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TMI Blog2016 (9) TMI 1565X X X X Extracts X X X X X X X X Extracts X X X X ..... is a non STPI unit dealing with purchase and installation of ATM machines, the Chennai Branch has got both STPI and non STPI units. For the A.Y.201112 the assessee has claimed the amount of Rs. 1,01,53,363/- as an expenditure under travel expenses relating to 100% STPI unit. Since the expenditure towards the travelling amounting to Rs. 1,01,53,363/- incurred outside India in Foreign Currency, the assessing officer presumed that the assessee should have rendered the services outside India and excluded the amount of foreign travel from the export turnover for the purpose of computing the deduction u/s 10A. 4. The assessee went in appeal to the CIT(A) and the Ld. CIT(A) held that the impugned expenditure was incurred in foreign exchange therefore, the Assessing Officer rightly excluded the expenditure from the export turnover. Aggrieved by the order of the CIT(A) the assessee filed appeal before us. 5. The Ld. A.R submitted that the foreign travel expenditure should not be excluded from the export turnover since the act does not provide for exclusion of foreign travel expenditure unless it is incurred in rendering the services outside India. He has taken our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness expenditure which should be allowed as deduction unless it is attributable to the services rendered outside India and the said expenditure incurred in foreign currency. The assessee's case is not a case where the assessee had rendered the services outside India and incurred the expenditure in Foreign currency. The Assessing Officer has not made out a case that the expenditure was incurred for the services rendered outside India and did not relate to the assessee's business. The assessee relied on the Honble Special Bench judgment in the case of Zylog systems v. Income- tax Officer, Company Ward- III reported in [2010] 8 taxmann.com 276 (Chennai) (SB). The Special Bench held that There was no dispute about the fact that the assessee was a company engaged in business of development of software both by way of onsite development and offshore development and also that it had branch in USA for which separate accounts were maintained. There was also no dispute about the fact that there was approval of the authorized dealer namely 'C' Bank for opening the overseas branch in USA. [Para 20] Now it was necessary to adjudicate whether the Assessing Officer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the employees of the assesseecompany at foreign branch and nothing had been incurred on managerial or technical services rendered to any outsiders in foreign soil. In view of this discussion, it was to be held that said expenditure could not be excluded from the export turnover for computing deduction under section 10B. [Para 24] 9. The Special Bench held in the case law cited supra that the expenditure incurred for the purpose of business in the Foreign soil should not be excluded from the export turnover for the purpose of deduction u/s 10B. In the assessee's case the expenditure was incurred for the purpose of business and should not be excluded from the export turnover. The assessee's case is squarely covered by the special bench decision. Therefore respectfully following the Hon'ble special bench decision cited, we delete the addition made by the AO and set aside the Lower authorities orders. Accordingly ground No.2&3 of the assessee's appeal are allowed. 10. Ground No.4 is related to the exclusion of unrealized export proceeds from the export turnover. The AO excluded the amount of Rs. 23,89,578/- representing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. 13. The Ld A.R argued that in the section 80JJAA the words used are 'Industrial undertaking' and the 'workmen' as defined in Industrial Disputes Act. As per Expln-1 of section10(15) , the definition of Industrial undertaking includes computer software and as per the decided case Laws the work force of the computer software are also covered under the definition of workmen as per the Industrial Disputes Act 1947. Therefore he argued that the assessee is entitled for deduction u/s 80JJAA . He has referred the following decisions: (i)ACIT vs Texs Instruments(India) P. Ltd 27 SOT 72 (Bang) (ii) P.L. Goel vs ITO, 12 ITD 137(Delhi) (iii) CIT vs Comp-Help Services P. Ltd, 246 ITR 722 (iv) OnMobiole global Ltd. (2014)45 taxmann.com346 The ld. AR also referred the Tamilnadu Government letter No.9172/K2/2015-6 dated 30.5.2016 addressed to Puthiya Jananayaga Thozhilalar Munnani on the subject of the employees of IT industry. 14. On the other hand, the ld. DR argued that sec. 80JJAA of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a casual workman ; or (b) a workman employed through contract labour; or (c) any other workman employed for a period of less than three hundred days during the previous year ; (iii) ''workman'' shall have the meaning assigned to it in clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947). 16. The expression 'industrial undertakings' is not defined in sec. 80JJAA. However, in Explanation 1 of sec. 10(15) of the Act 'industrial undertaking' is defined as under: Explanation 1.- For the purposes of this sub-clause, the expression "industrial undertaking" means any undertaking which is engaged in - (a) the manufacture or processing of goods; or (aa) the manufacture of computer software or recording of programme on any disc, tape, perforated media or other information device ; or; 17. Since the industrial undertaking is not defined in sec. 80JJAA of the Act, we have taken the help of Explanation 1 of sec. 10(15) of the Act. In the said section, the expression 'industrial undertaking' includes the manufacture of computer software or recording of programme on any disc, tape, perforated media or other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for deduction of additional wages paid to new workmen for an industrial undertaking. While the term "industrial undertaking" has not been defined in section 80JJAA, it has been defined in other provisions; like sections 10(15) and 72A so as to include undertaking which is engaged, inter alia, in : - the manufacture of computer software - the manufacture of computer software or recording of programme on any disc, tape, perforated media or other information device. [Para 6.5.1] ■ The co-ordinate bench of this Tribunal in the case of Asstt. CIT v. Texas Instruments India (P.) Ltd. [2009] 27 SOT 72 (Bang.)(URO), has held that a company that is engaged in development, design and manufacture of software should be considered as being an industrial undertaking for the purposes of section 80JJAA. As the assessee is engaged in the development and manufacture of software, the assessee is covered within the definition of industrial undertaking. [Para 6.5.2] ■ Another condition stipulated under the Act is that the assessee should be engaged in the manufacture or production of article or thing. The definition of "industrial undertaking" as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the definition of workman. On the other hand, they indicate and emphasise the broad sweep of the definition which is designed to cover all manner of persons employed in an industry, irrespective of whether they are engaged in skilled work or unskilled work, manual work, supervisory work, technical work or clerical work. Quite obviously, the broad intention is to take in the entire 'labour force' and exclude the 'managerial force'. On going through the agreement entered into between the assessee and the Corporation, in the instant case, it was evident that the assessee was a skilled person and was given work of a technical and supervisory nature. He had no authority whatsoever, to bind the Corporation in any way. It was clear that a consultant, as the assessee was, could not, by any stretch of imagination, be said to be engaged in any administrative or managerial work. Hence, the assessee was a workman within the meaning of section 2(s) of the Industrial Disputes Act, and, as such, the amount of retrenchment compensation received by him was exempt from tax under section 10(10B)." 23. Similarly, in the case of Comp-Help Services P. Ltd.(supra), Hon'ble Madr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT and ITES companies and they are being monitored by the enforcement officials for proper implementation of Labour legislations and thereby ensures the welfare of the employees. The IT company employees also are free to form trade union and can redress their grievances through evoking the provisions of Industrial Disputes Act 1947. It is also informed that, no IT industry has been exempted from the provisions of Industrial Disputes Act 1947. The affected employees can approach the conciliation officers to redress their problems regarding retrenchment or termination or for any other grievance. Any trade union with the IT employees as its members can rise industrial disputes under section 2(k) of the Act and seek remedy. (ii) The Inspectors of Labour are inspecting IT companies. In case of any contravention of the provisions of the Act, ITemployee may approach the concerned conciliation officer through their union and file an Industrial Dispute against the erring employer. (iii) It is also informed that routine inspections are being carried out by the Inspectors. In case of emergent situation, a team of officials will inspect the IT firm depending upon the magnitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,495/-. The Assessing Officer is directed to verify the assessee's claim and give credit for the shortfall. The assessee's groungd on this issue is allowed for stastical purposes. 27. In the result, appeal of the assessee is partly allowed. 28. Now coming to Revenue's appeal I.T.A.No.1177/Mds/2016. Ground No.1.1 to 1.5 are related to the exclusion of travel and communication expenditure incurred in foreign currency from total turnover. 29. The Ld. CIT(A) directed the A.O to exclude the Travel and communication expenses from the export turnover as well as the total turnover while computing the deduction u/s 10A. Aggrieved by the order of the CIT(A) the Revenue is in appeal before us. The Ld.D.R relied on the order of the AO and the Ld.DR relied on the order of CIT(A). 30. We have considered the rival submissions and perused the material placed on record. The CIT(A), while deleting the addition, followed the decision of the Special Bench in ITO vs Sak Soft, 313 ITR 353. The ld. DR during the appeal did not place any decision controverting the decision relied up on by the ld.CIT(A). Therefore, we do not find any infirmity in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue has been generated where ever the subsidiary marketing companies had operated. Further CIT(A) obseerved that it is not necessary that revenue need to be generated every year failing which allowance for expenditure will be denied as it is totally the discretion of the assessee to run its business and utilize its resources. As per the CIT(A) in the present case the Australian subsidiary had been successfully generating revenues for the assessee through its activities and accordingly deleted the addition. 35. During appeal, the ld. DR argued that the assessee-company made payment to Australian company. Since there was no income earned and the expenditure incurred in Australia and US companies has no business connection, hence there is no business expediency. The Ld. DR supported the order of the Assessing Officer. On the other hand the ld. AR has heavily placed reliance on the order of the CIT(A). 36. Further, the ld. DR has objected for entertaining fresh evidence by the ld CIT(A) in the form of agreement under Rule 46A. The ld. AR argued that no fresh evidence was placed before the CIT(A). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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