Deputy Commissioner of Income Tax, Circle-3(1)(1), Bengaluru V. M/s Infosys Technologies Ltd., Bengaluru

MA 118/BANG/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2781 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 06-11-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 25-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Business income; Depreciation; Non-deduction of tax; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ , ACCOUNTANT MEMBER MP NO.118/BANG/2018 (IN IT(TP)A NO. 233/BANG/2013 ) ASSESSMENT YEAR : 20 05 - 06 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), BANGALORE. VS. M/S. INFOSYS LTD., ELECTRONIC CITY, HOSUR ROAD, BANGALORE 560 100. APPELLANT RESPONDENT REVENUE BY : DR. P. V. PRADEEP KUMAR ADDL. CIT ASSESSEE BY : SHRI. PADAM CHAND KHINCHA, CA DATE OF HEARING : 1 4 . 09 .201 8 DATE OF PRONOUNCEMENT : 06 . 1 1 .201 8 O R D E R PER JASON P BOAZ, ACCOUNTANT MEMBER THIS MISCELLANEOUS PETITION (M.P.) IS FILED BY REVENUE IN RESPECT OF THE TRIBUNALS ORDER IN IT(TP)A NO.233/BANG/2013 DATED 10.11.2017 FOR ASSESSMENT YEAR 2005-06 AND WITH REGARD TO GROUNDS 6 AND 7 DISPOSED OFF BY THE BENCH. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS UNDER: 2.1 THE ASSESSEE, M/S. INFOSYS LTD., IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF COMPUTER SOFTWARE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED SOFTWARE EXPENSES, INTER ALIA , AMOUNTING TO RS.9,01,36,459/- WHICH WAS PAID M.P. NO. 118/BANG/2018 (IN IT(TP)A NO. 233/BANG/2013) PAGE 2 OF 4 TO INDIAN ENTITIES AND OVERSEAS BRANCH OFFICE SOFTWARE EXPENSES OF RS.11,49,721/-. THESE EXPENSES WERE DISALLOWED U/S 40(A)(IA)/40(A)(I) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) FOR NOT DEDUCTING TAX AT SOURCE IN RESPECT OF THESE PAYMENTS. 2.2 ON APPEAL, THE CIT(A) HELD THAT IN THE ABSENCE OF A PROVISION TO DEDUCT TDS ON SOFTWARE EXPENSES PAID TO INDIAN ENTITIES DURING THE FINANCIAL YEAR 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06, THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE IN RESPECT OF THE SAID PAYMENTS AND HENCE THESE PAYMENTS CANNOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT. SIMILARLY, THE CIT(A) ALSO HELD THAT SINCE SOFTWARE EXPENSES OF RS.11,49,721/- ARE RELATED TO OVERSEAS BRANCH OFFICES, THESE PAYMENTS ARE NOT LIABLE FOR TDS AND THEREFORE NOT LIABLE FOR DISALLOWANCE U/S 40(A)(I) OF THE ACT. HAVING HELD SO, THE CIT(A) TREATED BOTH THESE EXPENSES AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION @ 60%. 2.3 THE ABOVE FINDING OF THE CIT(A) WAS CONTESTED BEFORE THE TRIBUNAL BY BOTH THE ASSESSEE AS WELL AS REVENUE. THE ASSESSEES CONTENTION IN GROUND NOS. 5.1 AND 6.1 WAS THAT THE CIT(A) SHOULD HAVE TREATED THE AFORESAID SOFTWARE EXPENSES AS REVENUE EXPENDITURE AFTER HAVING AGREED THAT THE SAID EXPENDITURE WAS NOT LIABLE FOR DISALLOWANCE U/S 40(A)(IA) / 40(A)(I) OF THE ACT. REVENUE IN GROUND NOS. 6 AND 7 WAS AGGRIEVED FOR THE REASON THAT THE CIT(A) WAS NOT CORRECT IN ALLOWING DEPRECIATION @ 60% IN RESPECT OF THE SAID EXPENDITURE. 2.4 IN RESPECT OF THE ASSESSEES GRIEVANCE, THE TRIBUNAL AT PARA 13.2 OF ITS ORDER HELD THAT SINCE THE AO DISALLOWED THE ABOVE PAYMENTS U/S 40(A)(IA) / 40(A)(I) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE THEREON, TREATMENT OF THE SAME PAYMENTS AS CAPITAL EXPENDITURE BY THE CIT(A) IS NOT CORRECT. IT WAS HELD BY THE TRIBUNAL THAT, THE CIT(A) HAVING ALREADY HELD THAT THE SOFTWARE EXPENSES PAID TO INDIAN ENTITIES AND SOFTWARE EXPENSES RELATED TO OVERSEAS BRANCHES ARE NOT LIABLE FOR DISALLOWANCE U/S 40(A)(IA)/40(A)(I) OF THE ACT, THESE PAYMENTS WOULD BE ELIGIBLE FOR DEDUCTION IN M.P. NO. 118/BANG/2018 (IN IT(TP)A NO. 233/BANG/2013) PAGE 3 OF 4 COMPUTING THE BUSINESS INCOME AND AS A RESULT, THE QUESTION OF ALLOWING DEPRECIATION @ 60% THEREON DOES NOT ARISE. CONSEQUENTLY, THE ASSESSEES GROUND NOS. 5.1 AND 6.1 WERE ALLOWED. 2.5 SIMILARLY, IN RESPECT OF REVENUES GROUND NOS. 6 AND 7, IT WAS HELD BY THE TRIBUNAL AT PARA 28 OF ITS ORDER THAT THE CIT(A) WAS NOT CORRECT IN TREATING THE PAYMENTS AS CAPITAL EXPENDITURE AND ALLOWING DEPRECIATION @ 60% AS THESE PAYMENTS WERE DISALLOWED BY THE AO U/S 40(A)(IA) / 40(A)(I) OF THE ACT FOR NOT DEDUCTING TAX AT SOURCE. HAVING HELD SO, THE TRIBUNAL REVISED THE ORDER OF THE CIT(A) ON THIS ISSUE, RESTORED THE FINDING OF THE AO AND ALLOWED GROUND NOS. 6 AND 7 OF REVENUES APPEAL. 2.6 THE M.P. STATES THAT ALLOWING BOTH THE ASSESSEES AS WELL AS REVENUES GROUNDS OF APPEAL APPEARS TO BE CONTRADICTORY. IT IS STATED THAT RESTORING THE FINDING OF THE AO ON THIS ISSUE IS ALSO CONTRADICTORY AS THE AO HAS DISALLOWED THE PAYMENTS MADE TOWARDS SOFTWARE EXPENSES TO INDIAN ENTITIES AND OVERSEAS ENTITIES U/S 40(A)(IA) / 40(A)(I) OF THE ACT AND THE TRIBUNAL HAS HELD AT PARAS 13.2 AND 28 OF ITS ORDER THAT SUCH PAYMENTS DO NOT ATTRACT THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. THIS M.P. IS FILED BY REVENUE SEEKING CLARIFICATION ON THE AFOREMENTIONED ISSUE. 3.1 WE HAVE CONSIDERED THE SUBMISSIONS MADE AND CAREFULLY PERUSED THE ORDERS IN QUESTION. THE FINDING RENDERED BY THE TRIBUNAL ON GROUND NOS. 6 AND 7 OF REVENUES APPEAL, AS RECORDED IN PARA 28 THEREOF IS NOT CONTRADICTORY TO THE FINDING RENDERED IN THE ASSESSEES APPEAL ON THE SAME ISSUE, RECORDED AT PARA 13.2 OF THE SAID ORDER. IN THE ASSESSEES APPEAL, IN PARA 13.2 OF THE TRIBUNALS ORDER, IT HAS BEEN HELD THAT THESE PAYMENTS WOULD BE ELIGIBLE FOR DEDUCTION IN COMPUTING THE BUSINESS INCOME AND AS A RESULT OF WHICH, THE QUESTION OF ALLOWING DEPRECIATION @ 60% THEREON DOES NOT ARISE. IN THE CASE OF REVENUES APPEAL ON ALLOWING DEPRECIATION @ 60%, AT PARA 28 OF TRIBUNALS ORDER, IT HAS BEEN HELD THAT THE TREATMENT OF THE PAYMENT AS CAPITAL EXPENDITURE AND ALLOWING DEPRECIATION @ 60% BY THE CIT(A) IS NOT CORRECT AND HENCE M.P. NO. 118/BANG/2018 (IN IT(TP)A NO. 233/BANG/2013) PAGE 4 OF 4 BAD IN LAW. THEREFORE, THE FINDING RECORDED ON THE ASSESSEES APPEAL AND REVENUES APPEAL ON THE ISSUE IS CONSISTENT AND CORRECT. 3.2 HOWEVER, IN PARA 28 OF THE TRIBUNALS ORDER, AFTER HAVING RECORDED THE FINDING AS ABOVE, IT WAS ALSO MENTIONED THAT WE REVERSE THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE FINDING OF THE AO IN THE MATTER. CONSEQUENTLY, GROUND NOS. 6 AND 7 OF REVENUES APPEAL ARE ALLOWED. THIS SENTENCE APPEARS TO HAVE CREATED THE CONFUSION WHICH RESULTED IN THE M.P. BEING FILED. THIS SENTENCE IN PARA 28 IS AMENDED TO READ AS UNDER: WE REVERSE THE ORDER OF THE CIT(APPEALS). GROUND NOS. 6 AND 7 OF REVENUES APPEAL ARE DISMISSED. 4. IN THE RESULT, REVENUES M.P. FOR ASSESSMENT YEAR 2005-06 IS DISPOSED OFF AS ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS 06 TH DAY OF NOVEMBER, 2018. SD/- SD/- BANGALORE. DATED: 06 TH NOVEMBER, 2018. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE. ( SUNIL KUMAR YADAV ) ( JASON P BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER