TMI Blog2014 (6) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of Explanation-2 to section 9(1)(vi) of the Act – Decided in favor of Revenue. Computation of deduction u/s 10A of the Act - Exclusion of foreign currency expenditure from export turnover and total turnover – Exclusion of telecommunication expenses - Held that:- Following Patni Telecom P. Ltd., Vs. ITO [2008 (1) TMI 452 - ITAT HYDERABAD-A ] - expenses incurred in foreign exchange, as part of the export carried out by the assessee, cannot be excluded from the export turnover – thus, the AO is directed to include foreign currency expenditure to form part of export turnover of the assessee in computing deduction u/s.10A of the Act - Decided against Revenue. Disallowance u/s 14A of the Act – Held that:- Following GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - the provisions of Rule 8D are applicable w.e.f. AY.2008-09 - The newly introduced provisions of Rule 8D have no retrospective applicability, the authorities below have erred in applying the same - The Tribunal in assessee’s own case for the AY.2005-06 has upheld the action of the Assessing Officer in making the dis-allowance @2% of the exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of CIT(Appeals). ITA No.1922/Mds/2010 relevant to the AY.2006-07 has been filed by the Revenue assailing the order of CIT(Appeals), LTU, Chennai dt.31-08-2010 passed u/s.154 of the Act. 2. First we will take up the appeals of the Revenue in ITA No.1535 1536/Mds/2009 for the AYs.2002-03 2003-04 respectively assailing the order of CIT(Appeals) passed u/s.201(1) and 201(1A). The brief facts of the case are: The assessee-company is engaged in the business of software development and export. During the period relevant to the AYs under consideration, the assessee made remittances to M/s.Sprint USA for hiring International Private Leased Circuits [IPLC]. The aforesaid remittances made to non-resident company were without deduction of tax at source. M/s.Sprint USA is providing IPLC Bandwidth service to the assessee for internet access, business, data exchange, video conferencing and other telecommunication facilities to enable dedicated high speed connectivity. The details of the services provided by M/s.Sprint USA to the assessee are as under: (a) International Private Leased Circuit (IPLC) An IPLC is a point to point private line used by an organization to communicate bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other services under the provisions of Income Tax Act. On the contrary, the stand of the assessee is that the remittances made by the assessee constitute payments for usage charges, recurring charges installation charges and also non usage charges which include service fee, access fee and equipment. The ld.Counsel for the assessee in order to support his contentions furnished customer service agreement with M/s.Sprint USA, copies of invoice raised by M/s.Sprint USA and copy of M/s.Videsh Sanchar Nigam Limited [VSNL]. 2.1 Aggrieved against the said order, the assessee preferred an appeal before the CIT(Appeals). The CIT(Appeals) held that the payments made by the assessee were for international telecommunication services which is a standard facility or service providing to all those willing to pay. The assessee does not get any right to use any goods/equipment provided in such transmission. Therefore, the payments made to the overseas company is not in the nature of Royalty for the use of equipment. The CIT(Appeals) further held that M/s.Sprint USA does not have any Permanent Establishment [PE] in India. The income of the Sprint is in the nature of business income as it provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s used by VSNL for providing Indian end services in accordance with the contract with its customers. The Assessing Officer came to the conclusion that the payment received by the non-resident company in providing international private leased circuit was taxable as a Royalty for use or right to use commercial and scientific equipment u/s.9(1)(vi) of the Act read with explanation-2 and Article 12(3) of the Doubt Taxation Avoidance Agreement between India and Singapore. In first appeal, the order of the assessee was upheld by the CIT(Appeals). On further appeal, the Tribunal held that even if the payments were treated as non-relating to the use of equipment, they should be considered as payment for the use of the process provided by the assessee, whereby through the assured bandwidth, the customer is guaranteed the transmission of data and the voice. The fact that the bandwidth is shared with others, however, has to be seen in the light of the technology governing the operation of the process and this by itself does not take the assessee out of the scope of royalty. Thus, the consideration being for the use and right to use of the process, it is Royalty , within the meaning of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue. 3.3 In Ground No.4, the Revenue has assailed the findings of CIT(Appeals) for deleting the dis-allowance u/s.40(a)(i) in respect of payments made to M/s.Sprint USA towards lease line charges. The CIT(Appeals) deleted the dis-allowance u/s.40a(ia) for nondeduction of tax at source on payments made to M/s.Sprint USA for the reasons that, the CIT(Appeals)-XI, Chennai vide order dt.06-07-2009 passed u/s.201(1) and 201(1A) for the relevant AY has held that the assessee was under no obligation to deduct tax u/s.195 while making such payments as M/s.Sprint USA had no PE in India. Since, the said order of the CIT(Appeals)-XI, Chennai has been set aside by us, in the appeal of the Revenue in ITA No.1535/Mds/2009, this ground of appeal of the Revenue has to be allowed. 3.4 Ground No.5 raised in appeal by the Revenue is with regard to levy of interest u/s.234D. The ld.Counsel for the assessee has submitted that the provisions regarding the levy of interest u/s.234D were inserted by the Finance Act, 2003 w.e.f. 01-06- 2003, therefore they cannot be applied in the AY.2002-03. It is an undisputed fact that the provisions of section 234D were inserted by the Finance Act, 2003 w.e.f.01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to include foreign currency expenditure as well as telecommunication expenditure as part of the export turnover. 4.1 In Ground Nos. 8 to 13, the assessee has assailed the findings of CIT(Appeals) with respect to set off of current year s losses of eligible units against the profits of other units eligible for deduction u/s.10A. The ld.Counsel for the assessee in support of his submissions relied on the judgment of the Hon ble Karnataka High Court in the case of CIT Anr. Vs. Yokogawa India Ltd. and Others, reported as 246 CTR (Kar) 226 and the decision of the co-ordinate bench in assessee s own case in ITA No.114/Mds/2011 for the AY.2005-06 (supra). The relevant extract of the findings of the Tribunal are reproduced here under: In the present case the Assessing Officer adjusted the brought forward losses of the assessment year 2004-05 of the eligible units against the current year s profits of the eligible units before computing the deduction under section 10A. The very same issue was considered by the Income-tax Appellate Tribunal, B-Bench, Chennai, in the case of RR Donnelley India Outsource Pvt. Ltd. vs DCIT, in ITA Nos.1489 1490(Mds)/2010. Through their order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h nonresident entities towards travel and other expenditure. The assessee s contention before Assessing Officer for not deducting tax on such payment u/s.195 was based on CBDT Circular No.786 dt.07-02-2000. However, the said circular has been withdrawn vide subsequent Circular No.7 of 2009. Even before CIT(Appeals), the assessee was unable to produce any details in support of its claim. Before us also, the ld.Counsel for the assessee has not been able to substantiate the claim of the assessee. Accordingly, this ground of appeal of the assessee is dismissed. 4.4 In view of our above findings, the appeal of the assessee is partly allowed. 5. ITA No.864/Mds/2010 (AY.2006-07): The Revenue has raised six grounds in its appeal. Ground Nos.1 to 6 are general in nature and therefore they are not taken up for adjudication. Ground Nos.2 to 4 relate to exclusion of foreign currency expenditure and telecommunication expenditure from both export turnover and total turnover for the purpose of computing deduction u/s.10A. Both these issues are squarely covered in favour of the assessee by the decision of the Special Bench of the Tribunal in the case of CIT Vs. Saksoft Limited reported as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of the next previous year the assessee is making the payment and the differential amount, if any, is adjusted in its profit and loss account. This is a consistent practice followed by the assessee. The provision for unpaid expenses is not in the nature of contingent expenditure. It is a provision made against actual expenditure. Therefore, the decision of the Hon ble supreme Court rendered in the case of Bharat Earth Movers vs. CIT, 245 ITR 428, squarely applies here. The ground of the Revenue is dismissed . Accordingly, this ground of appeal of the Revenue is dismissed for similar reasons. 5.2 In the result, the appeal of the Revenue is dismissed. 6. ITA No.1922/Mds/2010 (AY.2006-07): In this appeal, the Revenue has assailed the order of CIT(Appeals), LTU Chennai dt. 31-08-2010 passed u/s.154 of the Act. The assessee had filed Miscellaneous Petition for rectification of the order dt.12-03-2010 passed by the CIT(Appeals), LTU, Chennai in ITA No.35/09-10/LTU(A) for the AY.2006-07. The CIT(Appeals) vide impugned order held that the issue raised in ground No.13 of the appeal was not adjudicated. The CIT(Appeals) while disposing off Miscellaneous Petition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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