M/S. STERIA INDIA LTD.,NOIDA vs. DCIT, NEW DELHI

This appeal by the assessee is directed against the final assessment order dated 30.11.2015 passed by the Assessing Officer (AO) u/s 143(3)

First ground is general which does not require any adjudication.

Ground no. 2 about the transfer pricing adjustment amounting to Rs.29.90 crore in the `Software development service segment’ and ground no. 3 about the transfer pricing adjustment amounting to Rs.9.30 crore in `I.T. enabled service segment’ were not pressed by the ld. AR.

Ground nos. 4 and 6 are against the disallowance u/s 40(a)(i) of the Act of expenditure amounting to Rs.21,32,49,648/- incurred by the assessee as Management services fees on the reason that the assessee failed to deduct tax at source in terms of section 195 of the Act.

Briefly stated, the facts of this ground are that the assessee incurred an expenditure of Rs.21.33 crore as remuneration for Management services to Groupe Steria SCA (Steria France). No deduction of tax at source was made before making this payment. Invoking the provisions of Section 40(a)(i) read with section 195 of the Act, the AO disallowed 2 this expenditure. In doing so, he noticed that the assessee’s application filed before the Authority for Advance Ruling (AAR) was dismissed vide Ruling dated 2.5.2014 holding that the payment made by the assessee for the Management services provided by Groupe Steria SCA will be taxable as ‘Fee for technical services’ and, accordingly, the assessee was liable to withhold tax as per the provisions of section 195 of the Act.

We have heard the rival submissions and perused the relevant material on record. The ld. AR has brought to our notice that the said Ruling of the AAR was challenged by the assessee before the Hon’ble Delhi High Court. Vide order dated 28.7.2016, the Hon’ble Delhi High Court has held on the last page that: (i) the payment made by the assessee to Steria France for the management services provided by the latter cannot be taxed as ‘Fees for technical services; and (ii) the said payments are not liable to withholding of tax u/s 195 of the Act. By rendering this judgment, a copy of which has been placed on record, the Hon’ble High court has vacated the Ruling of the AAR on this score. In the given circumstances, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of AO. We order accordingly and direct him to decide this issue afresh in consonance with the judgment of the Hon’ble Delhi High Court passed in the assessee’s own case.

Ground no. 5 is against reducing the deduction u/s 10A from Rs.34,79,66,065/- as claimed by the assessee to Rs.20,31,60,680/- inter alia, by excluding the following three items from `Export turnover’ alone:-

Succinctly, the facts of this issue are that the assessee earned income from its Noida Unit -IV which is eligible for deduction u/s 10A of the Act. In the recomputation of deduction, the AO excluded Telecommunication charges, Subsistence for onsite employees and Standby and callout charges from the ambit of ‘Export turnover’, impliedly, in line with the definition of ‘Export turnover’ given in Explanation 2 (iv) at the end of section 10A. However, such exclusion was not made from the amount of ‘Total turnover’, against which the assessee has come up in appeal before us.

After considering the rival submissions and perusing the relevant material on record, it is obvious that the AO computed deduction u/s 10A by reducing the above referred three expenses from the figure of `Export turnover’ without correspondingly reducing such amounts from the figure of ‘Total turnover’ in the formula for computing the deduction. This approach, in our considered opinion, is not right. When a particular amount is excluded from the numerator of `Export turnover’, it has, naturally, to be excluded from the denominator of `Total turnover’ as well in the computation of deduction u/s 10A. It is so for the reason that `Total turnover’ always includes `Export turnover’ and if a particular item is not a part of export turnover, that cannot constitute a part of `Total turnover’ as well. The Hon’ble Bombay High Court in CIT vs. Gemplast Jewellery India Ltd. (2011) 330 ITR 175 (Bom) has held to this extent. Similar view has been taken by the Delhi Bench of the Tribunal in assessee’s own case for the A.Y. 2009-10, a copy of which order is available on record. Respectfully following the precedent, we direct that the total of the above referred three expenses be simultaneously excluded from the amount of ‘Total turnover’ as well.

Ground no. 7 is against excluding proportionate amount of interest income from the total profits in the re-computation of deduction u/s 10A of the Act. The facts of this ground are that the AO in recomputing the amount of deduction u/s 10A observed that the assessee earned interest income amounting to Rs.31,49,15,229/- which was rightly offered as ‘Income from other sources’. Out of this interest income, only a sum of Rs.91,375/- was shown against Noida Unit-IV and the balance interest was shown against a unit which was otherwise incurring losses. The AO apportioned the total interest income of Rs.31.49 crore amongst different units on the basis of their turnovers and computed share of Noida Unit- IV STP in such interest income at Rs.8,03,00,294/-. The amount of `Business profits’ eligible for deduction u/s 10A was recomputed by reducing, inter alia, such amount of interest at Rs.8.03 crore. Relevant discussion has been made in sub-paras (vi), (vii) and (x) of para 4.2.

We have heard the rival submissions and perused the relevant material on record. The ld. AR candidly admitted that interest income earned by the assessee from banks is otherwise not eligible for deduction u/s 10A and that was the reason for the assessee suo motu offering the same as `Income from other sources’. The controversy is about the further reduction of such proportionate amount of interest from the `Business profits’ of Noida Unit – IV for the purposes of deduction u/s 10A. The assessee’s audited financial statements are available on pages 11-37 of the paper book. On going through the Profit & Loss Account of the company, we find that `Profit before tax’ has been computed at Rs.10,31,918/- (figure in Rs. 000). `Other income’ shown under the head ‘Income’ includes interest on bank deposits amounting to Rs.3,15,059/- (figure in Rs.000). Thus, it is clear that the amount of interest from bank totaling to Rs.31.49 crore and odd forms part of `Profit before tax’, which is the starting point of Computation of taxable income at page 3 of the paper book. In such a computation of total income, the assessee has excluded total interest income of Rs.31,49,15,229/- from the amount of profit before tax as per P&L Account to work out the income under the head ‘Profit and gains from business or profession’ at Rs.84,18,14,748. Interest income of Rs.31.49 crore has been separately shown under the head ‘Income from other sources’ for computing gross total income of Rs.80.87 crore. This shows that the interest income of Rs.31.49 crore has not been considered as part of the business income, which also includes eligible income from Noida Unit-IV STP.

To be more specific, computation of deduction u/s 10A is available on pages 5 and 6 of the paper book. The assessee has also placed before us unit-wise profits, which is an Annexure to the computation of income.

The assessee furnished a calculation at the instance of the AO to bring home its point that no further reduction was warranted from the book profits in the computation of deduction u/s 10A, whose copy has been placed in the paper book. It can be noticed that in computing the Income under the head `Profit and gains of business or profession’ (before/ after apportionment of interest income to the Noida Unit-IV), the assessee started with Profit before tax as per P& L account at Rs.31,59,98,024 / Rs.39,62,06,943 including interest income of Rs.91375 / Rs.80300294. Thereafter, such Interest income of Rs.91375 / Rs.80300294 has been reduced to arrive at income under the head `Profits and gains of business or profession’ at Rs.34,79,66,065 / Rs.34,79,66,065. It is this figure of Rs.34,79,66,065, which has been taken by the AO before reducing, inter alia, the amount of interest income of Rs.8,03,00,294. Once the interest income of Rs.8,03,00,294 does not form part of the business profits eligible for deduction u/s 10A, there can be no question of once again reducing such interest income from the amount of eligible business profits. We, therefore, overturn the impugned order to this extent and direct that the interest income apportioned to the eligible unit be not separately reduced since the same was already excluded by the assessee from the amount of Business profits eligible for deduction u/s 10A. This ground is allowed.

Ground no. 8 regarding computation of book profit u/s 115JB of the Act was not pressed by the ld. AR. The same, therefore, stands dismissed.

Ground no. 9 is against not allowing credit for proper amount of advance tax. The ld. AR contended that the AO allowed credit of advance tax at Rs.13.80 crore instead of Rs.24,51,64,659/-, thereby allowing short credit of Rs.10,71,64,659/-. The AO is directed to verify the assessee’s contention and allow proper amount of credit of advance tax.

Ground no. 10 against the levy of interest u/ss 234B and 234C is consequential.

Ground no. 11 is against the computation of total tax liability by taking interest chargeable u/s 234B at Rs.18,45,28,888/- instead of Rs.1,84,52,888/-. The AO is directed to verify the assessee’s contention in this regard and decide accordingly.

In the result, the appeal is partly allowed.