TMI Blog2015 (1) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT Vs Bharti Hexacom Ltd. (Delhi) (2013 (12) TMI 1115 - DELHI HIGH COURT), we, therefore, restored this issue to the file of the AO to be decided in accordance and if any expenditure on account of licence fee was payable up to 31.07.1999, it should be treated as capital expenditure and the licence fee on revenue sharing basis after 01.08.1999 should be treated as revenue in nature. - Decided in favour of assessee for staistical purposes. - ITA No. 4546/Del/2013, ITA No. 5106/Del/2013 - - - Dated:- 15-1-2015 - Sh. N. K. Saini, AM And Sh. C. M. Garg, JM,JJ. For the Petitioner : Sh. Ajay Vohar, Sr. Adv. Upwan Gupta, CA For the Respondent : Sh. R. S. Gill, CIT DR ORDER Per N. K. Saini, AM: These cross appeals by the assessee and the department are directed against the order dated 10.06.2013 of ld. CIT(A)- XV, New Delhi. 2. First we will deal with appeal of the assessee in ITA No. 4546/Del/2013. Following grounds have been raised in this appeal: 1. That Hon ble CIT(A) grossly erred in law in exceeding his jurisdiction u/s 251(1) of the Income tax Act, 1961, in restoring the matter back to the file of the learned AO for ascertaining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es incurred in foreign exchange in connection with providing technical service outside India, are not of the same genre as excise duty, sales tax, freight and insurance, which, if embedded in the sale consideration form part of profits and are to be excluded from the export turnover (in view of the explicit provision of Section 10A) need not be excluded from the scope of total turnover (in the absence of any explicit provisions in section 10A) by relying upon the decision of Hon ble Supreme Court in the case of Laxmi Machine Works (supra), which, in my view, is misplaced. 6. Being aggrieved the assessee is in appeal. The ld. Counsel for the assessee at the very outset stated that the action of the ld. CIT(A) in remanding the case to the AO for re-computing the quantum of expenses incurred in foreign currency was in complete contravention to the provisions of section 251(1) of the Act, wherein power of the ld. CIT(A) to set aside the assessment to the file of the Assessing Officer was omitted by the Finance Act, 2001 w.e.f 01.06.2001. It was further stated that the ld. CIT(A) was not justified in holding that the exclusions made in export turnover were not to be reduced from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided in favour of the assessee by the Special Bench of ITAT Chennai in the 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 total turnover for the purpose of section 10B, there is no authority to exclude anything from the expression as understood in general parlance would be wrong, as there has to be an element of turnover in the receipt if it has to be included in the total turnover. That element is missing in the case of freight, telecom charges or insurance attributable to the delivery of the goods outside India and expenses incurred in foreign exchange in connection with the providing of technical services outside India. These receipts can only be received by the assessee as reimbursement of such expenses incurred by him. Mere reimbursement of expenses cannot have an element of turnover. It is only in recognition of this position that in the definition of export turnover in section 10B, the aforesaid two items have been directed to be excluded. Secondly, the definition of export turnover contemplates that the amount received by the assessee in convertible foreign exchange shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) and the order of the ITAT in the case of ACIT Vs Infoses Technologies reported in 172 Taxman 134. Similarly, he pointed out that an identical issue has been considered by the ITAT, Hyderabad Bench in the case of Patni Telecommunication (P) Ltd. Vs ITO reported in (2008) 22 SOT 26 (Hyd.). Learned DR was unable to controvert the contentions of the learned counsel for the assessee. 9. On due consideration of the facts and circumstances of the case, we find that this issue has been considered in detail by the ITAT in the above orders and it has been held that if such expenses are to be excluded from the export turnover then they are to be excluded from the total turnover also. Respectfully following the orders of the ITAT, we do not find any merit in the ground raised by the revenue. Learned CIT(Appeals) has rightly directed the Assessing Officer to exclude such expenses from the total turnover also while computing the deductions under sec. 10A of the Act. 10. So respectfully following the aforesaid referred to orders, we set aside the impugned order of the ld. CIT(A) on this issue and the AO is directed to reduce the expenses incurred in foreign currency and telecommunicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in the business of providing telecommunication services through the use of Very Small Aperture Terminal (VAST) to close user group and in the development of software for export/remote infrastructure management services, internet services and IT enabled services through units setup under the STP Scheme of the Government of India. The assessee company filed the return of income at the total income of ₹ 5,40,23,471/- after claiming deduction u/s 10A and section 80IA of the Act. 15. During the course of assessment proceedings the AO made an addition of ₹ 43,94,513/- by observing that the assessee had made investments for earning income from dividends, however, had not disallowed any expenses relevant to earning such income u/s 14A of the Act. 16. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that neither any expenditure was actually incurred for earning dividend income nor any annual income was received during the year. It was also stated that the Rule 8D came on statute w.e.f 24.03.2008 only, so it was not applicable to the assessment year under consideration. 17. The ld. CIT(A) after considering the submissions of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above provision it is clear that before making the disallowance the following conditions are to exist: i) There must be income taxable under the Act. ii) The said income must not form part of the total income under the Act. iii) There must be an expenditure incurred by the assessee and iv) The said expenditure must have a relation to the income which does not form part of the total income under the Act. 22. From the aforesaid condition it would be clear that concerned assessment year as there is no income which does not form part of the taxable income under the Act i.e. dividend from the shares, in our opinion the provisions of section 14A of the Act cannot be invoked. In the present case it is an admitted fact that the assessee was not in receipt of any dividend income as such there was no income from the investment in question which was taxable under the I.T Act, therefore, the AO wrongly invoked the provisions of section 14A of the Act to disallow various interest payments. On a similar issue their lordships of the Hon ble Punjab High Court in the case of CIT Vs M/s Lakhani Marketing Incl. in ITA No. 970/2008 vide order dated 02.04.2014 observed at paras 9 to 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only when any part of the income is not to be included in the total income of the assessee and the expenditure relating to that part of income is claimed by the assessee as deduction. In such cases only, the expenditure relating to the exempted income can be disallowed and not otherwise. Since in the present case, the entire income is found to be taxable, no disallowance can be made under section 14A of the Act. 10. Moreover, the AO has not established the nexus between invested funds and the interest bearing funds, since the investments in shares are in the years 1995-96, 1998-99 and 1999-2000 and the interest disallowance is for the assessment years 2000-01 and 2001-02. On the contrary perusal of the balance sheet for the year ending 31.3.1995, 31.3.1998 and 31.3.1999, it is clear that interest bearing funds have not been utilized for investment for purchase of shares. 11. For the aforesaid reasons, we see no reason to interfere with the order of CIT(A) concerning assessment year 2000-01 and 2001-02 and hence the decision of CIT (A) in deleting the disallowance of interest by invoking section 14A of the Act is correct and in accordance with law. 11. In view of the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, section 14A could have no application. 23. Similarly, their lordships of the Hon ble Jurisdictional High Court in the case of CIT Vs Holcim India (P) Ltd. in ITA Nos. 486 299/2014 vide order dated 05.09.2014 dismissed the appeal of the revenue and observed in para 14 as under: 14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing Incl., ITA No. 970/2008, decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and operators were required to pay specified share of their Adjusted Gross Revenue on a periodic basis. The assessee paid a license fee of ₹ 4.16 crores to Department of Telecommunication (DOT) under new revenue sharing regime and transponder fee of ₹ 16.22 crores to M/s Antrix Corporation Ltd., a wholly owned subsidiary of Government of India for purchasing bandwidth capacity in transponder. The AO held that the aforesaid expenditure was incurred by the assessee for acquiring a license fee and was accordingly a capital expenditure, however, he allowed depreciation @ 25% on the same. 27. Being aggrieved the assessee carried the matter to the ld. CIT(A) who held that since license/transponder fees was linked to gross annual revenues received by the assessee, the same was a revenue expenditure and allowable u/s 37 of the Act. 28. Now the department is in appeal. The ld. CIT DR reiterated the observations made by the AO in the assessment order dated 30.12.2010 and strongly supported the order of the AO. 29. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Part payment was towards an initial investment which an assessee had to make to establish the business. It was a precondition to setting up of business. It has element 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 use 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 sharing basis under the 1999 policy as a capital expense made to acquire an asset. The payment of yearly licence fee on revenue sharing basis was for carrying on business as cellular telephone operator and, thus it was a normal business expense. Read in this manner, the licence granted by the Government/authority to the assessee would be a capital 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be apportioned as a deduction in the unexpired period of the licence. The provision will have ballooning effect with amortized amount substantially 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 allowable under section 35ABB would be more than the actual payment by the assessee as licence fee for the said year. This would normally happen after the midterm of the licence period. Section 35ABB, therefore, ensures that the capital payment is duly allowed as a deduction over the term and once the expenditure is allowed, it would be revenue or tax neutral provided 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 revenue sharing basis after 1-8-1999 should be treated as revenue expenditure. (ii) Capital expenditure will qualify for deduction as per section 35ABB. 32. Facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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