERVICE. ESTABLISHMENT AND SET UP TOOK PL ACE IN THE INITIAL YEARS AND THEREAFTER THE PAYMENTS MADE WERE/ ARE FO R OPERATION OR MAINTAINING THE CELLULAR TELEPHONE SERVICE. INIT IAL OUTLAY AND 19 PAYMENT, THEREFORE, IS CAPITAL IN NATURE, WHEREAS THE OUTLAYS AND PAYMENTS MADE SUBSEQUENTLY ARE TO OPERATE AND MAINT AIN THE SERVICE. 1999 POLICY IN THE FORM OF LETTER DATED 22 -7- 1999 ALSO REFERS TO ONE TIME ENTRY FEE WHICH IS CHARGEABLE AN D HAD TO BE CALCULATED AS LIC7ENCE FEE DUES PAYABLE UP TO 31-7- 1999 AND LICENCE FEE WAS THEREAFTER PAYABLE ON PERCENTAGE SHARE OF G ROSS REVENUE. THE NEW LICENCES ISSUED TO OTHERS ALSO STIPULATED O NE TIME ENTRY FEE AND THEN LICENCE FEE PAYMENT ON SHARING BASIS. IN VIEW OF THE NEW 1999 POLICY, THE EARLIER POLICY WHICH RESTRICTE D COMPETITION, UNDERWENT A CHANGE AND LICENCEES FORGO THEIR RIGHT TO OPERATE IN THE REGIME OF LIMITED NUMBER OF OPERATORS. ANOTHER REASON WHY LICENCE FEE PAYABLE FOR THE PERI OD ON OR BEFORE 31- 7 -1999 SHOULD BE TREATED AS CAPITAL AND THE AMOUNT PAYABLE THEREAFTER AS REVENUE, IS JUSTIFIED AND APP ROPRIATE IN VIEW OF SECTION 3SABB . THE PROVISION PROVIDES THAT LICENCE FEE OF CAPITAL NATURE SHALL BE AMORTIZED BY DIVIDING THE A MOUNT BY NUMBER OF REMAINDER YEARS OF LICENCES. THUS, THE CAPITALIZED AMOUNT OF LICENCE FEE IS TO B E APPORTIONED AS A DEDUCTION IN THE UNEXPIRED PERIOD OF THE LICENCE. THE PROVISION WILL HAVE BALLOONING EFFECT WITH AMORTIZED AMOUNT S UBSTANTIALLY INCREASING IN THE LATER YEARS AND IN THE LAST YEAR THE ENTIRE LICENCE FEE ALONG WITH THE BROUGHT FORWARD AMORTIZED AMOUNT WOULD BE ALLOWED AS DEDUCTION. AFTER A PARTICULAR POINT OF TIME, DEDUCTION ALLOWAB LE UNDER SECTION 35ABB WOULD BE MORE THAN THE ACTUAL PAYMENT BY THE ASSES SEE AS 20 LICENCE FEE FOR THE SAID YEAR. THIS WOULD NORMALLY HAPPEN AFTER THE MID- TERM OF THE LICENCE PERIOD. SECTION 35ABB , THEREFORE, ENSURES THAT THE CAPITAL PAYMENT IS DU LY ALLOWED AS A DEDUCTION OVER THE TERM AND ONCE THE E XPENDITURE IS ALLOWED, IT WOULD BE REVENUE OR TAX NEUTRAL PROVIDE D THE TAX RATES REMAIN THE SAME DURING THIS PERIOD.' 31. THE HON'BLE JURISDICTIONAL HIGH COURT CONCLUDED AS UNDER: (I) THE EXPENDITURE INCURRED TOWARDS LICENCE FEE IS PARTLY REVENUE AND PARTLY CAPITAL. LICENCE FEE PAYABLE UP TO 31- 7 -1999 SHOULD BE TREATED AS CAPITAL EXPENDITURE AND LICENCE FEE ON R EVENUE SHARING BASIS AFTER 1-8-1999 SHOULD BE TREATED AS REVENUE E XPENDITURE. (II) CAPITAL EXPENDITURE WILL QUALIFY FOR DEDUCTION AS PER SECTION 35ABB . 32. FACTS OF THE PRESENT CASE APPEARS TO BE SIMILAR TO THE FACTS INVOLVED IN THE CASE OF CIT VS BHARTI HEXACOM LTD. (DELHI) (SUPRA), WE, THEREFORE, RESTORED THIS ISSUE TO THE FILE OF T HE AO TO BE DECIDED IN ACCORDANCE WITH THE FINDINGS GIVEN BY TH E HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BHARTI HEX ACOM LTD. (SUPRA) AND IF ANY EXPENDITURE ON ACCOUNT OF LICENC E FEE WAS PAYABLE UP TO 31.07.1999, IT SHOULD BE TREATED AS C APITAL EXPENDITURE AND THE LICENCE FEE ON REVENUE SHARING BASIS AFTER 01.08.1999 SHOULD BE TREATED AS REVENUE IN NATURE. 21 35. ON FINDING PARITY ON THE FACTS OF THE CASE UNDE R CONSIDERATION WE DIRECT ACCORDINGLY. GROUND NOS. 2 AND 3 ARE DISMIS SED. 36. GROUND NOS. 4 AND 5 RELATE TO THE DETERMINATION OF DEDUCTION U/S 10A OF THE ACT IN RESPECT OF EXPENDITURE IN NATURE OF COMMUNICATION EXPENSES OR EXPENSES INCURRED IN FOREIGN EXCHANGE. 37. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECI DED BY US HEREINABOVE IN ASSESSEES APPEAL IN ITA NO. 5555/DE L/2014 [SUPRA] IN PARA NO. 20. FOR OUR DETAILED DISCUSSION GIVEN THE REIN, GROUND NOS. 4 AND 5 ARE DISMISSED. 38. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ITA NO. 6162/DEL/2013 [ASSESSEES APPEAL FOR A.Y 20 06-07] . 39. GROUND NOS. 1, 2 AND 3 RELATE TO THE DETERMINAT ION OF DEDUCTION U/S 10A OF THE ACT FOR ASCERTAINING THE CORRECT AMO UNT OF FOREIGN CURRENCY EXPENSES AND TELECOMMUNICATION COSTS FOR E XCLUSION FROM EXPORT TURNOVER FOR WORKING OUT THE DEDUCTION U/S 10A OF THE ACT. 22 40. THIS ISSUE HAS BEEN CONSIDERED BY US ELABORATELY WH ILE DISPOSING THE ASSESSEES APPEAL [SUPRA] IN A.Y 2005 -06 VIDE GROUND NOS. 2, 3 AND 4 OF THAT APPEAL. FOR OUR DETAILED D ISCUSSION GIVEN THEREIN, WE ORDER ACCORDINGLY. 41. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND VI DE APPLICATION DATED 1.8.2016 AND THE SAME READS AS UNDER: THAT THE ASSESSING OFFICER OUGHT TO HAVE ALLOWED FO REIGN TAX CREDIT OF RS. 56,86,248/- IN PURSUANCE TO LAW CLARI FIED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF WIPRO L TD 382 ITR 179. 42. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TOWARDS THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F NTPC 229 ITR 383 AND JUTE CORPORATION OF INDIA 187 ITR 686. IT IS T HE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS ADDITIONAL GROUN D HAS BEEN RAISED PURSUANT TO THE LAW BEING CLARIFIED BY THE HON'BLE KARNATAKA HIGH COURT, WHICH IS THE FIRST DECISION ON THIS ISSUE AN D, THEREFORE, THE OMISSION TO RAISE THE AFORESAID ADDITIONAL GROUND O F APPEAL EARLIER WAS NEITHER WILFUL NOR DELIBERATE. 23 43. THE LD. DR STRONGLY OBJECTED TO THE ADMISSION O F THE AFORESAID ADDITIONAL GROUND. IT IS THE SAY OF THE LD. DR THA T NO SUCH CLAIM WAS MADE IN THE RETURN OF INCOME, NEITHER DURING THE AS SESSMENT PROCEEDINGS NOR BEFORE THE FIRST APPELLATE AUTHORIT Y AND, THEREFORE, THE AUTHORITIES BELOW HAD NO OCCASION TO EXAMINE TH E CLAIM OF THE ASSESSEE. 44. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE C ONTENTS OF THE ADDITIONAL GROUND. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. THE HON'BLE SUPREME COURT IN THE CASE OF NTPC [SUPRA] HAS LAID DOWN THE RATIO THAT THE LEGAL ISSU E CAN BE RAISED BY WAY OF ADDITIONAL GROUND BEFORE THE APPELLATE AUTHO RITIES. 45. SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN THE CASE OF MARUTI SUZUKI IN ITA NO. 961/DEL/2015 WHEREIN THE CO-ORDIN ATE BENCH BY WAY OF AN INTERIM ORDER HELD AS UNDER: 11. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE SUBMISSIONS MADE BY THE RIVAL REPRESENTATIVES AND H AVE CAREFULLY CONSIDERED THE ISSUES RAISED VIDE ADDITIO NAL GROUND MENTIONED ELSEWHERE. AT THE VERY OUTSET, WE HAVE TO STATE THAT A LEGAL PLEA CAN BE RAISED AT ANY POI NT OF TIME. IN THE PRESENT CASE, THE APPEAL WAS HEARD EA RLIER, 24 BUT MARKED AS PART HEARD AND SUBSEQUENTLY RELEASE D, WHICH MEANS THAT THE APPEAL WAS NEVER ADJUDICATED B Y THE TRIBUNAL. IN OUR CONSIDERED OPINION, THERE IS NO L IMIT OF TIME TO RAISE AN ADDITIONAL GROUND OF APPEAL, WHICH CAN BE RAISED AT ANY TIME BEFORE DISPOSAL OF THE APPEAL. FURTHER, THERE IS NO ESTOPPEL IN LAW. IT IS THE SETTLED PRO POSITION OF LAW THAT MERE PROCEDURAL LAPSE, OR OMISSION ON THE PART OF ASSESSEE, CANNOT LEAD TO DENIAL OF SUBSTANTIVE BENE FIT/ ELIGIBLE CLAIM IN THE HANDS OF SUCH ASSESSEE. 46. THE AFORESAID DECISION IN THE CASE OF MARUTI SU ZUKI INDIA LTD [SUPRA] HAS BEEN UPHELD BY THE HON'BLE DELHI HIGH C OURT IN WPC 13241/2019 VIDE ORDER DATED 16.12.2019. 47. REPRESENTATIVES OF BOTH THE SIDES AGREED THAT N O INTERIM ORDER IS NECESSARY FOR ADMISSION OF ADDITIONAL GROUND AND TH E SAME MAY BE CONSIDERED IN THE BODY OF THE ORDER OF THE TRIBUNAL ITSELF. ON SUCH CONCESSION, THE ADDITIONAL GROUND IS ADMITTED. NOW WE PROCEED TO ADDRESS THE ADDITIONAL GROUND. 48. FACTS ON RECORD SHOW THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PE IN USA AND ACCORDINGLY PAID TAX IN USA ON THE INCOME ARISING THEREFROM. THE INCOME WHICH WAS SUB JECTED TO TAX IN USA WAS INCLUDED IN THE TOTAL INCOME COMPUTED FOR P AYMENT OF TAX IN 25 INDIA. HOWEVER, IN RESPECT OF THE SAID INCOME EARN ED FROM USA, THE ASSESSEE CLAIMED DEDUCTION U/S 10A OF THE ACT IN TH E RETURN OF INCOME FILED IN INDIA AND DID NOT CLAIM CREDIT OF FOREIGN TAXES. 49. SUBSEQUENTLY, THE HON'BLE HIGH COURT OF KARNATA KA IN THE CASE OF WIPRO LTD [SUPRA] CLARIFIED THE LAW IN RELATION TO THE CLAIM OF FOREIGN TAX CREDIT. THE HON'BLE HIGH COURT, WHILE INTERPRE TING THE PROVISIONS OF SECTION 90(1)(A)(II) OF THE ACT, PROVIDING FOR RELI EF FROM DOUBLE TAXATION WHERE INCOME OF THE ASSESSEE IS CHARGEABLE UNDER TH E ACT AS WELL AS IN THE CORRESPONDING LAW IN FORCE IN FOREIGN COUNTRY H AS HELD THAT INCOME U/S 10A OF THE ACT IS CHARGEABLE TO TAX U/S 4 OF TH E ACT AND IS INCLUDIBLE IN THE TOTAL INCOME U/S 5 OF THE ACT, B UT NO TAX IS CHARGED ON SUCH INCOME BECAUSE OF EXEMPTIONS GIVEN U/S 10A OF THE ACT ONLY FOR A PERIOD OF 10 YEARS. 50. THE HON'BLE KARNATAKA HIGH COURT WAS SEIZED INT ER ALIA, WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: WHETHER THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE CREDIT FOR INCOME TAX PAID IN A COUNTRY OUTSIDE IND IA IN RELATION TO INCOME ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT WOULD NOT BE AVAILABLE U/S 90(1)(A) OF THE ACT. 26 51. THE HON'BLE HIGH COURT OBSERVED AS UNDER: 26. THE ANSWER TO THE QUESTION DEPENDS ON THE INTERPRE TATION TO BE PLACED ON SECTION 90 WHICH IS FOUND IN CHAPTER IX W HICH DEALS WITH DOUBLE TAXATION RELIEF. 27. SECTION 90 DEALS WITH AGREEMENT WITH FOREIGN COUNT RIES OR SPECIFIED TERRITORIES. THE PRESENT SECTION CAME INTO FORCE FR OM 01.04.2004. EARLIER TO THAT PERIOD, SECTION 90 READ AS UNDER: '90. AGREEMENT WITH FOREIGN COUNTRIES.(1) THE CENT RAL GOVERNMENT MAY ENTER INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA (A) FOR THE GRANTING OF RELIEF IN RESPECT OF INCOME ON WHICH HAVE BEEN PAID BOTH INCOME-TAX UNDER THIS ACT AND INCOME-TAX IN TH AT COUNTRY; OR' 28. THE NOTES ON CLAUSES TO FINANCE BILL, 2003 WHICH E XPLAINS CLAUSE 43 SEEKING AMENDMENT TO THE ACT READS AS FOLLOWS: 'CLAUSE 43 SEEKS TO AMEND SECTION 90 OF THE INCOME- TAX ACT RELATING TO AGREEMENT WITH FOREIGN COUNTRIES. THE EXISTING PROVISIONS OF THE SAID SECTION, INTER ALIA, PROVIDE THAT THE CENTRAL GOVERNMENT MAY ENTER INTO AGREEMENT WITH TH E GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA FOR GRANTING OF RELIEF IN RESPECT OF INCOME ON WHICH HAVE BEEN PAID BOTH INCOME-TAX UNDER THE INCO ME TAX ACT AND INCOME-TAX IN THAT COUNTRY, OR FOR THE AVOIDANCE OF DOUBLE TAXATION OF INCOME UNDER THAT ACT AND UNDER THE CORRESPONDING L AW IN FORCE IN THAT COUNTRY, ETC. 27 IT IS PROPOSED TO SUBSTITUTE CLAUSE (A) OF SUB-SECT ION (1) OF THE SAID SECTION TO PROVIDE THAT THE CENTRAL GOVERNMENT MAY ENTER INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSID E INDIA FOR THE GRANTING OF RELIEF, INTER ALIA, IN RESPECT OF INCOM E-TAX CHARGEABLE UNDER THE INCOME-TAX ACT OR UNDER THE CORRESPONDING LAW I N FORCE IN THAT COUNTRY TO PROMOTE MUTUAL ECONOMIC RELATIONS, TRADE AND INVESTMENT.' 29. THE MEMORANDUM EXPLAINING PROVISIONS IN THE FINANC E BILL 2003 READS AS FOLLOWS: 'DOUBLE TAXATION AVOIDANCE AGREEMENTS- EXTENDING TH E SCOPE TO INCLUDE AGREEMENTS FOR DEVELOPING MUTUAL TRADE AND INVESTME NT UNDER THE EXISTING SECTION 90, THE CENTRAL GOVERNME NT MAY ENTER INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSID E INDIA FOR GRANTING OF RELIEF IN RESPECT OF INCOME ON WHICH HAVE BEEN P AID BOTH INCOME-TAX UNDER THE INCOME-TAX ACT AND INCOME-TAX IN THAT COU NTRY, OR FOR THE AVOIDANCE OF DOUBLE TAXATION OF INCOME UNDER THIS A CT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY, ETC. IN ORDER TO ENCOURAGE INTERNATIONAL TRADE AND COMME RCE, IT IS PROPOSED TO INSERT A NEW CLAUSE IN SUB-SECTION (1) OF SECTION 9 0 SO AS TO PROVIDE THAT THE CENTRAL GOVERNMENT MAY ALSO ENTER INTO AN AGREE MENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA, FOR GRANTI NG RELIEF IN RESPECT OF INCOME-TAX CHARGEABLE UNDER THIS ACT OR UNDER THE C ORRESPONDING LAW IN THAT COUNTRY TO PROMOTE MUTUAL ECONOMIC RELATIONS, TRADE AND INVESTMENT.' 28 THE AMENDED SECTION 90 READS AS UNDER : 'AGREEMENT WITH FOREIGN COUNTRIES OR SPECIFIED TERR ITORIES. 90 (1) THE CENTRAL GOVERNMENT MAY ENTER INTO AN AGR EEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA OR SPECIFIE D TERRITORY OUTSIDE INDIA, (A ) FOR THE GRANTING OF RELIEF IN RESPECT OF (I ) INCOME ON WHICH HAVE BEEN PAID BOTH INCOME TAX UNDER THIS ACT AND INCOME- TAX IN THAT COUNTRY OR SPECIFIED TERRITORY, AS THE CASE MAY BE, OR (II ) INCOME- TAX CHARGEABLE UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY OR SPECI FIED TERRITORY, AS THE CASE MAY BE, TO PROMOTE MUTUAL ECONOMIC RELATIONS, TRADE AND INVESTMENT, OR (B ) FOR THE AVOIDANCE OF DOUBLE TAXATION OF INCOME UNDE R THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT CO UNTRY OR SPECIFIED TERRITORY, AS THE CASE MAY BE, OR (C ) FOR EXCHANGE OF INFORMATION FOR THE PREVENTION OF EVASI ON OR AVOIDANCE OF INCOME- TAX CHARGEABLE UNDER THIS ACT OR UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY OR SPECI FIED TERRITORY, AS THE CASE MAY BE, OR INVESTIGATION OF CASES OF SU CH EVASION OR AVOIDANCE, OR 29 (D ) FOR RECOVERY OF INCOME- TAX UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY OR SPECI FIED TERRITORY, AS THE CASE MAY BE, AND MAY, BY NOTIFICATION IN THE OFFICIAL GAXETTE, MAKE SUCH PROVISIONS AS MAY BE NECESSARY F OR IMPLEMENTING THE AGREEMENT. (2) WHERE THE CENTRAL GOVERNMENT HAS ENTERED INTO A N AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA OR SPEC IFIED TERRITORY OUTSIDE INDIA, AS THE CASE MAY BE, UNDER SUB-SECTIO N (1) FOR GRANTING RELIEF OF TAX, OR AS THE CASE MAY BE, AVOIDANCE OF DOUBLE TAXATION, THEN, IN RELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APP LIES, THE PROVISIONS OF THIS ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSESSEE. (2A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB- SEC TION (2), THE PROVISIONS OF CHAPTER X-A OF THE ACT SHALL APPLY TO THE ASSESSEE EVEN IF SUCH PROVISIONS ARE NOT BENEFICIAL TO HIM. (3) ANY TERM USED BUT NOT DEFINED IN THIS ACT OR IN THE AGREEMENT REFERRED TO IN SUB-SECTION (1) SHALL, UNLESS THE CO NTEXT OTHERWISE REQUIRES, AND IS NOT INCONSISTENT WITH THE PROVISIO NS OF THIS ACT OR THE AGREEMENT, HAVE THE SAME MEANING AS ASSIGNED TO IT IN THE NOTIFICATION ISSUED BY THE CENTRAL GOVERNMENT IN THE OFFICIAL GA ZETTE IN THIS BEHALF.' 30. SUB-SECTION (1) LAYS DOWN THAT THE CENTRAL GOVERNM ENT MAY ENTER INTO AN AGREEMENT WITH THE GOVERNMENT OF ANOTHER COUNTRY . CLAUSE (A) (I) CONTEMPLATES SITUATION WHEN TAX IS ALREADY PAID ON THE SAME INCOME IN BOTH THE COUNTRIES AND IT EMPOWERS THE CENTRAL GOVE RNMENT TO GRANT RELIEF IN RESPECT OF SUCH DOUBLE TAXATION. CLAUSE ( B) WHICH IS WIDER THAN CLAUSE (A) PROVIDES THAT ANY AGREEMENT MAY BE MADE FOR THE AVOIDANCE OF 30 THE DOUBLE TAXATION OF INCOME UNDER THE ACT AND UND ER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY. CLAUSES (C) AND (D) E SSENTIALLY DEALS WITH THE AGREEMENTS MADE FOR THE EXCHANGE OF INFORMATION, IN VESTIGATION OF CASES AND RECOVERY OF INCOME TAX. WITH EFFECT FROM 1.4.20 04, CLAUSE (A)(II) WAS SUBSTITUTED TO PROVIDE FOR ENTERING INTO AN AGREEME NT FOR GRANTING RELIEF IN RESPECT OF INCOME TAX CHARGEABLE UNDER THIS ACT AND UNDER CORRESPONDING LAW IN FORCE IN THAT COUNTRY, TO PROM OTE MUTUAL ECONOMIC RELATIONS, TRADE AND INVESTMENT. WITH THIS AMENDMEN T THE POWER OF THE CENTRAL GOVERNMENT HAS BEEN GREATLY WIDENED AND IT CAN NOW ENTER INTO AGREEMENT NOT ONLY FOR AVOIDANCE OF DOUBLE TAXATION , BUT ALSO FOR GRANTING RELIEF FOR INCOME EXEMPT FROM TAXATION. 31. THUS, SECTION 90 EMPOWERS THE CENTRAL GOVERNMENT T O ENTER INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY FOR TW O PURPOSES: (A ) FOR GRANTING OF RELIEF IN RESPECT OF INCOME TAX PAI D OR PAYABLE (B ) FOR AVOIDANCE OF DOUBLE TAXATION OF INCOME 32. PRIOR TO THE AMENDMENT, THE RELIEF WAS GRANTED IN RESPECT OF INCOME ON WHICH THE INCOME TAX IS PAID UNDER THE INCOME TA X ACT IN THE CONTRACTING COUNTRY. THEREFORE TO GET THE BENEFIT O F THE SAID PROVISION, PAYMENT OF INCOME TAX IN BOTH THE COUNTRIES WAS SIN E QUA NON. HOWEVER, BY THE AMENDMENT MADE BY THE FINANCE ACT 2003, THE BENEFIT OF GRANTING THE RELIEF WAS EXTENDED TO EVEN IN RESPECT OF INCOM E TAX CHARGEABLE UNDER THE ACT. THEREFORE, THE PAYMENT OF INCOME TAX IN BOTH JURISDICTIONS IS NOT SINE QUA NON ANY MORE FOR GRAN TING THE RELIEF. THIS PROVISION WAS INTRODUCED WITH THE OBJECT OF PROMOTI NG MUTUAL ECONOMIC 31 RELATIONS, TRADE AND INVESTMENT. IN OTHER WORDS, IT WAS A POLICY OF THE GOVERNMENT. 33. WHEN THERE IS A SPECIFIC PROVISION IN THE DOUBLE T AXATION AVOIDANCE AGREEMENT PROVIDING FOR A PARTICULAR MODE OF COMPUT ATION OF INCOME OR GRANTING OF RELIEF, THE SAME SHOULD BE FOLLOWED IRR ESPECTIVE OF THE PROVISIONS OF THE ACT. IF THE AGREEMENT WITH THE FO REIGN COUNTRY IS UNDER CLAUSE (A)(I) FOR RELIEF AGAINST DOUBLE TAXATION AN D NOT UNDER CLAUSE (B) FOR THE AVOIDANCE OF DOUBLE TAXATION; THE ASSESSEE MUST SHOW THAT THE IDENTICAL INCOME HAS BEEN DOUBLY TAXED AND THAT HE HAS PAID TAX BOTH IN INDIA AND IN THE FOREIGN COUNTRY ON THE SAME INCOME . SECTION 91 MAKES IT CLEAR THAT IF A PERSON WHO IS RESIDING IN INDIA HAS PAID TAX IN ANY COUNTRY WITH WHICH, THERE IS NO AGREEMENT UNDER SECTION 90 FOR THE RELIEF OR AVOIDANCE OF DOUBLE TAXATION, INCOME TAX IF DEDUCTE D OR OTHERWISE PAID AS PER LAW IN FORCE IN THAT COUNTRY, THEN HE SHALL BE ENTITLED TO THE DEDUCTION FROM THE INDIAN INCOME TAX PAYABLE BY HIM IN A SUM COMPUTED ON SUCH DOUBLY TAXED INCOME, AT THE INDIAN RATE OF TAX OR THE RATE OF TAX OF THE SAID COUNTRY, WHICHEVER IS LOWER OR THE INDI AN RATE OF TAX, IF BOTH THE RATES ARE EQUAL. 34. IN FACT, THE CIRCULAR NO.333 DATED APRIL 2, 1982 C LARIFIES THE LEGAL POSITION. THE SAID CIRCULAR READS AS UNDER: 'THE CORRECT LEGAL POSITION IS THAT WHERE A SPECIFI C PROVISION IS MADE IN THE DOUBLE TAXATION AVOIDANCE AGREEMENT, THAT PROVI SION WILL PREVAIL OVER THE GENERAL PROVISIONS CONTAINED IN THE INCOME TAX ACT, 1961. IN FACT THE DOUBLE TAXATION AVOIDANCE AGREEMENTS WHICH HAVE BEE N ENTERED INTO BY THE CENTRAL GOVERNMENT UNDER SECTION 90 OF THE INCO ME TAX ACT, 1961, ALSO PROVIDE THAT THE LAWS IN FORCE IN EITHER COUNT RY WILL CONTINUE TO GOVERN THE ASSESSMENT AND TAXATION OF INCOME IN THE RESPECTIVE COUNTRY 32 EXCEPT WHERE PROVISIONS TO THE CONTRARY HAVE BEEN M ADE IN THE AGREEMENT. THUS WHERE A DOUBLE TAXATION AVOIDANCE A GREEMENT PROVIDED FOR A PARTICULAR MODE OF COMPUTATION OF INCOME, THE SAME SHOULD BE FOLLOWED, IRRESPECTIVE OF THE PROVISIONS IN THE INC OME TAX ACT. WHERE THERE IS NO SPECIFIC PROVISION IN THE AGREEMENT, IT IS THE BASIC LAW I.E., INCOME TAX ACT THAT WILL GOVERN THE TAXATION OF INC OME.' 35. IT IS NECESSARY TO NOTICE THAT IF NO TAX LIABILITY IS IMPOSED UNDER THIS ACT, THE QUESTION OF RESORTING TO THE AGREEMENT WOU LD NOT ARISE. NO PROVISION OF THE AGREEMENT CAN POSSIBLY FASTEN A TA X LIABILITY WHERE THE LIABILITY IS NOT IMPOSED BY THE ACT. 36. THE APEX COURT HAD AN OCCASION TO GO INTO THE VALI DITY OF THE AGREEMENTS ENTERED INTO UNDER THESE PROVISIONS AND THEIR ENFORCEABILITY IN THE CASE OF UNION OF INDIA V. AZADI BACHAO ANDOL AN [2003] 263 ITR 706/132 TAXMAN 373 (SC) . DEALING WITH THE PURPOSE OF PROVISIONS FOR AVOIDANCE OF DOUBLE TAXATION, THE SUPREME COURT AT PAGE 721 HELD AS UNDER : 'EVERY COUNTRY SEEKS TO TAX THE INCOME GENERATED WI THIN ITS TERRITORY ON THE BASIS OF ONE OR MORE CONNECTING FACTORS SUCH AS LOCATION OF THE SOURCE, RESIDENCE OF THE TAXABLE ENTITY, MAINTENANC E OF A PERMANENT ESTABLISHMENT, AND SO ON. A COUNTRY MIGHT CHOOSE TO EMPHASISE ONE OR THE OTHER OF THE AFORESAID FACTORS FOR EXERCISING FISCA L JURISDICTION TO TAX THE ENTITY. DEPENDING ON WHICH OF THE FACTORS IS CO NSIDERED TO BE THE CONNECTING FACTOR IN DIFFERENT COUNTRIES, THE SAME INCOME OF THE SAME ENTITY MIGHT BECOME LIABLE TO TAXATION IN DIFFERENT COUNTRIES. THIS WOULD GIVE RISE TO HARSH CONSEQUENCES AND IMPAIR ECONOMIC DEVELOPMENT. IN ORDER TO AVOID SUCH AN ANOMALOUS AND INCONGRUOUS SI TUATION, THE GOVERNMENTS OF DIFFERENT COUNTRIES ENTER INTO BILAT ERAL TREATIES, 33 CONVENTIONS OR AGREEMENTS FOR GRANTING RELIEF AGAIN ST DOUBLE TAXATION. SUCH TREATIES, CONVENTIONS OR AGREEMENTS ARE CALLED DOUBLE TAXATION AVOIDANCE TREATIES, CONVENTIONS OR AGREEMENTS. THE POWER OF ENTERING INTO A TREATY IS AN INHERENT PART OF SOVEREIGN POWER OF THE STATE. BY ARTICLE 73, SUBJECT TO THE P ROVISIONS OF THE CONSTITUTION, THE EXECUTIVE POWER OF THE UNION EXTE NDS TO THE MATTERS WITH RESPECT TO WHICH THE PARLIAMENT HAS POWER TO M AKE LAWS. OUR CONSTITUTION MAKES NO PROVISION MAKING LEGISLATION A CONDITION FOR THE ENTRY INTO AN INTERNATIONAL TREATY IN TIME EITHER O F WAR OR PEACE. THE EXECUTIVE POWER OF THE UNION IS VESTED IN THE PRESI DENT AND IS EXERCISABLE IN ACCORDANCE WITH THE CONSTITUTION. THE EXECUTIVE IS QUA THE STATE COMPETENT TO REPRESENT THE STATE IN ALL MATTERS INT ERNATIONAL AND MAY BY AGREEMENT, CONVENTION OR TREATY INCUR OBLIGATIONS W HICH IN INTERNATIONAL LAW ARE BINDING UPON THE STATE. BUT THE OBLIGATIONS ARISING UNDER THE AGREEMENT OR TREATIES ARE NOT BY THEIR OWN FORCE BI NDING UPON INDIAN NATIONALS. THE POWER TO LEGISLATE IN RESPECT OF TRE ATIES LIES WITH THE PARLIAMENT UNDER ENTRIES 10 AND 14 OF LIST I OF THE SEVENTH SCHEDULE. BUT MAKING OF LAW UNDER THAT AUTHORITY IS NECESSARY WHE N THE TREATY OR AGREEMENT OPERATES TO RESTRICT THE RIGHTS OF THE CI TIZENS OR OTHERS OR MODIFIES THE LAW OF THE STATE. IF THE RIGHTS OF THE CITIZENS OR OTHERS WHICH ARE JUSTICIABLE ARE NOT AFFECTED, NO LEGISLAT IVE MEASURE IS NEEDED TO GIVE EFFECT TO THE AGREEMENT OR TREATY. WHEN IT COMES TO FISCAL TREATIES DEALING WITH DOUBL E TAXATION AVOIDANCE, DIFFERENT COUNTRIES HAVE VARYING PROCEDURES. IN THE UNITED STATES SUCH A TREATY BECOMES A PART OF MUNICIPAL LAW UPON RATIFIC ATION BY THE SENATE. IN THE UNITED KINGDOM SUCH A TREATY WOULD HAVE TO BE E NDORSED BY AN ORDER MADE BY THE QUEEN IN COUNCIL. SINCE IN INDIA SUCH A TREATY WOULD HAVE TO 34 BE TRANSLATED INTO AN ACT OF PARLIAMENT, A PROCEDUR E WHICH WOULD BE TIME CONSUMING AND CUMBERSOME, A SPECIAL PROCEDURE WAS E VOLVED BY ENACTING SECTION 90 OF THE ACT.' 37. IT IS IN THIS BACKGROUND, WHEN WE NOTICE SECTION 9 0 OF THE ACT - RELIEF FROM DOUBLE TAXATION IS GRANTED IN THE FOLLO WING CIRCUMSTANCES. FIRSTLY, SECTION 90 (1)(B) OF THE ACT SPEAKS ABOUT AVOIDANCE OF DOUBLE TAXATION I.E., CENTRAL GOVERNMENT MAY ENTER INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY FOR THE AVOIDANCE OF DOUB LE TAXATION OF INCOME UNDER THIS ACT AND UNDER THE CORRESPONDING L AW IN FORCE IN OTHER COUNTRY I.E., WHEN TAX IS PAYABLE ON INCOME UNDER T HIS ACT AS WELL AS UNDER THE CORRESPONDING LAW IN THAT COUNTRY THEY COULD AG REE TO TAX IN ONE COUNTRY. THIS HAPPENS EVEN BEFORE PAYMENT OF ANY TA X. BY VIRTUE OF SUCH AGREEMENT, TAX IS PAID ONLY IN ONE COUNTRY, THAT IS HOW THE BENEFIT OF DOUBLE TAXATION RELIEF BY WAY OF AVOIDANCE IS GRANT ED TO THE ASSESSEE IN BOTH THE COUNTRIES. 38. SECONDLY, UNDER SECTION 90 (1)(A)(I) OF THE ACT, O NCE SUCH ASSESSEE HAS PAID INCOME TAX, UNDER THE ACT AS WELL AS THE T AX IN THE OTHER COUNTRY, BY SUCH AGREEMENT, RELIEF COULD BE GIVEN B Y GIVING CREDIT OF THE TAX PAID IN THE FOREIGN COUNTRY TO THE ASSESSEE IN INDIA. IN CASES COVERED UNDER THIS PROVISION THE ASSESSEE PAYS TAX IN BOTH THE JURISDICTIONS. AFTER PAYMENT OF SUCH TAX, HE IS ENTITLED TO DOUBLE TAXATION RELIEF BY WAY OF CREDIT IN RESPECT OF THE TAX PAID IN THE FOREIGN JURISDICTION. 39. THIRDLY, IN CASES COVERED UNDER SECTION 90 (1)(A)( II) OF THE ACT IT IS NOT A CASE OF THE INCOME BEING SUBJECTED TO TAX OR THE ASSESSEE HAS PAID TAX ON THE INCOME. THIS APPLIES TO A CASE WHERE THE INCOME OF THE ASSESSEE IS CHARGEABLE UNDER THIS ACT AS WELL AS IN THE CORRESPONDING LAW 35 IN FORCE IN THE OTHER COUNTRY. THOUGH THE INCOME TA X IS CHARGEABLE UNDER THE ACT, IT IS OPEN TO THE PARLIAMENT TO GRANT EXEM PTIONS UNDER THE ACT FROM PAYMENT OF TAX FOR ANY SPECIFIED PERIOD. NORMA LLY IT IS DONE AS AN INCENTIVE TO THE ASSESSEE TO CARRY ON MANUFACTURING ACTIVITIES OR IN PROVIDING THE SERVICES. THOUGH THE CENTRAL GOVERNME NT MAY EXTEND THE SAID BENEFIT TO THE ASSESSEE IN THIS COUNTRY, BY NE GOTIATIONS WITH THE OTHER COUNTRIES, THEY COULD ALSO BE REQUESTED TO EX TEND THE SAME BENEFIT. IF THE CONTRACTING COUNTRY AGREES TO EXTEN D THE SAID BENEFIT, THEN THE ASSESSEE GETS THE RELIEF. IN ANOTHER SCENA RIO, THOUGH THE SAID INCOME IS EXEMPT IN THIS COUNTRY, BY VIRTUE OF THE AGREEMENT, THE AMOUNT OF TAX PAID IN THE OTHER COUNTRY COULD BE GIVEN CRE DIT TO THE ASSESSEE. THUS FOR THE PAYMENT OF INCOME TAX IN THE FOREIGN J URISDICTION, THE ASSESSEE GETS THE BENEFIT OF ITS CREDIT IN THIS COU NTRY. 40. HOWEVER, IF THE CONTRACTING COUNTRY IS NOT AGREEAB LE TO EXTEND THE SAID BENEFITS, THEN IN TERMS OF THE AGREEMENT AND P ROBABLY IN TERMS OF THE EXEMPTION GRANTED, THE ASSESSEE WOULD BE ENTITL ED TO BENEFIT ONLY IN THIS COUNTRY ON ACCOUNT OF THE EXEMPTION AND THE BE NEFIT IN THE OTHER COUNTRY IS NOT EXTENDED. THUS WHEN EXEMPTION IS GRA NTED IN RESPECT OF THE INCOME CHARGEABLE TO TAX UNDER THIS ACT IN RESP ECT OF WHICH NO BENEFIT IS GRANTED IN THE CORRESPONDING COUNTRY THE ASSESSEE GETS NO BENEFIT. HOWEVER, IF THE BENEFIT IS EXTENDED TO A P ORTION OF THE INCOME SAY FOR EXAMPLE 90% AND 10% IS SUBJECTED TO TAX THE N TO THAT EXTENT THE ASSESSEE WOULD BE ENTITLED TO BENEFIT OF TAX CREDIT AS HE HAS PAID TAX IN THE FOREIGN JURISDICTION AS PER SECTION 90 (1)(A)(I ) OF THE ACT. 41. IN THIS CONNECTION, IT IS CONTENDED ON BEHALF OF T HE REVENUE THAT IF THE INCOME IS CHARGEABLE TO TAX IN INDIA, THEN ONLY THE ASSESSEE CAN HAVE THE BENEFIT OF TAX CREDIT IN RESPECT OF THE TAX PAI D IN FOREIGN 36 JURISDICTION. IN RESPECT OF EXEMPTION UNDER SECTION 10A, THE INCOME DERIVED IS NOT INCLUDED IN THE TOTAL INCOME. IT IS NOT CHARGED TO INCOME TAX. THEREFORE, SECTION 90 OF THE ACT HAS NO APPLIC ATION AT ALL. 42. SECTION 4 OF THE ACT IS THE CHARGING SECTION. IT P ROVIDES, 'WHERE ANY CENTRAL ACT ENACTS THAT INCOME-TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATES, INCOME-TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN ACCORDANCE WITH, AND (SUBJECT TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEVY O F ADDITIONAL INCOME TAX) OF THIS ACT) IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON'. SUB-SECTION (2) OF SECTION 4 PROVIDES, 'IN RESPECT OF INCOME CHARGEABLE UNDER SUB- SECTION (1), INCOME-TAX SHALL BE DEDUCTED AT THE SOURCE OR PAID IN ADVANCE, WHERE IT IS SO DEDUCTIBLE OR PAYABLE UNDER ANY PROVISION OF THIS ACT'. SECTION 2(45) OF THE ACT DEFINES TOTAL INCOME AS UN DER: 'TOTAL INCOME' MEANS THE TOTAL AMOUNT OF INCOME REF ERRED TO IN SECTION 5, COMPUTED IN THE MANNER LAID DOWN IN THIS ACT. SECTION 5 DEALS WITH THE SCOPE OF TOTAL INCOME. IT READS AS UNDER : '(1) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOT AL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDE S ALL INCOME FROM WHATEVER SOURCE DERIVED, WHICH (A ) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON, OR 37 (B ) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE T O HIM IN INDIA DURING SUCH YEAR; OR (C ) ACCRUES OR ARISES TO HIM OUTSIDE INDIA DURING SUCH YEAR'. THE PROVISO SPEAKS ABOUT A PERSON NOT ORDINARILY RE SIDENT. 43. CHAPTER III DEALS WITH INCOMES WHICH DO NOT FORM P ART OF TOTAL INCOME. ONE SUCH INCOME WHICH DOES NOT FORM PART OF A TOTAL INCOME IS CONTAINED IN SECTION 10A; I.E. INCOME OF NEWLY ESTA BLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC. SECTION 10A(1) PROVIDES, 'SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUC TION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXP ORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CON SECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT T O THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PROD UCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SH ALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE.' 44. THIS PROVISION PROVIDES FOR A DEDUCTION OF PROFITS OR GAINS DERIVED FROM EXPORT BY AN UNDERTAKING FOR A PERIOD OF TEN Y EARS. THE PROFITS AND GAINS DERIVED BY SUCH UNDERTAKING WOULD FORM PART O F THE INCOME CHARGEABLE TO INCOME TAX UNDER SECTIONS 4 AND 5 OF THE ACT. THEREFORE, WHEN AN ASSESSEE IS HAVING SEVERAL UNDERTAKINGS, ON E OF WHICH FALLS UNDER SECTION 10A, THE ASSESSEE'S ENTIRE INCOME FROM ALL THE UNDERTAKINGS IS COMPUTED TO ARRIVE AT THE TOTAL INCOME. HOWEVER, TH E INCOME FROM SUCH UNDERTAKING FALLING UNDER SECTION 10A HAS TO BE DED UCTED FROM THE TOTAL INCOME. 38 51. IF SECTION 10A IS TO BE GIVEN EFFECT TO AS A DEDUC TION FROM THE TOTAL INCOME AS DEFINED IN SECTION 2(45), IT WOULD MEAN T HAT SECTION 10A IS TO BE CONSIDERED AFTER CHAPTER VI-A DEDUCTIONS ARE GIV EN FROM OUT OF THE GROSS TOTAL INCOME. THE TERM 'GROSS TOTAL INCOME' I S DEFINED IN SECTION 80B(5) TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDA NCE WITH THE PROVISIONS OF THIS ACT, BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER. AS PER THE DEFINITION OF GROSS TOTAL INCOME, THE OT HER PROVISIONS OF THE ACT WILL HAVE TO BE FIRST GIVEN EFFECT TO. THERE IS NO REASON WHY REFERENCE TO THE PROVISIONS OF THE ACT SHOULD NOT I NCLUDE SECTION 10A. IN OTHER WORDS, THE GROSS TOTAL INCOME WOULD BE ARRIVE D AT AFTER CONSIDERING SECTION 10A DEDUCTION ALSO. THEREFORE, IT WOULD BE INAPPROPRIATE TO CONCLUDE THAT SECTION 10A DEDUCTION IS TO BE GIVEN EFFECT TO AFTER CHAPTER VI-A DEDUCTIONS ARE EXHAUSTED. 52. SECTION 10A (1) SPEAKS OF 'DEDUCTION'. THE DEDUCTI ON IS OF PROFITS AND GAINS FOR A PERIOD OF TEN CONSECUTIVE ASSESSMEN T YEARS. THE SAID DEDUCTION IS FROM THE TOTAL INCOME OF THE ASSESSEE. THEREFORE, THE TOTAL INCOME BEFORE ALLOWING THE SAID DEDUCTION INCLUDES THE PROFITS AND GAINS FROM THE BUSINESS REFERRED TO IN SECTION 10A(1). SE CTION 5 OF THE ACT EXPLAINS THE SCOPE OF TOTAL INCOME TO MEAN ALL INCO ME FROM WHATSOEVER SOURCE DERIVED. SECTION 4 OF THE ACT CHARGES THIS T OTAL INCOME. HOWEVER, SECTION 10A (1) PROVIDES THAT, SUBJECT TO THE PROVI SIONS OF THE SAID SECTION, PROFITS AND GAINS DERIVED BY AN UNDERTAKIN G REFERRED TO IN THAT SECTION SHALL BE ALLOWED AS DEDUCTION FROM THE TOTA L INCOME OF THE ASSESSEE. THEREFORE, BY VIRTUE OF THE AFORESAID STA TUTORY PROVISION NAMELY SECTION 10A OF THE ACT, THE INCOME OF THE AS SESSEE FROM EXPORTS IN RESPECT OF THE SAID UNIT IS EXEMPTED FROM PAYMEN T OF INCOME TAX. THE VERY FACT THAT IT IS EXEMPTED FROM PAYMENT OF TAX M EANS BUT FOR THAT 39 EXEMPTION SUCH INCOME IS CHARGEABLE TO TAX. THIS RE LIEF UNDER SECTION 10A IS IN THE NATURE OF EXEMPTION ALTHOUGH TERMED A S DEDUCTION. BUT FOR THIS EXEMPTION, THE SAID INCOME NAMELY PROFITS AND GAINS DERIVED BY AN UNDERTAKING, IS CHARGEABLE TO TAX UNDER THE ACT. TH E SAID EXEMPTION IS ONLY FOR A PERIOD OF TEN YEARS. AFTER THE EXPIRY OF THE SAID TEN YEARS THE SAID INCOME IS TAXABLE. WHEN SUCH EXEMPTION IS GIVE N UNDER THE ACT, BUT THE SAID INCOME IS TAXED IN FOREIGN JURISDICTION, T HERE IS NO RELIEF TO THE ASSESSEE AT ALL. THEREFORE, TO PROMOTE MUTUAL ECONO MIC RELATIONS, TRADE AND INVESTMENT, THE ACT WAS AMENDED BY WAY OF FINAN CE ACT, 2003 WHICH CAME INTO FORCE FROM 1.4.2004. BY INSERTION OF A NE W CLAUSE (II) IN SUB- SECTION (1)(A) OF SECTION 90 THE CENTRAL GOVERNMENT HAS BEEN VESTED WITH THE POWER TO ENTER INTO AN AGREEMENT WITH THE GOVER NMENT OF ANY COUNTRY OUTSIDE INDIA FOR THE GRANTING OF RELIEF IN RESPECT OF INCOME TAX CHARGEABLE UNDER THE INCOME TAX ACT OR UNDER THE CO RRESPONDING LAW IN FORCE IN THAT COUNTRY, TO PROMOTE MUTUAL ECONOMIC R ELATIONS, TRADE AND INVESTMENT. THEREFORE, THE STATUTE BY ITSELF IS NOT GRANTING ANY RELIEF. BUT, BY VIRTUE OF THE STATUTE, IF AN AGREEMENT IS E NTERED INTO PROVIDING FOR SUCH RELIEF, THEN THE ASSESSEE WOULD BE ENTITLE D TO SUCH RELIEF. 53. RELYING ON THE JUDGMENTS IN THE CASE OF WALLACE FL OUR MILLS CO. LTD. V. COLLECTOR OF CENTRAL EXCISE [1989] 4 SCC 592, AN D IN THE CASE OF KASINKA TRADING V. UNION OF INDIA [1995] 1 SCC 2 74, IT WAS HELD THAT MERELY BECAUSE EXEMPTION HAS BEEN GRANTED IN RESPEC T OF THE TAXABILITY OF PARTICULAR SOURCE OF INCOME, IT CANNOT BE FORMUL ATED THAT THE ENTITY IS NOT LIABLE TO TAX AS CONTENDED BY THE RESPONDENTS. 54. IN FACT THE APEX COURT IN THE CASE OF KASINKA TRAD ING (SUPRA), A CASE ARISING UNDER CUSTOMS ACT AT PARA 21 HAS HELD AS UN DER: 40 'THE POWER TO GRANT EXEMPTION FROM PAYMENT OF DUTY, ADDITIONAL DUTY ETC. UNDER THE ACT, AS ALREADY NOTICED, FLOWS FROM THE P ROVISIONS OF SECTION 25(1) OF THE ACT. THE POWER TO EXEMPT INCLUDES THE POWER TO MODIFY OR WITHDRAW THE SAME. THE LIABILITY TO PAY CUSTOMS DUT Y OR ADDITIONAL DUTY UNDER THE ACT ARISES WHEN THE TAXABLE EVENT OCCURS. THEY ARE THEN SUBJECT TO THE PAYMENT OF DUTY AS PREVALENT ON THE DATE OF THE ENTRY OF THE GOODS. AN EXEMPTION NOTIFICATION ISSUED UNDER S ECTION 25 OF THE ACT HAD THE EFFECT OF SUSPENDING THE COLLECTION OF CUST OMS DUTY. IT DOES NOT MAKE ITEMS WHICH ARE SUBJECT TO LEVY OF CUSTOMS DUT Y ETC. AS ITEMS NOT LEVIABLE TO SUCH DUTY. IT ONLY SUSPENDS THE LEVY AN D COLLECTION OF CUSTOMS DUTY, ETC. WHOLLY OR PARTIALLY AND SUBJECT TO SUCH CONDITIONS AS MAY BE LAID DOWN IN THE NOTIFICATION BY THE GOVERNMENT IN 'PUBL IC INTEREST'. SUCH AN EXEMPTION BY ITS VERY ;NATURE IS SUSCEPTIBLE OF BEI NG REVOKED OR MODIFIED OR SUBJECTED TO OTHER CONDITIONS. THE SUPERSESSION OR REVOCATION OF AN EXEMPTION NOTIFICATION IN THE 'PUBLIC INTEREST' IS AN EXERCISE OF THE STATUTORY POWER OF THE STATE UNDER THE LAW ITSELF A S IS OBVIOUS FROM THE LANGUAGE OF SECTION 25 OF THE ACT.' 55. SIMILARLY, THE APEX COURT IN THE CASE OF WALLACE F LOUR MILLS CO. LTD. (SUPRA) AT PARA 4 HAS HELD AS UNDER: 'EXCISE IS A DUTY ON MANUFACTURE OR PRODUCTION. BUT THE REALIZATION OF THE DUTY MAY BE POSTPONED FOR ADMINISTRATIVE CONVENIENC E TO THE DATE OF REMOVAL OF GOODS FROM THE FACTORY. RULE 9A OF THE S AID RULES MERELY DOES THAT. THAT IS THE SCHEME OF THE ACT. IT DOES NOT, I N OUR OPINION, MAKE REMOVAL THE TAXABLE EVENT. THE TAXABLE EVENT IS THE MANUFACTURE. BUT THE LIABILITY TO PAY THE DUTY IS POSTPONED TILL THE TIM E OF REMOVAL UNDER RULE 9- A OF THE SAID RULES. IN THIS CONNECTION, REFEREN CE MAY BE MADE TO THE DECISION OF THE KARNATAKA HIGH COURT IN KARNATAKA C EMENT PIPE FACTORY V. 41 SUPDT. OF CENTRAL EXCISE (1986 23 ELT 313) (KARN HC )), WHERE IT WAS DECIDED THAT THE WORDS 'AS BEING SUBJECT TO A DUTY OF EXCISE' APPEARING IN SECTION 2(D) OF THE ACT ARE ONLY DESCRIPTIVE OF THE GOODS AND DO NOT RELATE TO THE ACTUAL LEVY. 'EXCISABLE GOODS', IT WA S HELD, DO NOT BECOME NON-EXCISABLE GOODS MERELY BY REASON OF THE EXEMPTI ON GIVEN UNDER A NOTIFICATION.' 56. THEREFORE, IT FOLLOWS THAT THE INCOME UNDER SECTIO N 10A IS CHARGEABLE TO TAX UNDER SECTION 4 AND IS INCLUDIBLE IN THE TOTAL INCOME UNDER SECTION 5, BUT NO TAX IS CHARGED BECAUSE OF T HE EXEMPTION GIVEN UNDER SECTION 10A ONLY FOR A PERIOD OF 10 YEARS. ME RELY BECAUSE THE EXEMPTION HAS BEEN GRANTED IN RESPECT OF THE TAXABI LITY OF THE SAID SOURCE OF INCOME, IT CANNOT BE POSTULATED THAT THE ASSESSEE IS NOT LIABLE TO TAX. THE SAID EXEMPTION GRANTED UNDER THE STATUT E HAS THE EFFECT OF SUSPENDING THE COLLECTION OF INCOME TAX FOR A PERIO D OF 10 YEARS. IT DOES NOT MAKE THE SAID INCOME NOT LEVIABLE TO INCOME TAX . THE SAID EXEMPTION GRANTED UNDER THE STATUTE STANDS REVOKED AFTER A PE RIOD OF 10 YEARS. THEREFORE, THE CASE FALLS UNDER SECTION 90(1)(A)(II ). 57. IN THE BACKGROUND OF THIS LEGAL POSITION, WE HAVE TO LOOK INTO THE DOUBLE TAXATION AGREEMENTS ENTERED INTO BETWEEN IND IA AND UNITED STATES, CANADA. (1) INDO-US AGREEMENT: 58. ARTICLE 25 OF THE INDO - US DOUBLE TAXATION AGREEM ENT DEALS WITH RELIEF FROM DOUBLE TAXATION. CLAUSE 2(A) IS THE REL EVANT PROVISION. IT READS AS UNDER: '2.(A) WHERE A RESIDENT OF INDIA DERIVES INCOME WHI CH, IN ACCORDANCE WITH THE PROVISIONS OF THIS CONVENTION, MAY BE TAXED IN THE UNITED STATES, 42 INDIA SHALL ALLOW AS A DEDUCTION FROM THE TAX ON TH E INCOME OF THAT RESIDENT AN AMOUNT EQUAL TO THE INCOME-TAX PAID IN THE UNITED STATES, WHETHER DIRECTLY OR BY DEDUCTION. SUCH DEDUCTION SH ALL NOT, HOWEVER, EXCEED THAT PART OF THE INCOME-TAX (AS COMPUTED BEF ORE THE DEDUCTION IS GIVEN) WHICH IS ATTRIBUTABLE TO THE INCOME WHICH MA Y BE TAXED IN THE UNITED STATES.' 59. A PERUSAL OF THE AFORESAID PROVISION MAKES IT CLEA R THAT IF A RESIDENT INDIAN DERIVES INCOME, WHICH MAY BE TAXED IN UNITED STATES, INDIA SHALL ALLOW AS A DEDUCTION FROM THE TAX ON THE INCOME OF THE RESIDENT, AMOUNT EQUAL TO THE INCOME TAX PAID IN UNITED STATES OF AM ERICA, WHETHER DIRECTLY OR BY DEDUCTION. THE CONDITIONS MANDATED I N THE TREATY IS THAT IF ANY 'INCOME DERIVED' AND 'TAX PAID IN UNITED STATES OF AMERICA ON SUCH INCOME', THEN TAX RELIEF/CREDIT SHALL BE GRANTED IN INDIA ON SUCH TAX PAID IN UNITED STATES OF AMERICA. THE SAID PROVISION DOE S NOT SPEAK OF ANY INCOME TAX BEING PAID BY THE RESIDENT INDIAN UNDER THE INCOME-TAX ACT AS A CONDITION PRECEDENT FOR CLAIMING THE SAID BENE FIT. WHERE THE INDIAN RESIDENT PAYS NO TAX ON SUCH INCOME DERIVED, WHEREA S THE SAID INCOME IS TAXED IN THE UNITED STATES, INDIA SHALL ALLOW AS A DEDUCTION FROM THE TAX ON THE INCOME OF THAT RESIDENT AN AMOUNT EQUAL TO T HE INCOME-TAX PAID IN THE UNITED STATES. THEREFORE, THIS PROVISION IS IN CONFORMITY WITH SECTION 90(1)(A)(II) OF THE ACT I.E., THE INCOME TAX CHARGE ABLE UNDER THE INCOME- TAX ACT AND IN THE CORRESPONDING LAW IN FORCE IN UN ITED STATES OF AMERICA. THEREFORE, IT IS NOT THE REQUIREMENT OF LA W THAT THE ASSESSEE, BEFORE HE CLAIMS CREDIT UNDER THE INDO - US CONVENT ION OR UNDER THIS PROVISION OF ACT SHOULD PAY TAX IN INDIA ON SUCH IN COME. HOWEVER, THE SAID PROVISION MAKES IT CLEAR THAT SUCH DEDUCTION SHALL NOT, HOWEVER, EXCEED THAT PART OF THE INCOME TAX (AS COMPUTED BEFORE THE DEDUCTION IS GIVEN) 43 WHICH IS ATTRIBUTABLE TO THE INCOME WHICH IS TO BE TAXED IN UNITED STATES. THEREFORE, AN EMBARGO IS PRESCRIBED FOR GIVING SUCH TAX CREDIT. IN OTHER WORDS, THE ASSESSEE IS ENTITLED TO SUCH TAX CREDIT ONLY IN RESPECT OF THAT INCOME, WHICH IS TAXED IN THE UNITED STATES. THIS P ROVISION BECAME NECESSARY BECAUSE THE ACCOUNTING YEAR IN INDIA VARI ES FROM THE ACCOUNTING YEAR IN AMERICA. THE ACCOUNTING YEAR IN INDIA STARTS FROM 1 ST OF APRIL AND CLOSES ON 31 ST OF MARCH OF THE SUCCEEDING YEAR. WHEREAS IN AMERICA, THE 1 ST OF JANUARY IS THE COMMENCEMENT OF THE ASSESSMENT YEAR AND ENDS ON 31 ST OF DECEMBER OF THE SAME YEAR. THEREFORE, THE INCOME DERIVED BY AN INDIAN RESIDENT, WHICH FALLS W ITHIN THE TOTAL INCOME OF A PARTICULAR FINANCIAL YEAR WHEN IT IS TAXED IN UNITED STATES, FALLS WITHIN TWO YEARS IN INDIA. THEREFORE, WHILE CLAIMIN G CREDIT IN INDIA, THE ASSESSEE WOULD BE ENTITLED TO ONLY THE TAX PAID FOR THAT RELEVANT FINANCIAL YEAR IN AMERICA, I.E., THE INCOME ATTRIBUTABLE TO T HAT YEAR IN AMERICA. IN OTHER WORDS, THE INCOME TAX PAID IN THE SAME CALEND AR YEAR IN UNITED STATES OF AMERICA IS TO BE ACCOUNTED FOR TWO FINANC IAL YEARS IN INDIA. OF COURSE, THIS EXERCISE SHOULD BE DONE BY THE ASSESSI NG AUTHORITY ON THE BASIS OF THE MATERIAL TO BE PRODUCED BY THE ASSESSE E. 52. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE FACTS OF THE CASE IN HAND ARE IN PARITY WITH THE FA CTS CONSIDERED BY THE HON'BLE KARNATAKA HIGH COURT [SUPRA] WHEREIN ARTICL E 25 OF INDO US DTAA HAS BEEN ELABORATELY EXPLAINED BY THE HON'BLE HIGH COURT. THE MOST RELEVANT FINDINGS OF THE HON'BLE HIGH COURT AR E AS UNDER: 44 THEREFORE, WHILE CLAIMING CREDIT IN INDIA, THE ASS ESSEE WOULD BE ENTITLED TO ONLY THE TAX PAID FOR THAT RELEVANT FIN ANCIAL YEAR IN AMERICA, I.E., THE INCOME ATTRIBUTABLE TO THAT YEAR IN AMERICA. IN OTHER WORDS, THE INCOME TAX PAID IN THE SAME CALEND AR YEAR IN UNITED STATES OF AMERICA IS TO BE ACCOUNTED FOR TWO FINANCIAL YEARS IN INDIA. OF COURSE, THIS EXERCISE SHOULD BE DONE BY THE ASSESSING AUTHORITY ON THE BASIS OF THE MATERIAL TO BE PRODUCED BY THE ASSESSEE. 53. THE ISSUE RAISED BY THE LD. DR HAS BEEN ANSWERE D BY THE HON'BLE HIGH COURT OF KARNATAKA AND THEREFORE, NEEDS NO SEP ARATE ADJUDICATION. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT, WE DIRECT THE ASSESSING OFFIC ER TO CONSIDER THE CLAIM OF FOREIGN TAX CREDIT AS PER THE DIRECTIONS O F THE HON'BLE KARNATAKA HIGH COURT MENTIONED ELSEWHERE. THE ASSE SSEE IS DIRECTED TO FURNISH NECESSARY EVIDENCES BEFORE THE ASSESSING OFFICER. THE ADDITIONAL GROUND IS, ACCORDINGLY, DECIDED IN FAVOU R OF THE ASSESSEE. 54. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 45 ITA NO. 6181/DEL/2013 [REVENUES APPEAL FOR A.Y 200 6-07] 55. GROUND NO. 1 RELATES TO RESTRICTION OF THE ADDI TION OF RS. 34,78,410/- MADE BY THE ASSESSING OFFICER U/S 14A R .W.R 8D OF THE RULES TO 5% OF DIVIDEND EARNED. 56. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EAR NED DIVIDEND INCOME OF RS. 6,68,731/- WHICH WAS CLAIMED TO BE EXEMPT FR OM TAX. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT THE D ISALLOWANCE U/S 14A R.W.R 8D OF THE RULES IS IMPERATIVE AND ACCORDINGLY , DISALLOWED RS. 34,78,410/-. 57. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND VEHEMENTLY ARGUED THAT RULE 8D OF THE RULES IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. 58. THE LD. CIT(A) WAS CONVINCED THAT THE APPLICABI LITY OF RULE 8D OF THE RULES IS PROSPECTIVE FROM A.Y 2008-09 AND ACCOR DINGLY, RESTRICTED THE DISALLOWANCE TO 5% OF THE DIVIDEND INCOME EARNE D BY THE ASSESSEE. 46 59. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE FI NDINGS OF THE ASSESSING OFFICER. 60. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RE ITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 61. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. IT IS A SETTLED LAW THAT RULE 8D OF THE RULES IS APPLICABLE FROM A.Y 2008-09 ONWARDS. HOWEVER, SOME REASONABLE EXPENDITURE NEEDS TO BE DISALLOWED FOR EARNING EXEM PT INCOME. SINCE THE LD. CIT(A) HAS CONSIDERED THE REASONABLENESS AN D RESTRICTED THE DISALLOWANCE TO 5% OF DIVIDEND INCOME, WE DO NOT FI ND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). GROUN D NO. 1 IS ACCORDINGLY, DISMISSED. 62. GROUND NOS. 2 AND 3 RELATE TO THE DELETION OF A DDITION OF RS. 14,08,85,409/- ON ACCOUNT OF LICENSE FEE PAID TO DO T WHICH WAS TREATED AS CAPITAL EXPENDITURE BY THE ASSESSING OFF ICER. 47 63. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECI DED BY US HEREINABOVE IN ITA NO. 5924/DEL/2014 [SUPRA] VIDE G ROUND NOS. 2 AND 3. FOR OUR DETAILED DISCUSSION GIVEN THEREIN, GROU ND NOS. 2 AND 3 ARE DISMISSED. 64. GROUND NOS. 4 AND 5 RELATE TO THE DETERMINATION OF DEDUCTION U/S 10A OF THE ACT WITH RESPECT TO EXPENSES IN THE NATU RE OF COMMUNICATION EXPENSES AND EXPENSES INCURRED IN FOR EIGN CURRENCY. 65. THESE ISSUES HAVE BEEN ELABORATELY CONSIDERED A ND DECIDED BY US HEREINABOVE IN ASSESSEES APPEAL IN ITA NO. 5924/DE L/2014 [SUPRA] VIDE GROUND NOS. 4 AND 5. FOR OUR DETAILED DISCUSS ION GIVEN THEREIN, GROUND NOS. 4 AND 5 ARE DISMISSED. 66. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 48 TA NO. 835/DEL/2014 ASSESSEES APPEAL FOR A.Y 2008- 09. 67. GROUND NO. 1 RELATES TO THE DISALLOWANCE MADE U /S 14A OF THE ACT R.W.R 8D OF THE RULES AMOUNTING TO RS. 32,91,173/-. 68. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS EARNE D DIVIDEND INCOME OF RS. 2,31,458/- WHICH WAS CLAIMED AS EXEMPT FROM TAX. INVOKING PROVISIONS OF SECTION 14A R.W.R 8D OF THE ACT, THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE AT RS. 32,91,173/-. 69. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 70. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT THE DIVIDEND INCOME WAS EARNED OUT OF INVESTME NTS IN THOSE MUTUAL FUND SCHEMES IN WHICH UNITS WERE PURCHASED A ND SOLD OFF DURING THE SAME FINANCIAL YEAR. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE OPENING VALUE AND CLOSING VALUE O F INVESTMENT YIELDING DIVIDEND INCOME WAS NIL AND, ACCORDINGLY, COMPUTATION OF DISALLOWANCE BY THE ASSESSING OFFICER INVOKING RULE 8D OF THE RULES IS 49 ERRONEOUS ON FACTS OF THE CASE. THE LD. COUNSEL FO R THE ASSESSEE PRAYED FOR DELETION OF DISALLOWANCE MADE BY THE ASS ESSING OFFICER. 71. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. DR THA T SINCE RULE 8D OF THE RULES IS APPLICABLE FROM THE YEAR UNDER CONSIDERATI ON, THERE IS NO ERROR IN THE COMPUTATION MADE BY THE ASSESSING OFFICER. 72. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT THE EXE MPT INCOME HAS BEEN RECEIVED BY THE ASSESSEE ONLY IN RELATION TO I NVESTMENTS MADE IN MUTUAL FUNDS WHICH WERE PURCHASED AND SOLD DURING T HE YEAR, NAMELY, TEMPLETON INDIA TREASURY MANAGEMENT ACCOUNT SIP, BI RLA CASH PLUS INSTITUTIONAL PREMIUM DAILY DIVIDEND REINVESTMENT A ND HDFC LIQUID FUND DAILY DIVIDEND. ALL THE UNITS PURCHASED IN TH E AFOREMENTIONED MUTUAL FUNDS WERE SOLD DURING THE YEAR UNDER CONSID ERATION ITSELF WHICH MEANS THAT THE OPENING AND CLOSING BALANCE OF THESE INVESTMENTS IS ZERO ON ACCOUNT OF BEING PURCHASED A ND SOLD DURING THE YEAR. 50 73. WE ARE OF THE CONSIDERED VIEW THAT THE DISALLOW ANCE U/S 14A R.W.R 8D OF THE RULES IS IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE BY TA KING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE T O EXEMPT INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. 74. WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CAS E FOR A.Y 2011-12 HAS HELD THAT WHEREIN DIVIDEND WAS RECEIVED FROM IN VESTMENTS MADE IN MUTUAL FUNDS WHICH WERE BROUGHT AND SOLD DURING THE YEAR AND SINCE THERE WAS NO OPENING AND CLOSING BALANCE OF INVESTM ENTS FROM MUTUAL FUNDS, IT IS IMPOSSIBLE TO DETERMINE THE AVERAGE VA LUE OF INVESTMENTS FOR THE PURPOSE OF RULE 8D(2)(II) OF THE RULE AND A CCORDINGLY, DISALLOWANCE MADE U/S 14A OF THE ACT R.W.R 8D OF TH E RULES WAS DELETED. 75. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-O RDINATE BENCH IN ASSESSEES OWN CASE, THE ADDITIONS ARE DELETED. GR OUND NO. 1 IS ALLOWED. 51 76. GROUND NOS. 2, 3 AND 4 RELATE TO DETERMINATION OF DEDUCTION U/S 10A OF THE ACT IN RESPECT OF FOREIGN CURRENCY EXPEN SES AND TELE- COMMUNICATION CHARGES. 77. THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY US HEREINABOVE IN ITA NO. 5555/DEL/2014 [SUPRA] VIDE GROUND NOS. 2, 3 AND 4. FOR OUR DETAILED DISCUSSION GIVEN THEREIN, GROUND NOS. 2, 3 AND 4 ARE DISMISSED. 78. GROUND NO. 5 RELATES TO ADDITION OF RS. 25,69,0 00/- BEING ADVANCES GIVEN BY THE ASSESSEE IN EARLIER YEAR. 79. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE ASSESSEE WAS ASKED TO GIVE DETAILS OF DEBTS/ADVANCE S WRITTEN OFF AMOUNTING TO RS. 37,91,456/-. 80. IN ITS REPLY, THE ASSESSEE CONTENDED THAT THE A DVANCES WRITTEN OFF DURING THE YEAR ARE TRADE ADVANCES, WHICH WERE EXPE NDED BY THE ASSESSEE IN THE NORMAL COURSE OF ITS BUSINESS TO IT S ASSOCIATES AND HAVE BEEN ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS IRRECOVERABLE. 52 81. IN RESPECT OF ADVANCES WRITTEN OFF AMOUNTING TO RS. 25.69 LAKHS, IT WAS EXPLAINED THAT THE ASSESSEE WAS REQUIRED TO PAY 1000/- PER VSAT LINKING AS WPC CHARGES INITIALLY DEBITED TO DO T ACCOUNT ON THE ASSUMPTION THAT THE SAME IS BEING ADJUSTABLE TO NOR MAL REVENUE SHARE PAID TO DOT ON QUARTERLY BASIS. BUT THIS AMOUNT WA S SUPPOSED TO BE PAID OVER AND ABOVE REVENUE SHARE. 82. THIS CONTENTION OF THE ASSESSEE DID NOT FIND AN Y FAVOUR WITH THE ASSESSING OFFICER WHO WAS OF THE OPINION THAT IT IS ARISING MERELY ON THE BASIS OF ACCOUNTING ENTRY AND THE SAME CANNOT CHANG E NATURE OF ADVANCE. THE ADVANCE IS OF CAPITAL IN NATURE AND T HE SAME CANNOT BE ALLOWED AND ACCORDINGLY, RS. 25.69 LAKHS WAS ADDED TO THE INCOME OF THE ASSESSEE. 83. BEFORE THE LD. CIT(A), THE ASSESSEE REITERATED ITS CLAIM BUT WITHOUT ANY SUCCESS. 84. THE LD. CIT(A), WHILE DISMISSING THE APPEAL OF THE ASSESSEE ON THIS COUNT, HELD THAT THE WRITTEN OFF IS NEITHER PE RMISSIBLE AS BUSINESS LOSS U/S 28 OF THE ACT NOR A BUSINESS EXPENSE U/S 3 7 OF THE ACT. THE LD. 53 CIT(A) FURTHER OBSERVED THAT THE ASSESSEE DID NOT M AKE ANY EFFORT WITH THE DOT IN RESPECT OF ITS CLAIM OF ADVANCE. 85. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT INADVERTENTLY, SUM OF RS. 25.69 LAKHS WAS SHOWN AS ADVANCE RECOVERABLE FROM DOT. IT IS THE SAY OF THE LD. COU NSEL FOR THE ASSESSEE THAT THE SAID AMOUNT WAS NOT AN ADVANCE WHICH SUBSE QUENTLY CAME TO THE NOTICE OF THE ASSESSEE AND ACCORDINGLY, THE SAM E WAS WRITTEN OFF AND CLAIMED AS BUSINESS LOSS U/S 28 OF THE ACT. 86. RELIANCE WAS PLACED ON THE DECISION OF THE TRIB UNAL IN THE CASE OF VODAFONE MOBILE SERVICES LTD ITA NO. 4722/DEL/2013 WHEREIN IT HAS BEEN HELD THAT WPC PAID TO DOT ON QUARTERLY BASIS A S A PERCENTAGE OF REVENUE WAS PAYMENT NECESSARY FOR RUNNING BUSINESS AND THE ASSESSEE COULD NOT RUN THE BUSINESS WITHOUT MAKING THESE PAY MENTS ON QUARTERLY BASIS AND, THUS, THIS COULD NOT BE HELD AS CAPITAL IN NATURE. THE LD. COUNSEL FOR THE ASSESSEE PRAYED FOR DELETION OF RS. 25.69 LAKHS. 87. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE AUTHORITIES BELOW. IT IS THE SAY OF THE LD. DR THA T AT THE MOST, THE CLAIM OF RS. 25.69 LAKHS IS PRIOR PERIOD EXPENSES A ND, THEREFORE, BEING 54 PRIOR PERIOD EXPENSES CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION AND SHOULD HAVE BEEN CLAIMED IN THE RELEVANT A.Y. 88. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT RS. 25 .69 LAKHS WERE PAID TO DOT AS ADVANCE RECOVERABLE FROM DOT. THE ASSESSEE MAY HAVE TAKEN WRONG STAND WHILE CLAIMING IT AS ADVANCE RECOVERABL E FROM DOT, BUT, AT THE SAME TIME, WRITE OFF DURING THE YEAR UNDER C ONSIDERATION CANNOT BE BRUSHED ASIDE LIGHTLY AS IN CASE THE SAME HAS TO BE CONSIDERED AS BUSINESS LOSS. 89. NOW THE ONLY ISSUE WHICH NEEDS OUR CONSIDERATIO N IS WHETHER THE SAME IS PRIOR PERIOD EXPENSES. IN OUR CONSIDERED O PINION, AND LOOKING TO THE RETURNED INCOME OF THE ASSESSEE, IN EARLIER YEARS, WE FIND THAT THERE WOULD BE NO REVENUE LEAKAGE AS THE ASSESSEE I S CONSISTENTLY SUBJECTED TO SAME RATE OF INCOME TAX. THEREFORE, I N THE INTEREST OF JUSTICE AND FAIR PLAY, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE MADE. WE, ACCORDINGLY, DIRECT THE ASSESSING OFFICE R TO DELETE THE ADDITION OF RS. 25.69 LAKHS. GROUND NO. 5 IS ALLOW ED. 55 90. BY WAY OF AN APPLICATION DATED 01.08.2016, THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND WHICH READS AS UNDER: THAT THE ASSESSING OFFICER OUGHT TO HAVE ALLOWED F OREIGN TAX CREDIT OF RS. 2,20,61,027/- IN PURSUANCE TO LAW CLARIFIED BY THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF WIPRO 382 ITR 179. 91. THE ISSUE RELATING TO ADMISSION OF ADDITIONAL G ROUND AND ADJUDICATION THEREON HAS BEEN ELABORATELY CONSIDERE D BY US IN ITA NOS. 6162/DEL/2013 FOR A.Y 2006-607. FOR OUR DETAI LED DISCUSSION THEREIN, THE ADDITIONAL GROUND IS, ACCORDINGLY, ADJ UDICATED. 92. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. 56 ITA NO. 922/DEL/2014 [REVENUES APPEAL A.Y 2008-09] . 93. GROUND NO. 1 RELATES TO DELETION OF ADDITION OF RS. 3,93,02,416/- ON ACCOUNT OF LICENSE FEE PAID TO DOT . 94. SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED B Y US IN ITA NO. 5984 FOR A.Y 2006-07 VIDE GROUND NOS. 2 & 3 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, GROUND NO. 1 I S DISMISSED. 95. GROUND NOS. 2 AND 3 RELATE TO DETERMINATION OF DEDUCTION U/S 10A OF THE ACT WITH RESPECT TO TELECOMMUNICATIO N EXPENSES AND FOREIGN CURRENCY EXPENSES. 96. SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED B Y US IN ITA NO. 5924 FOR A.Y 2005-06 VIDE GROUND NOS. 4 & 5 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, GROUND NO. 2 A ND 3 ARE DISMISSED. 97. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. 57 98. TO SUM UP, IN THE RESULT, ASSESSEES APPEALS ITA NO. 6162/DEL/2013 [A.Y 2006-07] - PA RTLY ALLOWED ITA NO. 835/DEL/2014 [A.Y 20 08-09 ] - ALLOWED ITA NO. 5555/DEL/2014 [A.Y 20 05-06 ] - ALLOWED REVENUES APPEAL ITA NO. 6181/DEL/201 3 [A.Y 20 06-07 ] - DISMISSED ITA NO. 922/DEL/2014 [A.Y 20 08-09 ] - DISMISSED ITA NO. 5924/DEL/2014 [A.Y 20 05-06 ] - DISMISSED THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 25.06. 2020. SD/- SD/- [SUSHMA CHOWLA ] [N.K. BILLAIYA] VICE PRESIDENT ACCOUNTANT MEMBER DATED: 25 TH JUNE, 2020. VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 58 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER
