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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: HON’BLE SHRI V. DURGA RAO, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आयकर अपीलीय अिधकरण “बी” �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHENNAI माननीय �ी वी. दुगा� राव, �ाियक सद! एवं माननीय �ी मनोज कुमार अ&वाल ,लेखा सद! के सम)। BEFORE HON’BLE SHRI V. DURGA RAO, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ (िनधा�रण वष� / Assessment Year: 2010-11) ACIT M/s. Caterpillar India Pvt.Ltd. बनाम/ 7th floor, International Tech Park, Taramani Road, Central Circle-3(3), Vs. Chennai. Taramani,Chennai-600 113. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AABCC-4615-K (अपीलाथ�/Appellant) : (!"थ� / Respondent) & Cross Objection No.1/Chny/2023 (In ITA No.1031/Chny/2022) (िनधा�रण वष� / Assessment Year: 2010-11) M/s. Caterpillar India Pvt.Ltd. ACIT बनाम 7th floor, International Tech Park, Central Circle-3(3), Taramani Road, Taramani, Chennai. / Vs. Chennai-600 113 �थायीलेखासं./जीआइआरसं./PAN/GIR No. AABCC-4615-K (अपीलाथ�/Appellant/Cross Objector) : (!"थ� / Respondent) अपीलाथ�कीओरसे/ Revenue by : Shri V. Nandakumar (CIT)-Ld. DR !"थ�कीओरसे/ Assessee by : Shri Sharath Rao (CA)- Ld.AR सुनवाईकीतारीख/Date of Hearing : 04-10-2023 घोषणाकीतारीख /Date of Pronouncement : 09-10-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)
Aforesaid appeal by revenue for Assessment Year (AY) 2010-11 arises out of the order passed by the learned Commissioner of Income Tax (Appeals)-18, Chennai dated 23-09-2022 in the matter of an assessment framed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s. 147 of the Act on 05.12.2018. The grounds raised
by the revenue read as under: - The order of the ld. Commissioner of I.T. (Appeals) is erroneous on facts 1. of the case and in law.
2. The learned CIT(A) erred in deleting the disallowance made u/ s.40(a)(i) of the IT Act towards payment of secondment cost to the tune of Rs. 28.09 crores, made by the assessee company to M/ s. Caterpillar US, without deduction of tax at source u/s.195 of the IT Act.
3. The learned CIT(A) erred in deleting the disallowance made u/s.40(a)(i) of the IT Act towards payment of secondment cost, without appreciating that the payment to the US and other entities were not in the nature of reimbursement, and the assessee is under obligation to deduct TDS on these payments u/ s. 195 of the IT Act.
4. The learned CIT(A) erred in deleting the disallowance made u/s.40(a)(i) of the IT Act towards payment of secondment cost, without appreciating that the impugned payments were made for rendition of managerial services through provision of personal and therefore liable to deduct TDS on the payments as per section 195 r.w.s. 9(1)(vii) of the I.T. Act and the provisions of respective DTA Agreements.
5. The Ld CIT(A) ought to have appreciated the fact that the assessee company had not deducted taxes on the secondment payments u/ s. 195 of the IT Act , which are taxable in India and therefore the assessee company is liable for disallowance as per the provisions of section 40(a)(i) of the IT Act.
6. The learned CIT(A) ought to have appreciated the fact that the assessee had only acquired a license to use the software, and further classified the same as "intangible asset" in the books of the assessee, as such the depreciation rates as applicable to "licenses" as stated in Part B of New Appendix-l of the IT Rules, which is 25% shall only be applicable to such acquisition of license.
7. The learned CIT(A) erred in allowing the depreciation on software license at the rate of 60% as applicable to computers, without appreciating the fact that the software license is an intangible asset, and the applicable depreciation on such intangible asset is only 25%, as per Part B of New Appendix-1 of Income tax Rules.
As is evident, two issues fall for our consideration viz. disallowance u/s 40(a)(i) for want of deduction at source on certain foreign payments made by the assessee and rate of depreciation on computer software. The assessee has filed cross-objection on jurisdictional grounds.
The Ld. CIT-DR advanced arguments and supported the impugned disallowances made by Ld. AO whereas Ld. AR filed various details and also advanced argument supporting the impugned order. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings 3.1 The assessee being resident corporate assessee is stated to be engaged in manufacturing and sale of moving machineries. During reassessment proceedings, it transpired that the assessee made payment of Rs.2809.09 Lacs towards secondment of employees at cost. However, no tax was deducted at source which led Ld. AO to make impugned disallowance u/s 40(a)(i) on the ground that the assessee procured the services of US entity and such employees continued to be the employees of that entity. The relevant agreement provide that such employees were to perform managerial and other services in India. The payment so made would be ‘fees for included services’ under DTAA and ‘fees for technical services’ u/s 9(1)(vii) of the Act. Accordingly, the impugned disallowance was made. 3.2 The assessee claimed depreciation on computer software @60%. The Ld. AO, treating the same as intangible asset, restricted the same to the extent of 25% and made disallowance of Rs.323.89 Lacs. Appellate Proceedings and our adjudication 4.1 On the issue of disallowance u/s 40(a)(i), the assessee submitted that certain employees of overseas group entities were seconded in India to the assessee to standardized the manufacturing and operating processes of the company. These employees worked under the supervision of assessee entity in India and the assessee assumed complete responsibility for the work carried out by them. The repatriated employees were at the full disposal and under exclusive control of the assessee. For administrative reasons, the remuneration was paid by overseas entity to the seconded employees and the same, in turn, was reimbursed by the assessee to the extent related to the period of their assignment to India. The overseas entity raised debit note on the assessee and the same was reimbursed on cost-to-cost basis without any profit element to payee. Therefore, no tax was deducted at source. Reliance was placed on the decisions of Supreme Court in the case of DIT v/s AP Moller Maersk AS (78 Taxmann.com 287) and also the decision in GE India Technology Centre Pvt. Ltd. v/s CIT (327 ITR 456) and various other decisions. The assessee also drew attention to the decision of Bangalore Tribunal in assessee’s own case dated 29-02-2012 rendered in the context of an order passed u/s Sec.201(1) of the Act on the same issue for this very year. The Tribunal observed that the assessee withheld taxes on total salary paid to ex-patriates and remitted such taxes as per Sec.192 of the Act which was evidenced by the copies of Form 16 issued by the assessee to these employees. Therefore, the assessee could not be treated as assessee-in-default u/s 201(1). The revenue’s appeal against the same stood dismissed by Hon’ble Karnataka High Court on account of low tax effect and accordingly, the issue attained finality in assessee’s favor. 4.2 The Ld. CIT(A) considering the decision of Bangalore Tribunal in assessee’s own case, deleted the impugned addition against which the revenue is in further appeal before us.
4.3 The undisputed position that emerges is that the assessee has reimbursed the salary cost of seconded employees on cost-to-cost basis without any profit element. The assessee has duly deducted tax at source from these payments u/s 192 which is evidenced by the copies of Form 16 as placed on record. The same would show that the stated employees have worked under the supervision and control of the assessee. Once tax has been deducted u/s 192, there would be no requirement of TDS u/s 195 again while reimbursing the same to the foreign entity on cost-to-cost basis. The decision of Bangalore Tribunal also supports this view and the said decision has already attained finality. Therefore, we see no reason to interfere in the impugned order, on this issue. The decision of Hon’ble Supreme Court in the case of M/s Northern Operating Systems Pvt. Ltd. (CA No.2289-2293 of 2021) as referred to by revenue, is on the issue of applicability of service tax on such payments. The Hon’ble Court held that the assessee was the service recipient for such services and accordingly, liable for payment of service tax. In the present case, we are concerned with disallowance u/s 40(a)(i) for want of TDS on such payments. Therefore, this case law do not apply to the facts of the case. 5.1 On the issue of depreciation, the assessee submitted that software license was integral part of computer system and the same was in the nature of computer program stored on a device. The functioning of the computer and the software was interlinked and inseparable. Therefore, the software would be eligible for same rate of depreciation. Reliance was placed, inter-alia, on the decision of Hon’ble High Court of Madras in the case of CIT vs. Computer Age Management Services Pvt. Ltd.
(109 Taxmann.com 134) as well as various other decisions as enumerated in the impugned order. The Ld. CIT(A) concurred with assessee’s submissions and directed Ld. AO to allow higher depreciation of 60%. Aggrieved, the revenue is in further appeal before us. 5.2 We are of the considered opinion that software is an integral part of computer system and the same would be eligible for same rate of depreciation as applicable to computer system. The binding decision of Hon’ble High Court of Madras as cited above duly supports this view. Therefore, we find no reason to interfere in the impugned order, on this issue. The revenue’s appeal stands dismissed.
The assessee, in its cross-objections has assailed the validity of reassessment proceedings. Since the impugned order, on merits, has been confirmed by us in assessee’s favor, delving into cross-objection has been rendered mere academic in nature. Accordingly, the same stand dismissed as infructuous. Conclusion 7. The revenue’s appeal stands dismissed. The assessee’s cross objections stand dismissed as infructuous. Order pronounced on 9th October, 2023 Sd/- Sd/- (V. DURGA RAO) (MANOJ KUMAR AGGARWAL) �ाियक सद!/JUDICIAL MEMBER लेखासद! / ACCOUNTANT MEMBER चे6ई Chennai; िदनांक Dated :09-10-2023 DS आदेशकीYितिलिपअ&ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. !"थ�/Respondent 3. आयकरआयु?/CIT 4. िवभागीय!ितिनिध/DR 5. गाडDफाईल/GF