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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI INTURI RAMA RAO
Per Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of the Assessing Officer dated 26.08.2011 passed u/s. 143(3) r.w.s. 144C(5) & (13) of the Income-tax Act, 1961 [“the Act”] inter alia on the following grounds:-
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“Based on the facts and circumstances of the case and in law, Cisco Systems Services B.V., India Branch (hereinafter referred to as the 'Appellant') respectfully craves leave to prefer an appeal against the order passed by the Joint Director of Income-tax, International Taxation, Range I, Bangalore, (Assessing Officer' or 'AO') in pursuance of the directions issued by the Dispute Resolution Panel CDRP'), Bangalore dated August 16, 2011, under section 253 of the Income-tax Act, 1961 (the Act'), on the following grounds:-
That on the facts and circumstances of the case and in law and based on the directions of the DRP- 1. the learned AO has erred in law and in fact by considering the entire lease line charges relatable to the STP unit of the Appellant as being attributable to the delivery of computer software outside India, without appreciating the fact that the lease line charges are incurred for general communication purposes as well; 2. the learned AO has erred in law and in fact by considering the entire internet charges relatable to the STP unit of the Appellant as being attributable to the delivery of computer software outside India, without appreciating the fact that the internet charges are incurred for general communication purposes as well; 3. the learned AO has erred in law and in fact by not considering the plea of the Appellant that it does not provide any technical services outside India and therefore, foreign currency expenditure incurred by the Appellant in relation to travel should not be reduced from 'export turnover' for the purposes of computing the deduction under Section 10A of the Act; 4. the learned AO has erred in law by not considering the plea of the Appellant that, if expenses such as lease line charges, internet charges and foreign currency expenditure in relation to travel, if reduced from 'export turnover', should also be reduced from 'total turnover' for computing the deduction under section 10A of the Act;
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5. the learned AO has erred in law and in fact by not considering that foreign currency expenditure in relation to recharge of other costs constitute 'reimbursements' in the nature of travel, hotel, boarding and lodging facilities and are not in the nature of income chargeable to tax under the Act; 6. The learned AO has erred in law by levying interest under section 234D of the Act. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law.”
2. The assessee through ground Nos.1 to 4 has contended that the AO erred in not considering the plea of the assessee that if expenses such as lease line charges, internet charges and foreign currency expenditure in relation to travel, if reduced from ‘export turnover’ should also be reduced from total turnover for computing the deduction u/s. 10A of the Act. This issue is squarely covered by the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Tata Elxsi Ltd., 349 ITR 98 (Karn) wherein it has been held that whatever has been excluded from the export turnover had to be excluded from the total turnover also, since total turnover includes export turnover as well. In the light of the judgment of the Hon'ble jurisdictional High Court, we direct the AO that the aforesaid expenses reduced from export turnover be reduced from total turnover as well.
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Through proposed ground No.5, the ld. counsel for the assessee has contended that it was simply reimbursement of expenses spent abroad, therefore it should only be considered as an expenditure for development of software for providing technical services outside India.
There was no expenditure incurred in foreign currency for providing technical services outside India.
During the course of hearing, the ld. counsel for the assessee has invited our attention to the copy of financial statement appearing at pages 8 to 10 of the assessee’s compilation under the head ‘Expenditure in foreign currency’ in Schedule to Accounts wherein the assessee claimed ‘Recharge of Other Costs’ of Rs.7,95,000. It was further contended that since it was merely reimbursement of expenditure incurred abroad, the assessee is not required to deduct TDS on this payment. Therefore, there should be no disallowance u/s. 40(a)(ia) of the Act.
The ld. DR strongly opposed the contents of the assessee with the submission that before the AO, the assessee claimed it to be expenditure incurred for development of software, although for providing technical services outside India.
Having carefully examined the orders of authorities below, we find that before the DRP, the assessee took a stand that foreign currency expenditure was in relation to recharge of other costs which constitutes reimbursement of travel, hotel, boarding and lodging facilities and are not in IT(TP)A No.926/Bang/2011 Page 5 of 6 the nature of income chargeable to tax under the Act. It was further contended that the assessee has incurred foreign currency expenditure amounting to Rs.7,95,000 towards recharge of other costs, which is reimbursement in the nature of travel, hotel, boarding and lodging facilities, which are borne by CISCO overseas affiliates and subsequently recharged to the assessee. But these facts were not examined by the DRP and they have disallowed the claim of the assessee, having observed that once it is held that payment was in accordance with the contract for payment of fees for technical services, the same becomes taxable and liable to TDS. It is not clear from the order of the DRP whether they have examined the terms of agreement and wherefrom they have derived the conclusion that it was payment for fees for technical services. The terms of agreement are also not available before us, but we find force in the contention of the assessee that if the payments are on account of reimbursement of the expenditure incurred on travel, hotel, boarding and lodging facilities, it should be allowed as no TDS was required to be deducted. Since the complete information is not available before us, we set aside this issue to the Assessing Officer to make necessary verification in this regard. If the payments are found to be on account of reimbursement of the aforesaid expenses, the same should be allowed as there was no requirement to deduct TDS.
IT(TP)A No.926/Bang/2011 Page 6 of 6 In the result, the appeal stands partly allowed. 7. Pronounced in the open court on this 19th day of August, 2016.