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TMI Blog2016 (12) TMI 1398X X X X Extracts X X X X X X X X Extracts X X X X ..... o appreciate that the payment made by the assessee to Microsoft Corporation was not covered by explanation to Section 37(1) and hence, there was no reason to disallow the said payment while computing the income of the assessee company. 4] The learned CIT(A) failed to appreciate that the compensation was paid by the assessee to Microsoft Corporation as a part of the Settlement arrangement arrived at between the two parties and it was not a case of that the payment was for any purpose which is an offense or prohibited by law and accordingly, the amount paid should have been allowed as a deduction while computing the income of the assessee company. 5] The learned CIT(A) erred in holding that the MAT credit to be carried forward u/s 115JAA was to be computed by ignoring the surcharge and, education cess paid on the tax payable u/s 115JB of the Act. 6] The learned CIT(A) failed to appreciate that the MAT credit should have been computed by considering the tax, surcharge and education cess paid by the assessee on the income computed u/s 115JB of the Act. 7] Without prejudice to the above grounds, the assessee submits that if the MAT credit is to be considered excluding surcharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business use after the settlement was arrived at and no further damages were claimed. The assessee also pointed out that its share out of total amount paid of Rs. 35 lakhs for group companies, was only Rs. 23,33,278/-, whereas the Assessing Officer had disallowed the entire compensation of Rs. 35 lakhs. The case of assessee before the CIT(A) was that the said amount was paid to safeguard the use of operating software which was essential for conducting un-interrupted business of the assessee i.e. software development services and where the compensation was paid under mutual agreement towards legalization of software acquirements, the same could not be said to be for infraction of law. Since the expenditure was not incurred for any offence nor it was prohibited by law and was incurred wholly and exclusively for the business expenses, the same was allowable as deduction. Reliance was placed on the ratio laid down by the Hon'ble Delhi High Court in CIT Vs. Desiccant Rotors International Pvt. Ltd. (2011) 245 CTR (Del) 572 and it was pointed out that the Assessing Officer had ignored the said decision. The CIT(A) observed that where the compensation was paid pursuant to settlement with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pensation paid was for loss of business by Microsoft and not for any infraction of law and is not any penalty levied in any of the Act. In case it was for infraction of law or penalty levied under different Acts, then the same would be an offence. He stressed that there is no question of levy of penalty between two private parties. With regard to the expression 'prohibited by law', it was pointed out by the learned Authorized Representative for the assessee that speed money, hafta money, etc. would be in the nature of amount prohibited by law. Our attention was drawn to the Kolkata Bench of Tribunal in ITO Vs. M/s. MPR Marketings Pvt. Ltd. in ITA No.1514/Kol/2012, relating to assessment year 2009 -10, order dated 14.03.2013 and it was also pointed out that the Hon'ble Delhi High Court had noted the compromise between the parties and had allowed the compensation paid pursuant to the said compromise. It was further stressed by the learned Authorized Representative for the assessee that in case the said compensation paid by the assessee was prohibited by law, then the Hon'ble Delhi High court would not have so ordered the assessee and since the assessee had made the payments, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w or is expenditure which is wholly and exclusively incurred for the purpose of business and is allowable as expenditure in the hands of assessee. The amount which has been agreed to be paid by the assessee and its group companies to Microsoft Corporation and others is on account of contractual liability. It is not the case of payment of any penalty. In any case, the payment on account of penalty would arise where one of the parties is the Government and the connotation of payment of penalty cannot arise when there is an understanding between two private parties. As far as payment which is prohibited by law is concerned, then the same refers to speed money, hafta money, etc., but the same is not to be applied in cases where one party agreed to compensate the other party for loss of its business. 12. In the facts of the present case, use of pirated software by the assessee and its group companies which is the property of Microsoft Corporation and others admittedly, resulted in loss of business of Microsoft Corporation. Where because of civil suit between the parties, there was compromise entered into between the parties for payment of compensation for loss of business and also cove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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