PRINCIPAL COMMISSIONER OF INCOME TAX - 7 vs. M/S ROHDE & SCHWARZ INDIA PVT. LTD.,

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ITA/700/2016HC DelhiDLHC01215032201607 November 2016Bench: HON'BLE MR. JUSTICE S. RAVINDRA BHAT,HON'BLE MS. JUSTICE DEEPA SHARMA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT's decision on both issues was correct. The tile expenditure was considered revenue due to its insignificant amount and the ITAT's reliance on Supreme Court precedents. The Frame Relay Charges were deemed similar to internet bandwidth, thus falling under the ratio of a previous High Court judgment.

What were the facts?

The Revenue appealed against the ITAT's decision regarding two issues: the classification of expenditure on tiles as capital vs. revenue, and the taxability of Frame Relay Charges under Section 9(1)(vii). The ITAT had held the tile expenditure as revenue and Frame Relay Charges as not subject to TDS.

What were the issues?

Whether expenditure on tiles is capital or revenue, and whether Frame Relay Charges are subject to TDS under Section 9(1)(vii) of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 9(1)(vii),Section 40(a)

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$~9 and 10 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 700/2016

PRINCIPAL COMMISSIONER OF INCOME TAX – 7 ... Appellant Through: Mr Dileep Shivpuri, Sr. Standing Counsel, Sh. Sanjay Kumar, Jr. Standing Counsel and Mr Vikrant A. Maheshwari, Advs.

versus

M/S ROHDE & SCHWARZ INDIA PVT. LTD. .... Respondent

Through: None.

+ ITA 701/2016 and CM No. 37485/2016

PRINCIPAL COMMISSIONER OF INCOME TAX - 7... Appellant Through: Mr Dileep Shivpuri, Sr. Standing Counsel, Sh. Sanjay Kumar, Jr. Standing Counsel and Mr Vikrant A. Maheshwari, Advs.

versus

M/S ROHDE & SCHWARZ INDIA PVT. LTD. .. Respondent

Through: None.

CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MS. JUSTICE DEEPA SHARMA

O R D E R %

07.11.2016

The Revenue urges two questions of law: i. The first relates to payment towards tile etc. According to the Revenue this is in the form of capital expenditure for which depreciation can be granted only to the extent of 25%.

This Court notices that the ITAT had applied the ratio and various decisions to say the decision of the Supreme Court such as Empire Jute Co Ltd vs CIT [1980] 124 ITR 1, etc. to hold that the expenditure was, in fact, revenue. Besides, the amounts are insignificant and both cumulative and for each year, its effect is well below the tax prescribed limit both cumulative and for each year. ii. The second question urged is that the payment towards ―Frame Relay Charges‖ falls within the mischief of Section 9 (1)(vii) of Income Tax Act and to the extent the assessee was under an obligation to deduct tax thereon. It was liable by virtue of Section 40(a). The disallowance by the AO was sought to be justified. The ITAT in this regard relied upon the decision of this Court in CIT vs. Estel Communications Ltd. 318 ITR 185. The question is sought to be distinguished by the Revenue on the ground that what was in issue in Estel (supra) was payment towards Internet bandwidth and whereas what is in issue in the present case is ―Frame Relay Charges‖. This Court is of the opinion that the judgment in Estel (supra) would apply because Frame Relay—according to the technical definition (http://searchenterprisewan.techtarget.com/definition) is a kind of activity akin to Internet Service and is described as ―Frame Relay puts data in a variable-size unit called a frame and leaves any necessary error correction (retransmission of data) up to the endpoints, which speeds up overall data transmission‖. In other words, Frame Relay Service is an efficient Data Transmission and a part of the Internet Service provided by the

concerned service provider. Therefore, the conclusion of the ITAT warranted in the circumstances of the case. No question of law arises. The appeal is, therefore, dismissed.

S. RAVINDRA BHAT, J

DEEPA SHARMA, J NOVEMBER 07, 2016 bg

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