DCIT, BANGALORE vs. M/S TESCO HINDUSTAN SERVICE CENTRE PVT. LTD.,, BANGALORE

Per Shri Vijay Pal Rao, J.M. : These cross appeals are directed against the assessment order dt.30.01.2014 passed under Section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short 'the Act') in pursuant to the directions of the

2 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. Dispute Resolution Panel (in short ‘DRP’) dt.15.12.2014 for the Assessment Year 2010-11. 2. The assessee provides Information Technology Enabled Services (in short ‘ITES’) in the nature of customer contact service, store, pre- processing and invoice processing to its Associated Enterprise (AE). To bench mark its international transactions, the assessee has selected 10 comparables and adopted TNMM as Most Appropriate Method (‘MAM’) The comparables selected by the assessee are as under :

The TPO rejected 8 comparable companies selected by the assessee and accepted only 2 companies namely Cosmic Global Ltd. and Informed Technologies India Ltd. The TPO then added 8 more comparable

3 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. companies and determine the ALP by considering the set of 10 companies as under :

Thus the TPO has worked out Arithmetic Mean at 26.86% and after

allowing the working capital adjustment of 0.17% the adjusted mean

margin of comparables was taken at 26.69%. Accordingly, the Transfer

Pricing Officer (‘TPO’) has proposed an adjustment under Section 92CA

of Rs.11,53,72,265. The assessee challenged the action of the A.O/TPO

before the Dispute Resolution Panel (‘DRP’) and raised the objection

against the comparability of the companies. The DRP has applied 0%

Related Party Transactions (‘RPT’) filter as well as turnover filter of

4 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. Rs.2.00 Crores to Rs.200 Crores and therefore excluded various

companies on the basis of these two filters. Thus both the assessee as

well as revenue are aggrieved by the directions of DRP and filed these

appeals.

raised the following grounds :

5 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd.

assessee has no objection if no turnover filter is applied for the purpose

of deciding the functional comparability of these companies however the

issue of functional comparability has been raised by the assessee in its

appeal. Therefore the learned Authorised Representative has submitted

that the assessee has no objections if the directions of the DRP is

reversed and no turnover filter is applied. Accordingly, in view of no

objection of the assessee's counsel, we decide this ground in favour of

the revenue and set aside the directions of the DRP so far as applying the

turnover filter.

6.1 Ground Nos.3 & 4 are regarding exclusion of reduction of expenses

on telecommunications, freight and insurance incurred in foreign

currency from export turnover as well as total turnover.

6.2 We have heard both sides and perused and carefully considered

the material on record and the judicial decision cited. On perusal

6 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. thereof we find that the issue before us for adjudication i.e. if

expenditure incurred on telecommunication, insurance and freight

charges and on travel in foreign currency attributable to the delivery of

computer software abroad is reduced from export turnover an equal

amount should also be reduced from total turnover while computing the

deduction under section 10A of the Act, is covered in favour of the

assessee by the decision of the Hon’ble Karnataka High Court in the case

of Tata Elxsi Ltd. (supra). In this order, the Hon’ble Court held –

“ The Bombay High Court had an occasion to consider the earning of the word ‘total turnover’ in the context of section 10A, in the case of CIT Vs. Gem Plus Jewellery India Ltd. (2011) [330 ITR P. 175 (Bom)] (2010-TIOL-456- HC-MUM-IT). Interpreting sub-section (4) of section 10A, it is held as under : “Under sub-section (4) the proportion between the export turnover in respect of the articles or things, or as the case may be, computer software exported, to the total turnover of the business carried over by the undertaking is applied to the profits of the business of the undertaking in computing the profits of the business of the undertaking in computing the profits derived from export. In other words the profits of the business of the undertaking are multiplied by the export turnover in respect of the articles, things or, as the case may be, computer software and divided by the total turnover of the business carried on by the undertaking. The formula

7 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. which is prescribed by sub-section (4) of section 10A is as follows : Profits derived Profits of the Export from export of business of the turnover in articles or undertaking. respect of the things or articles or computer things or software. computer software. Total turnover of the business carried on by the undertaking

The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator in as much as the export turnover is a part of the total turnover. The export turnover, in the numerator must have the same meaning as the export turnover which is constituent element of the total turnover in the denominator. The legislature has provided a definition of the expression “export turnover” in Expln.2 to s.10A which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore in computing the export turnover the legislature has made a specific exclusion of freight and insurance charges. The submission which has been urged on behalf of the

8 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the revenue, however, misses the point that the expression “total turnover” has not been defined at all by Parliament for the purposes of s.10A. However, the expression “export turnover” has been defined. The definition of “export turnover” excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression “export turnover” cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a provision which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation would lead to an absurdity. If the contention of the Revenue were to be accepted, the same expression viz. ‘export turnover’ would have a different connotation in the application of the same formula. The submission of the Revenue would lead to a situation where freight and insurance, though these have been specifically excluded from ‘export turnover’ for the purposes of the numerator would be brought in as part of the ‘export turnover’ when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided.“ The Special Bench of the Tribunal, in the case of ITO Vs. Sak Soft Ltd. (2009) 313 ITR (AT) 353 (Chennai) (SB) (2009-TIOL-187-ITAT-MAD-SB) also had an occasion to consider the meaning of the word ‘total turnover’. After referring to the various judgments of the High Court as well as the Supreme Court held as under :

9 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. “53. For the above reasons, we hold that for the purpose of applying the formula under sub-section (4) of section 10-B, the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded, both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula…..” The formula for computation of the deduction under section 10A would be as under : Profits of the business x export turnover / Total turnover From the aforesaid judgments, what emerges is that, there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of section 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in section 10A, the export profit is to be derived form the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and

10 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. domestic business, in other words, export turnover and domestic turnover. The export turnover would be a component or part of a denominator, the other component being the domestic turnover. In other words, to the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. In view of the commonality, the understanding should also be the same. In other words, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover cannot be different. Therefore, though there is no definition of the term ‘total turnover’ in section 10A, there is nothing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, ‘export turnover’ is defined, and when the ‘total turnover’ includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the legislature, they would have expressly stated so. If they have not chosen to expressly define

11 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. what the total turnover means, then, when the total turnover includes export turnover, themeaning assigned by the legislature to the export turnover is to be respected and given effect to, while interpreting the total turnover which is inclusive of the export turnover. Therefore the formula for computation of the deduction under section 10A, would be as under : Profits of the business of the undertaking x Export turn over (Export turnover + domestic turn over) Total Turnover 11. In that view of the matter, we do not see any error committed by the Tribunal in following the judgments rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the revenue.”

Respectfully following the aforementioned decision of the Hon’ble High

Court of Karnataka in the case of CIT Vs. Tata Elxsi Ltd. (supra), we

uphold the directions of DRP in directing the Assessing Officer to reduce

the expenditure incurred on telecommunications, freight and insurance

incurred in foreign currency from export turnover as well as total

turnover. Consequently this ground raised by revenue is dismissed.

12 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd.

13 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd.

14 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd.

(ii) Acropetal Technologies Ltd. (Seg.)

(iii) Fortune Infotech Ltd.

(iv) ICRA Online Ltd (Seg.)

15 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. (v) Sundaram Business Services Ltd.

16 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. 12. We have considered the rival submissions as well as the relevant material on record. We find that the co-ordinate bench of this Tribunal in assessee's own case for the Assessment Year 2006-07 vide order dt.18.10.2016 in IT(TP)A No.1633/Bang/2012 has considered the comparability of these four companies and rejected these companies by considering the RPT at 15% as well as functional comparability. We find that the DRP has given the details of RPT of all the 10 companies at page 11 and therefore the following three companies will be excluded as not satisfying the tolerance range of 15% RPT filter. (i) Fortune Infotech Ltd. RPT 25%

(ii) Icra Online Ltd. RPT 19.16%

(iii) Sundaram Business Services Ltd. RPT 29.44%

a) Accential Tech. Ltd. (Seg.) b) Acropetal Tech. Ltd. (Seg.) c) Coral Hubs Ltd.

17 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. d) Crossdomain Solutions Ltd. e) Eclerx Services Ltd. f) Genesys International Corpn. Ltd. g) Mold Tek Technologies Ltd.”

We further note that the functional comparability has been examined in detailed by the co-ordinate bench of this Tribunal in the case of Equant Solutions India Pvt. Ltd. Vs. DCIT in IT(TP)A No.1202/Del/2015 as well as in the case of ITO Vs. Interwoven Software Services (India) Pvt. Ltd. in ITA No.461/Bang/2015. Further in the case of Acropetal Technologies Ltd. (Seg.), the co-ordinate bench of this Tribunal in the case of Kodiak Networks (India) Pvt. Ltd. Vs. DCIT in IT(TP)A No.1540/Bang/2012 has considered the functional comparability and found that this company is not comparable with a captive service provider. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables. E-clerx Services Limited 14.1 We have considered the rival submissions and relevant record. At the out set, we note that the comparability of M/s Eclerx Services Ltd. has been examined by the Special Bench of the Tribunal in the case of Maersk Global Centres (India ) (P) Ltd (supra) in para 82 and 83 as under :

“82. In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed

18 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns.

14.2 As discussed by the Special Bench in the case of Maersk Global Centres (India ) (P) Ltd (supra), this company provides data analysis, operating management, audits, reconciliation, metrics management and

19 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. operating services. It has two business verticals – financial services, retail and manufacturing. It was found to have being providing complete business solutions in the nature of high end services. The nature and different field of services provided by this company clearly show that it is not functionally comparable with the ITES. Accordingly, we direct the TPO/AO to exclude this company from the set of comparables. Infosys BPO Ltd. 15.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the ITES segment.

15.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee in the case on hand. The learned Authorised Representative drew our attention to various parts of the Annual Report of this company to submit that this company commands substantial brand value, owns intellectual property rights and is a market leader with brand value, whereas the assessee is merely an ITES operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted by the learned Authorised Representative that :-

20 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. (i) the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2010 has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee ;

(ii) the observation of the ITAT, Delhi Bench in the case of Agnity India Technologies Pvt. Ltd. in ITA No.3856 (Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and market leader assuming all risks leading to higher profits cannot be considered as comparable to captive service providers assuming limited risk ;

(iii) the company has generated several inventions and filed for many patents in India and USA ;

(iv) the company has substantial revenues from software products and the break up of such revenues is not available ;

(v) the company has incurred huge expenditure for research and development;

21 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. (vi) the company has made arrangements towards acquisition of IPRs in ‘AUTOLAY’, a commercial application product used in designing high performance structural systems.

In view of the above reasons, the learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded form the list of comparable companies.

15.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies.

15.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys BPO Ltd. is not functionally comparable since it has the benefit of market value as well as brand value. This company

22 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. enjoys the benefits of scale and market leadership. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly.

Since we have directed the A.O/TPO to exclude these companies from the set of comparables therefore the TPO is directed to compute the ALP on the basis of remaining comparables. 16. The next ground is regarding disallowance of lease rentals. 17. The Assessing Officer has disallowed the vehicle lease rentals of Rs.1,50,90,890 on the ground that the payments were made towards purchase of vehicles. The DRP allowed the interest portion of the vehicle lease rentals and disallowed the principle portion. Therefore both the revenue as well as the assessee have challenged the directions of the DRP on this issue. 18. The learned Authorised Representative has submitted that the assessee has taken the vehicles under finance lease for the purpose of his business. The vehicle lease payments made are annualized payments. The assessee has claimed the entire vehicle lease rental payment as deduction. The finance vehicle lease rentals paid by the assessee include both interest and principle amount. The ld. AR pointed out that the Assessing Officer has disallowed the claim on the ground that the vehicles were used for personal purpose of employees whereas the vehicles are provided to the employees for the purpose of assessee's business. In support of his contention, he has relied upon the decision of Hon'ble Rajasthan High Court in the case of Rajshree Roadways Vs.

23 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. Union of India (2003) 263 ITR 206 (Raj), decision of Delhi Benches of the Tribunal in the case of Minda Corporation Ltd Vs. DCIT 69 Taxman 317 as well as the decision of Hon'ble Gujarat High Court in the case of Sayaji Iron & Engg. Co. Vs. CIT 253 ITR 749 (Guj). 19. On the other hand, the ld. DR has relied upon the orders of the authorities below and submitted that the assessee has taken vehicles on finance lease and has capitalized the same. The repayment of principle is not allowable being incurred for accruing capital asset and was for enduring benefit of the assessee. Since the assessee has taken the vehicles on finance lease and is not the owner of the vehicles but the lessor-financier has exclusive ownership of vehicles till full payment therefore, the Assessing Officer has denied the depreciation on these vehicles. He has relied upon the decision of the Hon'ble Delhi Bench of this Tribunal in the case of Rio Tinto India (P.) Ltd. Vs. ACIT 52 SOT 629. 20. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessee has taken vehicles on finance lease and is paying the lease rentals to the lessor. The vehicles are used in the course of business as provided to the employees of the assessee. The Assessing Officer has disallowed the claim of the assessee on the ground that the vehicles are for personal use of the employees. At the outset we note that an identical issue has been considered by the Gujarat High Court in the case of Sayaji Iron & Engg. Co. Vs. CIT (supra) in paras 9 & 10 as under :

24 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. “ 9. In our opinion, as the directors of the assessee were entitled to use the vehicles of the assessee-company for their personal use as per the terms and conditions on which they were appointed, it was not proper on the part of the AO to disallow 1/6th of the expenditure incurred by the assessee on maintenance of its vehicles. Sec. 309 of the Companies Act, 1956, provides the modality for determining the remuneration payable to directors, including any managing or full-time director. Such remuneration is payable either as stated in the articles of association of the company or in accordance with the resolution or if provided by articles, by a special resolution which might be passed by the company in the general meeting. This payment of remuneration is subject to overall limits of managerial remuneration laid down in s. 198 of the Act. What is more material for the purpose of the present controversy is Explanation to s. 198 of the Companies Act which permits and provides that "remuneration" shall include (a) any expenditure incurred in providing any rent-free accommodation, etc., (b) any expenditure incurred in providing any other benefit or amenity free of charge or at a concessional rate, (c) any expenditure which would have been incurred by the director but for such expenditure having been incurred by the company, (d) any expenditure incurred by the company for the purpose of any insurance on the life, etc. Therefore, it is clear that the expenditure incurred by the assessee-company on maintenance of vehicles which were available to the directors for their personal use would fall within the meaning of "remuneration" as defined in the Explanation to s. 198 of the Companies Act, and once such remuneration is fixed as provided in s. 309 of the Companies Act, it is not possible to state that the assessee- company incurred an expenditure for the personal use of the directors i.e., even if there was any personal use by the directors, the same was as per the terms and conditions of service and insofar as the assessee-company was concerned it was a business expenditure and not disallowable as such. 9.1. There is one more aspect of the matter which requires to be considered. The assessee which is a private limited company is a distinct assessable entity as per definition of "person" under s. 2(31) of the Act. Therefore, it cannot be stated that when the vehicles are used by the directors, "even if they are personally used by the directors" the vehicles are personally used by the company, because a limited company by its very nature cannot have any 'personal use’. The limited company is an inanimate person and there cannot be anything personal about such an entity. The view that we are adopting is supported by the provision of s. 40(c) and s. 40A(5) of the Act. 9.2. It is pertinent to note that except for the assessment year in question, for no other assessment year the expenditure in question has been disallowed. We see no reason for the Tribunal to take a different view for this assessment year especially when it is an undisputed fact that in the past all such disallowances were deleted by the Tribunal and the said decision was not challenged. 9.3. The Tribunal has, in our view unfortunately, upheld the order of CIT(A) wherein Tribunal’s earlier orders in assessee’s own case have been distinguished by giving reasons which are, to say the least, unwarranted. The earlier orders of the Tribunal are distinguished by stating that even if there is no personal user of cars by the company it would yet be user for "non-business purpose". As already stated hereinbefore once the expenditure in question is in terms as provided in ss.

25 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. 309 and 198 of the Companies Act, 1956, there cannot be any "non business" purpose insofar as the assessee-company is concerned. 9.4. In relation to the aforesaid approach of the CIT(A) and the Tribunal we cannot do better than reiterate what Madras High Court has stated in the case of CIT vs. L.G. Ramamurthi & Ors. 1977 CTR (Mad) 416 : (1977) 110 ITR 453 (Mad) : TC 8R.129: "No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts. It will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities. If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly if a Division Bench differs from the view taken by another Division Bench it does not express disagreement and pronounce its different views, but has the matter posted before a Full Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more members for which there is provision in the IT Act itself." We are in respectful agreement with the aforesaid view. 10. In the circumstances, in our opinion, the Tribunal was wrong while disallowing 1/6th of the total car expenditure and depreciation claimed by the assessee on the account of the personal use of the cars which were used by the directors. We, therefore, answer the question in the negative i.e., in favour of the assessee and against the Revenue.”

26 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. Further the Delhi Bench of this Tribunal in the case of Minda Corporation Limited Vs. DCIT (2016) 69 Taxmann.com 317 (Delhi-Trib.) has dealt with an identical issue in paras 5.1 to 5.6 as under : “ 5.1 After having heard rival submissions, we are of the view that AS-19 on accounting for "Leases" issued by the ICAI is only applicable for accounting the lease transaction in the books of accounts. It is a settled law that treatment in the books of accounts is not determinative of liability towards income-tax for the purpose of the Act. The liability under the Act is governed by provisions of the Act and is not dependent on the treatment followed for the same in the books of accounts. For above proposition, reference is made to Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). AS-9 on accounting for leases classifies lease transactions for accounting purposes as under: (i) Finance Lease

(ii) Operating Lease

5.2 Finance Lease, in AS-19, is described as a lease that transfers substantially all the risks and rewards in respect of ownership of an asset; title may or may not be transferred under such lease. An operating lease, on the other hand, is described as a lease other than a finance lease. The aforesaid Accounting Standard provides that under the finance lease, the lessee should recognize the asset in its books and should charge depreciation on the same. In the case of operating lease, the Accounting Standard provides that the lessee should recognize the lease payments as an expense in the profit and loss account and the lessor should recognize the asset given on lease and charge depreciation in respect of the same. The aforesaid distinction between finance lease and operating lease is not recognized under the Act. Under the provisions of the Act, depreciation is admissible under section 32 of the Act only to the 'owner' of the asset. Lease charges paid for the use of the asset, without acquiring any ownership rights in the same, are allowable as revenue expenditure under section 37 of the Act. 5.3 The Circular No.2 of 2001 dated 09.02.2001 (247 ITR (St.) 53) issued by the Central Board of Direct Taxes (CBDT) has opined that the aforesaid accounting standard issued by ICAI creating distinction between finance lease and operating lease will have no implications under the provisions of the Act. The relevant excerpt of the said Circular are reproduced herein below:- "Under the Income-tax Act, in all leasing transactions, the owner of the asset is entitled to the depreciation if the same is used in the business, under section 32 of the Income-tax. The ownership of the asset is determined by the terms of the contract between the lessor and the lessee. . . . . . . . .

27 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. It has come to the notice of the Board that the New Accounting Standard on 'Leases' issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the Act." 5.4 Thus, the CBDT's view on the treatment of finance lease is not aligned to the accountant's perspective of a finance lease. For accounting purposes, although the lessee shows the asset in his balance sheet, charges depreciation in accounts and even makes impairment provision, yet the assessee is not eligible to claim depreciation under the Act, which is allowed to the legal owner of the asset. Furthermore, not only the interest/ finance/ other charges component in the lease payments, but the entire lease payments are treated as a deductible expense and no deduction is allowed for the impairment provision. In the hands of the lessor, the entire 'lease rentals' and not merely the finance charges component thereof is taxed as income. The lessor, who is the legal owner of the asset, is entitled to claim depreciation under the provisions of the Act. 5.5 The aforesaid legal position finds support from the decision of the Hon'ble Supreme Court in the case of ICDS Ltd. v. CIT [2013] 350 ITR 527/212 Taxman 550/29 taxmann.com 129, wherein the Hon'ble Court held that the lessor is the owner of the leased property in case of finance lease, entitled to depreciation of the same. The pertinent observation of the Hon'ble Court is reproduced hereunder : "The revenue's objection to the claim of the assessee is founded on the lease agreement. It argued that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding one per cent of the original cost of the vehicle, making the assessee in effect a financier. However the revenue's contention cannot be accepted. As long as the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eye of law. A scrutiny of the sale agreement cannot be the basis of raising question against the ownership of the vehicle. The clues qua ownership lie in the lease agreement itself, which clearly point in favour of the assessee" 5.6 The Hon'ble Rajasthan High Court in the case of Rajshree Roadways v. Union of India [2003] 263 ITR 206/129 Taxman 663 upheld the assessee's claim of allow ability of lease rentals paid as lessee of the Trucks as a revenue expenditure under section 37(1) of the Act, even though the lease was categorized as finance lease.”

Thus it is clear that the Tribunal has decided this issue by following the decision of Hon'ble Supreme Court in the case of ITDS Vs. CIT reported in

28 IT(T.P)A Nos.191 & 569/Bang/2015 Tesco Hindustan Service Centre Pvt. Ltd. 350 ITR 527 as well as decision of Hon'ble Rajasthan High Court in the case of Rajshree Roadways Vs. Union of India (supra). Following the decision of Hon'ble Gujarat High Court as well as Hon'ble Supreme Court (supra), we decide this issue in favour of the assessee and accordingly allow the claim of the assessee regarding lease rentals as an allowable revenue expenditure. It covers both the grounds of the assessee as well as revenue’s appeal. Consequently the Ground No.2 of the revenue’s appeal is dismissed and Ground II of the assessee's appeal is allowed. 22. In the result, both the assessee's appeal as well as revenue’s appeal are partly allowed. Order pronounced in the open court on the 25th day of Jan., 2017. Sd/- Sd/- (INTURI RAMA RAO) (VIJAY PAL RAO) Accountant Member Judicial Member Bangalore, Dt.25.01.2017.

*Reddy gp

Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File.

By Order

Asst. Registrar, ITAT, Bangalore