Income Tax Appellate Tribunal - Chennai
Tata Consultancy Services Ltd. ... vs Department Of Income Tax on 16 March, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'D' : CHENNAI
[BEFORE SHRI PRADEEP PARIKH, VICE-PRESIDENT AND
SHRI HARI OM MARATHA, JUDICIAL MEMBER]
I.T.A Nos. 874,875 & 876/2010
Assessment years : 2002-03, 2004-05 & 2005-06
The Dy. CIT vs M/s Tata Consultancy Services Ltd
Company Circle I(1) (Erstwhile Aviation Software Development
Chennai Consultancy India Ltd)
Unit-21/22, Elnet Software City, TS 140
Block 2&9, CPT Road, Taramani
Chennai 600 113
[PAN - AAACA5442P]
(Appellant) (Respondent)
Appellant by : Shri Omkareshwar Chidra
Respondent by : Smt V.G. Aravinda Nayagi &
Shri S.P Chidambaram
ORDER
PER HARI OM MARATHA, JM:
These appeals, relating to assessment years 2002-03, 2004-05 and 2005-06, have been preferred by the Revenue against separate orders of the ld. CIT(A). The orders for assessment years 2002-03 and 2005-06 being dated 16.3.2010 and the order for assessment year 2004-05 being dated 15.3.2010.
2. Briefly stated, the facts of the case are that the assessee- company is engaged in the business of maintenance and development :- 2 -: ITA 874 to 876/10 of software. It has claimed deduction u/s 10A of the Income-tax Act, 1961 (hereinafter referred to as 'the Act' for short) and excluded telecommunication charges from total turnover as well as expenses incurred in foreign currency while computing deduction u/s 10A. In assessment year 2005-06, software expenses have also been claimed as revenue expenditure. Hence, in all these three years almost identical issues are involved which are arising out of common facts. Therefore, for the sake of convenience and brevity, we proceed to decide them by a common order.
I.T.A.No. 874/Mds/2010 (A.Y 2002-03)
3. In this year, the assessee-company filed its return of income declaring total income of `36,72,560/-, but the Assessing Officer completed the assessment u/s 143(3) on 28.1.2005 assessing its total income at ` 1,80,65,918/-. Subsequently, action u/s 147 read with section 148 was initiated and re-assessment was framed on 30.11.2007 by making following adjustments/disallowances:
(i) Excluded expenses incurred in foreign currency of `2,33,98,913/- from export turnover and not from total turnover for the purpose of deduction u/s 10A of the Act.
(ii) Excluding 50% of telecommunication expenditure amounting to `12,10,347/- from the export turnover while computing the deduction u/s 10A of the Act.
(iii) Disallowance of withholding tax of ` 71,99,872/-
debited in the Profit & Loss Account.
:- 3 -: ITA 874 to 876/10
4. Aggrieved by the order of the Assessing Officer, the assessee preferred first appeal before the ld. CIT(A). The ld. CIT(A) decided point No.(i) and (ii) mentioned above in favour of the assessee by following the decision of the ITAT Chennai Special Bench in the case of ITO vs Sak Soft Ltd, 313 (AT) 353, in which it has been held that expenses excluded from export turnover should also be excluded from total turnover. Likewise, the exclusion of telecommunication charges from the export turnover while computing deduction u/s 10A was also decided in favour of the assessee by following the same decision of the Special Bench (supra). Now, the Revenue is aggrieved against these inclusions.
5. At the time of hearing, it was submitted by the ld.AR at the very outset, that these issues are covered in favour of the assessee by the decision of the ITAT, Chennai, Special Bench in the case cited supra. In the grounds, the Revenue has also mentioned specifically that the issues in question stand covered by the decision of the Special Bench, but they have preferred appeal against the same. It means that the issues stand covered in favour of the assessee. The Special Bench has held in this regard in its order as under:
"...39. For the above reasons, we hold that for the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges, or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing technical services outside :- 4 -: ITA 874 to 876/10 India are to be excluded both from export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula...".
6. Therefore, we do not find any infirmity in the finding of the ld. CIT(A) with regard to exclusion of telecommunication charges from total turnover and exclusion of expenses incurred in foreign currency from total turnover by the assessee as well as affirming the same by the ld. CIT(A). Consequently, we do not find any reason to interfere in the finding of the ld. CIT(A) in so far as the appeal for assessment year 2002-03 is concerned. Hence, we dismiss appeal of the Revenue for assessment year 2002-03.
I.T.A.No. 875/Mds/2010(A.Y 2004-05)
7. In this appeal, the only issues raised is regarding exclusion of telecommunication charges from total turnover. The amount so reduced in this year is `14,00,872/- while computing the deduction u/s 10A of the Act. With the similar reasoning as given in assessment year 2002-03, we uphold the finding of the ld. CIT(A) in this year also. Consequently, we dismiss this appeal of the Revenue as well. I.T.A.No. 876/Mds/2010 (A.Y 2005-06)
8. In this year, apart from the issues of exclusion of telecommunication charges and expenses incurred in foreign currency from the total turnover which stand covered by the above two decisions in favour of the assessee, one more ground has been raised :- 5 -: ITA 874 to 876/10 by the Revenue pertaining to software expenses which has been claimed by the assessee as revenue expenditure.
9. In this year, the assessee has reduced telecommunication expenditure from the export turnover. The ld. CIT(A) has directed to exclude the expenses incurred in foreign currency from the total turnover for the purposes of deduction u/s 10A and also directed the Assessing Officer to exclude 50% of telecommunication charges from the total turnover and recompute the deduction u/s 10A. These two issues are similar issues decided in earlier years and therefore, the same stand decided in favour of the assessee on the basis of similar reasoning.
10. The other issue is related to disallowance of software expenses. The Assessing Officer has disallowed purchase of software amounting to ` 1,99,391/- by treating the same as capital expenditure. The ld. CIT(A) has applied the ratio of the decision ITAT, New Delhi Special Bench in the case of Amway India Enterprises vs Dy. CIT, 21 SOT 1, and tested the facts of this case on the basis of parameters like ownership, enduring benefit and functionality as has been laid down in the decision of the Special Bench and has finally found that this expenditure cannot be treated as capital in nature as the test laid down in this Special Bench decision is not satisfied. Therefore, he has :- 6 -: ITA 874 to 876/10 deleted the entire addition of ` 1,99,391/- made by the Assessing Officer. Now the Revenue is aggrieved.
11. The ld.DR submission that the decision in the case of Amway India Enterprises (supra) is not applicable to the facts of this case because this decision was rendered for assessment year 1998-99 and thereafter the Income-tax Act has been amended providing for depreciation @ 60% on computer software with effect from assessment year 2003-04 without going into the question whether the expenditure should be treated as revenue or capital in nature. For that purpose, reliance has been placed on the decision of the Hon'ble Rajasthan High Court in the case of Aravalli Construction Company Ltd vs CIT, 259 ITR 30, wherein it has been held that the expenditure of software will constitute capital expenditure only and that even if they are standardized and not specifically custom made will not alter the situation. In the light of amendment so carried out in the Act, it has been pleaded that only 60% depreciation is admissible to the assessee from assessment year 2003-04 and since assessment year under consideration is 2005-06, the amended provision only shall apply to computer software and the ratio of decision of Special Bench in the case of Amway India Enterprises(supra) would not apply in this year. On the other hand, the ld.AR has relied on the order of the ld. CIT(A). :- 7 -: ITA 874 to 876/10
12. After hearing both sides and cogitating the arguments in their correct perspective, it is found that in view of the amendment made out in the provisions of law which applies from assessment year 2003- 04, only 60% depreciation is admissible now to the assessee on computer software expenses. Consequently, we amend the order of the ld. CIT(A) to that extent and allow this ground of the Revenue.
13. In the result, this appeal of the Revenue is partly allowed.
14. In the result, appeals of the Revenue for assessment years 2002-03 and 2004-05 are dismissed whereas that of assessment year 2005-06 is partly allowed.
Order pronounced in the open court on 31.8.2010.
Sd/- Sd/- (PRADEEP PARIKH) ( HARI OM MARATHA ) VICE-PRESIDENT JUDICIAL MEMBER Dated: 31st August, 2010 RD : Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR