DCIT, CHENNAI vs. MOBIUS KNOWLEDGE SERVICES PVT. LTD., CHENNAI

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) -8, Chennai, dated 30.09.2016 and pertains to assessment year 2008-09.

There was a delay of one day in filing this appeal by the Revenue. The Revenue has filed a petition for condonation of delay. We have heard the Ld. Departmental Representative and the Ld. representative for the assessee. We find that there was sufficient cause for not filing the appeal before the stipulated time. Therefore, we condone the delay and admit the appeal.

The first issue arises for consideration is disallowance of ₹73,13,850/- being the consultancy charges paid to non-residents, for non-deduction of tax under Section 40(a)(i) of the Income-tax Act, 1961 (in short 'the Act').

Smt. C. Yamuna, the Ld. Departmental Representative, submitted that the assessee has paid ₹73,13,850/- to a non- residents without deducting tax. According to the Ld. D.R., the Assessing Officer found that the payment made by the assessee was towards technical services, therefore, the assessee has to deduct tax. However, the CIT(Appeals) by placing reliance on the judgment of Madras High Court in CIT v. Faizan Shoes Pvt. Ltd. (367 ITR 155), deleted the disallowance made by the Assessing Officer. According to the Ld. D.R., since the payment made to non- resident consultants is chargeable to tax in India, the CIT(Appeals) is not justified in allowing the claim of the assessee.

On the contrary, Shri L. Shibi, the Ld. representative for the assessee, submitted that the payments were made to non-residents for rendering service outside the country. According to the Ld. representative, all the three persons are residents of USA. The non-residents are responsible for procuring orders for the assessee- company in their individual capacity. Since the entire services were offered outside the territorial limit of India, according to the Ld. representative, the same is not taxable in India in view of the judgment of Madras High Court in Faizon Shoes Pvt. Ltd. (supra), therefore, the CIT(Appeals) has rightly allowed the claim of the assessee.

We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee-company engaged the services of three consultants, who are residents of USA, for procuring orders for the assessee-company. Therefore, it is obvious that the entire services were offered outside the country. Hence, no part of income of the non-residents is taxable in India. Therefore, the CIT(Appeals) has rightly placed reliance on the judgment of Madras High Court in Faizon Shoes Pvt. Ltd. (supra) and deleted the disallowance made by the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

The next issue arises for consideration is disallowance made by the Assessing Officer to the extent of ₹16,36,225/-.

Smt. C. Yamuna, the Ld. Departmental Representative, submitted that the Assessing Officer disallowed ₹86,49,551/- for non-deduction of tax under Section 40(a)(ia) of the Act. The assessee itself disallowed a sum of ₹8,88,652/- and the balance amount is ₹77,60,899/-. According to the Ld. D.R., the CIT(Appeals) found that leased line charges paid by the assessee are in the nature of royalty, therefore, the assessee is liable to deduct tax under Section 194J of the Act. Having held that the assessee is liable to deduct tax under Section 194J of the Act, according to the Ld. D.R., the CIT(Appeals) granted relief to the extent of ₹16,36,225/- without any further discussion, therefore, the matter needs to be re-examined by the Assessing Officer.

We heard Shri L. Shibi, the Ld. representative for the assessee also. As rightly submitted by the Ld. D.R., out of total disallowance of ₹86,49,551/-, the CIT(Appeals) found that the assessee has not deducted tax with regard to ₹61,26,674/-. The CIT(Appeals) has also found that the assessee itself disallowed ₹8,86,652/-. It is not known how the CIT(Appeals) allowed the balance of ₹16,36,225/-. There is no discussion in the CIT(Appeals)’s order. In the absence of any discussion in the CIT(Appeals)’s order, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Accordingly, the disallowance of ₹16,36,225/- alone is remitted back to the file of the Assessing Officer for re-consideration. The Assessing Officer shall re-examine the matter and bring on record the nature of payment to the extent of ₹16,36,225/- and thereafter pass order in accordance with law, after giving a reasonable opportunity to the assessee.

The next ground of appeal is with regard to foreign currency expenditure of ₹97,46,461/- and telecommunication charges of ₹61,26,674/-.

Smt. C. Yamuna, the Ld. Departmental Representative, submitted that the Assessing Officer excluded foreign currency expenditure to the extent of ₹97,46,461/- and telecommunication charges of ₹61,26,674/- from the total turnover. The CIT(Appeals) directed the Assessing Officer to exclude the same from the export turnover also. According to the Ld. D.R., the decision of Special Bench of this Tribunal in ITO v. Sak Soft Ltd. (121 ITD 865) was not attained finality and the appeal is pending before the High Court.

We heard Shri L. Shibi, the Ld. representative for the assessee, also. While computing the eligible profit, the export turnover as well as the total turnover shall be the same factor. Therefore, once the expenditure incurred by the assessee in foreign currency and telecommunication charges are excluded from export turnover, the same have also to be excluded from total turnover. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.