TMI Blog2022 (11) TMI 1316X X X X Extracts X X X X X X X X Extracts X X X X ..... eant for bringing into existence a new asset or a new advantage, and they are laid out wholly and exclusively for the purpose of business of the assessee. - Decided in favour of assessee. Taxability of Inducement fees - inducement fees was received for cancellation / lapse of proposed scheme of acquisition - Excess of inducement fees received over expenditure incurred and the same was treated as capital receipt by the assessee and consequently the said sum was not offered to tax - HELD THAT:- As the proposed acquisition failed, the assessee was in recipient of certain amount in connection to the cancellation/lapse of the proposed scheme of acquisition. It is submitted that the assessee had spent certain amount towards due diligence in the form of legal charges, advisory etc., of the proposed acquisition. The said expenditure was reduced from the total amount received by the assessee, and the balance was treated by the assessee as capital receipt that was not offered to tax. We have considered the above receipt by the assessee, based on various provisions of the Act. The expenditure incurred by the assessee towards the due diligence, legal advices and payments for othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of export turnover into India - .AO denied the claim and held that the late realised export turnover cannot be reduced from the formula for computation of section 10A - HELD THAT:- We note that the assessee has furnished the details wherein the authorised dealers under FEMA have not taken any adverse action for late realisation of export turnover and neither declined nor rejected the application for late realisation of such export turnover. We note that the authorities below have not verified any documents /evidences filed by the assessee. The question is, whether the extension of time for realisation of the export proceeds by the Competent Authority under FEMA can be said to be the approval granted by the Competent Authority under section 10A(3) of the Income-tax Act, 1961. In the event there is an approval granted by the competent authority under FEMA, the claim of assessee deserves to be allowed. We therefore, direct the Ld.AO to verify the evidences and the documents in respect of the RBI approval and to consider the claim of the assessee in accordance with law in the light of the above ratio by Hon ble Bombay High Court in in case of Mogan Stanley [ 2011 (8) TMI 279 - BOMB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the event, there is a difference in the products, assessee deserves 100% deduction on the license fee received from the overseas in respect of licensing the product. We direct the assessee to provide sufficient assistance to the Ld.AO in order to understand the product model to come to a just conclusion. - ITA Nos. 1530 to 1532/Bang/2017, 1557/Bang/2017, 1849/Bang/2017, 1848/Bang/2017, IT(TP)A No. 532/Bang/2016, 449/Bang/2015, 509/Bang/2015, 613/Bang/2016 - - - Dated:- 30-11-2022 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBERA AND SMT. BEENA PILLAI, JUDICIAL MEMBER For the Assessee : Shri Padamchand Khincha, CA For the Revenue : Shri K.V. Arvind, Shri Dilip, Standing Counsels for Dept. ORDER PER BENCH Present appeals are filed by assessee and revenue for A.Ys. 2007-08 to 2011-12. 2. It is submitted that following issues are common with A.Y. 2012-13 and facts and circumstances of these issues are also identical with that of A.Y. 2012-13. The Ld.DR did not object to the above submissions of the assessee. This Tribunal has considered the common issues in A.Y. 2012-13 in IT(TP)A No. 718/Bang/2017 by order dated 28/11/2022 in great detail. The view tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 2008-09 2009-10 2010-11 2011-12 2 3 4 5 4 5 4 to 6 9 to 11 Disallowance under section 40(a)(i) in respect of subscription charges paid / payable to M/s Forester Research and M/s Gartner No disallowance as there was no amount payable as on last day of previous year Ground no. 25 Paras 12-12.8 Allowed in favour of assessee. 2007-08 2008-09 2009-10 2010-11 2011-12 7 to 10 9 to 12 9 to 12 7 to 9 12 to 14 Disallowance under section 40(a)(ia) / 40(a)(i) in respect of software expenses paid to residents and non residents No disallowance as there was no amount payable as on last day of previous year Ground nos. 14-21 Paras 9 9.1 The issue is remanded to the Ld.AO to consider in accordance with the decision of Hon ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT reported in (2021) 432 ITR 471 2007-08 2008-09 2009-10 2010-11 2011-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal) 4 5 2 3 2 3 7 8 8 9 Communication expenses and expenses incurred in foreign currency reduced from export turnover but not reduced from total turnover while computing deduction under section 10A and 10AA Ground nos. 27-30 Paras 14-14.3 The issue is allowed in favour of assessee following the decision of Hon ble Supreme Court in case of CIT v HCL Technologies Ltd reported in (2018) 93 taxmann.com 33. 2007-08 2008-09 2009-10 2010-11 2011-12 18 to 20 26 to 28 26 27 9 (Dept. appeal) 10 (Dept. appeal) Foreign currency expenses should not be reduced from export turnover while computing deduction u/s 10A. Ground nos. 27-30 Paras 14 to 14.3 The issue is allowed in favour of assessee by following decision of Hon ble Supreme Court in case of CIT v HCL Technologies Ltd reported in (2018) 93 taxmann.com 33. 2009-10 2010-11 2011-12 24 25 13 18 Reduction of interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground no. 53 Para 22.1. Remanded to the Ld.AO for verification and consideration in accordance with law. 2007-08 2008-09 2009-10 2010-11 2011-12 32 38 38 20 31 Interest levied under section 234B and 234D Consequential in nature. We have already tabulated hereinabove the issues that stands covered by the observations of the decision of Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2012-13 (supra) by order dated 28/11/2022 which is annexed to this order and marked as Annexure A . For the sake of convenience and brevity, the relevant decision paragraphs which are identical and covered for the years under consideration has been mentioned hereinabove in the table. Accordingly, all the above grounds raised by assessee and revenue on common issues for the years under consideration vis-a-vis 2012-13 stands partly allowed as indicated hereinabove. 3. There are certain issues that are not common with A.Y. 201213 and are dealt with independently hereinbelow. The Ld.AR submitted that some of the issues arise in all the years under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, the expenditure did not result in increase in the capacity or extra building space. He also submitted that the expenditure was not capable of enhancing the future benefits from the existing asset (buildings) beyond its previously assessed standard of performance. The Ld.AR submitted that the DRP gave factual observation that building repair expenses has been incurred in respect of existing assets and there is no change in facts and circumstances over the years. It is submitted that the disallowance is made only from AY 2007-08 to 2009-10 by the Ld.AO and for A.Ys. 2010-11 and 2011-12 the revenue is in appeal. The Ld.AR also submitted that for A.Y. 2012-13, the revenue has not preferred any appeal on this issue. 4.4 The Ld.DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 4.5 Hon ble Bonbay High Court in the case of CIT vs. Oxford University Press reported in 108 ITR 166 has expounded that, the test for judging the nature of capital or revenue expenditure is to see whether as a result of expenditure what is being done is to preserve and maintain an already existing asset or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the assessee was called upon by the Ld.AO to justify as to why the above sum of Rs.17,55,37,820/- is not chargeable to tax. The assessee, vide submissions dated 28.1.2013 explained in detail as to why the above net surplus of Rs. 17,55,37,820/- is a capital receipt and not chargeable to tax. It was explained that expenditure incurred on proposed acquisition was also not claimed as deduction and the said expenditure has been set off against the inducement fees received. 5.2 The Ld.AO considered the net surplus of Rs. 17,55,37,820/- as revenue receipt and assessed the same to tax. The Ld.AO was of the view that the assessee has been claiming expenditure on expansion of business, mergers and acquisitions as revenue in nature for the earlier years and consequently the net surplus of Rs. 17,55,37,820/- is chargeable to tax for the year under consideration. The Ld.AO also held that, the above sum cannot be regarded as part of profits of business so as to be eligible for deduction under section 10A and 10AA. 5.3 The CIT(A) held that the gross amount of Rs. 32,48,98,842 should be considered to be in the nature of non compete fees and should be brought to tax as business income. Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R submitted that the excess of expenditure incurred by assessee being Rs.14,93,61,022/- and the amount received by assessee from Axon being Rs.32,48,98,842/- is Rs.17,55,37,820/-. He submitted that this amount is in the nature of compensation received by assessee for the proposed acquisition that could not be concluded. He submitted that had this amalgamation to happen, assessee would have been enriched with a profit making apparatus that would have boosted the business structure of assessee. He thus supported the disallowance made by the Ld.AO. 5.7 We have perused the submissions advanced by both sides in the light of records placed before us. The assessee was in the process of acquiring Axon Group Plc, an IT service company, listed in London having expertise in SAP consultancy. An agreement was entered into between the assessee and Axon, as per which Axon would have to pay 1% of the consideration payable by the assessee for acquiring Axon shares if the proposal does not materialise. 5.8 As the proposed acquisition failed, the assessee was in recipient of certain amount in connection to the cancellation/lapse of the proposed scheme of acquisition. It is submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts at the end of the financial year as well as loss incurred on account of exchange fluctuation on repayment of borrowings is similar to the interest expenditure and it is to be allowed as revenue expenditure u/s 37 of the I.T.Act, as per the accounting standard approved by the Institute of Chartered Accountants of India. 6.3 This issue is no longer res integra. Hon ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. reported in (2009) 312 ITR 254 has held that, the actual payment was not a condition precedent for making adjustment in respect of foreign currency transactions at the end of the closing year. 6.4 We also draw support from the decision of Hon ble Mumbai Special Bench decision in case of DCIT vs. M/s. Bank of Bahrain and Kuwait reported in (2010) 41 SOT 290 wherein similar issue was under consideration. The Hon ble Special Bench observed and held as under: 50. Therefore, this Accounting Standard mandates that in a situation like in the present case, since the transaction is not settled in the same accounting period, the effect of exchange difference has to be recorded on 31st March. Ld CIT D.R. has rightly pointed out that the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough such loss has not been realized actually. Ld CIT D.R.'s submission is that this decision is with reference to monetary items as referred to in AS-11 and since forward foreign exchange contracts do not come within the monetary items, therefore, the said decision cannot be applied. However, we have already discussed in the concept of recognition of various events in financial statements and have noted that the assessee , in fact, has recorded net effect in its profit and loss account. Therefore, on this count, the department's plea cannot be accepted. Thus, in view of the decision of the Supreme Court in the case of Chellapali Sugar Mills (supra), and also in view of decision of the the Hon'ble Supreme Court in the case of Woodward Governor India (P)Ltd., (supra), assessee's plea deserves to be accepted. 51. Now, coming to the objection of ld CIT D.R. with reference to various decisions relied upon by ld counsel for the assessee on the ground that in the said decisions, the issue was relating to stock-in-trade but in the present case, there is no stock-in-trade. Admittedly, the assessee has not shown any closing stock of unmatured forward foreign exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther any payment was made by the assessee nor any material was received. This case, in our opinion, cannot be applied to the facts of the present case as in the present case, we are concerned about the anticipated loss booked by the assessee on account of foreign exchange rate fluctuation as on balance sheet date, which was in accordance with RBI guidelines as well as in accordance with AS-11. Moreover, a binding obligation arose the minute the contract was entered into. However, now the decision of the Hon'ble Supreme Court in the case of Woodward Governor India P. ltd (supra) covers the issue on account of variation in foreign exchange rate with reference to current assets. The facts in the case of CIT v. Kamani Metals and Alloys Ltd (supra) are more akin to such a situation where the assessee has simply ordered for purchase of material at a particular rate but the material has not been supplied by the seller by the end of the accounting period. No liability is accounted for in respect of such ordered goods because the basic elements of contract have not been fulfilled. In the present case, we have already observed that the forward contract is incidental to the foreign curren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a trading loss. What weighed with the Calcutta High Court there appears to be that there was no outflow of funds during the year, as has been urged by the revenue before us. However, a closer scrutiny of the said decision indicates that the Calcutta High Court in this case relied upon its earlier judgement in Sutlej Cottons Mills Ltd v CIT (1971) 81 ITR 641. It will be recalled that the Hon'ble Supreme Court in Sutlej Cotton Mills Ltd v CIT(1979) 116 ITR 1 reversed the aforesaid decision of the Calcutta High Court on this point and held that such liability would be treated as a trading loss. In that view of the matter, the reliance placed by the revenue on the judgement of the Calcutta High Court in Bestobell (India Ltd., (1979) 117 ITR 789 appears misplaced. 56. The controversy stands now resolved in view of the decision of the Supreme Court in the case of Sutlej Cotton Mills Ltd., 116 ITR 1 (SC), wherein, it has been held that fluctuation on account of foreign exchange rate is an allowable deduction and is not capital in nature. The observation of the Hon'ble Supreme Court is as under:- The law may, therefore, now be taken to be well settled that where profit or loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable. viii) In the ultimate analysis, there is no revenue effect and it is only the timing of taxation of loss/profit. 59. We, accordingly, hold that where a forward contract is entered into by the assessee to sell the foreign currency at an agreed price at a future date falling beyond the last date of accounting period, the loss is incurred to the assessee on account of evaluation of the contract on the last date of the accounting period i.e. before the date of maturity of the forward contract. 6.5 We direct the Ld.AO to carry out necessary verification in respect of the loss /gain incurred by the assessee for the years under consideration whether on account of Capital asset based on the principles laid down by Hon ble Mumbai Special Bench in case of Bank of Bahrain and Kuwait (supra). 6.6 In the event the loss/gain is out of trading liability, no disallowance can be made. However, we make it clear that there cannot be double claim by the assessee; once in the year under consideration and on actual settlement of the bill in any subsequent year. Accordingly, these grounds raised by the assessee stands allowed for statistical purposes. 7. Reduction of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange. Admittedly, RBI is the competent authority under the FEMA which regulates the payments and dealings in foreign exchange. Thus, what section 10A(3) provides is that the benefits under section 10A(1) would be available if the export proceeds are realized within the time prescribed by the competent authority under the FEMA. In the instant case, the competent authority under the FEMA, namely, the RBI has granted approval in respect of the export proceeds realised by the assessee till December, 2004. Therefore, the approval granted by RBI under the FEMA would meet the requirements of section 10A. In other words, once the competent authority under the FEMA, which regulates the payments and dealings in foreign exchange, has approved realization of the export proceeds by the assessee till December, 2004, then it would meet the requirements of section 10A(3) and, consequently, the assessee would be entitled to the benefits under section 10A(1). [Para 8] Moreover, in the instant case, the RBI which is the competent authority under the FEMA as als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate Bench of this Tribunal for A.Y. 2005-06 in assessee s own case in IT(TP)A No. 102/Bang/2013. This Tribunal vide order dated 10/11/2017 considered the issue by observing as under: 30. Ground No.9. 30.1 In this ground (supra), Revenue assails the order of the learned CIT (Appeals) in allowing the assessee's claim for inclusion of rental income from Infosys BPO Ltd. and BSNL, Chennai as profits of the business in computing deduction under Section 10A of the Act, when these incomes were not derived from the export of computer software. 30.2 In the order of assessment, the Assessing Officer held that the aforesaid rental income from Infosys BPO Limited and BSNL, Chennai cannot be regarded as income derived from the business of export of software. On appeal, before the learned CIT (Appeals), it was submitted by the assessee that inter alia, the rental income received from its subsidiary, Infosys BPO Limited, was incidental to the business carried on by the assessee as it facilitated operations, transactions, policies and procedures. In respect of the letting out of space to BSNL, in Chennai, it was for the purpose of setting up of Mini Exchange to equip the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said premises was taken for the aforesaid business purpose. As a portion of the said premises was not used for business purpose, instead of keeping it vacant and suffering loss, it was rented out. Therefore, the said income derived from lease of the said premises constitutes income from business . Neither it would be income from house property nor income from other sources . In view of the explanation used in sub Section (4) of Section 10A of the Act for the purpose of Sub section 1, the profit derived from export of articles or things or computer software shall be the amount which bears to the profits of business of the undertaking. Though the said profits are not derived from export of articles or things or computer software, by virtue of sub Section (4) it is deemed to be the profits of the business of the undertaking for the purpose of extending the benefit of exemption of payment of tax under Section 10A of the Act to a newly established undertaking in a free trade zone. 30.3.2 Similarly, the Hon'ble High Court of Karnataka in the case of Wipro Ltd. Vs. DCIT in its order reported in (2016) 382 ITR 179 before whom the substantial question of law No.16 for considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the assessment order as to why additions are made. On an appeal before the Ld.CIT(A), the taxable income was determined under the normal provisions of the Act. Therefore, the CIT(A) held that the present issue relating to computation of income under the MAT provisions has become academic and the issue does not require any specific adjudication. 9.4 Before us the Ld.AR submitted that the computation of book profits under section 115JB is dealt by Expl. 1 to section 115JB. The computation of book profit starts with net profit as per Profit and loss account. He submitted that the explanation provides for certain additions and deletions in computing the book profits. Subsection 6 of section 115JB provides that the provisions of this section shall not apply to the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be. Subsection 6 of section 115JB was introduced by the Special Zones Act, 2005 with effect from 10.2.2006. Book profits of SEZ unit are exempt from MAT by virtue of section 115JB(6). He also relied on proviso to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as deduction u/s. 10A pertaining to Infosys STP-II at Electronic City, Bangalore. While computing the deduction u/s. 10A, the Ld.AO invoked the provisions of section 80IA(8) r.w.s. 10A(7) and only allowed 50% of the license fee received from overseas for the purposes of profits of 10A unit. 10.3 Before the Ld.CIT(A), assessee filed various details to establish the difference between the two software and that the Finacle software was totally different and the observations of the Ld.AO that it was remodel of BANCS 2000 is factually incorrect. The Ld.CIT(A) from various submissions of assessee on the technical aspects of this software, observed that assessee has been continuously upgrading its banking software products and therefore he upheld the action of the Ld.AO in attributing only 50% of total revenue towards the earning of license fee. Before the Ld.CIT(A), assessee had also claimed that Ld.AO only reduced the said amount of 50% from the profits of the 10A in respect of reducing the same from export turnover of the unit. The Ld.CIT(A) after considering the relevant submissions of assessee directed the Ld.AO to reduce the 50% from the export turnover for computing ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 31 2008-09 37 2009-10 37 11.2 We note that the main issue of the foreign tax credit and the additional foreign tax claimed by assessee in respect of state taxes paid has been already remanded to the Ld.AO with the direction to consider in the light of the decision of Hon ble Karnataka High Court in case of Wipro Ltd. vs. DCIT reported in 382 ITR 179. Accordingly, we hold this particular issue to be academic at this stage. 12. Additional foreign tax credit claim on account of assessed income and in respect of taxes reasonably expected to be paid in USA and Switzerland where audit/ assessment is under progress in relation to income of the previous year 2010-11. 12.1 This issue is raised by assessee for A.Y. 2011-12 in Ground nos. 32 to 34. We have perused the submissions advanced by both sides in the light of records placed before us. 12.2 We note that this claim has been made by assessee in respect of taxes reasonably accepted to be paid in USA and Switzerland where audit and assessment was under progress in relation to income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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