9911796707
TMI Blog2020 (7) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005-06] 2. Ground No. 1 relates to the disallowance made u/s 14A of the Income tax Act, 1961 [hereinafter referred to as 'The Act' for short] being 10% of dividend income earned during the financial year. 3. Facts on record show that during the year under consideration, the assessee earned dividend income of Rs. 6,12,626/-. However, no disallowance was made by the assessee u/s 14A of the Act in respect of earning this exempt income. The Assessing Officer was of the firm belief that some expenses need to be disallowed for earning this exempt income. The Assessing Officer was of the opinion that for earning dividend income, there are various administrative expenses involved, like taking the decision of investment, expenses relates to purchase/sale of the investment, like the DMAT fee, collection expenses, telephone expenses etc and other administrative expenses as well as personnel cost. 4. The Assessing Officer accordingly, disallowed by estimating 25% of the dividend income and made addition of Rs. 1,53,157/-. 5. When the matter was agitated before the ld. CIT(A), the ld. CIT(A) was of the opinion that 10% of the dividend earned to be reasonable amount that must have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred in foreign exchange in providing the technical services outside India. 13. Details were furnished by the assessee. After perusing the details, the Assessing Officer asked the assessee to explain as to why the tele-communication expenses pertaining to the delivery of the computer software not be excluded from the export turnover for the purpose of computation of deduction u/s 10A of the Act. The assessee was also asked to explain as to why the expenses incurred in foreign currency for the purposes of providing the technical services outside India not be excluded from the export turnover for the purpose of calculation of deduction u/s 10A of the Act. 14. In its reply, the assessee contended that such expenditure could only be excluded from the export turnover only when these are included in the export turnover in the first place. It was pointed out that since the aforesaid expenditure had not been included in the export income and also since no specific reimbursement was claimed in respect of these expenses, the same were not forming part of the export turnover, and accordingly, such expenditure should not be excluded from its export turnover for calculation of dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich read as under: 21. We have considered the submissions of both the parties and carefully gone through the material available on record. It is noticed that an identical issue has been decided in favour of the assessee by the Special Bench of ITAT Chennai in the case of ITO v. Sak Soft Ltd. 313 ITR (AT) 353 (Chennai)(SB) wherein it has been held as under: "To say that in the absence of any definition of "total turnover" for the purpose of section 10B, there is no authority to exclude anything from the expression as understood in general parlance would be wrong, as there has to be an element of turnover in the receipt if it has to be included in the total turnover. That element is missing in the case of freight, telecom charges or insurance attributable to the delivery of the goods outside India and expenses incurred in foreign exchange in connection with the providing of technical services outside India. These receipts can only be received by the assessee as reimbursement of such expenses incurred by him. Mere reimbursement of expenses cannot have an element of turnover. It is only in recognition of this position that in the definition of "export turnover" in section 10B, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aras 8 and 9 has held as under: "8. With regard to the revenue's ground of appeal, he submitted that the issue is squarely covered by a number of decisions of the ITAT. He relied upon the order of the ITAT in the case of Binary Sematics (supra) and the order of the ITAT in the case of ACIT Vs Infoses Technologies reported in 172 Taxman 134. Similarly, he pointed out that an identical issue has been considered by the ITAT, Hyderabad Bench in the case of Patni Telecommunication (P) Ltd. Vs ITO reported in (2008) 22 SOT 26 (Hyd.). Learned DR was unable to controvert the contentions of the learned counsel for the assessee. 9. On due consideration of the facts and circumstances of the case, we find that this issue has been considered in detail by the ITAT in the above orders and it has been held that if such expenses are to be excluded from the export turnover then they are to be excluded from the total turnover also. Respectfully following the orders of the ITAT, we do not find any merit in the ground raised by the revenue. Learned CIT(Appeals) has rightly directed the Assessing Officer to exclude such expenses from the total turnover also while computing the deductions under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16,06,36,027/-, the Assessing Officer was of the opinion that 1/10th of the payment is to be allowed u/s 35ABB of the Act for expenses incurred during the year under consideration and accordingly, disallowed excess amount of Rs. 14,45,72,425/- 30. The assessee carried the matter before the ld. CIT(A) and reiterated its contentions as taken before the Assessing Officer. 31. The ld. CIT(A) found that in A.Y 2007-08, his peer has deleted the additions made by the Assessing Officer and following the same, the ld. CIT(A) deleted the addition. 32. Before us, the ld. DR strongly supporting the findings of the Assessing Officer reiterated that the expenditure is of capital in nature and there is no error in the findings of the Assessing Officer. 33. The ld. counsel for the assessee drew our attention to the decision of the co-ordinate bench. 34. We have given thoughtful consideration to the orders of the authorities below. We find force in the contention of the ld. counsel for the assessee. An identical issue was considered by the co-ordinate bench in assessee's own case in ITA Nos. 4546/DEL/2013 and 5106/DEL/2013. The relevant findings of the co-ordinate bench read as under: "30. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justify treating the licence fee paid on revenue sharing basis under the 1999 policy as a capital expense made to acquire an asset. The payment of yearly licence fee on revenue sharing basis was for carrying on business as cellular telephone operator and, thus it was a normal business expense. Read in this manner, the licence granted by the Government/authority to the assessee would be a capital asset, yet at the same time, the assessee has to make payment on yearly basis on the gross revenue to continue, to be able to operate and run the business, it would also be revenue in nature. Failure to make stipulated revenue sharing payment on yearly basis would result in forfeiting the. right to operate and in turn deny the assessee, right to do business with the aid of the capital asset. Non-payment will prevent and bar an assessee from providing services. In aforesaid circumstances, it would be appropriate and proper to apportion the licence fee as partly revenue and partly capital. The next obvious question is, on what basis apportionment should be done and what could be the proportion of apportionment between capital and revenue expenditure. In this regard it would be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure is allowed, it would be revenue or tax neutral provided the tax rates remain the same during this period." 31. The Hon'ble Jurisdictional High Court concluded as under: (i) The expenditure incurred towards licence fee is partly revenue and partly capital. Licence fee payable up to 31- 7-1999 should be treated as capital expenditure and licence fee on revenue sharing basis after 1-8-1999 should be treated as revenue expenditure. (ii) Capital expenditure will qualify for deduction as per section 35ABB. 32. Facts of the present case appears to be similar to the facts involved in the case of CIT Vs Bharti Hexacom Ltd. (Delhi) (supra), we, therefore, restored this issue to the file of the AO to be decided in accordance with the findings given by the Hon'ble Jurisdictional High Court in the case of Bharti Hexacom Ltd. (supra) and if any expenditure on account of licence fee was payable up to 31.07.1999, it should be treated as capital expenditure and the licence fee on revenue sharing basis after 01.08.1999 should be treated as revenue in nature." 35. On finding parity on the facts of the case under consideration we direct accordingly. Ground Nos. 2 and 3 are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of NTPC [supra] has laid down the ratio that the legal issue can be raised by way of additional ground before the appellate authorities. 45. Similar issue arose before the Tribunal in the case of Maruti Suzuki in ITA No. 961/DEL/2015 wherein the co-ordinate bench by way of an interim order held as under: "11. We have given thoughtful consideration to the submissions made by the rival representatives and have carefully considered the issues raised vide additional ground mentioned elsewhere. At the very outset, we have to state that a legal plea can be raised at any point of time. In the present case, the appeal was heard earlier, but marked as 'Part Heard' and subsequently released, which means that the appeal was never adjudicated by the Tribunal. In our considered opinion, there is no limit of time to raise an additional ground of appeal, which can be raised at any time before disposal of the appeal. Further, there is no estoppel in law. It is the settled proposition of law that mere procedural lapse, or omission on the part of assessee, cannot lead to denial of substantive benefit/ eligible claim in the hands of such assessee." 46. The aforesaid decision in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the Government of any country outside India- (a) for the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country; or..." 28. The notes on clauses to Finance Bill, 2003 which explains Clause 43 seeking amendment to the Act reads as follows: "Clause 43 seeks to amend section 90 of the Income-tax Act relating to agreement with foreign countries. The existing provisions of the said section, inter alia, provide that the Central Government may enter into agreement with the Government of any country outside India for granting of relief in respect of income on which have been paid both income-tax under the Income Tax Act and income-tax in that country, or for the avoidance of double taxation of income under that Act and under the corresponding law in force in that country, etc. It is proposed to substitute clause (a) of sub-section (1) of the said section to provide that the Central Government may enter into an agreement with the Government of any country outside India for the granting of relief, inter alia, in respect of income-tax chargeable under the Income-tax Act or under the corresponding law in force ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in the Official Gaxette, make such provisions as may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. (2A) Notwithstanding anything contained in sub- section (2), the provisions of Chapter X-A of the Act shall apply to the assessee even if such provisions are not beneficial to him. (3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf." 30. Sub-section (1) lays down that the Central Government may enter into an agreement with the Government of another coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uble taxation; the assessee must show that the identical income has been doubly taxed and that he has paid tax both in India and in the foreign country on the same income. Section 91 makes it clear that if a person who is residing in India has paid tax in any country with which, there is no agreement under Section 90 for the relief or avoidance of double taxation, income tax if deducted or otherwise paid as per law in force in that Country, then he shall be entitled to the deduction from the Indian Income Tax payable by him in a sum computed on such doubly taxed income, at the Indian rate of tax or the rate of tax of the said country, whichever is lower or the Indian rate of tax, if both the rates are equal. 34. In fact, the Circular No.333 dated April 2, 1982 clarifies the legal position. The said circular reads as under:- "The correct legal position is that where a specific provision is made in the Double Taxation Avoidance Agreement, that provision will prevail over the general provisions contained in the Income Tax Act, 1961. In fact the Double Taxation Avoidance Agreements which have been entered into by the Central Government under Section 90 of the Income Tax Act, 1961, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es no provision making legislation a condition for the entry into an international treaty in time either of war or peace. The executive power of the Union is vested in the President and is exercisable in accordance with the Constitution. The Executive is qua the State competent to represent the State in all matters international and may by agreement, convention or treaty incur obligations which in international law are binding upon the State. But the obligations arising under the agreement or treaties are not by their own force binding upon Indian nationals. The power to legislate in respect of treaties lies with the Parliament under entries 10 and 14 of List I of the Seventh Schedule. But making of law under that authority is necessary when the treaty or agreement operates to restrict the rights of the citizens or others or modifies the law of the State. If the rights of the citizens or others which are justiciable are not affected, no legislative measure is needed to give effect to the agreement or treaty. When it comes to fiscal treaties dealing with double taxation avoidance, different countries have varying procedures. In the United States such a treaty becomes a part of mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey could also be requested to extend the same benefit. If the contracting country agrees to extend the said benefit, then the assessee gets the relief. In another scenario, though the said income is exempt in this country, by virtue of the agreement, the amount of tax paid in the other country could be given credit to the assessee. Thus for the payment of income tax in the foreign jurisdiction, the assessee gets the benefit of its credit in this country. 40. However, if the contracting country is not agreeable to extend the said benefits, then in terms of the agreement and probably in terms of the exemption granted, the assessee would be entitled to benefit only in this country on account of the exemption and the benefit in the other country is not extended. Thus when exemption is granted in respect of the income chargeable to tax under this Act in respect of which no benefit is granted in the corresponding country the assessee gets no benefit. However, if the benefit is extended to a portion of the income say for example 90% and 10% is subjected to tax then to that extent the assessee would be entitled to benefit of tax credit as he has paid tax in the foreign jurisdiction as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee." 44. This provision provides for a deduction of profits or gains derived from export by an undertaking for a period of ten years. The profits and gains derived by such undertaking would form part of the income chargeable to income tax under Sections 4 and 5 of the Act. Therefore, when an assessee is having several undertakings, one of which falls under Section 10A, the assessee's entire income from all the undertakings is computed to arrive at the total income. However, the income from such undertaking falling under Section 10A has to be deducted from the total income. 51. If section 10A is to be given effect to as a deduction from the total income as defined in Section 2(45), it would mean that section 10A is to be considered after Chapter VI-A deductions are given from out of the gross total income. The term "gross total income" is defined in section 80B(5) to mean the total income computed in accordance with the provisions of this Act, before making any deduction under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable under the Income Tax Act or under the corresponding law in force in that country, to promote mutual economic relations, trade and investment. Therefore, the statute by itself is not granting any relief. But, by virtue of the statute, if an agreement is entered into providing for such relief, then the assessee would be entitled to such relief. 53. Relying on the judgments in the case of Wallace Flour Mills Co. Ltd. v. Collector of Central Excise [1989] 4 SCC 592, and in the case of Kasinka Trading v. Union of India [1995] 1 SCC 274, it was held that merely because exemption has been granted in respect of the taxability of particular source of income, it cannot be formulated that the entity is not liable to tax as contended by the respondents. 54. In fact the Apex Court in the case of Kasinka Trading (supra), a case arising under Customs Act at para 21 has held as under: 'The power to grant exemption from payment of duty, additional duty etc. under the Act, as already noticed, flows from the provisions of Section 25(1) of the Act. The power to exempt includes the power to modify or withdraw the same. The liability to pay customs duty or additional duty under the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said exemption granted under the statute has the effect of suspending the collection of income tax for a period of 10 years. It does not make the said income not leviable to income tax. The said exemption granted under the statute stands revoked after a period of 10 years. Therefore, the case falls under Section 90(1)(a)(ii). 57. In the background of this legal position, we have to look into the Double Taxation Agreements entered into between India and United States, Canada. (1) INDO-US AGREEMENT: 58. Article 25 of the Indo - US Double Taxation Agreement deals with Relief from double taxation. Clause 2(a) is the relevant provision. It reads as under: "2.(a) Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the United States, whether directly or by deduction. Such deduction shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed in the United States." 59. A perusal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at relevant financial year in America, i.e., the income attributable to that year in America. In other words, the income tax paid in the same calendar year in United States of America is to be accounted for two financial years in India. Of course, this exercise should be done by the assessing authority on the basis of the material to be produced by the assessee. 52. In view of the above, we are of the considered view that the facts of the case in hand are in parity with the facts considered by the Hon'ble Karnataka High Court [supra] wherein Article 25 of Indo US DTAA has been elaborately explained by the Hon'ble High Court. The most relevant findings of the Hon'ble High Court are as under: "Therefore, while claiming credit in India, the assessee would be entitled to only the tax paid for that relevant financial year in America, i.e., the income attributable to that year in America. In other words, the income tax paid in the same calendar year in United States of America is to be accounted for two financial years in India. Of course, this exercise should be done by the assessing authority on the basis of the material to be produced by the assessee." 53. The issue ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n identical issue has been considered and decided by us hereinabove in ITA No. 5924/DEL/2014 [supra] vide Ground Nos. 2 and 3. For our detailed discussion given therein, Ground Nos. 2 and 3 are dismissed. 64. Ground Nos. 4 and 5 relate to the determination of deduction u/s 10A of the Act with respect to expenses in the nature of communication expenses and expenses incurred in foreign currency. 65. These issues have been elaborately considered and decided by us hereinabove in assessee's appeal in ITA No. 5924/DEL/2014 [supra] vide ground Nos. 4 and 5. For our detailed discussion given therein, Ground Nos. 4 and 5 are dismissed. 66. In the result, the appeal of the Revenue is dismissed. TA No. 835/DEL/2014 Assessee's appeal for A.Y 2008-09. 67. Ground No. 1 relates to the disallowance made u/s 14A of the Act r.w.r 8D of the Rules amounting to Rs. 32,91,173/-. 68. During the course of scrutiny assessment proceedings, the Assessing Officer found that the assessee has earned dividend income of Rs. 2,31,458/- which was claimed as exempt from tax. Invoking provisions of section 14A r.w.r 8D of the Act, the Assessing Officer computed the disallowance at Rs. 32,91,173/-. 69. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctfully following the findings of the co-ordinate bench in assessee's own case, the additions are deleted. Ground No. 1 is allowed. 76. Ground Nos. 2, 3 and 4 relate to determination of deduction u/s 10A of the Act in respect of foreign currency expenses and telecommunication charges. 77. This issue has been considered and decided by us hereinabove in ITA No. 5555/DEL/2014 [supra] vide Ground Nos. 2, 3 and 4. For our detailed discussion given therein, Ground Nos. 2, 3 and 4 are dismissed. 78. Ground No. 5 relates to addition of Rs. 25,69,000/- being advances given by the assessee in earlier year. 79. During the course of scrutiny assessment proceedings, the assessee was asked to give details of debts/advances written off amounting to Rs. 37,91,456/-. 80. In its reply, the assessee contended that the advances written off during the year are trade advances, which were expended by the assessee in the normal course of its business to its associates and have been actually written off in the books of accounts as irrecoverable. 81. In respect of advances written off amounting to Rs. 25.69 lakhs, it was explained that the assessee was required to pay 1000/- per VSAT linking as WPC ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiming it as advance recoverable from DOT, but, at the same time, write off during the year under consideration cannot be brushed aside lightly as in case the same has to be considered as business loss. 89. Now the only issue which needs our consideration is whether the same is prior period expenses. In our considered opinion, and looking to the returned income of the assessee, in earlier years, we find that there would be no revenue leakage as the assessee is consistently subjected to same rate of income tax. Therefore, in the interest of justice and fair play, we do not find any merit in the disallowance made. We, accordingly, direct the Assessing Officer to delete the addition of Rs. 25.69 lakhs. Ground No. 5 is allowed. 90. By way of an application dated 01.08.2016, the assessee has raised an additional ground which reads as under: "That the Assessing Officer ought to have allowed Foreign Tax Credit of Rs. 2,20,61,027/- in pursuance to law clarified by the Hon'ble High Court of Karnataka in the case of Wipro 382 ITR 179. 91. The issue relating to admission of additional ground and adjudication thereon has been elaborately considered by us in ITA Nos. 6162/DEL/2013 for ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
