DCIT, Bangalore V. On Mobile Global Ltd., Bangalore

ITA 987/BANG/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95358 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 19-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO.987/ BANG/2015 (ASST. YEAR 2009-10) THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 5(1)(2), BANGALORE. . APPELLANT VS. ONMOBILE GLOBAL LTD., TOWER 191/IC, 94/2, VEERASANDRA VILLAGE, ATTIBELE, HOBLI, ANEKAL TALUK, ELECTRONIC CITY, PHASE-I, BANGALORE-560 100. . RESPONDENT APPELLANT BY : SMT. NEERA MALHOTRA, CIT RESPONDENT BY : SHRI KR VASUDEVAN, ADVOCATE DATE OF HEARING : 10-11-2015 DATE OF PRONOUNCEMENT : 13-11-2015 O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER: THE APPEAL IS FILED BY THE ASSESSEE DIRECTED AGAINS T THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) 5, BANGALOR E DATED 26/2/2015 FOR THE ASSESSMENT YEAR 2009-10. ITA NO.987/B/15 2 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APP EAL : (1) THE CIT(A) ERRED IN ALLOWING THE DEPRECIATION AT 60 % ON TELECOM/COMPUTER EQUIPMENT WITHOUT APPRECIATING THAT TELECOM/COMPUTER EQUIPMENT CANNOT BE CLASSIF IED AS COMPUTER INCLUDING COMPUTER SOFTWARE. (2) THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 10A WITHOUT APPRECIATING FINDING OF T HE AO THAT THE ASSESSEE IS NOT ENGAGED IN MANUFACTURIN G AND EXPORT OF ANY ARTICLE OR THING OR COMPUTER SOFT WARE AS REQUIRED FOR THE PURPOSE OF COMPUTATION OF DEDUC TION U/S 10A OF THE INCOME-TAX ACT. (3) THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 80JJAA WITHOUT APPR3CIATING THE FINDI NGS OF THE AO THAT THE ASSESSEE IS NOT INVOLVED IN TELE COM SERVICES AND SUCH SERVICES CANNOT BE TERMED AS IT ENABLED SERVICES. (4) THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 35D WITHOUT APPRECIATING THAT EXPENDITURE INCURRED ON STAMP DUTY INCREASES THE AUTHORIZED SHARE CAPITAL AND IS NOT AN ITEM OF EXPENDITURE EXPRESSLY ALLOWABLE U/S 35D. ITA NO.987/B/15 3 (5) ON THESE, AND ANY OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, THE HONBLE ITAT IS PLEADED TO QUASH THE ORDER OF CIT(A). 3. THE BRIEF FACTS OF THE CASE ARE THAT THE RESPOND ENT ASSESSEE IS A COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF C OMPANIES ACT WHICH IS ENGAGED IN THE BUSINESS OF DEVELOPING COMP UTER SOFTWARE SERVICES. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 WAS FILED ON 30/09/2009 DECLARING A TOTAL INCOME OF RS. 69,04,43,026/-. AFTER PROCESSING THE SAID RETURN OF INCOME UNDER TH E PROVISION OF SEC. 143(1) OF THE ACT, THE CASE WAS SELECTED FOR SCRUTI NY UNDER CASS. THE ASSESSMENT WAS COMPLETED U/S 143(2) OF THE ACT VIDE ORDER DATED 20/3/2013 BY THE DY.CIT DECLARING A TOTAL INCOME OF RS.79,77,30,334/-. WHILE DOING SO, THE AO HAD ALLO WED THE DEPRECIATION IN RESPECT OF TELECOMMUNICATION EQUIPM ENT AT 15% AS AGAINST 60% CLAIMED BY THE RESPONDENT ASSESSEE COMP ANY. FURTHER THE AO DISALLOWED THE DEDUCTION U/S 10A ON THE GROU ND THAT THE RESPONDENT ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF MANUFACTURE OF ANY ARTICLE OR THING AND ALSO DISALLOWED THE DEDU CTION CLAIMED U/S 80JJAA OF THE ACT. ITA NO.987/B/15 4 4. BEING AGGRIEVED, THE APPEAL WAS FILED BEFORE THE CIT(A) WHO VIDE IMPUGNED ORDER ALLOWED THE APPEAL FOLLOWING T HE ORDER OF THE HONBLE ITAT IN THE RESPONDENT ASSESSEES OWN CASE. 5. BEING AGGRIEVED, REVENUE IS BEFORE US WITH THE P RESENT APPEAL. 6. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED T HE MATERIAL ON RECORD. THE GROUNDS OF APPEAL RAISED BY THE REVENU E ARE COVERED BY THE DECISION IN ASSESSEES OWN CASE IN ITA NO.1163 OF 2012 DATED 21.2.2014 FOR THE ASST. YEAR 2008-09. 7. THE GROUND NO.1 CHALLENGES THE DIRECTION OF LEAR NED CIT(A) ALLOWING THE DEPRECIATION @ 60%. THIS ISSUE IS COV ERED IN RESPONDENT ASSESSEES OWN CASE FOR THE ASST. YEAR 2008-09 IN I TA NO.1163/BANG/2012 DATED 21/2/2014 WHEREIN THE HONB LE TRIBUNAL VIDE PARAGRAPH 10.61 HELD AS FOLLOWS:- 10.6.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AN D CAREFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDI NG THE ITA NO.987/B/15 5 JUDICIAL DECISIONS CITED. THE ISSUE FOR OUR CONSID ERATION IS WHETHER MRBS ARE TO BE CLASSIFIED AS PLANT AND MACHINERY OR COMPUTERS FOR THE PURPOSES OF DEPRECIATION. IN THIS REGARD, IT WOULD BE RELEVAN T TO UNDERSTAND THE TERM COMPUTER. WHILE COMPUTER H AS NOT BEEN DEFINED IN THE INCOME TAX ACT, 1961, THE T ERM COMPUTER SYSTEM HAS BEEN DEFINED UNDER EXPLANATIO N (A) TO SECTION 36(1)(XI) OF THE ACT AS UNDER : (A) 'COMPUTER SYSTEM' MEANS A DEVICE OR COLLECTI ON OF DEVICES INCLUDING INPUT AND OUTPUT SUPPORT DEVICES AND EXCLUDING CALCULATORS WHICH ARE NOT PROGRAMMABLE AN D CAPABLE OF BEING USED IN CONJUNCTION WITH EXTERNAL FILES, OR MORE OF WHICH CONTAIN COMPUTER PROGRAMMES, ELECTRONIC INSTRUCTIONS, INPUT DATA AND OUTPUT DATA , THAT PERFORMS FUNCTIONS INCLUDING, BUT NOT LIMITED TO, L OGIC, ARITHMETIC, DATA STORAGE AND RETRIEVAL, COMMUNICATI ON AND CONTROL; FROM THE ABOVE DEFINITION, IT FOLLOWS THAT A COMPU TER SYSTEM WOULD ENCOMPASS A COLLECTION OF DEVICES INCL UDING INPUT AND OUTPUT SUPPORT DEVICES THAT PERFORM FUNCT IONS INCLUDING, BUT NOT LIMITED TO, LOGIC, ARITHMETIC, D ATA STORAGE AND RETRIEVAL COMMUNICATION AND CONTROL. ITA NO.987/B/15 6 8. THEREFORE, FOLLOWING THE SAME DECISION IN THE PR ESENT YEAR ALSO, WE DISMISS THIS GROUND OF APPEAL FILED BY THE REVEN UE. 9. GROUND NO.2 CHALLENGES THE DIRECTION OF CIT(A) A LLOWING THE EXEMPTION U/S 10A OF THE INCOME-TAX ACT. THE ISSUE IS COVERED BY THE EARLIER ORDER OF THIS HONBLE TRIBUNAL IN THE A SSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 CITED SUPRA VIDE PA RAGRAPH 7.4.4 TO 7.4.6, THE HONBLE TRIBUNAL HELD AS FOLLOWS:- 7.4.4 IN THE LIGHT OF THE PROVISIONS OF LAW AND T HE CBDT NOTIFICATION ABOVE, WE SHALL EXAMINE THE ACTIV ITIES OF THE ASSESSEE. IT IS SEEN THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF MOBILE VALUE ADDED SERVICES, WHICH INVOLVE CONTENT DEVELOPMENT IN ITS STP UNIT. IT IS SEEN THAT THE ASSESSEE HAS A DEDICATED STUDIO IN ITS STP UNIT WHERE MUSIC RELATED CONTENT IS DEVELOPED. THE ASSE SSEE ALSO PROCURES MUSIC AND OTHER CONTENT FROM THIRD PA RTIES. THE MUSIC CONTENT DEVELOPED IN HOUSE AND PROCURED BY THE ASSESSEE IS PROCESSED TO A CUSTOMIZED FORMAT TO MAKE IT COMPATIBLE FOR DEPLOYMENT. THE ASSESSEE ALSO DE VELOPS ITS OWN CONTENT (VIZ. MUSIC RING TONES, CALLER TUNE S, ETC.) IN ITS STUDIO. THE ASSESSEE ALSO USES ITS STUDIOS FOR THE CONTENT DEVELOPMENT. THE STUDIO OF THE ASSESSEE IS ITA NO.987/B/15 7 EQUIPPED WITH DEDICATED COMPUTER SYSTEMS LOADED WIT H THE REQUIRED SOFTWARE. THE ASSESSEE ALSO USES MULT IPLE SOFTWARES LIKE PROTOCOLS V7.4, M-POWERED, ADOBE AUDITION, ETC. THE ASSESSEE ALSO USES OTHER ADVANC ED EQUIPMENTS WHICH INCLUDES SEVERAL HARDWARE AND SYST EMS LIKE SOUND CARDS, MONITORS, MIDI CONTROLLERS, MICROPHONES, ETC. WHICH ARE USED FOR DEVELOPMENT OF CONTENT. THESE EQUIPMENTS, BOTH HARDWARE AND SOFTW ARE SYSTEMS, ARE USED FOR PROCESSING BEFORE IT IS MADE AVAILABLE FOR USE BY THE CUSTOMERS. ONCE ALL THE A CTIVITIES IN THE PROCESS ARE COMPLETE, THE MOBILE COMPATIBLE CONTENT IS UPLOADED ON THE SOFTWARE PLATFORMS IN TH E SERVERS. FROM THE ABOVE, IT IS CLEAR THAT THE ASS ESSEES ACTIVITY OF DEVELOPING CONTENT AND CONVERSION OF THE PROCURED CONTENT INTO MOBILE READABLE FORMAT WOULD QUALIFY TO BE CLASSIFIED AS CONTENT DEVELOPMENT O R DATA PROCESSING SPECIFIED IN CBDTS NOTIFICATION NO.11521 AND THEREFORE THE ASSESSEE CAN BE CONSIDER ED AS RENDERING IT ENABLED SERVICES. 7.4.5 AS REGARDS EXPORTS, THE CONTENT DEVELOPED B Y THE ASSESSEE IS UPLOADED ON SOFTWARE PLATFORMS WHICH AR E THEN TRANSFERRED TO THE SERVERS SITUATED OUTSIDE IN DIA FROM WHERE IT IS ACCESSED BY MOBILE SUBSCRIBERS OF THAT COUNTRY. THIS, IN OUR CONSIDERED VIEW, WOULD QUALI FY AS EXPORTS FOR THE PURPOSES OF SECTION 10A OF THE ACT. ITA NO.987/B/15 8 7.4.6 IN THE LIGHT OF THE FACTUAL AND LEGAL MATR IX OF THE CASE AS DISCUSSED ABOVE, IT IS SEEN THAT THE ASSESS EE SATISFIES THE TWIN CONDITIONS OF EXPORT OF COMPUTER SOFTWARE AND REPATRIATION OF EXPORTS PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE AS PRESCRIBED IN SECTI ON 10A OF THE ACT. WE, THEREFORE, CONCUR WITH THE FIN DING OF THE LEARNED CIT (A) THAT THE ASSESSEE IS ENTITLED F OR DEDUCTION U/S.10A OF THE ACT. ACCORDINGLY, GROUND NO.4 RAISED BY REVENUE IS DISMISSED. 10. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE TRIBUNAL, WE DISMISS THE GROUND NO.2 11. GROUND NO.3 CHALLENGES THE DIRECTION OF CIT(A) ALLOWING THE DEDUCTION U/S 80JJAA. THE ISSUE IS ALSO COVERED BY THE EARLIER ORDER OF THE HONBLE TRIBUNAL, VIDE PARAGRAPH 6.5.5 HELD AS FOLLOWS:- 6.5.5 A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TEXAS INSTRUMENTS INDIA (P) LTD. (SUPRA) AT PARA 7 THEREOF HAS HELD THAT THE ASSESSEE WOULD BE ELIGIBL E FOR DEDUCTION U/S.80JJAA IN RESPECT OF SALARY PAID TO T HE ITA NO.987/B/15 9 SOFTWARE ENGINEERS NOT EMPLOYED IN THE SUPERVISORY ROLE BY HOLDING THAT : 7. AS STATED EARLIER THE ASSESSEE HAD FILED THE DETAILS OF THE SOFTWARE ENGINEERS EMPLOYED DURING THE YEARS UN DER CONSIDERATION CONTAINING THE NAMES OF THE EMPLOYEES , DESIGNATION AND DATE OF JOINING. FURTHER, IN THE SA ME LIST THE DETAILS OF TOTAL NUMBER OF EMPLOYEES JOINED DUR ING BOTH THE ASSESSMENT YEARS, NUMBER OF EMPLOYEES WITH OUT SUPERVISORY ROLES, WORKMEN JOINED, NUMBER OF SUPERV ISORS JOINED AND WORKMEN JOINED AND RELIEVED DURING THE Y EARS UNDER CONSIDERATION. A CURSORY PERUSAL OF THIS LIST SHOWS THAT THE ASSESSEE HAD CLAIMED DEDUCTION IN RESPECT OF EMPLOYEES, WHO HAD JOINED AS ENGINEERS IN THEIR RESPECTIVE FIELD SUCH AS SYSTEMS ENGINEER, TEST ENG INEER, SOFTWARE DESIGN ENGINEER, IC DESIGN ENGINEER, LEAD ENGINEER ETC. A CURSORY PERUSAL OF THOSE LISTS ESTA BLISHES THAT THE ASSESSEE HAD CLAIMED DEDUCTION IN RESPECT OF THE ENGINEERS EMPLOYED NOT IN THE CATEGORY OF SUPERVISO RY CONTROL. ALL THESE DETAILS WERE FILED BEFORE THE AS SESSING OFFICER DURING ASSESSMENT PROCEEDINGS. THESE FACTS WERE NOT PROPERLY CONSIDERED BY THE ASSESSING OFFICER. FURTHER, FROM THE ORDER OF THE CIT(A), IT IS SEEN T HAT HE HAD TAKEN NOTE OF THE NOTIFICATION ISSUED BY THE GOVERNMENT OF KARNATAKA AND CONCLUDED THAT AS PER T HE NOTIFICATION ISSUED, THE ASSESSEE COMPANY ENGAGED I N THE DEVELOPMENT OF SOFTWARE IS COVERED BY THE INDUSTRIA L ITA NO.987/B/15 10 DISPUTES ACT, 1947. FURTHER IT IS NOT THE CASE OF T HE REVENUE THAT THE ASSESSEE DID NOT FULFILL THE CONDI TIONS EXTRACTED ELSEWHERE IN THIS ORDER. CONSIDERING ALL THOSE FACTUAL MATTERS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ACCORDING RELIEF TO THE ASSESSEE. IN FACT HE HAD CLARIFIED THE RELEVANT PORTIONS RELATED TO INDUSTRI AL DISPUTES ACT, 1947 AND INCOME-TAX ACT WHILE GRANTIN G RELIEF TO THE ASSSESSEE WHICH ARE EXTRACTED AT PP. 5 AND 6 OF THIS ORDER. AFTER CAREFULLY CONSIDERING THE SAME , WE ARE INCLINED TO ACCEPT THE REASONS SHOWN BY THE LEARNED CIT(A). THE LEARNED CIT-DEPARTMENTAL REPRESENTATIVE COULD NOT ASSAIL THE FINDING REACHED BY THE LEARNED CIT(A) BY BRINGING IN ANY VALID MATERIALS. THE ORDE R OF THE CIT(A) IS CONFIRMED. IT IS ORDERED ACCORDINGLY. AS THE FACTS OF THE ASSESSEE IN THE CASE ON HAND A RE SIMILAR TO THE FACTS OF THE ABOVE CITED CASE OF TEX AS INSTRUMENTS INDIA P. LTD. (SUPRA), THE DEDUCTION U/S.80JJAA OF THE ACT IS ALLOWED ON THE BASIS OF TH E FOLLOWING FACTS :- I) THE BUSINESS OF THE ASSESSEE FALLS WITHIN THE DEFIN ITION OF THE TERM INDUSTRIAL UNDERTAKING; II) THE ASSESSEE IS ENGAGED IN PROVIDING INFORMATION TECHNOLOGY ENABLED SERVICES (COMPUTER SOFTWARE); III) THE ASSESSEE HAS CLAIMED DEDUCTION OF ONLY THOSE PA YMENTS MADE TO WORKMEN WHO ARE NOT EMPLOYED IN SUPERVISO RY CAPACITY. ITA NO.987/B/15 11 IN VIEW OF THE ABOVE, WE UPHOLD THE DECISION OF THE LEARNED CIT (A) IN ALLOWING THE ASSESSEE DEDUCTION U/S.80JJAA OF THE ACT. ACCORDINGLY, THE GROUND RAI SED AT S.NO.3 BY REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE TRIBUNAL, THE GROUND OF APPEAL FILED BY THE REVENUE IS DISMIS SED. 12. THE GROUND NO.4 CHALLENGES DIRECTION OF CIT(A) ALLOWING THE STAMP DUTY INCURRED IN INCREASING THE SHARE CAPITAL . 13. THIS GROUND OF APPEAL IS RESTORED TO THE FILE O F AO WITH A DIRECTION TO VERIFY WHETHER AS A RESULT OF THIS EXP ENDITURE, THE SHARE CAPITAL IS INCREASED OR NOT. IN CASE SHARE CAPITAL IS INCREASED TO TREAT THE SAME AS CAPITAL EXPENDITURE AND IF NOT, THE SHA RE CAPITAL IS INCREASED TO TREAT AS REVENUE EXPENDITURE. 14. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED IN THE ABOVE TERMS. ITA NO.987/B/15 12 ORDER PRONOUNCED IN THE OPEN COURT ON 13TH NOV, 2015 . SD/- SD/- (ASHA VIJAYARAGHAVAN) (INTURI RAMA RAO ) JUDICIAL MEMBER ACCOUNTANT M EMBER BANGALORE DATED : 13/11/2015 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REG ISTRAR, ITAT, BANGALORE.