Ita/251/2013 Of The Commissioner Of Income-Tax v. M/S Mind Tree Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 25 DAY OF AUGUST 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD LT.A. NO.251 OF 2013 BETWEEN: 1.THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD BANGALORE. 2 |THE ASST. COMMISSIONER OF INCOME-T AX CIRCLE-12(1), RASHTROTHANA BHAVAN NRUPATHUNGA ROAD BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. MIND TREE LTD.,(FORMERLY MIND TREE CONSULTING PRIVATE LTD.,)GLOBAL VILLAGE, RVCE POSTMYLASANDRA, MYSORE ROAD_BANGALORE. ... RESPONDENT (BY SRI. CHYTHANYA K.K. ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,1961, ARISING OUT OF ORDER DATED 11.01.2013 PASSED IN ITANO.407/BANG/2012 FOR THE ASSESSMENT YEAR 2007-08,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN. (1) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THEITAT, BANGALORE IN ITA NO.407/BANG/2012 DATED 11-01-2013|CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER|AND|CONFIRM)THE|ORDER|PASSEDBY|THE|ASSISTANT—COMMISSIONER OF INCOME TAX, CIRCLE-12(1), BANGALORE. THISITACOMINGONFOR.HEARING,|THISALOK ARADHE J.,DELIVERED THE FOLLOWING: DAY, JUDGMENT This appeal under Section 260A of the Income Tax| Act, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year 2007-08. The appeal was admitted by a bench of this Court videorder dated 03.07.2013 on the following substantialquestion of law: (1)Whnetner tne appellate authorities werecorrect in holding that he expenditureincurred in foreign currency reduced fromexport turnover has to be reduced fromcorrect in holding that he expenditureincurred in foreign currency reduced fromexport turnover has to be reduced from total turnover for computing deductionUnder Section 10B of the Act in theabsence of any provisions in Section 10B ofthe Act which requires the concernedexpenses to be reduced from total turnoveralso?| (iI)Whetner the Tribunal was correct In|holding that the deduction under Section10B of the Act, is to be computed withoutsetting off of brought forward business lossandUnabsorbeddepreciationwithouttaking into consideration the amendment toSection 10B91) w.e.f. 01.04.2001 andrecorded perverse finding?holding that the deduction under Section10B of the Act, is to be computed withoutsetting off of brought forward business lossandUnabsorbeddepreciationwithouttaking into consideration the amendment toSection 10B91) w.e.f. 01.04.2001 andrecorded perverse finding? (iI)Whether the Tribunal was correct In|holdingthat|theexpenditureincurredtowards acquisition of software is only aright to use for a limited period and noproperty or right of permanent character Isbeing acquired and hence expenditureincurred is capital in nature, without takinginto consideration that by acquiring licencethe assessee has a benefit of enduringnature for number of years and the sameconstitutes too/ in the trade and liable to beholdingthat|theexpenditureincurredtowards acquisition of software is only aright to use for a limited period and noproperty or right of permanent character Isbeing acquired and hence expenditureincurred is capital in nature, without takinginto consideration that by acquiring licencethe assessee has a benefit of enduringnature for number of years and the sameconstitutes too/ in the trade and liable to be treated as capital asset and consequentialdepreciation Is allowable? treated as capital asset and consequentialdepreciation Is allowable? 2 |Facts leading to filing of this appeal brieflystated are that assessee is engaged in the business ofsoftware development and consultancy services. Theassessee filed the return of income for the Assessmentyear 2007-08 claiming deduction under Section 10B ofthe Act. The Assessing Officer by an order dated23.12.2009 recomputed the deduction by excludingexpenditure in foreign exchange from export turnoverand recomputed the deduction claimed under Section10B of tne Act by set off of brought forward losses andunabsorbed depreciation. It was further held that onpurcnase of software the assessee Nas acquired an assetand has an enduring benefit. Therefore, the same wastreated as capital and depreciation was allowed. Beingaggrieved, the assessee filed an appeal before theCommissionerofIncome.Tax(Appeals).TneCommissioner of Income Tax (Appeals) vide order dated 09.01.2012 inter alia held that expenditure in foreignexchange reduced from export turnover has to bereduced|fromtotalCUrNOVET|andunabsorbed depreciation and brought forward losses cannot be setoff while computing deduction under Section 10B of theAct. It was further held that expenditure on software isrevenue expenditure. Accordingly, the appeal preferredby the assessee was partly allowed. Being aggrieved,the assessee aS well as revenue filed an appeal beforeIncome Tax Appellate Tribunal (hereinafter referred toas the Tribunal’, for short). The Tribunal by an orderdated 11.01.2013 inter alia neld that expenditure inforeign exchange reduced from export turnover has to be reduced from total turnover also. The Tribunal alsoheld that brought forward losses and unabsorbeddepreciation cannot be set off against the profits forcomputing deduction under Section 10B of the Act. ItWaSalso|heldthat|theaSS@ only towards acquiring the right to use the software for a limited period and no property of right ofpermanent character is being acquired and the samewas allowed as revenue expenditure. Being aggrieved,the revenue is in appeal before US. 3.At the outset, learned counsel for therevenue fairly submitted that first substantial questionof law has been answered against the revenue in‘COMMISSIONEROFINCOME-TAX|VS,HCLTECHNOLOGIES LTD.’, (2018) 404 ITR 719 (SC),whereas the second substantial question of law has alsobeen answered against the revenue by Supreme CourtIn‘COMMISSIONEROFINCOME-TAXVS,YOKOGAWA INDIA LTD.'’, (2017) 391 ITR 274(SC). However, with reference to third substantialquestion of law, it is submitted that neither theCommissioner of Income Tax (Appeals) nor the Tribunalhas recorded a finding that the expenditure was incurredfor application of software and not system software. —Therefore,thematterdeserves.TO.be|remitted. However, it was fairly submitted that in case, theexpenses are incurred for application of software, thethird substantial question of law is also answeredagainst the revenue by a division bench of this court in“COMMISSIONER OF INCOME-TAX, BANGALOREVS. ROBERT BOSCH INDIA LTD.'’, (2014) 50TAXMANN.COM 275(KARNATAKA,). 4On the other hand, learned counsel for theassessee while inviting the attention of this court to para6.3 of the order passed by the Commissioner of IncomeTax (Appeals) has submitted that the Commissioner ofIncome Tax (Appeals) has recorded a finding that thesoftware purchased is in the nature of applicationsoftware, the licences for which enable the holder toexercise the right to use the software. In view of theaforesaid finding, the third substantial question of lawalso deserves to be answered against the revenue. 4On the other hand, learned counsel for theassessee while inviting the attention of this court to para6.3 of the order passed by the Commissioner of IncomeTax (Appeals) has submitted that the Commissioner ofIncome Tax (Appeals) has recorded a finding that thesoftware purchased is in the nature of applicationsoftware, the licences for which enable the holder toexercise the right to use the software. In view of theaforesaid finding, the third substantial question of lawalso deserves to be answered against the revenue. 5.|We have considered the submissions madeby learned counsel on both the sides and have perusedthe record. In para 6.3 of the order dated 09.01.2012.passed by the Commissioner of Income Tax (Appeals),the Commissioner of Income Tax (Appeals) has recordeda finding that the software purchased is in the nature ofapplication software, the licences for which enable theholder to exercise the right to use the software. In viewof tne aforesaid finding of fact recorded by theCommissioner of Income Tax (Appeals), it is notnecessary to remit the matter. The substantial questionsof law framed in this appeal are no longer|res integraInview of decisions of the Supreme Court in HelTechnologies Ltd. and Yokogawa India Ltd. supra as wellas in view of decision of this court in Robert Bosch IndiaLtd., the substantial questions of law framed in thisappeal are answered against the revenue and in favour.of the assessee. �5�9-2�72/439!�B2�6:�5:9�;.56�05?�<27.9�.5�9-./�011203���-2�/0<2�;0.3/�056�./�-272>?�6./<.//26�� ����������������������//�