2016 (11) TMI 1484 - AT - Income Tax

TDS u/s 195 - withholding of tax - Disallowance u/s 40(a)(i) - expenditure incurred by the assessee as Management services fees on the ground that the assessee failed to deduct tax at source in terms of section 195 - Held that - Hon ble Delhi High Court in assessee own case 2016 (8) TMI 166 - DELHI HIGH COURT has held on the last page that (i) the payment made by the assessee to Steria France for the management services provided by the latter cannot be taxed as Fees for technical services; and (ii) the said payments are not liable to withholding of tax u/s 195 of the Act. By rendering this judgment, a copy of which has been placed on record, the Hon ble High court has vacated the Ruling of the AAR on this issue. In the given circumstances, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of AO. We order accordingly and direct him to decide this issue afresh in consonance with the judgment of the Hon ble Delhi High Court passed in the assessee s own case. Deduction u/s 10A computation - AO excluding the three items of expenses claimed by the assessee from Export turnover alone - Held that - AO computed deduction u/s 10A by reducing the three expenses from the figure of Export turnover without correspondingly reducing such amounts from the figure of total turnover in the formula given for computing the amount of deduction. This approach, in our considered opinion, is not right. When a particular amount is excluded from the numerator of Export turnover , it has, naturally, to be excluded from the denominator of Total turnover as well in the computation of deduction u/s 10A. It is so for the reason that Total turnover always includes export turnover and if a particular item is not a part of export turnover, that cannot partake the character of total turnover as well. Excluding proportionate amount of interest income from the total profits in the re-computation of deduction u/s 10A - Held that - The assessee furnished a calculation at the instance of the AO to bring home its point that no further reduction was warranted from the book profits in the computation of deduction u/s 10A, whose copy has been placed in the paper book. It can be noticed that in computing the Income under the head Profit and gains of business or profession (before/after apportionment of interest income to the Noida Unit-IV), the assessee started with Profit before tax as per P& L account at ₹ 31,59,98,024/Rs.39,62,06,943 including interest income of ₹ 91375/Rs.80300294. Thereafter, such Interest income of ₹ 91375/Rs.80300294 has been reduced to arrive at income under the head Profits and gains of business or profession at ₹ 34,79,66,065/Rs.34,79,66,065. It is this figure of ₹ 34,79,66,065, which has been taken by the AO before reducing, inter alia, the amount of interest income of ₹ 8,03,00,294. Once the interest income of ₹ 8,03,00,294 does not form part of the business profits eligible for deduction u/s 10A, there can be no question of once again reducing such interest income from the amount of eligible business profits. We, therefore, overturn the impugned order to this extent and direct that the interest income apportioned to the eligible unit be not separately reduced since the same was already excluded by the assessee from the amount of Business profits eligible for deduction u/s 10A. Not allowing credit for proper amount of advance tax - AR contended that the AO allowed credit of advance tax at ₹ 13.80 crore instead of ₹ 24,51,64,659/-, thereby allowing short credit of ₹ 10,71,64,659/- - Held that - The AO is directed to verify the assessee s contention and allow proper amount of credit of advance tax.

Summary

Issues Involved:
1. Transfer pricing adjustments in 'Software development service segment' and 'I.T. enabled service segment'
2. Disallowance under section 40(a)(i) for Management services fees
3. Exclusion of certain expenses from 'Export turnover' for deduction under section 10A
4. Allocation of interest income for deduction under section 10A
5. Computation of book profit under section 115JB
6. Credit for advance tax
7. Levy of interest under sections 234B and 234C
8. Computation of total tax liability

Transfer Pricing Adjustments:
The appeal addressed transfer pricing adjustments in two segments, which were not pressed by the assessee's representative. Consequently, these grounds were dismissed by the tribunal.

Disallowance under Section 40(a)(i):
The AO disallowed the expenditure on Management services fees due to non-deduction of tax at source. However, the High Court ruled in favor of the assessee, vacating the AAR's decision. The tribunal set aside the order and directed the AO to reconsider the issue in line with the High Court's judgment.

Exclusion of Expenses for Deduction under Section 10A:
The tribunal found that expenses excluded from 'Export turnover' should also be excluded from 'Total turnover' for computing deduction under section 10A, following legal precedents. The tribunal directed the exclusion of specified expenses from 'Total turnover' accordingly.

Allocation of Interest Income for Deduction under Section 10A:
The tribunal analyzed the treatment of interest income for deduction under section 10A. It concluded that interest income allocated by the AO did not form part of the profits eligible for deduction. Therefore, the tribunal overturned the order to prevent further reduction of allocated interest from eligible business profits.

Computation of Book Profit under Section 115JB:
The ground regarding the computation of book profit under section 115JB was not pressed and stood dismissed.

Credit for Advance Tax and Levy of Interest:
The tribunal directed the AO to verify and allow the proper amount of credit for advance tax. The issues related to the levy of interest under sections 234B and 234C were deemed consequential and required verification by the AO.

Computation of Total Tax Liability:
An issue was raised concerning the computation of total tax liability, specifically regarding the interest chargeable under sections 234B and 234C. The AO was directed to verify the contentions and decide accordingly.

In conclusion, the appeal was partly allowed, with specific directions given for each issue raised in the judgment.