2018 (11) TMI 1559 - HC - Income Tax

TDS u/s 195 - disallowance u/s.40(a)(i) - payment to utilize its bandwidth - non deduction of tds - payment of subscription charges - Held that - Questions of law are covered by the judgment of this Court in the case of COMMISSIONER OF INCOME TAX AND ANOTHER vs. M/s. INFOSYS TECHNOLOGIES LTD, 2015 (3) TMI 850 - KARNATAKA HIGH COURT and connected matters, disposed off on 02.06.2014, whereby the said substantial questions of law were answered in favour of the Revenue and against the assessee, subject to the result of the SLP filed by the assessee before the Hon ble Supreme Court, Post sale customer support as an allowable deduction - past history showed accumulated provisions which was carried forward and made in excess of requirement - Held that - Issue remanded to the Tribunal for a fresh consideration in terms of the direction issued in the earlier case of the assessee itself. Computation of deduction u/s 10A - telecommunication charges was liable to be reduced from both export turnover as well as total turnover - Held that - Substantial question of law is covered by the judgment of the Hon ble Supreme Court in the case of COMMISSIONER OF INCOME TAX, CENTRAL-III vs. HCL TECHNOLOGIES LTD. reported in 2018 (5) TMI 357 - SUPREME COURT . Following the said judgment, the fourth substantial question of law is answered in favour of the assessee Computation of deduction u/s. 80HHE - whether the total turnover of the units eligible for deduction u/s. 80HHE of the Act, should be taken into account and not the entire turnover as per the P & L account as held by the Assessing Officer? - Held that - Substantial question of law is covered by the judgment of this Court in the case of COMMISSIONER OF INCOME TAX AND ANOTHER vs. M/s. INFOSYS TECHNOLOGIES LTD. 2015 (3) TMI 850 - KARNATAKA HIGH COURT - substantial question of law is answered in favour of assessee and against the Revenue.

Summary

Issues:
1. TDS deduction on payments made to utilize bandwidth.
2. TDS liability on subscription charges for licenses.
3. Allowability of post-sale customer support deduction.
4. Treatment of telecommunication charges in deduction computation.
5. Computation of deduction under section 80HHE based on turnover.

Analysis:
1. The first and second issues revolve around the Tax Deducted at Source (TDS) implications on payments made to M/s. AT & T, M/s. MCI, M/s. Gartner Group, Faster Research Inc., Mehta Group, and Giga Group. The Tribunal's decision on the TDS applicability under section 195 of the Act and subsequent disallowance under section 40(a)(i) was challenged. The Court referred to a previous judgment involving M/s. Infosys Technologies Ltd. where similar questions were answered in favor of the Revenue. The Court upheld the Tribunal's decision, subject to the outcome of a Special Leave Petition (SLP) filed before the Supreme Court.

2. Regarding the third issue, concerning the deduction of post-sale customer support expenses, the Court remanded the matter back to the Tribunal for fresh consideration based on directions from a previous case involving the same assessee. The issue of accumulated provisions and excess provisions from past history was highlighted for review.

3. The fourth issue addressed the treatment of telecommunication charges amounting to Rs. 10,37,42,694 in the computation of deductions under section 10A of the Act. The Court relied on a Supreme Court judgment involving HCL Technologies Ltd., where it was established that such charges should be reduced from both export turnover and total turnover for deduction computation purposes, despite the absence of specific provisions in the section.

4. Lastly, the fifth issue pertained to the computation of deductions under section 80HHE based on turnover considerations. The Court referenced a judgment involving M/s. Infosys Technologies Ltd. and ruled in favor of the assessee, emphasizing that the turnover of units eligible for deduction under section 80HHE should be considered, not the entire turnover as per the Profit & Loss account. The Court aligned its decision with the precedent set in the aforementioned case.

In conclusion, the Court addressed each issue comprehensively, relying on previous judgments and legal interpretations to provide clarity on the contentious matters raised in the appeal. The judgment provided nuanced insights into TDS implications, deduction calculations, and turnover considerations, ensuring a thorough analysis of the tax-related disputes presented before the Court.