2015 (3) TMI 503 - AT - Income Tax

Deduction u/s.10A - Revenue assails the order of the CIT(A) in directing the AO to exclude the reimbursement of expenditure incurred in foreign exchange towards foreign travel and insurance expenses both from the export turnover as well as total turnover while computing the deduction under Section 10A - Held that - Respectfully following the decision of Tata Elxsi Ltd. (2011 (8) TMI 782 - KARNATAKA HIGH COURT ) we uphold the order of the learned CIT (Appeals) in directing the Assessing Officer to reduce the expenditure incurred in foreign currency on travelling, insurance and provision of technical services abroad from both export turnover and total turnover for the purpose of computing the deduction under section 10A of the Act in the case on hand as there should be uniformity in the ingredients of both the numerator and the denominator of the formula - Decided against revenue. Subscription for Broadband facility - whether not in the nature of fees for technical services ( FTS ) and therefore there is no requirement for TDS to be made under Section 194J? - CIT(A) delted disallowance - Held that - Revenue failed to bring on record any material evidence or place before us any judicial decision that controverts the finding of the learned CIT(A) on this issue. In this view of the matter, we concur with the view of the learned CIT(A) in following the aforesaid judicial pronouncements CIT V Bharti Cellular Ltd. 2008 (10) TMI 321 - DELHI HIGH COURT , Skycell Communication Ltd. V CIT 2001 (2) TMI 57 - MADRAS High Court , Expeditors International (India) (P) Ltd. V CIT 2008 (8) TMI 399 - ITAT DELHI-F and Pacific Internet (India) (P) Ltd. V ITO 2008 (12) TMI 429 - ITAT MUMBAI that endorse the view that the payment of ₹ 337,080 towards subscription of broadband facility are not in the nature of technical services and therefore TDS need not be made thereon as per the provisions of section 194J of the Act. - Decided against revenue. Repair charges disallowed - CIT(A) allowed claim - Held that - In an appreciation of the facts on record we concur with the observations of the learned CIT(A) that the view of the Assessing Officer, that the expenditure incurred on repairs and maintenance and shifting of assets being capital in nature, is not borne out by any material evidence to establish that the said expenditure of ₹ 17,94,630 has resulted in any enduring benefit to the assessee. Before us also except for raising the ground, the Revenue had not been bring on record any material evidence to controvert this finding of the learned CIT(A) and restore the view of the Assessing Officer. In this view of the matter, we uphold the finding of the learned CIT(A) that the expenditure of ₹ 17,94,830 incurred on repairs and maintenance and shifting of assets is revenue in nature.- Decided against revenue.

Summary

Issues Involved:
1. Exclusion of expenditure from export and total turnover for deduction under Section 10A.
2. Nature of broadband services subscription and applicability of TDS under Section 194J.
3. Classification of repair charges as capital or revenue expenditure.

Issue-wise Detailed Analysis:

1. Exclusion of Expenditure from Export and Total Turnover for Deduction under Section 10A:
The Revenue challenged the CIT(A)'s direction to exclude foreign travel and insurance expenses from both export turnover and total turnover when computing the deduction under Section 10A. The CIT(A) followed the Karnataka High Court decision in Tata Elxsi Ltd., which mandates that if such expenses are excluded from export turnover, they must also be excluded from total turnover to maintain uniformity in the formula used for deduction computation. The Tribunal upheld CIT(A)'s order, stating that the Revenue's contention would lead to an absurdity where the same expenses would be treated differently within the same formula. Thus, the Tribunal dismissed Revenue's appeal on this ground.

2. Nature of Broadband Services Subscription and Applicability of TDS under Section 194J:
The Revenue contested the CIT(A)'s decision that subscription for broadband services does not constitute fees for technical services (FTS) and thus does not require TDS under Section 194J. The CIT(A) relied on judicial precedents, including CIT V Bharti Cellular Ltd. and Skycell Communication Ltd. V CIT, which supported the view that such services are not technical services. The Tribunal found that the Revenue did not provide any contrary evidence or judicial decisions to refute CIT(A)'s findings. Consequently, the Tribunal upheld CIT(A)'s decision and dismissed the Revenue's appeal on this issue.

3. Classification of Repair Charges as Capital or Revenue Expenditure:
The Revenue argued that the repair charges incurred for granite work, pavement work, gate, and septic tank should be classified as capital expenditure. The CIT(A) held that these expenses were for the upkeep and maintenance of assets and did not result in any enduring benefit, thus qualifying as revenue expenditure. The Tribunal agreed with CIT(A), noting that the Revenue failed to provide material evidence to support the classification of these expenses as capital expenditure. Therefore, the Tribunal upheld CIT(A)'s decision and dismissed the Revenue's appeal on this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal for the Assessment Year 2009-10, upholding the CIT(A)'s decisions on all contested issues. The order was pronounced in the open court on 13th Feb., 2015.