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TMI Blog2015 (3) TMI 850X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act? - Held that:- Issue is already covered by a Judgment of this Court in Infosys Technologies Ltd. [2011 (11) TMI 443 - KARNATAKA HIGH COURT ] in favour of the assessee and against the Revenue arrived at by the authorities is justified as the fluctuation in the valuation of currency which has to be converted to foreign currency has direct nexus to the export of software and can never be included as income from other sources. Wherefore, the said finding does not suffer from any error or illegality as to call for interference in this appeal Accordingly, we answer the fourth' . - Decided in favour of assessee. Expenditure towards travel expenses, professional charges, maintenance allowance and other expenses in foreign currency - whether is not deductible either from export turnover or total turnover when computing deduction under Section 80HHE of the Act? - Held that:- In the assessee's own case [2013 (6) TMI 193 - KARNATAKA HIGH COURT], this Court decided that the assessing officer has to examine the material relevant for the period of assessment to be produced by the assessee and to record a finding as to the nature of the activity keeping in view the legal posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes the total turnover of export and the total turnover in the domestic market. But, merely because the assessee is owning two more units which fall under section 10A, which is also engaged in computer business and is in the export business neither the profit earned by 10A units nor the total turnover of the said 10A units is liable to be included in the total turnover. Therefore, in computing the profits of the said units, the turnover of 10A units could be added to find out the profit from export of computer software under section 80HHE and ... therefore, the said question was held against the revenue and in favour of the assessee. Provision for post sales customers support service - whether is an allowable deduction when the particulars of the same was not furnished nor method of arriving at it was not disclosed and consequently recorded a perverse finding as the same had not accrued? - Held that:- This question arose for consideration in the assessee's case itself [2011 (12) TMI 330 - KARNATAKA HIGH COURT] wherein held he benefit of the decision of the hon'ble Supreme Court in Rotork Controls India P. Ltd.'s case [2009 (5) TMI 16 - SUPREME COURT OF INDIA] was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of two statutory provisions and the various decisions on the point whether assessee is entitled to exclusion of the expenditure incurred towards technical services. Therefore, as none other authorities have applied their mind in this regard, it is appropriate to set aside the judgment and remand the matter back to the assessing authority to make the aforesaid computation. The Assessing Authority also shall decide whether the said amount has to be deducted when it is deducted from export turnover whether it has to be deducted from total turn over also in the light of various decisions. - Decided in favour of assessee. - ITA NO. 422/2008 & ITA NOS. 194/2008 C/W 192/2008 - - - Dated:- 2-6-2014 - N. KUMAR AND B. MANOHAR, JJ. For The Appellant : K.V. Aravind, Advocate For The Respondent : T. Suryanarayana, Advocate JUDGMENT These three appeals preferred by the revenue is against the same assessee for different years of assessment. ITA 422/2008 relates to the assessment year 2001-02. ITA 192/2008 relates to assessment year 2002-03 and ITA 194/2008 relates to assessment year 2003-04. 2. The substantial questions of law raised by the revenue in ITA 422/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies were correct in holding that a sum of ₹ 4,25,000/- paid towards club membership fee is an allowable business expenditure when the same is capital in nature? (9) Whether the Appellate Authorities were correct in holding that a sum of ₹ 8,93,40,000/- received on sale of Onscan International Notification System to M/s Onscan INC., California is a revenue expense not taking into consideration the agreement entered into between the parties which shows that it was a capital asset attracting short term capital gains? (10) Whether the Appellate Authorities were correct in holding that a sum of ₹ 8,93,40,000/- had been claimed as an expenditure which had been already allowed during the earlier assessment years including A.Y.2000-01 and consequently recorded a perverse finding? 3. Some of these questions of law do arise for consideration for the two subsequent years also.Therefore, they are taken up for consideration together and by a common order these three appeals are disposed of. Question No. 1: Whether the appellate authorities were correct in holding that an amount of ₹ 10,39,88,322/- paid to M/s AT T and MCI Telecommunication towards dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion of law held as under: In IT Appeal Nos.2804, 2805 and 2807 of 2005 and connected cases, wherein identical contentsions had been raised, this Court by separate order passed today, has reversed the decision of the Tribunal in Wipro's case in IT Appeal Nos.150 to 154 of 2004 dated 30th December, 2004. Therefore, following the reasons assigned in ITA Nos.2804, 2805 and 2807 of 2005, disposed of by us by a separate order today, we hold that the order of the Tribunal dated 11th November, 2005 impugned in these appeals, where the Tribunal has relied upon its earlier decision in Wipro Ltd.'s case (supra) in arriving at the conclusion that the payment made by the respondent - assessee to M/s.Gartner, a non-resident company would not amount to royalty, cannot be sustained and the same is liable to be set aside. We answer the substantial question of law framed in all these appeals as to whether the Tribunal was justified in holding that the payment made by the respondent to M/s.Gartner, a non-resident company did not amount to royalty, in the negative in favour of the Revenue and against the assessee and accordingly, pass the following order: All the appeals are allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to interfere with the order passed by the tribunal. Question No.4: Whether the appellate authorities were correct in holding that expenditure towards travel expenses, professional charges, maintenance allowance and other expenses in foreign currency of ₹ 8,46,36,076/-is not deductible either from export turnover or total turnover when computing deduction under Section 80HHE of the Act? In the assessee's case, this Court in ITA Nos.2973 c/w 2972, 2974 3015/2005 decided on 13.02.2013 held the assessing officer has to examine the material relevant for the period of assessment to be produced by the assessee and to record a finding as to the nature of the activity keeping in view the legal position discussed in the aforesaid judgment and answered the question related to exclusion of expenses strictly keeping in view the kind of amounts sought to be excluded in the case of export turnover being attributable to the export of computer software,in which event, the exclusion being only freight telecommunication charges or insurance attributable to the delivery of the computer software outside India and if it is the case of providing technical services outside India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more units which fall under section 10A, which is also engaged in computer business and is in the export business neither the profit earned by 10A units nor the total turnover of the said 10A units is liable to be included in the total turnover. Therefore, in computing the profits of the said units, the turnover of 10A units could be added to find out the profit from export of computer software under section 80HHE and ... therefore, the said question was held against the revenue and in favour of the assessee. Therefore, the order passed by the appellate tribunal granting the benefit to the assessee cannot be found fault with and accordingly, the said issue is also held in favour of the assessee and against the revenue. Question No.7: Whether the appellate authorities were correct in holding that a sum of ₹ 1,83,20,669/- debited towards provision for post sales customers support service is an allowable deduction when the particulars of the same was not furnished nor method of arriving at it was not disclosed and consequently recorded a perverse finding as the same had not accrued? This question arose for consideration in the assessee's case itself before this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tribunal requires to be set-aside and the matter is to be remanded to the tribunal for fresh consideration in terms of the directions issued in the aforesaid case in the assessee's case itself. Question No.8: Whether the Appellate Authorities were correct in holding that a sum of ₹ 4,25,000/- paid towards club membership fee is an allowable business expenditure when the same is capital in nature? This question came up for consideration in the assessee's case itself which is reported in (2012) 349 ITR 582 decided on 21.10.2011, wherein it is held as under: Re : Substantial question of law (1) in all the appeals : The only ' reason assigned by the Assessing Officer to hold that expenditure incurred towards acquisition of membership of various clubs by the respondent-assessee is that the benefit conferred on the assessee is of enduring nature and therefore, it is a capital expenditure. Further, the appellate authority on consideration of the contention of the learned counsel appearing for the parties, held that the expenditure incurred towards acquisition of membership of the club is revenue expenditure as the acquisition of membership of the clu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. The question must be viewed in the larger context of business necessity or expediency. In the decision relied upon by the learned counsel appearing for the assessee as referred to above, it has been specifically held that acquisition of membership of the club would be revenue expenditure and not capital expenditure and decision of this Court relied upon by the learned counsel appearing for the assessee in CIT v. Wipro Systems [2010] 325 ITR 234 (Karn.) would also show that the amount spent towards the membership acquired by the assessee should be treated as revenue expenditure. Therefore, the concurrent finding arrived at by the appellate authority and the Income-tax Appellate Tribunal that the expenditure incurred for acquisition of membership of the club is revenue expenditure, is justified and cannot at all said to be perverse or arbitrary so as to call for interference in this appeal. Accordingly, we answer the first sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lecommunications charges to the tune of ₹ 13,35,43,266/- from export turn over is held to be in order as the same is in accordance with the explanation (2)(iv) to Section 10-A of the Act. The argument of the revenue is, unless a clear finding is recorded regarding the export turn over arising out of export activity and technical services rendered and the nature of expenses, the. Appellate Authorities were not justified in holding that the same cannot be excluded from export turn over. 6. Per contra, learned counsel appearing for the assessee pointed out insofar as deduction under Section 80-HHE of the Act is concerned, it relates to both export activity as well as providing technical services out side India and therefore, only in those cases a computation is to be made under each head the amount of expenditure incurred . The said principal is not an obligation to claim under Section 10-A of the Act as, it only deals with export of articles or things or computer software and has no application with the technical services rendered outside the country. Even in respect of export activity, either before the export activity takes place or after expiry activity before the sale i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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