DCIT,CIRCLE-11(1), KOLKATA, KOLKATA vs. M/S ALL INDIA TECHNOLOGIES LTD., KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “C” KOLKATA Before Shri S.S.Godara, Judicial Member and Shri, M. Balaganesh, Accountant Member ITA No.52/Kol/2017 Assessment Year :2009-10

DCIT, Circle-11(1), V/s. M/s All India P-7 Chowringhee Technologies Ltd., 5, Square, Kolkata-69 Lower Rowdon Street, Kolkata-20 [PAN No.AAACI1661 A] .. अपीलाथ� /Appellant ��यथ�/Respondent

Shri Sanjay Mukherjee, Addl. CIT-DR अपीलाथ� क� ओर से/By Appellant Shri S. Singhi, FCA & ��यथ� क� ओर से/By Respondent Shri Avishhek Tibrewal, ACA 11-06-2018 सुनवाई क� तार�ख/Date of Hearing 11-07-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This Revenue’s appeal for assessment year 2009-10 arises against Commissioner of Income Tax (Appeals)-7,Kolkata’s order dated 04.10.2016 in case No.718/CIT(A)-7/Kol/Ward-11(1)/16-17 reversing Assessing Officer’s action disallowing assessee’s carry forward unabsorbed loss / depreciation claimed of ₹27,07,637/- pertaining to assessment year(s) 1999-00 and 2001- 02 section 40(a)(ia) disallowance of ₹16,05,826/- and payment of ₹12 lakh claimed as revenue but treated as capital expenditure; respectively involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’.

ITA No.52/Kol/2017 A.Y. 2009-10 DCIT Cir-11(1), Kol. Vs. M/s All India Technologies Ltd. Page 2 unabsorbed depreciation of ₹40,08,092/- relevant to involving sums of ₹6,70,378/-, ₹20,37,259/-, 8,30,590/- and ₹4,69,865/- relevant to assessment year(s) 1999-00, 2001-02 to 2003-04; respectively. The Assessing Officer took note of various amendments in section 32(1) of the Act applicable above assessment year(s) and from assessment year 2002-03 onwards to conclude that depreciation of assessment year 1996-97 was eligible to be set off upto assessment year 2004-05 and that pertaining to assessment year 1997-98 to 2001-02 was eligible to be set off only against the business income head for a period of not more than eight assessment years. He thus disallowed the assessee’s unabsorbed depreciation(s) pertaining to assessment year(s) 1999-00 and 2001-02 totaling sum in question of ₹27,07,637/-.

ITA No.52/Kol/2017 A.Y. 2009-10 DCIT Cir-11(1), Kol. Vs. M/s All India Technologies Ltd. Page 3 c) Amount of current depreciation for Assessment Years 1997-98 to 2001-02 which cannot be so set off as stated above, shall be carried forward for a maximum period of eight Assessment Years from the Assessment Year immediately succeeding the Assessment Year for which it was first computed, to be set off only against the income under the head "Profit & Gains for Business or Profession". The Appellant submits that, the amendment made by the Finance Act, 2001 dispenses with the restriction of 8 Years for carry forward and set off of unabsorbed depreciation, to enable the assessees to conserve sufficient funds, to replace capital assets. The Hon'ble Supreme Court in Reliance Jute and Industries (120 ITR 921 Supreme Court Decision) has held that carry forward & set off of unabsorbed loss is governed by the law prevailing in the year of set-off or carry forward and not in the year of incurring the loss. Thus it needs to be emphasized that the carried forward depreciation of earlier years remaining unabsorbed as on April 1, 2001, would be governed by the current position in the law. The position today is that unabsorbed depreciation allowance can be carried forward indefinitely. It is cardinal principle of the tax law that the law to be applied is that in force in the particular Assessment Year unless otherwise provided expressly or by necessary implication. The Assessment for one Assessment Year cannot, in the absence of a contrary provision, be affected by the law in force in another Assessment Year. Further as stated above carried forward depreciation of earlier years remaining unabsorbed as on April 1, 2001, would be governed by the current position in the law. The position today is that unabsorbed depreciation allowance can be carried forward indefinitely. Thus while passing the Assessment Order, the Assessing officer should have followed the law prevailing in the previous year 2008-09 relating to the Assessment Year 2009-10, and allowed the carry forward of unabsorbed depreciation as per Return of Income for the Assessment Year 2009-10. In the matter of allowability for carry forward unabsorbed depreciation and its set off, the Appellant like to invite your attention to the judgment of the HIGH COURT OF GUJARAT AT AHMEDABAD (SPECIAL CIVIL APPLICATION No. 1773 of 2012) in GENERAL MOTORS INDIA PVT.LTD Vs DEPUTY COMMISSIONER OF INCOME- TAX, in which Hon'ble Court in its order stated as under:- "Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or businesses, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depredation available to an assessee on 1st day of April 2002 (Assessment Year 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed

ITA No.52/Kol/2017 A.Y. 2009-10 DCIT Cir-11(1), Kol. Vs. M/s All India Technologies Ltd. Page 4 with, the unabsorbed depreciation from Assessment Year 1997-98 upto the Assessment Year 2001-02 got carried forward to the assessment year 2002- 03 end became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. " The Appellant submits that carry forward of unabsorbed depreciation of Rs.40,08,092/- was claimed by the appellant in the relevant assessment year. Circular No. 762 dated 18.2.1998 issued by the Central Board of Direct Taxes (CBDT) in the form of Explanatory Notes categorically provided, that the unabsorbed depreciation allowance for any previous year to which full effect cannot be given in that previous year shall be carried forward and added to the depreciation allowance of the next year and be deemed to be part thereof. It is to be noted that such unabsorbed depreciation was available for claim to the assessee on 1st day of April 2002 and thus deemed to be part of depreciation allowance of that assessment year. Due to the amendment in the Finance Act, 2001 the brought forward unabsorbed depreciation could be carried forward for an indefinite period and the same should be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. Thus, from the above it is apparent that the brought forward unabsorbed depreciation claimed by the appellant can be carried forward for indefinite period as per the amended section 32(2) of the Act. , The Appellant requests to give direction to allow depreciation allowance accordingly.” 4.2.3 I agree with the contention of the appellant. In view of decisions cited supra I agree that unabsorbed depreciation subsisting as on 1-4-2002, can be carried forward indefinitely. The Hon'ble Supreme Court in Reliance Jute and Industries (120 ITR 921 Supreme Court Decision) has held that carry forward & set off of unabsorbed loss is governed by the law prevailing in the year of set-off or carry forward and not in the year of incurring the loss. Thus it needs to be emphasized that the carried forward depreciation of earlier years remaining unabsorbed as on April 1, 2001, would be governed by the current position in the law. The position today is that unabsorbed depreciation allowance can be carried forward indefinitely. It is cardinal principle of the tax law that the law to be applied is that in force in the particular Assessment Year unless otherwise provided expressly or by necessary implication. The Assessment for one Assessment Year cannot, in the absence of a contrary provision, be affected by the law in force in another Assessment Year. Further as stated above carried forward depreciation of earlier years remaining unabsorbed as on April 1, 2001, would be governed by the current position in the law. The position today is that unabsorbed depreciation allowance can be carried forward indefinitely. Thus while passing the Assessment Order, the Assessing officer should have followed the law prevailing in the previous year 2008-09 relating to the Assessment Year 2009-10, and allowed the carry forward of unabsorbed depreciation. A.O is directed to do accordingly.” 4. Learned Additional CIT DR vehemently contends during the course of hearing that the Assessing Officer had rightly disallowed assessee’s unabsorbed depreciation set off claim since the same was well beyond eight assessment year(s) as the corresponding years involved therein are AY 1999-

ITA No.52/Kol/2017 A.Y. 2009-10 DCIT Cir-11(1), Kol. Vs. M/s All India Technologies Ltd. Page 5 00 and 2001-02 (supra). Case law of hon'ble apex court’s decision in Peerlees General Finance and Investment Co. (2016) 73 Taxman 258 (SC) is quoted in support. We find no merit in Revenue’s instant substantive grievance. Hon'ble Gujarat high court’s decision in General Motors India Pvt. Ltd. vs. DCIT (2013) 354 ITR 244 (Guj) as relied upon in CIT(A)’s findings has rejected Revenue’s identical argument seeking to restrict a depreciation claim only upto eight assessment year(s). Its latter plea quoting hon'ble apex court’s decision hereinabove (supra) is also found to be devoid on merit as the assessment year before their lordships is 1998-99 whereas we are dealing with the statutory amendments in section 32(2) of the Act by the Finance Act, 2001. This issue before their lordships was that of intra head set off only. The CBDT’s Circular No. 14/2001 also made it clear that the restriction in question of eight year(s) for such a carry forward of unabsorbed depreciation stands dispensed with. We conclude in the factual backdrop that assessee’s impugned unabsorbed depreciation carried forward from preceding assessment years becomes depreciation of impugned assessment year eligible to be set off as per law and so on. We reject Revenue’s first substantive ground accordingly.

ITA No.52/Kol/2017 A.Y. 2009-10 DCIT Cir-11(1), Kol. Vs. M/s All India Technologies Ltd. Page 6 “4.3.1 During the financial year 2008-09 relevant to assessment year 2009-10, the appellant was engaged mainly website, internet services and web consultancy activities. It was noticed by the AO from the details in respect of internet access and internet server charges payment filed by the appellant that the appellant has not deducted any TDS on payment of above said expenses. The AO has disallowed Rs.16,05,826/- u/s 40a(ia) of the I.T. Act paid for Internet Access and Internet Server Charges on the contention that such payments are in the nature of technical services and rental expenses and hence attract liability of TDS u/s 194J and 1941 of the Act. 4.3.2 In response to the above the authorized representative of the appellant appeared and filed written submission as under: "During the year, the Appellant claimed an amount of Rs.16,05,826/- as expenses which includes Rs. 2,33,665/- as Internet Access charges and Rs.13,72,161/- as Internet Server charges respectively. The Assessing Officer disallowed the said expenditure u/s 40(a)(ia) of the Act on the contention that such payments are in the nature of technical services and rental expenses and hence attract liability to deduct TDS u/s 194J and 194I of the Act. As per the provision laid down under Section 40(a)(ia) of the Act states that "Notwithstanding anything to the contrary in sections 30 to ·38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession" any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid. The expenses incurred and paid by the Company as internet access charges and internet server charges does not come within the ambit of any of the provisions laid down under above referred Section and hence no tax was deducted on payment of internet access and internet server charges. The assessee also relied on the judgement in case of Bharti Cellular Services and Sky cell communications Ltd. The Hon'ble High Court in the CIT vs. Bharti Cellular Limited (2009) 319 ITR 139 [Del). has observed that the expression "fees for technical services: means any consideration for rendering of any “managerial, technical or consultancy 'services". The word “technical" is preceded by the word "managerial" and succeeded by the word “consultancy”. Since the expression "technical services" is in doubt and is unclear, the rule of noscitur a cociis is clearly applicable. The rule of noscitur a sociis is explained in Maxwell on the "Interpretation of Statutes" in the following words "Where two or more words which are susceptible of analogous meaning are coupled together, noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.” Thus both the words "managerial" and "consultancy" involve a human element. And, both, managerial service and consultancy service are provided by humans. Consequently, applying the rule of noscitur a sociis, the word "technical" as appearing in- Explanation 2 to section 9(1)(vii) would also have to be construed as involving a human element. Hence the same was held as outside the scope of Fees for

ITA No.52/Kol/2017 A.Y. 2009-10 DCIT Cir-11(1), Kol. Vs. M/s All India Technologies Ltd. Page 7 Technical Services. Thus, the expression "technical services" would have reference to only technical services rendered by a human and thereby it would not include any service provided by machines or robots. • The Assessing officer further treats the amount paid for Internet server charges as Rental in nature. However Rent is defined u/s 194I as follows: 'Rent' means any payment by whatever name called, under any Lease, tenancy or any other agreement or arrangement for the use of any- • Land; or Building(Including Factory Building); or Land Appurtenant to a building (Including Factory Building); or • Machinery; or • Plant; or Equipments; or Furniture; or Fittings, whether or not any or all of the above are owned by the payee. From the above definition, it is clear that under no circumstances Internet Server Charges will fall within the definition of Rent. Section 194I provides for tax deduction at source at 5% on payments exceeding Rs.20,000 for fees for professional and technical services. Professional services are defined .to include legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, advertising or any other notified profession. Technical services are given the same meaning as under the explanation to Section 9(1)(vii), which comprises managerial, technical or consultancy services, but excluding payments for construction, assembly, mining or like products and what is assessable under the head "Salaries". The High Court in Skycell Communications Ltd. v. Deputy CIT [2001] 251 ITR 53 (Mad) found that the provision of cellular mobile telephone facility to subscribers cannot be treated as technical service and that it does not fall under any other listed services nor has it been notified. Merely because the service is linked to science and technology as are found in most of the gadgets now in use in everyday life, every such instrument or gadget to make life easier cannot be treated as involving provision of technical service. Provision of agency service, railway or air service also involves high technology, but such service does not become technical service. So is the service made available by way of supply of electricity, satellite telephone and various other sophisticated equipments. Mere service or collection of a fee does not become a technical service. It was in this context, section 194J was held inapplicable. Hence expenses incurred in connection with Internet access charges and Internet server charges shall be allowed as deduction while computing business income, as these expenses do not require deduction of tax as per law and therefore the Appellant succeeds on this ground and it is allowed.” 7. We have given our thoughtful consideration to rival submissions reiterating both the parties respective stands against and in support of the impugned disallowance. Learned Departmental Representative’s case before us is that the services in question are technical in nature or rental payments; as the case may be requiring TDS deduction under Chapter XVII of the Act. We find no force in either of the two pleas. We first come to “rent” aspect. Learned Departmental Representative fails to indicate any material on record

ITA No.52/Kol/2017 A.Y. 2009-10 DCIT Cir-11(1), Kol. Vs. M/s All India Technologies Ltd. Page 8 which could highlight the assessee’s relation with its payee to be involving landlord tenant dynamics followed by payment. There is no evidence in the case file that the assessee has made the impugned payments in further and to an agreement or arrangement specified u/s. 194-I Explanation (1)(a-h) in the Act. So far as latter part aspect of fee for technical services are concerned, admitted factual position is that there is no human element at all involved in assessee availing its payees internet and server access by paying the sum or credited as per hon'ble Delhi high court’s decision in CIT vs. Bharti Cellular Limited (2009) 319 ITR 139 (Del) (supra) declining Revenue’s identical argument to this effect. We thus see no reasons to interfere with CIT(A)’s findings under challenge holding assessee’s payments to be neither rent nor fee for technical services.

ITA No.52/Kol/2017 A.Y. 2009-10 DCIT Cir-11(1), Kol. Vs. M/s All India Technologies Ltd. Page 9 minimizing its running cost which could have otherwise allowable as revenue expenditure. We therefore confirm the CIT(A)’s findings under challenge qua this third issue as well.