CISCO Systems Services B.V. India Branch, Bangalore V. JDIT, Bangalore

ITA 926/BANG/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9481 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 21-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT(TP)A NO.926/BANG/2011 ASSESSMENT YEAR : 2007-08 CISCO SYSTEMS SERVICES B.V. INDIA BRANCH, DIVYASHREE CHAMBERS, B WING, NO.11, O SHAUGHNESSEY ROAD, OFF LANGFORD ROAD, BANGALORE 560 025. PAN: AACCC 4836D VS. THE JOINT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), RANGE 1, BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI CHAVALI NARAYAN, CA RESPONDENT BY : SHRI D. SUDHAKAR RAO, CIT(DR) DATE OF HEARING : 11.08.2016 DATE OF PRONOUNCEMENT : 19.08.2016 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE ASSESSING OFFICER DATED 26.08.2011 PASSED U/S. 143( 3) R.W.S. 144C(5) & (13) OF THE INCOME-TAX ACT, 1961 [THE ACT] INTER ALIA ON THE FOLLOWING GROUNDS:- IT(TP)A NO.926/BANG/2011 PAGE 2 OF 6 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, CISCO SYSTEMS SERVICES B.V., INDIA BRANCH (HEREINAF TER REFERRED TO AS THE 'APPELLANT') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE JO INT DIRECTOR OF INCOME-TAX, INTERNATIONAL TAXATION, RANGE I, BANGAL ORE, (ASSESSING OFFICER' OR 'AO') IN PURSUANCE OF THE DI RECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL CDRP'), BANG ALORE DATED AUGUST 16, 2011, UNDER SECTION 253 OF THE INCOME-TA X ACT, 1961 (THE ACT'), ON THE FOLLOWING GROUNDS:- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW AND BASED ON THE DIRECTIONS OF THE DRP- 1. THE LEARNED AO HAS ERRED IN LAW AND IN FACT BY CONS IDERING THE ENTIRE LEASE LINE CHARGES RELATABLE TO THE STP UNIT OF THE APPELLANT AS BEING ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA, WITHOUT APPRECIATING THE FA CT THAT THE LEASE LINE CHARGES ARE INCURRED FOR GENERAL COMMUNI CATION PURPOSES AS WELL; 2. THE LEARNED AO HAS ERRED IN LAW AND IN FACT BY CONS IDERING THE ENTIRE INTERNET CHARGES RELATABLE TO THE STP UNIT O F THE APPELLANT AS BEING ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA, WITHOUT APPRECIATING THE FA CT THAT THE INTERNET CHARGES ARE INCURRED FOR GENERAL COMMUNICA TION PURPOSES AS WELL; 3. THE LEARNED AO HAS ERRED IN LAW AND IN FACT BY NOT CONSIDERING THE PLEA OF THE APPELLANT THAT IT DOES NOT PROVIDE ANY TECHNICAL SERVICES OUTSIDE INDIA AND THEREFORE, FOREIGN CURRENCY EXPENDITURE INCURRED BY THE APPELLANT IN R ELATION TO TRAVEL SHOULD NOT BE REDUCED FROM 'EXPORT TURNOVER' FOR THE PURPOSES OF COMPUTING THE DEDUCTION UNDER SECTION 1 0A OF THE ACT; 4. THE LEARNED AO HAS ERRED IN LAW BY NOT CONSIDERING THE PLEA OF THE APPELLANT THAT, IF EXPENSES SUCH AS LEASE LI NE CHARGES, INTERNET CHARGES AND FOREIGN CURRENCY EXPENDITURE I N RELATION TO TRAVEL, IF REDUCED FROM 'EXPORT TURNOVER', SHOUL D ALSO BE REDUCED FROM 'TOTAL TURNOVER' FOR COMPUTING THE DED UCTION UNDER SECTION 10A OF THE ACT; IT(TP)A NO.926/BANG/2011 PAGE 3 OF 6 5. THE LEARNED AO HAS ERRED IN LAW AND IN FACT BY NOT CONSIDERING THAT FOREIGN CURRENCY EXPENDITURE IN RE LATION TO RECHARGE OF OTHER COSTS CONSTITUTE 'REIMBURSEMENTS' IN THE NATURE OF TRAVEL, HOTEL, BOARDING AND LODGING FACIL ITIES AND ARE NOT IN THE NATURE OF INCOME CHARGEABLE TO TAX UNDER THE ACT; 6. THE LEARNED AO HAS ERRED IN LAW BY LEVYING INTEREST UNDER SECTION 234D OF THE ACT. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDA NCE WITH THE LAW. 2. THE ASSESSEE THROUGH GROUND NOS.1 TO 4 HAS CONT ENDED THAT THE AO ERRED IN NOT CONSIDERING THE PLEA OF THE ASSESSE E THAT IF EXPENSES SUCH AS LEASE LINE CHARGES, INTERNET CHARGES AND FOREIGN CURRENCY EXPENDITURE IN RELATION TO TRAVEL, IF REDUCED FROM EXPORT TURNOVE R SHOULD ALSO BE REDUCED FROM TOTAL TURNOVER FOR COMPUTING THE DEDUCTION U/S . 10A OF THE ACT. THIS ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE HO N'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD., 349 ITR 98 (KARN) WHEREIN IT HAS BEEN HELD THAT WHATEVER HAS BEEN EXCLUDED FROM THE EXPORT TURNOVER HAD TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO, SINCE TOT AL TURNOVER INCLUDES EXPORT TURNOVER AS WELL. IN THE LIGHT OF THE JUDGM ENT OF THE HON'BLE JURISDICTIONAL HIGH COURT, WE DIRECT THE AO THAT TH E AFORESAID EXPENSES REDUCED FROM EXPORT TURNOVER BE REDUCED FROM TOTAL TURNOVER AS WELL. IT(TP)A NO.926/BANG/2011 PAGE 4 OF 6 3. THROUGH PROPOSED GROUND NO.5, THE LD. COUNSEL FO R THE ASSESSEE HAS CONTENDED THAT IT WAS SIMPLY REIMBURSEMENT OF E XPENSES SPENT ABROAD, THEREFORE IT SHOULD ONLY BE CONSIDERED AS A N EXPENDITURE FOR DEVELOPMENT OF SOFTWARE FOR PROVIDING TECHNICAL SER VICES OUTSIDE INDIA. THERE WAS NO EXPENDITURE INCURRED IN FOREIGN CURREN CY FOR PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. 4. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS INVITED OUR ATTENTION TO THE COPY OF FINANCIAL STAT EMENT APPEARING AT PAGES 8 TO 10 OF THE ASSESSEES COMPILATION UNDER THE HEAD EXPENDITURE IN FOREIGN CURRENCY IN SCHEDULE TO ACCOUNTS WHEREIN THE ASSES SEE CLAIMED RECHARGE OF OTHER COSTS OF RS.7,95,000. IT WA S FURTHER CONTENDED THAT SINCE IT WAS MERELY REIMBURSEMENT OF EXPENDITURE IN CURRED ABROAD, THE ASSESSEE IS NOT REQUIRED TO DEDUCT TDS ON THIS PAYM ENT. THEREFORE, THERE SHOULD BE NO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT . 5. THE LD. DR STRONGLY OPPOSED THE CONTENTS OF THE ASSESSEE WITH THE SUBMISSION THAT BEFORE THE AO, THE ASSESSEE CLAIMED IT TO BE EXPENDITURE INCURRED FOR DEVELOPMENT OF SOFTWARE, ALTHOUGH FOR PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. 6. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHORIT IES BELOW, WE FIND THAT BEFORE THE DRP, THE ASSESSEE TOOK A STAND THAT FOREIGN CURRENCY EXPENDITURE WAS IN RELATION TO RECHARGE OF OTHER CO STS WHICH CONSTITUTES REIMBURSEMENT OF TRAVEL, HOTEL, BOARDING AND LODGIN G FACILITIES AND ARE NOT IN IT(TP)A NO.926/BANG/2011 PAGE 5 OF 6 THE NATURE OF INCOME CHARGEABLE TO TAX UNDER THE AC T. IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAS INCURRED FOREIGN CU RRENCY EXPENDITURE AMOUNTING TO RS.7,95,000 TOWARDS RECHARGE OF OTHER COSTS, WHICH IS REIMBURSEMENT IN THE NATURE OF TRAVEL, HOTEL, BOAR DING AND LODGING FACILITIES, WHICH ARE BORNE BY CISCO OVERSEAS AFFILIATES AND SU BSEQUENTLY RECHARGED TO THE ASSESSEE. BUT THESE FACTS WERE NOT EXAMINED BY THE DRP AND THEY HAVE DISALLOWED THE CLAIM OF THE ASSESSEE, HAVING O BSERVED THAT ONCE IT IS HELD THAT PAYMENT WAS IN ACCORDANCE WITH THE CONTRA CT FOR PAYMENT OF FEES FOR TECHNICAL SERVICES, THE SAME BECOMES TAXABLE AN D LIABLE TO TDS. IT IS NOT CLEAR FROM THE ORDER OF THE DRP WHETHER THEY HA VE EXAMINED THE TERMS OF AGREEMENT AND WHEREFROM THEY HAVE DERIVED THE CO NCLUSION THAT IT WAS PAYMENT FOR FEES FOR TECHNICAL SERVICES. THE TERMS OF AGREEMENT ARE ALSO NOT AVAILABLE BEFORE US, BUT WE FIND FORCE IN THE C ONTENTION OF THE ASSESSEE THAT IF THE PAYMENTS ARE ON ACCOUNT OF REIMBURSEMEN T OF THE EXPENDITURE INCURRED ON TRAVEL, HOTEL, BOARDING AND LODGING FAC ILITIES, IT SHOULD BE ALLOWED AS NO TDS WAS REQUIRED TO BE DEDUCTED. SIN CE THE COMPLETE INFORMATION IS NOT AVAILABLE BEFORE US, WE SET ASID E THIS ISSUE TO THE ASSESSING OFFICER TO MAKE NECESSARY VERIFICATION IN THIS REGARD. IF THE PAYMENTS ARE FOUND TO BE ON ACCOUNT OF REIMBURSEMEN T OF THE AFORESAID EXPENSES, THE SAME SHOULD BE ALLOWED AS THERE WAS N O REQUIREMENT TO DEDUCT TDS. IT(TP)A NO.926/BANG/2011 PAGE 6 OF 6 7. IN THE RESULT, THE APPEAL STANDS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF AUGUST, 2016. SD/- SD/- ( INTURI RAMA RAO ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 19 TH AUGUST, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.