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TMI Blog2013 (4) TMI 995X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Ld. CIT(A), the Revenue is now in appeal before us and has raised the following grounds: "1. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of deduction u/s. 10A of the Act of Rs.1,35,12,128/- made by the AO on account of the income earned on account of foreign exchange fluctuation gain and profit not derived from export business. 2. The Ld.CIT(A) has erred in law and on facts to deleted the disallowance of Rs. 12,04,92,517/- made under the provisions of Section 40(a)(ia) of the Act in respect of expenses incurred and paid by the assessee in its branch at UK. 3. The Ld. CIT(A) has erred in law and on facts deleted the disallowance of Rs. 81,33,447/-made on account of 20% of recruitment and training charges not incurred for the purpose of business. 4. The Ld. CIT(A) has erred in law and on facts deleted the addition of Rs. 26,02,07,754/-made by the TPO u/s. 92CA(3) on account software services distributed by MUK, human resources management service and excess credit period granted to AES. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 6. It is, therefore, prayed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of foreign currency prevailing on the date of making of the sale bill. When the foreign bills are realized by tile foreign buyers, what the assessee receives is exactly the amount of foreign currency mentioned in the bill and the assessee's bankers credit the actual amount of such, foreign currency by converting the same into Indian Rupee at the rate prevailing on the date of conversion. In this process assessee receives some times more and some time less amount in India Rupee then the notional value of goods shown in the books at the time of exports. Thus, there is a direct nexus between amount realized on account of export sales and exchange rate difference whether treated by the assessee in the books as receives from export sales or from exchange rate fluctuation." 4.3 . Therefore, in view of the above, deduction should be allowed to the appellant u/s.l0A on the surplus from exchange rate fluctuations arising on account of exports and restatement of debtors and creditors. As such, the AO is directed to calculate/ascertain the nature of exchange gain and grant the deduction u/s 10A on the exchange rate fluctuations on arising on account of exports as has been held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's own cases for the assessment year 2006-07 where the assessee's ground was allowed by ITAT deleting the disallowance made u/s 40A(1). Ld. CIT(A) after considering the submissions of the assessee deleted the addition made by the A.O. by holding as under: "6.12 It may be further pointed out that Article 7 of the DTAA between India and UK states that business income of the UK enterprise shall not be taxable in India unless the UK enterprise has a Permanent Establishment ('PE') in India. The Ld. A.R pointed out that the entities from whom UK branch availed services does not have PE in India. From the invoices submitted, it was observed that these entities' are based in the United Kingdom with no business presence in India. The A.O while drawing adverse conclusion has not brought any fact on record to controvert the claim of the appellant in this regard. I am of the view that the professional fees payable to should be considered as business income of the said entities and in the absence of PE in India, the same would not be liable to tax in India. As such, the provision of section 195 of the IT Act are not attracted on such payments and consequently no disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. 6.15 Considering the above and the decisions in the case of Raymond Ltd. V. DCIT (Supra), McKinsey & CO. inc. V. ADIT (Supra), AAR Ruling in case of Intertek Testing Services India Pvt. Ltd. (Supra) and various other decision cited by the appellant, in my view, the fact that the provisions of the service may require technical knowledge by the service provider does not per se mean that technical knowledge; skills etc. are made available to the person receiving the service and accordingly not liable to tax in India as FTS. 6.16 In view of the above discussion and following the order of the ITAT for AY 2006-07 and my predecessor for AY 2005-06, no disallowance out of expenses by the appellant's branch in UK is called for and the AO is directed to delete the disallowance of Rs. 12,04,92,517. This ground is accordingly allowed." 8. Before us, Ld. D.R. relied on the order of the A.O. whereas the Ld. A.R. supported the order of Ld. CIT(A). Ld. A.R. also submitted that the facts of the present year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessee's own case for the assessment year 2005-06, Ld. CIT(A) has deleted the disallowance made on account of recruitment and training expenses. After considering the submissions of the assessee, Ld. CIT(A) deleted the addition by holding as under: "7.4 I have considered the facts and the submissions of the Ld A.R. carefully. I am of the considered view that in a situation where the requisite detail in respect of training of employees and the genuineness of the expenditure was very much before the AO and in respect of these two reasons, no disallowance was suggested, then it was unjustifiable on the part of the AO to say that a 20% recruitment and training expenses would be disallowed on mere presumption that it was not wholly beneficial to the appellant. There is no evidence in the possession of the AO to hold that a particular expenditure on training was not business related. In fact, the argument of the appellant appears to be logical that considering the nature of the services provided a training of the technical staff is always a business necessity and because of the trained staff the appellant's revenue has substantially gone up. 7.5 In view of the above dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant that the facts for .AY 07-08 are no different from the facts brought forth in the ITAT order for AY 06-07. Accordingly, my views are as under. The appellant has submitted the following to evidence the activities performed by MUK vis-a-vis the customers: • Master Agreement between MUK and Mastek; • detailed FAR analysis of MUK and India; • details of employees of MUK, including their roles, designations and. qualifications; • case studies demonstrating selling function performed by employees of MUK • Another aspect which merits consideration is that the employees of sales team of MUK were incentivized to achieve increase in sales, by paying a percentage of sales achieved by them, over and above their fixed pay. The above evidences support the appellant's contentions that it has its own set of people in a position to negotiate and conclude contracts both in terms of the scope of work and the pricing of the same. Therefore, in my considerate view, the appellant, over and above marketing, carries out selling functions also and should therefore be characterized as a distributor. As MUK is held to be a distributor and not a market ..... X X X X Extracts X X X X X X X X Extracts X X X X
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