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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
Before: SHRI S.V. MEHROTRA & SHRI A.T. VARKEY
O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
This appeal filed by the Revenue is directed against the Order dated 31.05.2012 passed by the ld. Commissioner of Income-tax (Appeals) – XVI, New Delhi for the assessment year 2009-10.
The assessee company is engaged in the business of export of Medical Transcription services and its unit is located in STPI, Noida. The return of income was filed on 30.09.2009 declaring NIL income. Later, the assessee filed a revised return on 10.02.2010 at NIL income. The case was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter ‘the Act’). Subsequently, the case was selected for scrutiny and notice u/s 143(2) was issued on 18.08.2010.
The assessment was completed u/s 143(3) of the Act at a total taxable income of Rs.47,77,520/-.
Aggrieved, the assessee preferred an appeal to the first appellate authority. The CIT (A) had deleted the additions.
The revenue, being aggrieved, is in appeal before us.
The effective grounds of appeal taken by the assessee read as under :-
“1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the deduction u/s 10A of the Income-tax Act, 1961 by accepting the additional evidence under rule 46A, without providing an opportunity to the A.O. to examine the same .
2. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that when the deduction claimed u/s 10-B in original return is incorrect than deduction u/s 10A can be claimed instead through a revised return.
3. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred in allowing the rent expenditure for Kanpur Office by holding that the office was used for training of newly recruited staff for medical transcription work.
4. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.18,30,780/- made u/s 40(a)(ia) of the Act, 1961 by holding that medical transcription services are more of the nature of labor oriented services, which did not require any specialized knowledge.”
Ground Nos.1 & 2 is against allowing the deduction u/s 10A of the Act, by accepting the additional evidence under rule 46A, without providing an opportunity to the AO to examine the same; and also that the CIT (A) has not appreciated the fact that in the original return filed, the deduction was claimed u/s 10-B was incorrect and finding it incorrect the assessee has claimed deduction u/s 10A by filing revised return which the CIT (A) has not taken note of.
The facts relating to these grounds are that the assessee is in the business of export of medical transcription services and its unit is located in STPI, Noida.
The assessee commenced its operations during the assessment year 2000-01 and up to the assessment year 2008-09 (in the years in which it was not incurring losses), it was claiming exemption u/s 10B of the Act; but during the course of assessment proceedings for AY 2009-10, the Assessing Officer held that since the assessee was not having the requisite approval of the Board, it was not entitled for exemption u/s 10B. Accordingly, the assessee revised its return for the assessment year under appeal, claiming exemption u/s 10A instead of section 10B. The Assessing Officer was of the view that the assessee could not switch over from the claim of exemption u/s 10B, to exemption u/s 10A merely because it had been denied exemption under the former section. The AO further observed that the deduction u/s 10A is available after the undertaking had begun to manufacture or produce computer software in any STP. He also (area which is STP), which is an important requirement of section 10A, is not a requirement at all for section 10B. He further observed that no documents were provided in the assessment proceedings for the relevant assessment year to suggest that if deduction u/s 10B is not allowed, deduction u/s 10A could be claimed. The AO further observed that when an undertaking was formed, the assessee had to decide the scheme under which the same should fall; and noted that the certificate prescribed for two sections are different. The AO wondered that had there been no difference then what was the need to have two different certificates. Thus, the AO was of the opinion that in no case, the assessee could claim the deduction u/s 10A because it failed to satisfy the conditions of section 10B.
Accordingly, he disallowed the deduction claimed u/s 10A of the Act.
The assessee filed an appeal before the first appellate authority and the ld. CIT (A) allowed the deduction by holding as under :-
“4.2 I have considered the discussion in the assessment order and the submissions of the AR of the appellant company. Exemption u/s 10B was denied to the appellant by the Assessing Officer in A.Y. 2007-08 for the reason that the appellant was not having the requisite statutory approval of the Board. Accordingly, the appellant revised its return for 2009-10 and made a claim for exemption u/s 10A, along with form no.56F. The revised return has been taken into consideration by the AO for the purpose of assessment. During the course of appellate proceedings, the AR of the appellant was required to furnish documentary evidence in support of its claim u/s 10A, as per the powers vested in the CIT (Appeals) u/s 250(4) of the Act. The appellant has filed copy of letter of approval from the STPI, Noida, as well as copies of the FIRCs (Foreign Inward Remittance Certificates) which show that the sale proceeds were received by the appellant in India before the expiry of six months from the end of the relevant financial year 2008-09. It has also been elaborated in the submissions in regard to ground of appeal no. 2 that the appellant satisfies the conditions laid down in section 10A of the Act and it is accordingly held that the appellant was entitled for deduction under the said section during A.Y. 2009-10, which is the tenth and final year for claiming the exemption since the appellant commenced its operations in A.Y. 2000-01. Ground no. 2 of the appeal is allowed.”
Ld. DR submitted that the ld. CIT (A) allowed the claim of the assessee without getting a remand report from the AO on the new evidences filed by the assessee. He relied on the order of the AO and pleaded that the matter may be remanded back to the file of the AO for de novo adjudication.
Ld. AR reiterated the submissions submitted before the ld. CIT (A). He submitted that all the conditions required u/s 10A for claiming the deduction were fulfilled by the assessee company. He submitted that the assessee had claimed deduction u/s 10A and continued to claim accordingly. He further submitted that in compliance, the income-tax returns were revised within due time prescribed by section 139 (5) and Audit Reports in the prescribed 56F forms were submitted. He further emphasized that the revised return had been accepted by the AO and assessment was completed on this revised return. Ld. AR further submitted that the assessee company had carried on its business from a registered area under STP u/s 10A. In reply to AO’s observation that no documents were provided in the assessment proceedings to suggest that if 10B is not allowed deduction u/s 10A could be claimed, ld. AR submitted before the CIT (A) that the first and foremost claim made by the assessee for claiming deduction u/s 10A was incorporated in the revised return filed by the assessee; the return was accepted by the AO and assessment was completed rejecting claim u/s 10A not u/s 10B; the migration from 10B to 10A was allowed by the AO but claim made by the assessee company u/s10A was not verified by the AO; copy of legal agreement and green card were submitted vide letter dated 28.11.2011 and other documents were submitted for reasons for exemption u/s 10A. He submitted that still the AO observed that no documents were submitted for claim u/s 10A. Ld. AR pleaded that the order of the CIT (A) on this issue may be upheld and for this, he also made reference to the decisions relied upon before the CIT (A).
We have heard both the sides on the issue and perused the material on record. After going through the order of the ld. CIT (A), we find force in the submission of the ld. DR that the CIT (A) has not asked for the remand report on the additional evidences filed by the assessee and gave relief on that basis.
Accordingly, we restore this issue to the file of the AO for deciding this issue de novo, of course after providing an opportunity of being heard to the assessee.
This ground of revenue is allowed for statistical purposes.
Ground No.3 is against allowing the rent expenditure for Kanpur Office by holding that the office was used for training of newly recruited staff for medical transcription work.
The AO disallowed the rent for the Kanpur office for the reason that this premises was not registered with the STPI/Customs. The CIT (A) held that the expenditure incurred by the assessee by way of rent of the Kanpur office was related to the activity of export of medical transcription services of the assessee, which had been held to be eligible for exemption u/s 10A, therefore, the rent paid to the Kanpur office was also an allowable expenditure. Accordingly, he allowed this ground.
Ld. DR relied on the order of the AO and submitted that the AO asked the assessee to reply whether custom bonding was available to all the units of the assessee company and the assessee was unable to give a reply; and moreover, the original approval, before the claim of deduction u/s 10B dated 28/3/2000 from Deputy Commissioner of Customs, indicating the description/location of the premises as that of Arjun Nagar, New Delhi and no other premises. He submitted that the license was renewed several times but never the address of Kanpur was mentioned. He further submitted that no separate accounts were maintained for Kanpur in case any business activity was being carried out there. He submitted that the AO asked the assessee if the payment had been made for rent, TDS might have been deducted but the assessee was unable to provide any evidence to indicate that the assessee was carrying out any business activity from Kanpur. Therefore, he pleaded to set aside the order of the ld. CIT (A) on this issue.
Ld. AR relied on the order of the ld. CIT (A) and reiterated the submissions made before the ld. CIT (A). He submitted that the office at Kanpur was being used as staff procurement office to procure and train the new recruits for medical transcription work. He submitted that the staff used for medical transcription was not professionally qualified, so graduates who understood English were hired and then they were given few weeks training for this medical transcription work. He further submitted that this Kanpur office was used to procure low cost staff from interiors of UP and after giving basic training, they were sent to Delhi office for work. Ld. AR submitted that the work of medical transcription meant for exports were not being carried out from this office (Kanpur), so there was no requirement for getting the premises registered with STPI and/or customs. He therefore prayed that the order of the CIT (A) may be upheld on this issue.
We have heard both the sides on the issue and perused the records. We find that the decision of the AO in respect to Grounds No.1 & 2 has a bearing on the issue of ground no.3 which is before us and since we have remanded the matter back to the file of the AO to decided Grounds No.1 & 2 in respect to the claim of the assessee for exemption u/s 10A, we are inclined to remand this AO for de novo consideration after deciding Grounds No.1 & 2. Needless to say, opportunity of hearing is granted to the assessee before passing the order. We order accordingly.
Ground No.4 is against the deletion of addition of Rs.18,30,780/- made u/s 40(a)(ia) of the Act.
The Assessing Officer has held that the job work expenses were of the nature of technical services on which higher rate of tax was to be deducted at source. The CIT (A) allowed the issue of the assessee by holding as under :-
“6.2 I have considered the rival contentions in the matter and am inclined to agree with the appellant that medical transcription services are more of the nature of labour oriented services, which do not require any specialized knowledge or education. The nature of the work is that of an assistant in the medical profession, where basic knowledge of English and information technology are sufficient. Therefore, the job work expenses incurred by the appellant cannot be termed as technical services on which tax was required to be deducted as per section 194J. The appellant has rightly classified the expenses as contract services and there has been no short deduction of tax at source. The disallowance made on this count is directed to be deleted.”
Ld. DR relied on the order of the AO whereas the ld. AR relied on the order of the CIT (A).
We have heard both the sides on the issue and perused the material on record. As per section 194J, the TDS has to be deducted for ‘fees for professional services’ or ‘fees for technical services’. In the section 194J, the definition of both the terms i.e. professional services and fee for technical services has been given. As per that definition, ‘professional services’ means services rendered by a person in the course or carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA of this section; and ‘fee for technical services’ shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9. As per which, it means any consideration (including any lump cum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘salaries’. Now, let us see how the AO dealt with the said issue. The AO has simply noted the following :-
“An individual who performs medical transcription is known as a medical transcriptionist or an MY. An MT is also known as a Medical Language Specialist or MLS. The equipment the MT uses is carried a medical transcriber. The individual who performs medical transcription should always be called a "medical transcriptionist." A medical transcriptionist is the person responsible for converting the patient's medical records into text from recorded dictation. The term transcriber describes the electronic equipment used in performing medical transcription, e.g., a cassette player with foot controls operated by the MT for report playback and transcription. There have been industry discussions centered around whether or not medical transcriptionists should be called something else; no other industry- wide has been adopted. Education and training can be obtained through certificate or diploma programs, distance learning, and/or on- the-job training offered in some hospitals, although there are countries currently employing transcriptionists that require 18 months to 2 years of specialized MT training. Working in medical transcription leads to a mastery in medical terminology and editing, MT ability to listen and type simultaneously, utilization of playback controls on the transcriber (machine), and use of foot pedal to play and adjust dictations - all while maintaining a steady rhythm of execution.”
The AO has said that the work of a medical transcriptionist is a technical nature.
However, from a perusal of the aforesaid definition given by section 194J, it cannot be held that services rendered by the Medical transcriptors cannot fall in the ken of section 194J of the Act because it does not qualify the definition given under that section for professional services and fee for technical services.
Taking into consideration the services rendered by the said medical transcriptors to the assessee is purely contractual services or at the best be termed as a specialty contractual services. Therefore, we find no merits in this ground of the appeal and so this ground is dismissed.
In the result, the appeal of the revenue is partly allowed for statistical purposes.
Order pronounced in the Open Court on this 16th day of October, 2015.