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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 4th DAY OF JUNE 2020
PRESENT
THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR.JUSTICE HEMANT CHANDANGOUDAR
I.T.A. NO.200 OF 2011
BETWEEN:
COMMISSIONER OF INCOME
TAX-III, C.R.BUILDING
QUEENS ROAD, BANGALORE
DEPUTY COMMISSIONER OF
INCOME TAX, CIRCLE-12(4)
BANGALORE
... APPELLANTS
(By Sri.E.I.SANMATHI, ADV.)
AND:
M/s. TECH MAHENDRA LTD. NO.9/7, HOSUR ROAD BANGALORE – 29
... RESPONDENT
(By M/S TECH MAHENDRA LTD., SERVED) - - -
THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 24.02.2011 PASSED IN ITA NO.748/BANG/2010 AND C.O. NO.1/BANG/2011, FOR THE ASSESSMENT YEAR 2002-03, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF
LAW THEREIN AND SET ASIDE THE APPELLATE ORDER DATED 24.02.2011 PASSED BY THE ITAT ‘B’ BENCH, BANGALORE AS SOUGHT FOR, IN THE RESPONDENT – ASSESSEE’S CASE, IN APPEAL PROCEEDINGS NO.ITA NO.748/BANG/2010 AND C.O.NO.1/BANG/2011.
THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been filed by the revenue. The subject matter of the appeal pertains to Assessment year 2002-03. The appeal was admitted by a Bench of this Court vide order dated 04.01.2012 on the following substantial questions of law:
a) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in directing the Assessing Officer to exclude telecommunication expenses of Rs.39,02,121/-, insurance of Rs.51,90,128/- and Rs.24,57,536/- incurred as per diem expenses on
employees in foreign currency from total turnover as well for the purpose of computation of deduction under Section 10A of the I.T Act, 1961?
b) Whether in the facts and circumstances of the case, the Tribunal is justified in law in allowing assessee’s cross objection to exclusion made by the Assessing Authority of medical insurance expenses amounting to Rs.51,90,128/- incurred on employees sent abroad for onsite computer development from export turnover even though there are expenses incurred in foreign exchange in connection with providing technical services outside India?
Facts leading to filing of this appeal, briefly stated are that the assessee is engaged in the business of development and export of computers. The assessee had filed return of income on 31.10.2002 declaring total
income of Rs.11,28,600/-. The return was processed under Section 143(1) of the Act. Subsequently, the case was reopened under Section 147 of the Act on 13.07.2007 on the ground that the assessee while computing deduction under Section 10A of the Act had adopted total turnover and had not excluded data communication expenses, which resulted in excess deduction under Section 10A of the Act, to the tune of Rs.9,69,30,990/-. Notices under Section 148 and Section 142(1) of the Act dated 13.07.2007 and 24.10.2007 respectively were issued to the assessee. Thereafter, a notice under Section 143(2) of the Act was issued to the assessee. The assessing officer by an order dated 22.12.2008 inter alia held that technical service for delivery of computer software of the nature provided by the assessee is methodical, mechanical, procedural, practical, scientific and technological, which cannot be provided by any lay man without special training for doing so. Therefore, an amount of
Rs.1,15,49,785/- was reduced from export turnover and exempt income was accordingly reduced and the total assessed income was determined at Rs.101,641,717/-. The assessee was also held liable to pay interest under Section 234B and Section 234C of the Act. Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The appellate authority by an order dated 05.03.2010 inter alia held that Income Tax Appellate Tribunal in catena of decisions has held that if any part of expenses is to be excluded from the export turnover, the same is required to be excluded from total turnover also. Accordingly, a direction was issued to the assessing officer to exclude the expenses of Rs.90,92,249/- being expenses incurred towards telecommunication and insurance attributable to the delivery of computer software outside India, expenses incurred in foreign exchange in providing technical services outside India to the tune of Rs.24,57,536/- from the export turnover and
correspondingly from the total turnover. The assessing officer was also directed to ascertain the claim of the appellant with regard to the export turnover. It was held that no appeal can lie against an order charging interest under Section 234B of the Act if there is an incidence and assessing officer was directed to charge the same if chargeable after taking into account the order passed by the Commissioner of Income Tax (Appeals). The initiation of penalty proceeding under Section 271(1)(c) of the Act were dismissed on the ground that it was premature. Accordingly, the appeal was partly allowed.
Being aggrieved, the revenue approached the Income Tax Appellate Tribunal by filing an appeal. The assessee also filed cross objection. The tribunal vide order dated 24.02.2011 inter alia held that issue of telecommunication charges and issuance of delivery of software outside India and foreign currency for rendering technical services outside India for reduction from the export turnover as well as total turnover are
covered by a decision of the special bench of the tribunal in the case of ‘ITO VS. SAKSOFT INDIA LTD.,’, (313 ITR (AT) 353). It was held that only the expenses which are relatable to the export of computer software are to be reduced from export turnover as well as from total turnover. However, it was held that the veracity of the claim of the assessee has to be verified by the assessing officer and the matter was remitted on the aforesaid issue to the assessing officer. It was further held that issue with regard to expenditure incurred on the employees for development of computer software onsite is covered by the decision of the tribunal in the case of ‘INFOSYS TECHNOLOGIES LTD. and it was held that onsite development of computer software cannot be held to be rendering technical services outside India and it cannot be reduced from export turnover. Accordingly, the appeal preferred by the revenue as well as the cross objection preferred by the assessee were
partly allowed. Being aggrieved, the revenue is in appeal before us.
Learned counsel for the revenue submitted that the tribunal erred in law in directing the assessing officer to exclude telecommunication expenses of Rs.39,02,129/-, a sum of Rs.51,90,128/- towards insurance expenses and sum of Rs.24,57,536/- incurred as per diem expenses on employees in foreign currency from the total turnover as well as for the purpose of computation of deduction under Section 10A of the Act. It is further submitted that reliance placed by the tribunal on the decision of INFOSYS TECHNOLOGIES LTD., is misconceived as against the aforesaid decision, the revenue had preferred an appeal before this court and the matter was remitted to the assessing officer. In this connection, reliance has been placed on decision of this court in ‘COMMISSIONER OF INCOME-TAX AND ANOTHER V. INFOSYS TECHNOLOGIES LTD.’,
(2014) 360 ITR 714 (KARN).
We have considered the submissions made by the revenue and have perused the record. The first substantial question of law framed by bench of this court need not detain us as it is no longer res integra and is squarely covered by decision of the supreme court in ‘COMMISSIONER OF INCOME-TAX V. HCL TECHNOLOGIES LTD.’, (2018) 404 ITR 719 (SC). In view of aforesaid enunciation of law, the tribunal was justified in directing the assessing officer to exclude telecommunication expense, per diem expenses. It is pertinent to note that in case expenses are incurred on insurance in respect of the employees of the assessee on visit to their clients premises, the same also deserves to be excluded. However, in the instant case, there is a dispute with regard to claim of the assessee with regard to expenditure incurred on insurance to the tune of Rs.51,90,128/-, which requires adjudication. Accordingly, the first substantial question of law framed by a bench of this court is answered against the revenue
insofar as it pertains to exclusion of expenses under the head of telecommunication and per diem expenses.
So far as second substantial question of law is concerned, the dispute in the instant case is whether the assessee has incurred an amount of Rs.51,90,128/- on account of medical insurance of the employees of the assessee on visit to their clients premises or the same is not relatable to medical insurance. The aforesaid issue requires adjudication. We find from the order passed by the tribunal that tribunal has remitted the claim of the assessee that insurance expenditure is not relatable to export of computer software but it relates to medical insurance of the employees of the assessee on the visit to their clients premises. While issuing the aforesaid direction, the tribunal has followed the decision rendered by it in INFOSYS TECHNOLOGIES LTD., supra. Against the aforesaid decision, the revenue had preferred an appeal before this court and a division bench of this court in COMMISSIONER OF INCOME
TAX AND ANOTHER supra. The matter was remitted to the assessing officer. Needless to state that assessing officer while deciding the aforesaid issue afresh shall bear in mind the law laid down by division bench of this court in COMMISSIONER OF INCOME TAX AND ANOTHER supra. Therefore, it is not necessary to answer the second substantial question of law.
In the result, the appeal is disposed of.
Sd/- JUDGE
Sd/- JUDGE