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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: Shri Joginder Singh & Shri G Manjunatha
Date of hearing 12-06-2018 Date of pronouncement 20-06-2018 O R D E R
Per G Manjunatha, AM :
This appeal filed by the revenue is directed against the order of the CIT(A)-6, Mumbai dated 05-05-2016 and it pertains to AY 2013-14.
The brief facts of the case are that the assesse is engaged in the business of development and export of software. It filed its e-return of income for AY 2013-14 on 18.09.2013 declaring total income of Rs.14,31,93,005/-. The assessee has also shown book profit of Rs.14,47,69,188 u/s 115JB of the Act and the case was selected for 2 ITA 5262/Mum/2016 scrutiny under CASS and notices u/s 143(2) and 142(1) were issued and duly served on the assessee. The assessment proceedings were completed u/s 143(3) on 12-01-2016 determining total income at Rs.15,81,09,830/- by making addition of Rs.1,36,88,992/- on account of export commission and Rs.12,27,833/- in respect of content and software development expenses u/s 40(a)(ia) of the Act. Aggrieved by the aforesaid additions, the assessee preferred appeal before CIT(A).
Before the CIT(A), with regard to the addition on account of export commission of Rs.1,36,88,992/-, the assessee submitted that the commission was paid to the following foreign parties, viz.:
(i) M/s.Cosmos Telecom Pvt. Ltd. Rs. 40,567/- (ii) Daniwirastri Gondowarsito Rs.31,91,0747- (iii) Lim GillJaa Rs. 1,93,9227- (iv) M/s.Panasonic Avionics Corporation Rs.94,24,047/- (v) Thales Avionics Inc. Rs. 8,39,382/- (vi) Turner Broadcasting System Asia Pacific Inc. Rs. 8,85,687/- The aforesaid parties were foreign commission agents to whom assessee had paid commission for procurement of orders. The said commission was remitted directly from India to the overseas bank accounts of the agents. The assessee vide letter dated 06.01.2016 submitted that these non-resident agents operated outside India and therefore no part of their income arises during the year in Indian tax jurisdiction. Regarding allowably of commission paid to foreign parties, the assessee vide its written submission dated 11.01.2016 pointed out
3 ITA 5262/Mum/2016 that Ld. CIT(A) had granted relief vide order dated 28.10.2015 for A.Y.2011-12 and 2012-13 and hence no addition should be made.
However, the Department had preferred appeals against the order of Ld CIT(A) before Hon'ble ITAT, Mumbai. Hence to keep the issue alive and taking into consideration the written submission of the assessee, facts and circumstances of the case, the AO disallowed an amount of Rs.1,36,88,992/- u/s.40(a)(ia) of the Act and added the same to the total income of the assessee. The Ld.CIT(A), by following the earlier order passed by him on the issue, for assessment years 2011-12 and 2012-13 and also by following the judgement of Hon’ble Madras High Court in the case of CIT vs Farida Leather Company 66 taxmann.com 321, deleted the addition.
With regard to the other issue of disallowance of Rs.12,27,833/- in respect of content and software development expenses u/s 40(a)(ia), the Ld.CIT(A) observed that the assessee had debited a sum of Rs.15,10,985/- as content and software development expenses to its profit and loss account during the year and had deducted TDS on Rs. 11,14,7487-. The AO asked the assessee to explain why the balance amount should not be disallowed u/s.40(a)(ia) of the Act. In response, the assessee submitted that it had not deducted TDS on payment of content development expenses to the tune of Rs.3,96,237/-. Without
4 ITA 5262/Mum/2016 prejudice to the above and in order to avoid further litigation in the matter, the assessee had deducted tax on the balance amount of content development expenses paid by it. In view of the above, the AO disallowed a total amount of Rs.12,27,833/- u/s.40(a)(ia) of the Act, being Rs.3,96,237/- as above and Rs.8,31,596/- out of amount paid to Turner Broadcasting System Asia Pacific Inc. The CIT(A), by following the earlier order passed by him on the issue, for assessment years 2011- 12 and 2012-13, held that no disallowance is called for u/s 40(a)(ia) in respect of content and software development expenses. Accordingly, he deleted the addition.
Aggrieved, the revenue is in appeal before the Tribunal with the following grounds of appeal:-
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that no TDS was deductable on payments made to foreign parties without appreciate the decision of AAR (Income Tax) New Delhi in the case of Wallace Pharmaceuticals (P) Ltd, 278 ITR 97. 2.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the Circular no 23 Dt. 23.07.1969 & Circular no. 786 dt. O7.02.2OOO have been withdrawn by the CBDT.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding no TDS was deductable on payments made for content & software development expenses without appreciating the fact that these payments are in the nature of royalty, 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the decision in the case of High Court of Karnataka in case of CIT vs. Synopsis International Old Ltd (212 taxman 454), Mumbai Tribunal's decision in the case of DDIT(IT) Vs. Reliance Infocom Ltd ( 39 taxman Co 14O) and decision of AAR (IT), New Delhi in the case of Citrix Systems Asia Pacific Pvt. Ltd. (AAR No 822 of 2009).”
5 ITA 5262/Mum/2016
We have heard the parties and perused the material placed before us. We find that both the issues have been considered by the the ITAT, Mumbai Bench “G” for AYs 2011-12 and 2012-13 in & 248/Mum/2016 in order dated 26-02-2018 and decided in favour of the assessee and against the revenue with the following observations:-
“6. It is clear from the order of the CIT(A) that after applying various judicial pronouncements, he reached to the conclusion that payment to M/s. Columbus Travel Media Ltd., and Zagat Survey LLC cannot be treated as royalty u/s.9(1)(vi) of the Act. Hence, assesses was not required to deduct tax u/s.94 of the Act, accordingly, no disallowance can be made u/s.40(a)(i)of the Act.
7. With regard to export commission paid to the foreign agents, the CIT(A) recorded a clear finding that commission has been paid for procuring export order and payment was made outside India. After relying on the CBDT Circular No.23 of 1969, 786 of 2000 and 7 of 2009, the CIT(A) held that no tax is deductible in respect of such export commission. The CIT(A) also relied on the decisions of ITAT Delhi in case of Welspring Universal, Madras High Court in case of Faizen Shoes (P) Ltd., which has been accepted by the Department and no SLP has been filed. Accordingly, we do not find any infirmity in the order of CIT(A) for deleting the disallowance made in respect of export commission paid to the foreign agents.
Nothing was brought on record by learned DR to persuade us to deviate from the findings and conclusion recorded by CIT(A). Accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the disallowance made by the AO.
All the facts and circumstances in the A.Y.2012-13 are parimateria, following reasoning given hereinabove, we do not find any infirmity in the order of CIT(A) for deleting the disallowance made on account of payment made to foreign parties without deduction of tax at source.”
Consistent with the earlier decision of the Tribunal, we reject the grounds raised by the revenue.
In the result, the appeal filed by the revenue is dismissed.
6 ITA 5262/Mum/2016 Order pronounced in the open court on 20th June, 2018.