Income Tax Appellate Tribunal - Chennai
Changepond Technologies Pvt. Ltd., ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, CHENNAI
BEFORE Dr. O.K. NARAYANAN, VICE PRESIDENT AND
SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
ITA Nos. 2222 & 2223/Mds/2008
Asst. Years : 2004-05 & 2005-06
The Asst. Commisioner of M/s. Chengepond Technologies
Income Tax, Company Pvt. Ltd., 7, II Crescent Park Road,
Circle-I(3), v. Gandhi Nagar, Adyar,
CHENNAI. CHENNAI - 600 020.
PAN : AAABCC3252G.
(Appellant) (Respondent)
C.O. Nos. 81 & 82/Mds/2009 in
(ITA Nos. 2222 & 2223/Mds/2008)
Asst. Years : 2004-05 & 2005-06
M/s. Chengepond Technologies The Asst. Commisioner of
Pvt. Ltd., 7, II Crescent Park Income Tax, Company
Road, Gandhi Nagar, Adyar, v. Circle-I(3),
CHENNAI - 600 020. CHENNAI.
PAN : AAABCC3252G.
(Cross Objector) (Respondent)
Department by : Shri Shaji P. Jacob, Addl.CIT
Assessee by : Shri H. Padanchand Khincha, CA
Date of hearing : 07 Nov 2012
Date of Pronouncement : 30 Nov 2012
2 ITA 2222 & 2223/M/08 &
81&82/Mds/09
O R D E R
PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER :
These appeals by the Department and the Cross Objections by the assessee arise out of the common order of the Commissioner of Income Tax (Appeals)-III, Chennai, dated 14.08.2008 in ITA No.462/06-07 & 234/07-08/A-III under sec. 143(3) of the I.T. Act. Since common issues are involved in these appeals on common facts, these are clubbed together, heard together and are being disposed of by this common consolidated order for the sake of convenience.
2. The first common issue in the grounds of appeal of the Revenue is that the Commissioner of Income Tax (Appeals) erred in directing the Assessing Officer not to reduce expenses incurred in foreign currency from the export turnover for the purpose of computing relief allowable under sec.10A of the I.T. Act.
3. At the time of hearing, the Counsel for the Assessee submits that this issue has been decided in assessee's own case in its favour for the Asst. Year 2003-04 by this Tribunal in ITA No.731/Mds/2007 dated 15.2.2008 which was followed by the 3 ITA 2222 & 2223/M/08 & 81&82/Mds/09 Commissioner of Income Tax (Appeals) in deciding the appeals for the Asst. Years 2004-05 & 2005-06. The Departmental Representative relied on the grounds of appeal.
4. We have heard both the parties and perused the material on record. We find that this Tribunal in assessee's own case reported in 119 TTJ 18 decided the issue in favour of the assessee in para Nos.10 to 14. We also find that recently this issue has been considered by this Tribunal in assessee's own case in ITA No.1169/Mds/2007 for the Asst. Year 2003-2004 dated 03.10.2012 by the co-ordinate Bench of this Tribunal wherein the Revenue's grounds were rejected on similar issue. This Tribunal, while dismissing the Revenue's appeal held as under :-
" 2. The first ground raised by the Revenue is that the Commissioner of Income-tax(Appeals) has erred in holding that establishment and maintenance expenses pertaining to foreign branch are not excludible from export turnover while computing relief under sec.10A. This issue was considered by Income-tax Appellate Tribunal, Chennai in assessee's own case, in the appeal filed by the assessee for the assessment year 2003-04 reported in 119 TTJ 18 (Chennai). In the said appeal, the third ground raised by the assessee was that the Commissioner of Income- tax(Appeals) has erred in concluding that the expenses incurred outside India on salaries, travelling and other perquisites in respect 4 ITA 2222 & 2223/M/08 & 81&82/Mds/09 of employees are incurred in connection with providing technical services outside India. The fourth ground was that the Commissioner of Income-tax(Appeals) has erred in not appreciating that the assessee is not engaged in providing any technical services outside India and, therefore, the question of exclusion of expenses from export turnover does not arise.
3. These grounds were considered by the Tribunal in paragraphs 10 to 14 of their order dated 15.2.2008. The Tribunal held that the technical services provided outside India by the assessee was for development of computer software which was also a part of the requirement of the assessee in development of software as per the requirements and specifications of the clients. Therefore, the Tribunal held that the said activity of the assessee comes under the definition of on site development of computer software including services for development of software outside India as provided in Explanation 3 to sub-sec.(8) of sec.10A of the Act. Accordingly, the Tribunal held that the expenses incurred on salaries, travelling and other perquisites shall be included in the export turnover of the assessee."
Respectfully following the above order of the Co-ordinate Bench, we reject the grounds of appeal of the Revenue on this issue.
5. The next common issue in the grounds of appeal is that the Commissioner of Income Tax (Appeals) erred in directing the Assessing Officer not to exclude 50% of telecommunication charges 5 ITA 2222 & 2223/M/08 & 81&82/Mds/09 ie., telephone charges and inter-net charges from export turnover for the purpose of computing relief under sec.10A of the Act.
6. Both the Assessing Officer and the Commissioner of Income Tax (Appeals) held that 50% of telecommunication charges are attributable for delivery of goods outside India and, therefore, the same are to be excluded from export turnover. The Commissioner of Income Tax (Appeals), in his order held as under :-
"The next common ground of appeal for both the assessment years is regarding exclusion of 50% of telecommunication charges for both the assessment years from the figure of export turnover. The learned assessing officer in his order of the AY 2004·05 has held that 50% of the telecommunication charges of Rs. 6,78,750/· are attributable to the delivery of computer software outside India. Similar conclusion was made in the order passed for the AY 2005·06 of .14,89,526/-. Accordingly, telecommunication charges to the extent of 50% were reduced from the export turnover.
I have considered the submissions and the arguments relating to the impugned issue. The definition of 'export turnover' in section 10A mandates the exclusion of, inter alia, the 'telecommunication charges' attributable to the delivery of computer software outside India. The language employed in the said definition is 'attributable' and not the expression 'derived'. It is a settled legal principle that the expression 'derived' is more rigorous than the term 'attributable' as held in the case of the Supreme Court's decisions in Sterling Foods's case (237 ITR 79). In the present case, it is not a case .where the learned assessing officer has reduced the entire telecommunication expenses from the export turnover. Only 50% of the impugned expenditure has been excluded 6 ITA 2222 & 2223/M/08 & 81&82/Mds/09 from export turnover. It also cannot be said that no expenditure was incurred for the delivery of computer software outside India. The order passed by the CIT(A) - III for the assessment year 2003·04 in appellants own case has upheld the exclusion of 50% of telecommunication charges from the export turnover. The order of the ITAT, Chennai for the AY 2003-04 also does not record a contrary finding to the order of the CIT (A) - III. However, the learned AR submits that the telecommunication expenditure includes telephone charges and internet access charges which are not at all incurred in relation to delivery of computer software outside India. The contentions of the appellant are found to be justified to some extent only. I have considered the issue and submission of the AR carefully and I am of the opinion that exclusion of telecommunication charges from the export turnover to the extent of 50% is justified in the present case. However, the learned assessing officer is directed not to exclude the telephone charges and internet access charges which are not incurred in relation to delivery of computer software outside India. The remaining part of the telecommunication charges is to be excluded only to the extent of 50%. In the result, this ground of appeal is partly allowed in the aforesaid manner."
On going through the order of the Commissioner of Income Tax (Appeals), we find that there is no infirmity in holding that 50% of telecommunication charges are not to be excluded from export turnover.
7. The next common issue in the appeal of the Revenue is that the Commissioner of Income Tax (Appeals) erred in directing the Assessing Officer to set off the brought forward loss of earlier years against income of the current year only after allowing deduction under sec.10A of the Act.
7 ITA 2222 & 2223/M/08 & 81&82/Mds/09
8. At the time of hearing, the Counsel for the Assessee submits that this Tribunal in assessee's own case for the Asst. Year 2003-04 as well as in earlier years decided the issue in its favour vide order dated 15.2.2008 in ITA No.731/Mds/2007 which is reported in 119 TTJ 18 and in ITA No.1169/Mds/2007 dated 03.10.2012 (copies placed on record). The Departmental Representative submits that the Commissioner of Income Tax (Appeals) in fact followed the order of this Tribunal in the assessee's own case in holding that deduction under sec.10A should be allowed before setting off of carry forward loss.
9. We have gone through the orders of the Co-ordinate Bench and find that this Tribunal held that deduction under sec.10A of the Act should be allowed before set off of carry forward loss. The Co-ordinate Bench recently in ITA No.1169/Mds/2007 dated 03.10.2012 held as under :-
"5. The second ground raised by the Revenue is that the Commissioner of Income-tax(Appeals) has erred in directing the Assessing Officer to re-compute business profits after setting off 8 ITA 2222 & 2223/M/08 & 81&82/Mds/09 brought forward losses and depreciation and allow deduction under sec.10A.
6. In the very same order cited above, the co-ordinate Bench of the Tribunal has allowed the deduction to the assessee under sec.10A without setting off of the brought forward losses and the issue was decided in favour of the assessee. The above order of the co-ordinate Bench is in conformity to the judgment of the Hon'ble Karnataka High Court rendered in the case of CIT v. Yokogawa India Ltd. and Others (246 CTR 226), wherein the Hon'ble Karnataka High Court has held that as the deduction under sec.10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profits and gains of the undertaking would not arise.
7. In view of the above position and in the light of the decision of the co-ordinate Bench, we find that this ground is also to be dismissed. We uphold the order of the Commissioner of Income- tax(Appeals) on this point."
Respectfully following the above decision in the case of the assessee we up hold the order of the Commissioner of Income Tax (Appeals) and the grounds filed by the Revenue are rejected on this issue.
10. The Department has taken one more ground for the Asst. Year 2004-05 that the Commissioner of Income Tax (Appeals) erred in holding that for the purpose of computing profits, deduction 9 ITA 2222 & 2223/M/08 & 81&82/Mds/09 under sec.10A of the I.T. Act should be considered as per books of accounts and not as per regular computation of income.
11. The facts of this ground are that the Assessing Officer while completing the assessment allowed deduction under sec.10A of the Act from book profits as computed under normal provisions of the Act. The assessee contended before the Commissioner of Income Tax (Appeals) that as per the provisions of sec.115JB of the I.T. Act, it is the income of 10A units as per books of accounts that is to be excluded from book profit and not deduction as computed under sec.10A of the Act as per normal computation of income under the I.T. Act. The assessee made its submissions before the Commissioner of Income Tax (Appeals) as under :-
"The conclusion of the assessing officer so as to restrict the deduction under section lOA to the figure as computed under the normal provisions of the Act, while computing book profits is devoid and bereft of merits and as against the provisions of the law. As per the computation mechanism of book profits under explanation to section 115JB, it is the income and expenditure of lOA units as per the books of accounts that is to be eliminated from the net profits. The amount of deduction available under section lOA should not be reduced in the process of determining the book profits. The amount of deduction under section lOA cannot become the guiding principle for the purpose of computing book profits under section 115JB.
The book profits are computed in accordance with the provisions of section 115JB. The Supreme Court in the case of Apollo Tyres vs CIT 255 ITR 273 has held that the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J.
10 ITA 2222 & 2223/M/08 & 81&82/Mds/09 The reduction of actual amount of deduction under section lOA is not provided in any of the clauses of explanationtosectionl15JB. On the contrary the relevant adjustments are as follows:
"Explanation - For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) as increased by
(f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section lOA or section lOB or section 11 or section 12 apply.
If any amount referred to in clauses (a) to (g) is debited to the profit and loss account and as reduced by ...
The amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof or Section 10A or section 10B or section 11 or section 12 apply, if any such amount is credited to the profit and loss account"
As may be seen from the above, the additions and deletions/reduction is with reference to the figures as appearing in the Profit and loss account. Thus, the actual amount of deduction under section 10A cannot be reduced in computing the book profits under section 115JB.
In Bushan Steel and Strips (P) Ltd. Vs. DCIT 292 ITR AT 144, it was held that tax on book profits being special provisions under section 115JB, has a overriding effect and being a special deduction is to be calculated on adjusted book profits and not on profits as calculated as per other provisions of the Act.
The ITO vs Amalgamated Bean Coffee Trading Co (P) Ltd 19 SOT 1 the ITAT, Bangalore has held that tax under section 115JB is to be worked out on the basis of adjusted book profit and not on the basis of profit computed under regular provisions of law.
The appellant prays that the computation of book profits as done by the learned assessing officer be quashed and a direction be given to the learned assessing officer for the correct computation of book profits under section lOA."
11 ITA 2222 & 2223/M/08 & 81&82/Mds/09
12. The Commissioner of Income Tax (Appeals), after considering the submissions of the assessee held that book profit under sec.115JB of the Act is to be computed by adjusting income and expenditure as per books of accounts of the assessee relating to income exempt under sec.10A of the Act. This conclusion was arrived at by Commissioner of Income Tax (Appeals) after examining the provisions of sec.10A of the Act as it stood at that point of time and relevant to Asst. Year 2004-05. The Commissioner of Income Tax (Appeals) held that book profits cannot be computed by reducing the actual amount of deduction allowed under sec.10A of the Act as clause (g) and (ii) of Explanation to sec.115JB of the I.T. Act categorically used the words "expenditure and income relating to sec.10A". Thus, the Commissioner of Income Tax (Appeals) on examining the provisions of sec.10A applicable for the Asst. Year 2004-05 came to the conclusion that while computing book profits, deduction under sec.10A as computed under the normal provisions of the Act is not the amount which can be allowed as deduction.
12 ITA 2222 & 2223/M/08 & 81&82/Mds/09 Therefore, he directed the Assessing Officer to correctly compute the book profits by adjusting the income and expenditure as per book of accounts of the assessee relating to income exempt under sec.10A of the Act.
13. On going through the order of Commissioner of Income Tax (Appeals) we see that there is no infirmity in his order in directing the Assessing Officer to compute the book profits by adjusting the income and expenditure as per books of accounts of the assessee relating to income exempt under sec.10A for the purpose of allowing book profits under sec.115JB of the Act. The grounds raised by the Revenue are dismissed on this issue.
14. The Department has also taken one more ground for the Asst. Year 2005-06 contending that the Commissioner of Income Tax (Appeals) erred in holding that Miscellaneous income comprising of recovery of bad debts and the reversal of provision for consultancy charges are to be regarded as profits of the business of undertaking and eligible for deduction under sec.10A of the I.T. Act.
13 ITA 2222 & 2223/M/08 & 81&82/Mds/09
15. The facts of this issue are that the assessee claimed deduction under sec.10A of the Act on an amount of .19,378/- and .7,91,636/- towards recovery of bad debt written off and reversal of provision for consultancy charges payable to DSM Info Systems. The Assessing Officer excluded the said income from profits eligible for deduction under sec.10A relying on the decision of Hon'ble Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd v. CIT (113 ITR 84) and CIT v. Sterling Foods (237 ITR 579). On appeal, the Commissioner of Income Tax (Appeals) after hearing the Authorised Representative the Commissioner of Income Tax (Appeals) found that the recovery of bad debt and reversal of provision for consultancy charges have been offered to tax and the expenditure incurred on the above heads have been allowed as deduction in the earlier years. Thus, the Commissioner of Income Tax (Appeals) held that the said income is part of business profits chargeable to tax under the head "profits & gains of business". To arrive at this opinion, the Commissioner of Income Tax (Appeals) derived support from the decision of Bangalore Bench of the ITAT in the case of Sasken Communication Technologies Ltd., dated 14 ITA 2222 & 2223/M/08 & 81&82/Mds/09 27.2.2007 and the judgment of Hon'ble Jurisdictional High Court in the case of CIT v. Abdul Rahman Industries (293 ITR 475). Accordingly, he directed the Assessing Officer not to exclude miscellaneous income from profits eligible for deduction under sec.10A of the Act.
16. The Departmental Representative relied on the grounds of appeal and strongly supported the order of the Assessing Officer. The Counsel for the Assessee, on the other hand, supported the order of the Commissioner of Income Tax (Appeals) and pleaded that since the Commissioner of Income Tax (Appeals) while deciding the issue in favour of the assessee, drew support from the decisions of the I.T.A.T. and the High Court, the order of the Commissioner of Income Tax (Appeals) needs no interference.
17. We have gone through the orders of the authorities below and carefully considered the arguments put forth by the parties. We find that the Commissioner of Income Tax (Appeals) has discussed the issue in detail and drew support from the order of the Bangalore Bench of this Tribunal and the judgment of Hon'ble Jurisdictional High Court amongst others in holding that the miscellaneous income 15 ITA 2222 & 2223/M/08 & 81&82/Mds/09 comprising of recovery of bad debt and the reversal of provisions for consultancy charges would be profits of he business of the undertaking and would be eligible for deduction under sec.10A of the Act. Therefore, we find no infirmity in the order of the Commissioner of Income Tax (Appeals) on this issue. Accordingly, we uphold his order and reject the grounds taken by the Department on this issue.
18. In the Cross Objections filed by the assessee for both the Asst. Years under consideration, the assessee is agitated against the decision of the Commissioner of Income Tax (Appeals) in holding that only 50% of the of the telecommunication charges are to be excluded from Export Turnover for the purpose of computing deduction under sec.10A of the Act.
19. The Counsel for the Assessee relying on the decision of Hyderabad Bench of the Tribunal in the case of Patni Telecom P. Ltd. v. ITO (308 ITR (AT) 414) argued that no part of telecommunication charges are to be excluded for the purpose of allowing relief under sec.10A of the Act. In the alternative he submits that the telecommunication charges are also to be excluded from the total 16 ITA 2222 & 2223/M/08 & 81&82/Mds/09 turnover in view of Special Bench decision of this Tribunal in the case of ITO v. Sak Soft Ltd. [313 ITR (AT) 535]. The Departmental Representative relied on grounds of appeal.
20. We have heard the parties. We are not in agreement with the argument of the Counsel for the Assessee that no part of telecommunication charges are to be excluded from export turnover for the purpose of allowing relief under sec.10A of the Act. However, we agree with the alternative submission of the Counsel for the Assessee that in view of the Special Bench decision in the case of Sak Soft Ltd. (supra), the telecommunication charges are to be excluded from the export turnover as well as total turnover for the purpose of alllowing relief under sec.10A of the I.T. Act.
21. In the result, the appeals filed by the Revenue are dismissed and the Cos filed by the assessee are partly allowed.
17 ITA 2222 & 2223/M/08 & 81&82/Mds/09
22. Order pronounced on Friday, the 30th of November 2012, at Chennai .
Sd/- sd/-
(Dr. O.K. NARAYANAN) (CHALLA NAGENDRA PRASAD)
VICE PRESIDENT JUDICIAL MEMBER
Chennai,
Dated : 30th November 2012.
Jls.
Copy to:-
(1) Appellant
(2) Respondent
(3) CIT(Appeals) Chennai
(4) C.I.T., Chennai
(5) D.R. (6) Guard file