DCIT-8(1)(1), MUMBAI vs. M/S SAPIENS TECHNOLOGIES (1982) INDIA PVT LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI AMARJIT SINGH, AM आयकर अपील सं/ I.T.A. No.1361/Mum/2023 (निर्धारण वर्ा / Assessment Year: 2014-15) DCIT-8(1)(1) बिधम/ M/s. Sapiens Room No. 673, 6th Floor, Technologies (1982) India Vs. Aayakar Bhawan, Maharshi Pvt. Ltd. Karve Marg, Mumbai- 22, New Pushpamilan, 67, 400020. Worli Hills, Mumbai- 400018. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AAACI8674H (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) Assessee by: Ms. Vani Saxena Revenue by: Shri Ram Krishna Kedia (Sr. AR) सुनवाई की तारीख / Date of Hearing: 06/07/2023 घोषणा की तारीख /Date of Pronouncement: 01/09/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax/NFAC, Delhi dated 24.02.2023 for assessment year 2014-15. 2. The grounds of appeal of the revenue are as under: - “(i) Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in considering daily overseas allowances was paid by the company being in the nature of reimbursement of expenses incurred by employees on their business trip to overseas. (ii) Whether on the facts and circumstances of the case, the Ld. CIT(A) has failed to consider that the allowance are perquisite within the meaning of section 17(2) of the I. T. Act and hence it will be taxable in India and assessee has failed to deduct taxes at source as required u/s 40(a)(iii).”

ITA No.1361/Mum/2023 A.Y. 2014-15 M/s. Sapiens Technologies India Pvt. Ltd. 3. Brief facts as noted by the Ld. CIT(A) is that the assessee is a Private Limited Company incorporated under the provisions of the Companies Act, 1956. The assessee company is engaged in the business of development of Customized Software and Software implementation services. And it develops, customizes and maintain software for its customers in India and abroad. The assessee company had a Branch Office in Singapore, which was set-up under the provisions of the Foreign Management Act, 1999 and the applicable Laws of Singapore. And assessee company had filed its return of income for the year under consideration on 30 November 2014 declaring a total income of Rs.47,23,990/-. Further, the company has claimed a refund of Rs.96,32,320/- after claiming credit for taxes paid by way of tax deducted at source of Rs.96,32,324/- and foreign tax relief of Rs.14,59,713/- under the provisions of the Income Tax Act, 1961 (hereinafter “the Act”). The Assessing Officer passed an assessment order u/s 143(3) of the Act on 28.11.2016 by making an addition of Rs.2,85,03,521/- as under: - (i) Disallowance of Rs.1,93,29,134/- u/s 40(a)(iii) of the Act on account of non-deduction of tax on salaries paid to employees in Singapore branch; (ii) Disallowance of Rs.18,79,416/- u/s 40(a)(iii) of the Act on account of overseas allowance; (iii) Addition of Rs.72,94,848/- on account of AIR mismatch; and Disallowance of Rs.123 on account of penalty TDS.

ITA No.1361/Mum/2023 A.Y. 2014-15 M/s. Sapiens Technologies India Pvt. Ltd. 4. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who partly allowed the appeal of assessee. Aggrieved by the action of Ld. CIT(A), the revenue has preferred this appeal before us. 5. The sole ground of the revenue challenges the action of the Ld. CIT(A) deleting the addition made by AO on account of overseas allowance paid by the company to the tune of Rs.18,79,416/-. 6. At the outset, it has been brought to our notice by the Ld. AR of the assessee that the Ld. CIT(A) has followed the order of this Tribunal in assessee’s own case (ITA. No.5379/Mum/2014) dated 18.11.2016 for AY. 2011-12 and allowed this ground by holding as under: - “In ground No.2 the appellant has challenged the action of the AO in making an addition of Rs.18,79,416/under section 40(a)(ii) of the Act in respect of Overseas Allowances paid to the employees for meeting their day to day expenses. During the Course of assessment proceedings, the AO has noted that the appellant has pad “overseas allowances amounting to Rs.18,79,416/- to certain employees to meet their daily requirements as and when they travelled abroad. However, the appellant has failed to deduct tax at sources on these amount. During the course of appellate proceedings, the appellant has stated that on the similar issue, in appellant's own case for the assessment year 2011-12, the Hon'ble ITAT, Mumbai in ITA No. 5379/Mum/2014 dated 18/11/2016 has allowed the appeal of the appellant. I have gone through the decision of the Hon’ble Tribunal in the case of the appellant for AY 2011-12 in ITA No. 5379/Mum/2014 dated 18/11/2016, It has been noted that the Hon'ble ITAT held that the daily overseas allowances was paid

ITA No.1361/Mum/2023 A.Y. 2014-15 M/s. Sapiens Technologies India Pvt. Ltd. by the Company to facilitate meeting of cost of the employees during their stay abroad. Thus, being in the nature of reimbursement of expenses incurred by employees on their business trip to overseas jurisdiction, it will be exempt under section 10(14)(ii) of the Act. In view of this, there was no liability on the appellant to deduct tax at source in respect of overseas allowance paid by it to the resident employees. Respectfully following the decision of Hon'ble ITAT, the addition of Rs. 18,79,416/- made by the AO is hereby deleted.”

ITA No.1361/Mum/2023 A.Y. 2014-15 M/s. Sapiens Technologies India Pvt. Ltd. in order to facilitate meeting of the cost of all meals, transport and other personal costs of the employees during their stay abroad, in terms of the company policy, and thus being in the nature of reimbursement of maintenance expenses incurred by the employees deputed abroad, was thus clearly exempt u/s 10(14)(ii) of the ‘Act’. We are of the considered view that as the daily overseas part of any income, much the less a perquisite was embedded in the same, thus the lower authorities have wrongly construed the same as a perquisite chargeable to tax u/s 17(2) of the ‘Act’. We have given a thoughtful consideration to the facts of the case, and are of the considered view that as the aforesaid amount of Rs. 6,42,250/-(supra) was an allowance exempt u/s 10(14)(ii) of the ‘Act’, and as such no statutory obligation to deduct any tax at source on the said amount was cast upon the assessee, therefore no disallowance u/s 40(a)(iii)(A) of the ‘Act’ was liable to be made. That our aforesaid view is fortified by the host of Judgments/orders as had been relied upon by the Ld. A.R during the curse of hearing of the appeal. We rather find that after the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Goslino Mario (2000) 241 ITR 312 (SC), the issue that daily allowance given to employees who are deputed abroad, being in the nature of reimbursement of the expenses which the employees had to incur on their food, etc., which are wholly, necessarily and exclusively for the purposes of their duties, would thus be exempt u/s 10(14) of the ‘Act’, is no more res integra. We thus set aside the order of the CIT(A) sustaining the disallowance of Rs. 6,42,250/- (supra) u/s 40(a)(iii) of the ‘Act’, in the hands of the assessee. The ‘Ground of appeal no. 2’ is thus allowed”.

ITA No.1361/Mum/2023 A.Y. 2014-15 M/s. Sapiens Technologies India Pvt. Ltd. 9. We note that the assessee company had clients based in countries outside India and therefore, it becomes necessary for the employees to travel to different countries to render services to such customers. And during the year under consideration, the assessee had made payment of Rs.18,79,416/- on account of daily oversees allowance to employees at the time of their travel abroad without withholding tax at the time of making the payment. We find that the daily overseas allowance was paid by the assessee company in order to facilitate meeting of the cost of all meals, transport and other personal cost of the employees during the stay abroad which was in terms of the company policy and thus being in the nature of reimbursement of maintenance expenses incurred by the employees deputed abroad which was thus exempt u/s 10(14)(ii) of the Act. It is noted that in assessee’s own case for AY. 2011-12, this Tribunal has held (supra) that the “Overseas Allowance” paid to employees deputed abroad were in the nature of re-imbursement of expenses and cannot partake the character of income; much less perquisite, and specifically rejected the contention of revenue that the same tantamount to perquisite chargeable to tax u/s 17(2) of the Act. Therefore, it was held that there was no requirement for assessee to have deducted tax at source before disbursement of such expenses and allowed the claim of assesse and for such a proposition relied on the decision of Hon’ble Supreme Court in the case of CIT Vs. Goslino Mario 241 ITR 312. Therefore, we find that Ld. CIT(A) rightly allowed the claim of assessee. So we confirm the action of Ld. CIT(A) and dismissed the appeal of revenue.

ITA No.1361/Mum/2023 A.Y. 2014-15 M/s. Sapiens Technologies India Pvt. Ltd. 10. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on this 01/09/2023.

Sd/- Sd/- (AMARJIT SINGH) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 01/09/2023. Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 4. आयकर आयुक्त / CIT 5. ववभागीय प्रवतवनवि, आयकर अपीलीय अविकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यावपत प्रवत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai